BKK Post. February 25, 1998 ENERGY

[burma@xxxxxxxxxx]

February 25, 1998
ENERGY / ALL MAY NOT BE AS IT SEEMS 

It's time to look again at the controversial Burma gas pipeline
Pibhop Dhongchai

Between February 14 and 18 Thais learnt a few truths about the Yadana 
pipeline project through the national committee tasked with looking into 
this controversial mega scheme.

The committee was chaired by former prime minister Anand Panyarachun and 
composed of several well-respected members of society. 

It seems the conservationists have fulfilled, to a certain degree, their 
mission to push forward the issue and "enlighten" the public. At the 
moment, all are waiting for Prime Minister Chuan Leekpai to decide 
whether to bless or bust the project.

While some view the conservationists' proposals as too demanding, we 
find several questions raised during the public hearing still 
unanswered. To reiterate the conservationists' statement on the last day 
of the meeting: as long as state agencies fail to provide truthful and 
straightforward responses, the Thai-Burmese pipeline project should not 
be allowed to continue.

Below are listed some key reasons as to why the project needs drastic 
amendments:

1. The claim that any failure to meet the July 1 deadline will incur 
hefty fines has been proved unfounded.

The Petroleum Authority of Thailand (PTT) has persistently claimed the 
conservationists' protests are detrimental to the country's interests, 
saying a fine of as much as 100 million baht will be imposed if gas 
delivery cannot commence by July 1, 1998.

The PTT cited this reason in its previous rejection of the 
conservationists' request for a public hearing which, had it been done, 
would have spared pristine forest through which the pipe will run. The 
laying of the gas pipeline through wild elephant and rare crab and bat 
habitats has seriously disturbed the area's unique biodiversity.

On the second day of the project review hearing (Feb 15), PTT's public 
relations chief Songkiert Tansamrit continued to insist that the project 
delay would entail a huge cost, ranging from interest on loans to fines 
from both the gas exploration consortium, of which PTTEP holds a 25 per 
cent stake, and the construction contractors, altogether amounting to 
US$560 million or 28,000 million baht. 

On the other hand, conservationists have argued that gas delivery can be 
postponed for at least 30 days, a point affirmed by a report on January 
12 by a legal panel appointed by the prime minister to review the 
contract. The period covers the trial delivery of gas to the Ratchaburi 
power plant and the plant's run-in test. The PTT had always denied this 
interpretation, however.

Eventually, on February 15, PTT confirmed the conservationists' 
assertion that the date of commencement was August 1. Any penalty can 
only be imposed after that date.

The second revelation came on February 18 when it became clear that the 
Ratchaburi power plant, to which the Burmese gas is being delivered, 
might not be finished on time. Jira Chomhimvet, an engineer in charge of 
gas pipeline construction, admitted that: "We can eventually claim the 
gas... once the power plant is finished and the country is ready to take 
it. In the end, the only money we will lose will be the interest".

If the construction of the Ratchaburi power plant cannot be completed by 
the July 1 deadline, the PTT can ask Burma to postpone gas delivery, and 
have the withheld gas transferred to the following years' import. The 
PTT is only committed to make the advance payment stipulated in the 
contract to consortium members.

In short, the only additional expense the PTT is obliged to pay in case 
of delay is the interest on the advance payment to the consortium in 
accordance with the length of the postponement of the gas delivery.

An official from the Electricity Generating Authority of Thailand (Egat) 
explained that the advance payment is 150-170 million baht a month, and 
affirmed that the sum is not a fine. If the Ratchaburi power plant can 
start generation by November 1 it means the entire project can be 
postponed for three months from July 1 to October 1 (the first date of 
the run-in test).

At a 12 percent interest rate (used by the PTT in calculating the 28,000 
million baht damage mentioned above), the interest the PTT will have to 
pay for the three-month delay will come to only 4-5 million baht.

At the moment, representatives from both Egat and the PTT are reported 
to be in Yangon negotiating with the Burmese government for leniency 
over the fines.

2. Another benefit of the hearing is its bringing to light information 
regarding Egat's Ratchaburi powerplant project. The revelation is 
significant because it exposes the inconsistency of information that 
Egat and the PTT have been feeding the public.

On February 18, Sirithat Klankwamdi, Egat's assistant director for 
planning and policy, admitted that the 200,000-million-baht Ratchaburi 
powerplant will be completed at least one month later than scheduled due 
to construction delays. However, he insisted that if the PTT remained 
firm in its resolve to have the gas delivered on July 1, Egat would try 
to have the first power unit ready on time.

The testimony was not in line with the view of Egat's governor Veeravat 
Chalayon. A few days earlier he was quoted as saying that his 
organisation was negotiating with the PTT to adjourn the delivery date. 
Egat's lack of liquidation, coupled with the rising cost of 
construction, was causing the delay. 

Since Egat is unable to obtain a loan to pay for the first unit with 
this year's budget it is assumed that the agency will postpone payment 
until the budget for next year is approved (on October 1). Under the 
circumstances, the plant delay is inevitable. An earliest possible test 
run would be after October 1.

3. Mr Sirithat testified to the committee that the construction of the 
power plant would increase the reserve electricity supply to 25 percent, 
based on the current forecast of electricity demand. There are two 
issues involved here: First, the Egat representative agreed that the 
present reserve of electricity stands at 12 per cent, calculated by 
comparing the total supply (16,233 MWs) with the peak demand for 1997 
(14,506.3 MWs).

