Natuna gas pipeline tender criticized

JAKARTA (JP): Legislator Priyo Budi Santoso blasted on Thursday alleged irregularities in the tender for the development of the US$1.5 billion gas pipeline between the western part of the Natuna islands and Singapore.

The Golkar ruling party legislator said the tender requirements set by state oil and gas company Pertamina and its production sharing contractor only benefited giant companies such as McDermott of the United States and Italy's Saipem.

With such rigorous requirements, Indonesian and other Asian companies would be automatically marginalized from the bidding, he added.

"If the tender's terms are not changed, no single company from Asia, much less from Indonesia, will have a chance to win the project," Priyo told The Jakarta Post.

"Therefore, I appeal to Pertamina and its contractors to change the terms to conform with those set in presidential decree No. 16 of 1994," Priyo said.

The presidential decree outlines procedures and requirements that should be applied in the tendering of government projects.

The West Natuna gas pipeline megaproject is owned by Pertamina and its contractors grouped in the West Natuna Group -- including Britain's Premier Oil, Gulf Kakap Resource of Canada and Conoco Inc. of the U.S. -- which are developing gas resources in the West Natuna area of the South China Sea. The area is believed to contain 2.75 trillion cubic feet (TCF) of gas reserves.

Pertamina and its contractors are planning to lay a 650- kilometer underwater pipeline to transport gas from the area to Singapore.

Singapore's Sembawang Gas has agreed to buy the gas for 22 years from 2001 for the city state's power, petroleum and petrochemical industries.

SembGas is a consortium led by Sembawang Engineering and Construction and includes Tuas Power, Tractebel SA of Belgium and EDB Investments Pte Ltd.

The sale of the gas will generate earnings of $8 billion for Pertamina and its contractors.

The West Natuna gas fields have been differentiated from the gas fields in the eastern part of the Natuna islands, which are popularly known as the Alpha Block and East Natuna. This contains one of the world's largest natural gas resources of 44 TCF. This gas field, partly owned by Mobil of the U.S., has yet to attract any buyers.

Priyo said the first round of bidding for the development of the gas pipeline had been carried out.

Only eight of the 23 contractors participating in the first round qualified for the next round.

The eight companies were McDermott, Saipem, Japan's Nippon Steel, South Korea's Hyundai and Daewoo, Global and Allseas of the United States and France's EPPM.

Priyo said one of the tender's terms which Asian companies complained about stipulated that the contractors should be financially backed by banks rated A or A2 by Standard & Poor's, and Moody's Investors Service.

"Asian contractors find it difficult to meet these requirements," he said.

The bidding's terms also require contractors to have a track record of building at least three pipelines of the same length as the West Natuna pipeline over the past five years.

"All the Asian contractors participating in the bidding only have experience of building shorter pipelines. But, the requirements will exclude them despite the fact that they offer more competitive prices than others," Priyo said.

Priyo said the tender's terms were engineered to disqualify Asian contractors.

This meant, he said, the bidding process would predictably produce winners who charged higher costs than the Asians. As a consequence, the government would have its earnings from the gas sales reduced.

Under production sharing contracts, Pertamina, on behalf of the government, receives 70 percent of the gas produced by its contractors, but the state company has to cover 70 percent of the costs.

"I smell a rat in the making of the tender's terms," he said, calling for the annulment of the "unfair" stipulations. (jsk)