PNOC to take minority stake in LNG project

By Lenie Lectura – September 10, 2018
from Business Mirror

THE Philippine National Oil Co. (PNOC) on Monday said it would take a minority stake in the integrated liquefied natural gas (LNG) project it plans to pursue with a still unidentified partner under a solicited scheme.

“We have decided to run solicited, competitive tender to select the joint-venture partner that will develop the project with PNOC.  The PNOC will take a minority equity interest in the project,” PNOC Vice President for Management Services Glenda Martinez said. There is no estimate yet as to PNOC’s participation. Martinez said the decision would be reached after all studies and evaluation with the Asian Development Bank, PNOC ‘s LNG transaction advisor, are concluded soon.

“We are still sharpening our pencils insofar as how small or minority, but definitely, PNOC will be on the minority,” Martinez said.

The PNOC had earlier opted to pursue the LNG project via a government-to-government (G2G) scheme back in 2016. However, PNOC President Rueben Lista said on Sunday that the proposed scheme was not included in the investment priority plan of the National Economic and Development Authority.

“It was beyond our control. At that time, it was the best approach,” Lista said.

In 2017 the state firm opted to conduct an auction in the selection for its LNG partner via the unsolicited scheme. It received seven unsolicited proposals, including from Korea Electric Power Corp., Lloyds Energy Group Llc. and its partner Itochu Corp., China National Offshore Oil Corp., and First Gen Corp. of the Lopez Group.

“We were unlucky when we did G2G in 2016, so we had to resort to unsolicited in 2017.  We did not find a partner for the unsolicited approach, so the PNOC board reiterated its directive for us to go to solicited,” Lista said.

Martinez said all seven unsolicited proposals did not comply with several criteria stated under the build-operate-transfer law.

Lista clarified it did not disqualify First Gen’s bid “because they did not offer, but instead submitted a counteroffer for us to join in the project which the board did not act upon.”

Under the solicited scheme, PNOC announced Monday that it would open the tender to foreign and local firms, starting with the pre-qualification tender schedule within the month, and the selection will be streamlined to ensure the project will reach commercial operation before the end of the Service Contract for the Malampaya gas exploitation in 2024.

“We are expecting something like 40 and above private firms that are interested,” Lista said.

The key features of the LNG project under the solicited scheme are the following:

• Minimum capacity of three metric tons per annum (MPTA), equivalent to 3,000 megawatts (MW), to cover existing immediate needs with future increase to five MPTA.
• Phased development to cope with future market developments.
• Flexibility to allow Floating Storage and Regasification Unit (FSRU) in the first phase, but eventually, the terminal will be land-based as demand increases and to ensure greater security.
• Implemented as a joint-venture with PNOC to ensure public oversight of the project development and operation.
• PNOC would make site available in the Batangas area.

The LNG project, with an estimated cost to reach anywhere from $600 million to $1.4 billion, is lower than earlier estimates pegged at $2 billion for an LNG project with a 200-MW capacity.

The ADB unit head for PPP Transaction Advisory Services Siddhartha Shah said the project scope is changing, hence the cost will also be adjusted.

“In the past, there were gas power plants attached so that’s no longer part of that. Now, it’s FSRU with a smaller capacity. So, it will bring down the price,” Shah said.

Barring unforeseen circumstances, the tender process will be accomplished in six months, with start of construction to take place immediately thereafter.

The PNOC said the solicited scheme will ensure the widest possible competition and achieve the lowest price for the country. It will also ensure the construction is pn time, on the right specifications and at the right price for the country.

The PNOC will also have necessary discussions with the government to help develop the necessary framework which will be required to ensure the gas will be delivered in a viable and cost-competitive way for the country.