Standby-L/C impedes PLN?s gas purchase negotiations

The requirement imposed by certain gas producers on state owned electricity company PLN to provide a financial guarantee in the form of standby letter of credit (L/C) has impeded the process of the gas purchase negotiations between the state electricity company and gas suppliers, Bisnis Indonesia reported on Monday.

PLN?s director for prime energy Herman Ibrahim said in Jakarta last week the L/C requirement might result in the delay in the signing of the purchase contracts with some of the gas producers.

According to him several gas producers Amerada Hess and Santos have required PLN to provide a L/C as the guarantee for the purchase of their gas. ?The value of the LC required by these companies are too high and it is difficult for use to accept it,? he said.

Amerada Hess, for example, requires L/C worth between US$200 million and US$320 million while Santos requires L/C of about US$150 million. Other gas supplier ConocoPhillips did not require L/C for the gas purchase but the company asked PLN to provide a similar financial guarantee for the pipeline project, which would be developed by the company.

The gas purchase negotiations with CNOOC and Exspan run much more smoothly because the two companies did not require any financial guarantee at all, Herman said.

PLN plans to sign 10 contracts this month to purchase a total of 800 million cubic feet per day (MMCFD) of gas for its power plants. The gas suppliers include South Korean company Kodeco, Exspan, Chinese firm CNOOC, American ConocoPhillips and Australian firm Santos. (*)