Tangguh deal extension awaits SBY's approval

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.