Pagbilao LNG hub project hits dead-end

IT now appears that Australia-based Energy World Corp.’s (EWC) Liquified Natural Gas (LNG) Hub Receiving Terminal project in Pagbilao, Quezon, has either been trapped in a bureaucratic quagmire or stymied by a group that may be adversely affected by its implementation.

My column last week, which described the project as 90 percent complete, has generated disbelief among the project’s stakeholders who claimed that it has actually grounded to a halt.

In an e-mail, an investor who requested anonymity told BusinessWise that the Philippines is missing out on a valuable project which is expected to beef up the country’s power requirement now that the Malampaya gas reserves are about to run out. He says: “Your column—‘In search of clean energy’—certainly confirms the need for clean energy [LNG/gas] in the Philippines and many other countries, as well. But let me just refresh your memory that the conclusion of a Senate hearing on the project [on] April 26 didn’t turn out well. Not sure if you were aware of this hearing, but I and many others who have reviewed the contents of it can’t believe the [stumbling] blocks put in front of Energy World Corporation for it to complete its Pagbilao project.”

He puts the blame for the long delay the project has to endure squarely on the Department of Energy (DOE), National Grid Corp. of the Philippines (NGCP), the National Transmission Corp. (Transco) and the Grid Management Committee (GMC).

“I have worked in management roles in the oil/gas industry around the world for 45 years,” he explains, “and find it hard to believe that this situation is allowed to happen in the Philippines when [the country] so needs additional power.”

Another reader, Anthony George, a foreign investor from Australia, wrote: “That was an interesting article you penned ‘In search of clean energy’ and in particular the section relating to Energy World’s project in Pagbilao. You rightfully mentioned [that] both the LNG hub and first stages of the gas-fired power plant are in advanced stages of construction and close to being connected to the grid but all is not what it appears to be. I’ve been an investor in this company for many years and have closely followed the plight of this project.” He claims that all the government and regulatory bodies involved seem to be acting in concert to sabotage the project from day one, “and they continue to do so to this very minute.”

He says that, contrary to what has been reported, EWC is still being blocked from connecting to the grid, and is having difficulty satisfying conditions set out by financiers to draw down funds to complete the project.

“I’ve been watching this thing unfold from my home country of Australia,” George continues, “and the optics from this distance are obvious and rather damning. There appears to be an entity, special interest or dark principality within the Philippines that has the power to control the actions and policy of at least four regulatory bodies vital to the success of this project. The Philippines badly needs this additional generating capacity but I have grave doubts that it will ever be allowed to participate in the market.”

BusinessWise tried but was unsuccessful in getting the side of the DOE, NGCP, Transco and GMC, who have all not responded to repeated requests for an interview

Once operational, the LNG Hub Receiving Terminal—which is a 650-MW combined-cycle, gas-fired power plant—is set to become a hub of LNG distribution around the country. In a report to the Australian Securities Exchange, EWC revealed that the facility would be capable of handling 3 million metric tons per annum of LNG. Its first tank could support 3,000 megawatts of gas-fired power plants. “This will support our adjacent 650-MW combined cycle gas- fired power plant, and provide expansion options for both EWC and its third-party gas clients,” the company explained. It said the deep-water jetty of the terminal was capable of handling all sizes of LNG vessels.

EWC received an approval from the Energy Regulatory Commission (ERC) to develop a point-to-point transmission facility to connect its 650-MW combined-cycle gas plant to the power grid. The government regulatory agency allowed EWC to develop the P694-million transmission facility to connect its power plant to the New Pagbilao Station of the NGCP.

The LNG Hub Terminal, the first of its kind in the Philippines, can process 3 million metric tons of LNG per annum, which is sufficient to generate up to 3,000 MW of gas-fired power plants, and with the second tank currently being constructed, up to 6,000 MW of power. The project costs over $750 million of direct investment in the Philippines, and has created over 800 direct jobs during the construction period. The project signifies that the country will now be able to gain access to clean and affordable fuel for power generation, and further develop its gas infrastructure. It can commission the first 200-MW unit of its gas-fired power station in six months after the drawdown of funds from the company’s policy bank lenders—the Development Bank of the Philippines (DBP) Landbank of the Philippines (LandBank) and Asia United Bank (AUB)—with 400 MW and 650 MW at three-month intervals thereafter.

But the big problem the project—which has been on the pipeline since 2006—faces is that it has not been allowed to connect to a distribution grid, despite the company’s strict compliance with the Department of Environment and Natural Resources’s clean-energy policy directives. As mandated by the DENR, EWC is not allowed to enter into long-term power purchase agreements, but instead will ensure that all power will be sold through the Wholesale Electricity Market (WESM), with the DBP and Landbank to be given the opportunity to invest in, finance and profit from the project.

The project represents an investment of over $750 million, of which EWC has already invested approximately $600 million of its own with the balance of $150 million being funded by Philippine banks.

EWC has also provided a full corporate guarantee under the loan facility covering repayment of the loan and interest to lenders on time and in full, even if the project faces unplanned delays.

EWC signed the loan financing for its power station in September 2015 with DBP, Landbank and AUB. There were 49 condition precedents to satisfy in order for lenders to release loan funds. EWC says it has now satisfied 48 condition precedents, except for the last, which involves clarifications regarding its transmission and export of power.

 

For comments and suggestions, e-mail me at [email protected]

 

 

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