Thailand honors Yadana gas purchase agreement

After extensive deliberation and debate, Thailand has decided not to declare force majeure on its unfulfilled obligations to purchase gas from two Myanmar fields but instead to honor the commitment. The stance follows the recent completion of a thorough investigation by government agencies of the legal, economic, and political implications arising from the thorny issue.


BANGKOK-After extensive deliberation and debate, Thailand has decided not to declare force majeure on its unfulfilled obligations to purchase gas from two Myanmar fields but instead to honor the commitment. The stance follows the recent completion of a thorough investigation by government agencies of the legal, economic, and political implications arising from the thorny issue.

Following the investigation, the National Energy Policy Office (NEPO) advised Petroleum Authority of Thailand (PTT) to pay what is due to the groups developing the Yadana and Yetagun gas fields but at the same time to seek relaxation of the take-or-pay terms stipulated in the gas supply accords. NEPO's recommendations were used by the Thai state oil and gas enterprise as a guideline in negotiations with the Yadana gas consortium, led by France's TotalFinaElf SA, and the Yetagun gas group, headed by Premier Oil PLC of the UK.

Under its take-or-pay obligations, PTT must pay for the gas it has contracted to buy in full, although it has taken delivery of only a fraction of the quantities because of delays in the construction of the Ratchaburi power plant, built largely to run on gas piped from Myanmar's Gulf of Martaban (OGJ Online, May 2, 2000).

Following the NEPO ruling, PTT handed a $277 million check to the Yadana consortium to settled the overdue payment for Myanmar gas. The check was sent to the Yadana group July 31, 5 months after the Mar. 1 due date, much to the delight of the Myanmar military junta, which had earlier warned Thailand that further delay in payment would damage the already rocky relationship between the two countries.

The Thai state oil firm, however, has refused for the moment to pay some $7 million to the consortium as interest accrued from the delayed payment of the 1999 gas bill, citing differences in interpretation of the calculation methods in the contract, according to PTT executives. But PTT hopes that the payment will improve the air of tedious negotiations in which the Thai outfit has been trying to persuade the Yadana group and Rangoon to make a series of amendments to the contract terms, not only for gas from Yadana but also for the other offshore Burmese gas field, Yetagun.

"The payment shows our goodwill to resolve sticky pending issues in an amicable manner," said a senior PTT official. "We hope Burma would appreciate our effort."

Interest owed
The payment came in the wake of the NEPO's assertion that the interest burdens arising from loans PTT has taken to make full payment for the Burmese gas should be split among the parties involved. The resolution put an end to the quarrel between PTT and Electric Generating Authority of Thailand as to who should be held responsible for the interest burdens.

Savit Bhotiwihok, minister of the prime minister's office in charge of energy policy, said the government should share the burden because it was the cabinet that approved the Yadana gas purchase contract with the consortium. Also, following the de facto devaluation of the baht in July 1997, he said, it was the cabinet that approved a decision allowing government contractors to delay completion dates for their projects by 180 days. One of the projects affected by that cabinet resolution was the Ratchaburi power plant.

The "economic system," a term used by Thai authorities to refer to the general public, is to share 48% of the total interest burden; the state, 27.8%; EGAT, 12.8%; and PTT, 11.4%. PTT and EGAT cannot pass on their respective interest burdens to consumers in the form of increased gas and electricity tariffs, although the burdens shared by the economic system and the state┬┐totaling 75.8%-will be pushed into the gas price of PTT. That would result in a 35 satang/kw-hr rise in power tariffs in the base case, if no additional measures were taken to alleviate the take-or-pay gas obligations. But the power tariff could decline during 2001-11 if all the proposed changes take place.

Contract amendments sought
NEPO advised PTT to negotiate with the Myanmar gas producers certain points in the contracts in order to reduce the burdens Thailand must shoulder. NEPO said PTT should:

  • Seek the right to double the make-up of gas volume-the amount of gas which is not taken in the failed period but can be recovered in the subsequent period-to 30% of contractual volumes, so that PTT can quickly collect all the gas it was not able to take in the failed period.

  • Ask to postpone the delivery of natural gas supply from Yetagun field's second stage development (OGJ, Jan. 17, 2000, p. 23).

  • Seek to cut the contractual volume of gas delivery for this year both from Yadana and Yetagun.

  • Seek to revise the contractual rate of gas delivery in such a way that assures the same rate of return on investment for gas producers.

    Internally, Thai concerned parties will take a number of actions aimed at speeding up the usage of the Myanmar gas. Among them are expediting the construction of the Electricity Generating Authority of Thailand's Ratchaburi power station as well as speeding up the laying of a new west-east gas pipeline from Ratchaburi to Wang Noi, so that part of the Myanmar gas can be diverted to an EGAT plant there.

    Other proposed actions include using natural gas to substitute for fuel oil at EGAT's South Bangkok and Bang Pakong power plants and promoting the use of natural gas in the industrial sector and for vehicles.

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