Natuna gas pipeline tender criticized

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)