Thai state petroleum, electric firms fight over gas payments

A feud has escalated between Petroleum Authority of Thailand (PTT) and Electric Generating Authority of Thailand over costs incurred as a result of PTT's failure to meet contractual commitments for purchasing natural gas from Myanmar's Yadana field. The latest round of fighting is a result of EGAT's rejection of PTT's proposal that it share the cost burden.

A feud has escalated between Petroleum Authority of Thailand (PTT) and Electric Generating Authority of Thailand (EGAT) over the substantial costs incurred as a result of PTT's failure to meet contractual commitments to purchase natural gas from Myanmar's Yadana field.

The latest round of fighting is a result of EGAT's rejection of PTT's request that it share the cost burden, which includes interest expenses related to PTT's payments to the Yadana consortium. Under the take-or-pay deal PTT struck with the group, led by TotalFinaElf SA, the state oil firm is obliged to pay for all of the gas it has agreed to buy even though it has taken delivery of only a small fraction of the contractual supplies.

PTT claims EGAT is acting irresponsibly in not sharing the costs, as PTT's failure to take delivery of the full contractual volumes of gas is the direct result of a delay in the construction of EGAT's Ratchaburi power plant.

With an ultimate generating capacity of 3,200 Mw, the plant, 130 km southwest of Bangkok, is being built in stages and will be fired largely on gas piped in from Yadana field in the Gulf of Martaban. The initial generating units came on line nearly 2 years behind schedule, but Phase 2 is experiencing its share of delays as well (OGJ, Aug. 30, 1999, p. 42). And PTT is the only user of Yadana gas because of pipeline constraints.

The problem

The Ratchaburi power plant now consumes only about 150 MMcfd of gas, but PTT is committed to purchase 525 MMcfd from Yadana.

The project contractors-Mitsui & Co of Japan and General Electric of the US-in the past cited technical problems as the reason for the repeated delays in completing the project.

According to PTT Gas Pres. Prasert Bunsumpun, the delays have resulted in interest costs totaling 7.42 billion baht ($195.26 million) on loans PTT took to make full payments in advance for contractual Yadana gas supplies. There are other costs, he says, including PTT's lost pipeline tariffs.

The gas bill owed the Yadana group for the year ending in March was $280 million; it is about $260 million for the current contract year.

For the first contract year, which began in mid-1998, PTT paid the Yadana group about $50 million. The gas sale contract allows PTT to take the gas it failed to lift during the initial years in following years, however.

EGAT said it will not share PTT's costs beyond what it has physically received because such a move would translate into higher electricity prices for consumers.

EGAT's position

Citing a memorandum of understanding signed with PTT in September 1998, the Thai state power utility insists that it is not bound to the take-or-pay conditions, which it says apply only to PTT.

Explaining EGAT's stance, Narongsak Wichetpan, assistant managing director for its fuel business, insisted that there is no clause committing EGAT to bear responsibility on the take-or-pay condition in all other natural gas supply contracts EGAT has signed with PTT. "The take-or-pay is an issue between PTT and the Yadana group. It is a burden borne by PTT," he said.

The draft agreement initially signed by EGAT and PTT reportedly does not address the take-or-pay issue, but it does spell out the contract period and the quality, volume, and price of natural gas PTT is to deliver to the Ratchaburi plant. There is a clause, however, requiring EGAT to guarantee a set volume of gas purchases.

Narongsak said forcing EGAT to accept the take-or-pay cost would mean passing the burden on to the public in the form of higher power prices. "It is suitable that PTT should be the sole party to take responsibility for the costs, since it had agreed with such a clause in the first place," he added.

But PTT disputes this statement. Prasert suggested EGAT management had agreed to share costs arising from the take-or-pay conditions.

However, there were signs of compromise between the two parties following a "consultative" session organized by the National Energy Policy Office (NEPO), the state energy regulatory body.

NEPO Sec. Gen. Piyavasti Amranand reminded the disputing parties that there was a directive given by the cabinet last year that both should share the cost burdens arising from the take-or-pay obligations. There has been no agreement so far as how the two parties would do that.

Solving the problem

Piyavasti said it is essential that all parties concerned find a way to minimize the financial burden on Thailand by taking as much Yadana gas as possible, plus gas from Yetagun field south of Yadana. Yetagun, operated by Premier Oil PLC of the UK, is due to start delivering gas to Thailand, or more specifically to PTT, in July. That contract carries similar take-or-pay conditions. The failure to take delivery of Yetagun gas, initially at a rate of 200 MMcfd, would only increase the Thailand-Myanmar gas payment problems.

NEPO advised EGAT to speed up installation of new generating units at Ratchaburi and find means to increase the offtake of Burmese gas by avoiding using fuel oil. It advised PTT to find ways to reduce the Yadana gas price to encourage EGAT to use more gas.

EGAT said the Myanmar gas is 30-40% more expensive than indigenous natural gas from the Gulf of Thailand. Yadana gas is about 135 baht/MMbtu, compared with 100 baht for the Thai Gulf gas.

Tri Energy Co., an independent power producer owned partly by Texaco Inc., will also be asked to advance the planned start-up date for its 700-Mw combined-cycle plant, near the Ratchaburi unit, from July to help boost PTT's offtake of Myanmar gas. On the other hand, PTT was told to accelerate laying of a new, 30-in., onshore pipeline extending 154 km eastward from the Ratchaburi plant to Wang Noi, Ayutthaya, so that part of the Burmese gas can be diverted to EGAT's Wang Noi combined-cycle plants and to PTT's national gas grid. Construction of the pipeline, capable of delivering 500 MMcfd of gas, has been postponed to September of this year from July.

Piyasvasti said PTT was also advised to look for lower-cost funding to lessen the interest payment burden resulting from the take-or-pay clauses. The current interest rate is about 10%.

According to Prasert, the extra cost incurred by PTT to date for Yadana gas is only 200 million baht, being interest on the first $50.5 million gas payment. But Prasert said the largest burden would be incurred during 2002-03, when PTT has committed to pay a total of 40 billion baht for gas from Yadana and Yetagun.

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