A large reserve is definitely beneficial for the nation's energy 
security. But just as a trader may spend too much money hoarding goods, 
we may likewise have overspent on storing electricity.

For example, an overestimation of electricity demand by a mere three 
percent in 1997 resulted in Egat losing US$833 million (33,320 millions 
baht - calculated at 40 baht to the dollar). Any attempt to increase 
power supply, be it construction or expansion of electricity generation, 
or imports of electricity, are bound to suffer from currency rate 
fluctuations.

Second, the Egat official testified that the 4,600-MW power plant in 
Ratchaburi was necessary to meet an annual increase in demand of power 
by 10 per cent. At the same time, Egat governor Mr Veerawat confessed 
that power demand will actually decline, saying it only grew by 3.2 per 
cent last year. 

To cut down on oil imports, Mr Veerawat also proposed that the PTT link 
the gas pipelines from Ratchaburi to ones from the Gulf of Thailand, 
which will serve two power plants in Southern Bangkok and Bang Pakong. 
It will also solve a problem if Egat has to step down gas demand from 
525 million cubic feet per day (mmcfd), as specified in the contract, to 
380 mmcfd. The PTT Gas president Piti Yimprasert stated to the committee 
on the last day of the meeting (Feb 18) that the PTT only wants 180 
mmcfd to serve a combined cycle power plant with 1,000 MW capacity (see 
below).

If that is the case, it implies that Egat is proposing to downscale the 
generating capacity of the Ratchaburi power plant to only 2,000 MWs. In 
other words, the plan to build thermal-power stations will be put off 
for good, and Egat will have to cut by half the capacity of the 
Ratchaburi plant.

4. The gas pipeline project and the Ratchaburi power plant were the 
brainchild of a cabinet resolution in October 1993 which suggested that 
it become the central electricity load for the Western Seaboard 
development project. However, Egat later proposed that the pipelines 
from Ratchaburi be linked to those from Wang Noi (Ayutthaya province), a 
plan accepted by the PTT.

We conservationists demand clarifications from the PTT and Egat: 

First, if Egat's Ratchaburi plant bought only 380 mmcfd from the PTT, it 
would only be able to generate 2,000 MWs per day to serve the entire 
Western region. All the other power stations have already been 
adjourned, and are unlikely to resume in the near future in light of the 
present economic circumstances. What would happen to the remaining 145 
mmcfd the PTT plans to buy from Burma?

In a similar vein, the extension of the project (to incorporate the 
Ayutthya plant) can be regarded as against the original cabinet 
resolution, which clearly stated that the PTT is committed to obtain 
sufficient natural gas to fuel the Ratchaburi power plant as soon as 
possible. The requirement led to the Memorandum of Understanding which 
stipulated basic conditions in trading gas between Thailand and Burma in 
October 1994 and the official contract signing in February 1995.

It should be noted that both the cabinet's resolution and the MOU were 
done during the first term of the Chuan Leekpai government.

Moreover, the hasty manner in changing the projects reflects a lack of 
effective planning and cooperation between the two organisations. In 
fact, all the projects have entailed huge expenses, shoving ever larger 
burdens on the taxpayer.

Thais should be aware that the government has recently encouraged state 
enterprises to obtain domestic loans with a three to 10-year term, 
instead of foreign loans. This year Egat asked to postpone repayment of 
its seven-billion baht loans with the Government Savings Bank, while 
extending its bonds worth 22.3 million baht. Egat also opened a special 
overdraft account worth three billion baht with the Krung Thai Bank and 
asked the bank to issue trust receipts for imported machinery.

In the meantime, in 1996 the PTTEP raised funds for the Yadana gas 
project by issuing debentures in the US worth US$200 million (or 10,000 
million baht). Similar bonds worth the same amount were also issued in 
Japan in 1997. 

Third, if the plan to link gas pipelines from Ratchaburi to Wang Noi 
materialises, the government should review the entire cost of production 
of the gas. Don't forget that the calculation of the gas price must 
include the cost of pipeline construction. The longer the pipelines are, 
the more expensive the price per unit of gas. 

The PTT repeatedly claims that Yadana gas was chosen because of its 
competitive price when compared to obtaining gas from the Gulf of 
Thailand or the Joint Development Area (JDA) between Thailand and 
Malaysia, due to the shorter distance and lower costs of pipeline 
installation. 

However, an installation of the gas pipelines from Ratchaburi to Wang 
Noi would mean that the pipelines from Burma to Thailand would together 
be as long as 1,000 kms (300 kms from the Yadana rig to Burmese shores, 
63 kms from there to Ban I-tong village, 260 kms from Ban I-tong to 
Ratchaburi, and 300-kms from Ratchaburi to Wang Noi), or about the same 
distance as from the JDA.

All the above reasons mean the government should revise both the 
pipeline and the Ratchaburi plant projects. It has been demonstrated 
that both the PTT and Egat can put off the project for at least another 
three months without extra expenses.

At the same time, the Environmental Impact Assessments (EIA) of both 
projects have been found to be flawed by members of the committee, 
notably Dr Jiraphol Sinthunawa (Mahidol University) and Dr Suraphol 
Sudara (Chulalongkorn University).

Accordingly, proposals to review the projects, citing economic and 
environmental reasons, are deemed legitimate. This is on top of the 
ethical questions of trading with the Burmese junta raised by 
conservationists in the closing speech at the meeting.

Pibhop Dhongchai is an adviser to the Kanchanaburi Conservation Group 
and its alliances and secretary-general of the Campaign for Popular 
Democracy 

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