TEMPO.CO, Jakarta - The commitment of government officials in prioritizing the national interest over the Tangguh liquified natural gas (LNG) refinery project in West Papua should be questioned. Once again, the government seems adept at incurring losses when it comes to making decisions over the LNG project. Lamentably, this indecisiveness is not only found within government departments but also in related agencies such as the Oil and Gas Upstream Operations Task Force (SKK-Migas), previously known as BP Migas.
The latest controversy involves the construction of Train 3 at the Bintuni Bay exploitation site. The proposal of British Petroleum (BP) the British company which owns 37 percent shares in Tangguh to build the refinery was previously rejected by BP Migas. It questioned the proposed Trustee Borrowing Scheme (TBS) method of funding, which had been applied when they built Tangguh's Trains 1 and 2. BP Migas also questioned the use of the windfall profit between Tangguh and US energy company Sempra LNG, to the tune of US$1.05 billion.
In simple terms, the TBS scheme refers to the funding of the refinery project by using bank loans, to be gradually paid back from the profit of the subsequent gas sales. Applying the TBS in building Trains 1 and 2 is understandable, given that the location of Tangguh is in a remote area. But that scheme should not be applied in building Train 3, because BP has enjoyed the profits from the two previous refineries. It is unbelievable how the Energy and Mineral Resources Ministry can approve BP's proposal, which according to BP Migas would cut down government revenues by US$1.105 billion.
The use of the windfall profit should similarly be questioned because the market diversion is purely the result of the Indonesian government's renegotiation with countries purchasing the gas. The Indonesian team managed to divert the sale of gas from Sempra to Japan, for a much better price. So, it is truly strange that the US$1.05 gain from our renegotiation should be used by BP to cover the costs of building Trains 1 and 2.
It is true that Indonesia earned considerable revenues from Tangguh, specifically from the gas production sharing scheme and its taxes. The local government also benefitted from charging local taxes and BP's corporate social responsibility funds. Even the state-owned electricity company PLN will be supplied a significant amount of gas starting from 2018.
But the potential for losses is also big. Take the huge difference in the price of Tangguh gas sold to PLN and to the Fujian provincial government in China. PLN purchased Tangguh gas using market rates, around US$10-13 per MMBTU, far higher than the price charged to Fujian. If the intention is to save costs by buying domestic supplies, PLN could end up being on the losing side.
The super-cheap price of gas sold to Fujian has long been a subject of speculation. When the contract was signed with the Fujian government in 2002, the price of Tangguh gas was linked to the price of oil, which was US$25 per barrel. So, the price of Tangguh gas back then was only US$2.4 per MMBTU.
Later, the Indonesian government renegotiation team managed to persuade the Chinese government to raise the price to US$3.35 per MMBTU, based on the US$38 price of oil per barrel. Since the first shipment in July 2009, the price charged to Fujian remains at about US$3.5 per MMBTU.
The problem is, the global price of oil as of 2009 has soared to US$60 per barrel. In fact, the price of crude oil has gone beyond US$100. According to the production sharing agreement, Indonesia gets 60 percent out of Tangguh, after cost recovery.
Two weeks ago, the Indonesian delegation led by Energy Deputy Minister Susilo Siswoutomo went back to Fujian to renegotiate. So far, there has been no sign that the Chinese have accepted Indonesia's proposal. Perhaps the government should push BP to actively take part in the renegotiations with Fujian. Only in that way can losses resulting from the use of the TBS scheme be compensated.
Although the evidence is lacking, we suspect that some officials stand to gain significantly when Indonesia loses Rp25 trillion as a consequence of mismanaging the Tangguh field. The possibility that there could be crooked officials profiting from the agreement with Fujian over Tangguh's Train 3, must be investigated. (*)
