KPK questions financing scheme for Tangguh Train-3
BP says the financing scheme receives government approval
Thursday, June 5 2014 - 03:56 AM WIB
The financing scheme for the development of Train 3 of the Tangguh LNG plant in West Papua developed by British firm BP Plc, the operator of the Tangguh plant, has come under the spotlight at the Corruption Eradication Commission (KPK), a source said on Wednesday.
?KPK is questioning the proposed Trustee Borrowing Scheme (TBS) of financing for the project. The project financing valued at US$ 12 billion has been approved by SKK Migas (upstream authority), but suddenly KPK stated the financing scheme could potentially violate Article 6C of Law No. 22/2001 on Oil and Gas,? said the source to Petromindo.com, adding that the project could potentially be suspended temporarily.
KPK argued, the Article 6C states that the total capital and project risk must be borne by the business entity or permanent establishment, the source said. Earlier, KPK?s Chairman Abraham Samad said that the TBS loan scheme is not recognized in the oil and gas law and may potentially violate the law.
In simple terms, the TBS scheme refers to the funding of the plant project by using bank loans, which are to be gradually paid back using the profit from the subsequent gas sales.
As previously reported, BP plans to use the TBS scheme to seek syndication loans form three state-owned banks, namely Mandiri, BNI and BRI. The value of the syndicated loans is still unclear.
?KPK is now discussing the issue. So if this issue is not settled within 3-4 months, then the completion of the project will be delayed,? the source said.
The Tangguh Train-3 is designed to have the capacity of 3.8 mtpa and is expected to start production in 2019 with 40 percent of the output allocated for the domestic market.
Separately, Minister of Energy and Mineral Resources Jero Wacik confirmed that the project financing scheme is being examined and reviewed by KPK.
?If there is a mistake, it should be corrected, but the project should not be suspended, because we need gas today,? he said firmly to Petromindo.com on Tuesday.
Meanwhile, BP Indonesia Head of Country Dharmawan Samsu commented that Tangguh Train 3 is a new project that will bring new value to all parties, mostly for the Government of Indonesia (GOI). The benefits of the project for the GOI extends beyond the economic benefit arising from the PSC; 40 percent of Tangguh Train 3 LNG production has been allocated to the domestic market which will allow the GOI to reduce expenditures on higher priced imported fuels, as well as the project creating positive impacts to the local West Papua government and communities, he said.
?The TBS is a tried and tested mechanism for financing major projects and has been successfully used in all other LNG projects in Indonesia. TBS provides for the best commercial structure for the collective interest of Government of Indonesia, lenders and the PSC Contractors. Without this mechanism the project investment may not be economically justified by any one or more of the stakeholders. This is true for Tangguh Train 3 and if the project cannot be justified the significant value to be generated from Tangguh Train 3 will not be realized,? he explained.
Dharmawan acknowledged that the TBS as the financing scheme for Tangguh LNG was agreed and approved by the GOI under the Tangguh Principles of Agreement (POA), is consistent with Government Regulation 79 Year 2010 on ?Recovery of Operating Costs and Treatment of Income Tax in the Upstream Oil and Gas Business?, as well as in compliance with Bank Indonesia Regulation No. 14/25/PBI/2012.
?BP Berau Ltd and the Tangguh PSC Contractors have received approvals to use TBS, inclusive of the approval of the Plan of Development (POD) for Train 3,? he added.
He pointed out that of a total investment of $12 billion for Tangguh Train 3, about $5 billion for LNG processing and associated manufacturing facilities will be financed through the TBS mechanism. While the remainder of about $7 billion for the offshore gas production facilities (wells, platforms, and pipelines) will be equity-financed by the PSC Contractors, according to him.
?Domestic banks have expressed their written interest to consider participating in part of the financing for Tangguh Train 3?s LNG processing and associated manufacturing facilities through TBS,? he said.
Editing by Johannes Simbolon