PGN seeks partner for Singapore pipe: Report
Tuesday, July 24 2001 - 03:39 AM WIB
Timing of the investment is crucial to the US$9 billion agreement to supply gas from South Sumatran fields to Singapore, via Batam. The project will bring revenue to Indonesia, provide Singapore with security of supply, and advance a gas grid linking the Association of Southeast Asian Nations.
State-owned PGN faces contractual penalties if gas transmission to Singapore doesn?t start by November 2003. If it can?t build the pipe by that date, gas suppliers and customers in Singapore will also face problems.
PGN has secured US$88 million in loans from the Asian Development Bank (ADB), and another US$93 million from European Investment Bank (EIB). That leaves it still short of an estimated US$477 million needed for pipeline and gas compressors for the project, PGN Finance Director WMP Simanjuntak said Friday.
PGN therefore plans to form a subsidiary, dubbed Transco 1, to build, own and operate pipelines from the Grissik gas compression plant to Duri, in Sumatra, and from South Sumatra to Singapore. It will offer 25 percent of that company to strategic partners, Simanjuntak said.
The ABD and EIB loans date from the construction of the Grissik-Duri pipeline, which was originally to be expanded to a gas distribution network in Batam. Some US$90 million in unused loans for the original project from the Japan Bank of International Cooperation have been canceled.
The company is also considering debt financing, if it fails to secure a sufficient price for its stake, Simanjuntak said.
PGN would seek US$100 million in financing, and use US$196 of its own equity, is an alternative to the stake sale. It is in talks with lenders, but hasn?t received any firm offers yet, he said.
PGN has put its plan for the transmission subsidiary to Indonesia?s ministries of Finance and Energy and Natural Resources. Approval needn?t wait on Indonesia?s Oil and Gas Law, which Parliament is slated to vote on in the third quarter this year, Simanjuntak said.
However, he acknowledged that the law, which will open upstream and downstream industries to competition, would provide potential stakeholders with ?confirmed regulatory framework? in which to make their investment.
Under laws now in effect, only PGN or Indonesia oil and gas company Pertamina can own gas transmission or distribution assets.
Also, political uncertainty over the impeachment of Indonesia?s president Abdurrahman Wahid, underway Monday, could both delay passage of the law and deter investors.
In a best-case scenario, passage of the law ?would coincide with the beauty contest,? he said, Suitors could conduct due diligence in October or November, and stake their claim before year-end.
Time is tight for PGN, which hopes to award procurement tenders for the pipes and gas compressors by the end of the year, and begin construction of the first leg in April 2002.
The ADB, which originally earmarked its loan to develop a gas network from Grissik to Batam, won't approve tender awards unless the entire funding requirement has been fully met, said Aminul Hug, who oversees the project for the ADB.
PGN has asked the ABD to soften its stance, as the funding requirement leaves it ?like a sandwich? between a tight deadline and investors pressing for greater concession, Simanjuntak said.
?This is a low-risk project,? said Simanjuntak, noting gas offtaker Singapore Power Ltd has already signed sales agreements with power plants in Singapore.
Singapore Power will import 150 million cfd gas beginning in mid-2003, pumping up to 350 million cfd by 2009, for a total volume of 2.27 trillion cubic feet over 20 year.
It has signed end-user agreements with generation companies Senoko Power Ltd and PowerSeraya Ltd, and plans to convert to natural gas Singapore?s town-gas network, which now processes gas from naphtha.
According to the gas transportation agreement signed with Pertamina and field operators Gulf Indonesia Resources Ltd and Santa Fe Energy Resources (Jabung) Ltd, a unit of Devon Energy Corp, PGN will received a flat fee of 69 US cents per thousand standard cubic feet transported.
If Singapore Power increases gas imports over 380 million cfd, the fee will be renegotiated, Simanjuntak said. The 28-inch pipe can carry up to 650 million cfd of compressed gas.
PGN also has ship-or-pay agreement equivalent to Singapore Power?s take-or-pay commitment of 86 percent, he said.
A shareholder in Transco 1 would also benefit from the Grissik-Duri link, used to pipe gas to crude oil fields operated by PT Caltex Pacific Indonesia, a joint venture between Chevron Corp and Taxaco Inc.
Gulf Resources Indonesia will supply Caltex Pacific with 90 million cfd, beginning 2002, rising to 180 million cfd in mid-2003, for a total 1.1 trillion cubic feet. That gas will supplement a previous agreement, for 300 million cfd declining to 245 million in mid-2003. Gas deliveries under which both contracts are projected at 425 million cfd by 2003.
PGN receives 62 US cents per thousand cubic feet transported under the original contact, 44 US cents per thousand cubit feet under the extended agreement.
The Grissik-Duri pipeline is currently operated by Transcanada Pipelines Ltd, and will revert to PGN when that contract expires in April 2003. (*)