Tangguh construction snagged over govt guarantee
Leony Aurora, The Jakarta Post, Jakarta
The construction of the Tangguh liquefied natural gas (LNG) plant in Papua may be further delayed, pending an agreement for the inclusion of the "government act" clause in the contract.
Ministry of Energy and Mineral Resources's director general of oil and gas Iin Arifin Takhyan told reporters recently that British energy giant BP Plc, which leads the project's consortium, would not sign the deal without a guarantee from the government.
The clause will stipulate that should there be a change of the administration's policies that causes the plant to be unable to fulfill its commitments, the government will pay the resulting penalties.
"If we don't give (the guarantee), they won't sign the contract," said Iin. "We're looking for a compromise. The authority is not in our hands anymore, but in the Ministry of Finance's."
The inclusion of such a clause in the Principal of Agreement (PoA) would be quite uncommon, he said. "However, we have to create an attractive climate for them (investors)."
Indonesia has placed a lot of hope in Tangguh, its third LNG plant, to make up for the declining production in its other plants in Bontang, East Kalimantan, and Arun, Aceh. Both plants have been operating for more than 20 years and Tangguh is much larger.
Located in Berau-Bintuni region in Papua province, the Tangguh plant is expected to produce seven million tons per annum in the first phase of production. Gas fields, which will feed the plant, have certified reserves of 14.4 trillion cubic feet (TCF).
BP Indonesia executive vice president Gerald Peereboom said that government's approvals were at this point the most critical elements for the project.
"Everything must wait on that. Each day we delay the approval is a day delayed in the project," he said.
"That's detrimental to the partnership and detrimental to the government of Indonesia."
The government has previously said that Tangguh's construction would start in January. The LNG plant's production has been rescheduled to open in 2008 from the earlier plan of 2007.
Peereboom said the consortium -- comprised of MI Berau BV, CNOOC Ltd, Nippon Oil Exploration Berau, KG Companies and LNG Japan Corporation -- were ready to finance the first phase of construction, which would start as soon as the approvals were given.
The project is estimated to cost US$5 billion, of which BP and partners will cover $2 billion with the remaining $3 billion expected to come from lenders. Last year, Halliburton Co.'s Kellog Brown & Root unit was named as the contractor to build Tangguh.
To meet export commitments while the plant was under construction, BP would seek supply from its network as well as other gas producers and the spot market, said Peereboom.
"That's not a big problem," he said.
BP has so far secured deals to supply a combined 7.6 million tons of LNG worldwide, including to San Diego-based Sempra Energy, South Korea's K-Power Co. and steel maker Posco, as well as a plant in China's Fujian province. The commitment for South Korea is the first to be fulfilled, starting in 2005.