‘To entice private business to join, government should include LNG terminal in PPP Program’

by Lenie Lectura – January 15, 2016

from Business Mirror

ONE way to entice the private sector to invest in the capital-intensive LNG (liquefied natural gas) projects is for the government to include the LNG regassification terminal in its Public-Private Partnership (PPP) Program, the power arm of conglomerate Ayala Corp. said.

At present, the Batangas-Manila (BatMan) natural-gas pipeline is the only energy-related project included in the PPP Program of the Aquino administration. This P10-billion project had been proposed in previous administrations, but failed to kick off primarily on concerns regarding supply of gas and sufficient demand.

LNG is a natural gas that has been converted into a liquid state for easier storage and transportation. Upon reaching its destination, LNG is regassified so it can be distributed through pipelines as natural gas. The terminal could cost at least $1 billion.

“It’s hard to overcome the hurdle of liquefying and transportation issue, regardless where the gas come from, but, at least, the government can control one thing: infrastructure, apart from policy. I am starting with something more tangible, infrastructure. I don’t see any economic, rational or basis in terms of making an LNG and natural-gas plant investment competitive and economically feasible. But, maybe, if the government puts in the infrastructure, takes the lead, then yes,” AC Energy Holdings Inc. President John Eric Francia said.

An LNG terminal, under a PPP scheme, is no different than any other rail or airport projects.

“It could be a BOT [build-operate-transfer], similar to LRT [Light Rail Transit]. A government-led initiative or PPP is maybe the way to go,” Francia said.

A consortium between Ayala Corp. and Metro Pacific Investments Corp. assumed the operation and maintenance of LRT Line 1 in September last year. The move marks the first turnover of a train system under President Aquino’s PPP Program.

Aboitiz Power Corp. shared the same view. Aboitiz Power CEO Erramon Aboitiz strongly urged the government to assist the private sector in the development of LNG terminal in the country.

“To do it alone and put up your own facility by yourself, it cannot be done. It’s massive. It’s something very difficult for one party to do that alone, maybe that’s something government should do,” Aboitiz said.

Aside from Aboitiz Power, Meralco Powergen Corp., the power arm of distribution-utility firm Manila Electric Co. (Meralco), First Gen Corp. of the Lopez group and Pilipinas Shell Petroleum Corp. have expressed keen interest on developing LNG projects.

Meralco Chairman Manuel Pangilinan earlier stressed the need for the government to provide a well-crafted study on LNG, particularly on a plan to bid out the construction of the BatMan gas pipeline.

“You have to build a regas facility somewhere. You will import LNG, so you have to regas it and push it to the pipeline and then, of course, who buys the gas? It could be industrial customers, but then eventually when you satisfy the demand, who else? Also, you have to pipe the gas. That’s expensive,” Pangilinan said.

Francia agreed. He said the pipeline could be an enabler for the gas industry. “If you strategically align, once you go through the industrial parks, you could do a lot of things. You could have cogeneration. So, the economics will suddenly change, because you’re not only using it for power, but for other manufacturing processes, transportation use, etc.”

But to execute this, the Ayala official said the government must draft a “very tangible and robust master plan. It’s not going to be easy, but there are many ways to think outside the box.”

First Gen is currently the biggest gas-fired power producer in the country. The holding firm of the Lopez group’s power business is planning to develop an LNG receiving, storage and regasification terminal using LNG imported from abroad, in order to address the expected depletion of Malampaya gas starting as early as 2022.

First Gen continues to invest in gas “because right now there is no other choice except coal.”

“In a local community, for instance, what choices can the community opt for if there is no gas available? That’s why we are bringing in LNG to provide the community that kind of choice,” First Gen President Francis Giles Puno had said.

Shell, meanwhile, has been pushing for an energy-mix policy to ensure that there is market, or off-takers, for imported LNG. It has also been batting for the grant of incentives to the private sector that will be involved in the development of an LNG facility, because such investment is capital-intensive.

“We’ve been pushing for an energy mix. If you don’t have that, the default of independent power producers is to build coal-fired power plants,” Shell Country Chairman Edgar Chua earlier said, adding that off-takers would only sign up if there’s a policy that guarantees there’s a market for power produced from LNG.