BP agrees to release privilege

BP agrees to release privilege

Moch. N. Kurniawan, The Jakarta Post, Jakarta

BP Kangean, a unit of British American oil and gas firm BP Plc.,
has finally agreed to release its privilege status in the supply
of gas in East Java, according to a reliable source.

The source said on Thursday that the agreement was reached
last week during talks with the government.

"BP (Kangean) agreed at the end of last week to release its
privilege (status)," he said.

The government had been negotiating with BP to end the
privilege status as the company could no longer supply sufficient
gas to the East Java province due to depleting reserves.

Ending BP's concession would allow other players to enter the
East Java gas market, thus avoiding an imminent gas shortage
which could disrupt the operation of large industries in the
province including the power plan unit of state-owned electricity
company PLN.

BP Kangean, under a contract signed by Pertamina in 1980,
holds a concession to supply gas from the adjacent Pagerungan
island via underwater pipeline to East Java at 600 million
standard cubic feet per day (mmscfd) until 2010.

According to the contract, other companies are only allowed to
deliver gas in the province if demand exceeds 600 mmscfd or if BP
is temporarily unable to provide sufficient supply.

But BP Kangean may not be able to meet its gas supply contract
for much longer as its gas production had been declining due to a
depletion in gas reserves.

BP Kangean gas output stood at 300 mmscfd in September last
year, but was down to 259 mmscfd in February this year.

The government has said that several gas companies including
Pertamina, Amerada Hess, Kodeco, and Mobil Cepu and Madura had
expressed readiness to supply gas in East Java.

Some of the companies are ready to supply gas starting mid-
2003.

The source said the government was still considering to
guarantee the market for BP's gas once its gas output increase
again.

The government originally projected a gas shortage in East
Java to occur in 2004.

But PLN claimed that the gas shortage had already occurred
since the beginning of this year, forcing the company to seek
industrial diesel fuel as a substitute. Pertamina has also said
that it would import diesel fuel to anticipate the fuel shortage.