Tangguh deal extension awaits SBY's approval

Rendi A. Witular, The Jakarta Post/Jakarta

The construction of the Tangguh liquefied natural gas (LNG) plant in Papua has hit another snag, and is now awaiting President Susilo Bambang Yudhoyono's approval for the extension of a contract for a consortium led by British energy giant BP Plc.

"BP cannot proceed with plant construction unless the government extends its contract to develop the gas field. The President is still studying it and will issue his approval soon," said Minister of Energy and Mineral Resources Purnomo Yusgiantoro on Wednesday at the State Palace after submitting relevant documents to the President.

Purnomo said BP had to extend its current contract so that it could supply LNG to a number of companies in South Korea, Japan and the United States until 2025.

"BP's LNG supply contracts for Tangguh have exceeded its initial contract for developing the oil field. The company wants certainty in the extension of the contract before agreeing to construct the plant."

The construction of Tangguh has been delayed several times due to unresolved legal problems with the government. The plant is slated to be constructed at the end of this month, with completion expected in 2008.

Purnomo said that tough negotiations over several clauses in the Principals of Agreement between the government and BP also contributed to the delay in the construction of the plant.

He added that his ministry was currently negotiating with the Ministry of Finance for a possible financial risk guarantee for BP, should there be a change in government policies that prevent the plant from fulfilling its supply commitments.

Another problem is a demand from the consortium to include regental administrations in the "government acts" clause of the contract, over concern that in future there would be the possibility of wider autonomy being given to regencies.

Purnomo said the government was only willing to include three authorities -- the president, ministers and provincial governors -- in the contract.

Tangguh is the country's third LNG plant that is expected offset declining production at existing plants in Bontang, East Kalimantan, and Arun, Aceh. Both plants have been operating for more than 20 years.

The Tangguh plant is expected to produce seven million tons per annum in the first phase of production. The gas fields that will feed the plant have certified reserves of 14.4 trillion cubic feet (TCF).

The construction of Tangguh will require investment of about Rp 50 trillion (US$5.5 billion) and a workforce of between 4,000 and 5,000 people.

Purnomo said that during its operation, the plant was expected sell LNG worth $32 billion, of which $10 billion was projected to go to state coffers.

Meanwhile, he also said that the calamity in Aceh would not undermine the government's plan to raise fuel prices in the near future in order to reduce the burden on the state budget imposed by fuel subsidies.