November 04 1999
Since the first natural gas was brought ashore from the Gulf of Thailand in 1981, a significant natural gas market has developed for both power and heavy industry. Although it has been common to finance petroleum projects in Thailand without government guarantees, foreign financial institutions will be interested in the following discussion of recent developments involving the Petroleum Authority of Thailand (PTT).
Following the delinking of the baht to the US dollar in July 1997, there was a large drop in demand for natural gas and energy. This led to large reductions in the gas pipeline investment budget of the PTT, which currently owns and operates all natural gas pipelines in the country. However, the government is pursuing its strategy adopted in 1996 for restructuring PTT and liberalizing the petroleum market. Action the government has taken in this regard include the following:
These developments pose new issues for the financing of oil and gas sector
projects as the credit worthiness of the PTT and EGAT will be uncertain following
corporatization. Currently, the PTT Act and the EGAT Act include provisions
providing for funding of deficits by the state. However, these provisions may
no longer have effect following the corporatization of the PTT and EGAT - eliminating
the political risk cover they provide. To deal with this uncertainty, the government
may provide that the conditions of corporatization should be reviewed by the
World Bank and interested international financial institutions.
Under current law, forms of security are limited to mortgages of land and buildings, mortgages of registered machinery, pledges of moveable property and other rights (eg, promissory notes), and sales with right of redemption. There is no equivalent of a 'floating charge' on inventories or work-in-progress, or 'charge' on a bank account.
In the fifth letter of intent to the IMF dated August 25 1998, the government mentioned a second phase of secured lending and related reforms, and specifically new forms of non-possessory security interests (which would cover assets such as inventory, raw materials, accounts receiveable, equipment and commercial vehicles).
Although no timeframe has been announced by the government for enacting the new legislation (currently referred to as the Secured Lending Law), it is being given priority by the Ministry of Justice. The adoption of such legislaiton would facilitate the taking of legal security over assets of borrowers, and supersede the current practice of using general pledges which are often subject to attack as fictitious.
Yadana pipeline delivery delays
The Yadana pipeline was completed in mid-1998, linking the Yadana field (TOTAL, Unocal, PTTEP and MOGE) in offshore Myanmar to the Ratchaburi Power Plant in Thailand. In 1999 a pipeline to link the Yetagun field (Premier) in offshore Myanmar to the Yadana pipeline at the Thai border was constructed.
The delivery of gas through the Yadana pipeline has been nominal. This is because there have been significant delays in the construction of the Ratchaburi Power Plant by EGAT. As a result of these delays the PTT, the buyer under the gas sales agreement, has been late in making payments. In August 1999 the government gave the PTT permission to make the first payment to the TOTAL-led consortium.
Petronas/PTT joint venture
In September 1999 the cabinet approved the construction of a pipeline to transport natural gas from the Malaysia-Thailand Joint Development Area (JDA) to southern Thailand and northern Malaysia. The PTT and Petronas will jointly own the project and will purchase gas produced in the JDA on a 50:50 basis. The project includes a gas separation plant to be built in southern Thailand. The sponsors will be seeking project financing.
For further information on this topic please contact Albert T Chandler at Chandler & Thong-ek by telephone (+662 266 6485) or by fax (+662 266 6483) or by e-mail (email@example.com).
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