Philippines: LNG project faces delay as gov't flip-flops

Philippines: LNG project faces delay as gov't flip-flops

Gregorio Araneta Inc. (GAI), the proponent of a $2 billion LNG facility in
Bataan, is disappointed over the government's flip-flopping stance on the
project after rejecting the group's proposal and saying it would instead
open the matter to other interested parties.

In an interview, company chairman Gregorio Araneta III wondered why Energy
Secretary Alfonso Cusi now wants to solicit proposals from other parties to
develop the LNG hub when Cusi himself last year said he is happy with GAI's
proposal, which is in partnership with the MVP Group and other foreign
investors.

"I'm surprised they are now saying they have to look for somebody else.
We've been working on the project since 2014. We have given P38 million in
deposits already and we have spent substantial amounts on the project,"
Araneta told The Star.

This latest twist will effectively delay the development of LNG in the
country at a time when the Malampaya facility, the gas-to-power project
which supplies 40 percent of Luzon's power requirements, is already thinning
out, several energy officials from the previous administration, including a
former member of the PNOC board told The Star.

The ambitious Energy City LNG project, to be located in the Bataan
industrial park of PNOC-Alternative Fuels Corp. (AFC), was submitted for
approval as far back as 2012 to supply the power needs of Luzon in time when
the Malampaya gas thins out in 2022.

PNOC had entered into exclusive negotiations with the GAI-led group and was
merely negotiating the leasing rates for the property.

In a meeting on June 25, 2015, the board of PNOC-AFC, the now defunct
subsidiary which owns the Bataan land, formally approved the lease
arrangement proposed by GAI, which was forwarded to parent firm PNOC for
final approval.

But through 2015 to 2016, there was still no final approval of the lease
arrangement.

When President Duterte was elected into office, the group presented the plan
anew to Cusi in a meeting on July 29, 2016 to transition the project into
the new administration.

Cusi was very happy to learn of the proposal for an LNG project that had
interested investors from the private sector such as the MVP Group, Mitsui
and Osaka Gas, which are large corporations with the ability to develop the
project without government funding.

But after the meeting with Cusi and in stark contrast to earlier
discussions, PNOC said the group must lease all the available lots in the
industrial park at commercial rates.

In all, the PNOC now wants to use the Bataan freeport zone rates,
notwithstanding the presence of informal settlers in the area.

GAI sought more information on the changes in the lease rates but instead of
pursuing the negotiations, PNOC, now under the leadership of retired admiral
Reuben Lista, rejected the group's proposal and deemed it "resolved."

Private sector

The Department of Energy and PNOC have effectively put GAI's proposal in the
trash bin and are instead pursuing the development of a similar facility in
Batangas instead of Bataan.

Cusi, who is also chairman of PNOC, said in a recent interview with
reporters, they are opening the project to other investors.

He said opening the project to other proponents would enable the government
to get "what is really beneficial for the country."

"We have two objectives: One is for our national energy strategy when
Malampaya is depleted we have the feedstock or the fuel to support 3500 MW
dependent on Malampaya gas. Number two, we want to put the Philippines in
the LNG hub for Asia to complement Japan, Singapore. We want to take that
opportunity for our country's economic development," Cusi said.

The DOE also wants to put up the facility in Batangas and not in Bataan.

LNG

LNG is natural gas that has been converted into liquid for ease of storage
or transport.

The government and some of the country's energy players have stressed the
need to have an LNG facility in the country, especially with the looming
depletion of Malampaya gas.

Many have expressed interest in joining the LNG bandwagon - the MVP Group,
the Lopezes and MRC Allied, among others.

But long before others thought of it, GAI has already come up with its
studies and proposal to the government.

Delay

With the government's change in stance, however, the development of an LNG
hub in the country will certainly face delays.

Cusi said this is not a problem.

"It is important that we do it properly. We will still try to beat the
timeline," he said.

PNOC was initially targeting to start groundbreaking for the LNG project in
Batangas by early next year and completion within the term of President
Duterte.

Batangas versus Bataan

However, industry sources said for an LNG terminal, the more ideal site
would be Bataan.

The primary advantage of Bataan over Batangas as a site is the Manila Bay,
which makes docking safer especially during the typhoon season as opposed to
ports that face open seas.

Proximity to Malaysia and Indonesia, which are among the sources of LNG, can
be the second advantage, sources said.

Investor concerns

Aside from the delay in the project, the government's flip-flopping stance
also sends a wrong signal to investors.

What's in store for people who want to start something out? It's harder even
for foreign companies," said an energy player.

More importantly, sources said, it is in contrast with the government's
policy of encouraging the use of natural gas as embodied in Executive Order
226 or the Investment Priorities Plan.

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Link to Original Article:
http://www.philstar.com/business/2017/08/14/1728552/lng-project-faces-delay-
govt-flip-flops

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com