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PGN-Petronas arbitration set for end of July
State-owned gas distributor Perusahaan Gas Negara (PGN) will bring its dispute with Petronas to an international arbitration in Hong Kong at the end of July as the Malaysian energy giant failed to pay fees for gas delivery using PGN’s facilities
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tate-owned gas distributor Perusahaan Gas Negara (PGN) will bring its dispute with Petronas to an international arbitration in Hong Kong at the end of July as the Malaysian energy giant failed to pay fees for gas delivery using PGN’s facilities.
The Indonesian company has tried using mediation to settle the dispute but to no avail. Hence, arbitration is seen as the best option.
PGN infrastructure and technology director Dilo Seno Widagdo said the state company had appointed a consultant to assist them in court.
Dilo explained the company had opted to settle the case through arbitration as it is included in the contract when it failed financially.
“Arbitration is stipulated in the contract when an agreement goes south,” he said on Tuesday.
The agreement refers to a gas transportation agreement (GTA) between Petronas and PT Kalimantan Jawa Gas (KJG) for gas delivery from Petronas’ Kepodang field to the Tambak Lorok combined-cycle power plant in Central Java using the latter’s Kalija I pipeline.
The deal inked in August 2015 is effective for 12 years.
Petronas initially committed to transmitting 116 million standard cubic feet per day (mmscfd) of gas from the Kepodang field within the first five years with a toll fee of US$2.32 per million standard cubic feet. The volume would then gradually decrease to 110 mmscfd in 2020, before only reaching 9 mmscfd in 2026.
Meanwhile, the ship-or-pay volume stated in the GTA stands at 104 mmscfd of gas within the first five years, before gradually decreasing to 99 mmscfd in 2020 and 8 mmscfd in 2026.
In reality, Petronas was only able to supply an average of 86.06 mmscfd of gas in 2015. The figure climbed to 90.37 mmscfd in 2016, before falling once again to 75.64 mmscfd last year. This situation might have been triggered by the critical condition of the Kepodang field.
In July last year, Petronas announced a force majeure at its Kepodang field, which is projected to run out of gas reserves in 2019, or seven years sooner than previously estimated.
According to PGN, force majeure status might be declared if there is permanent depletion from the Kepodang field. In this case, Dilo stated previously it was not “depletion” because the gas volume delivered through the Kalija 1 pipeline had been small since the beginning of the agreement.
Yet Petronas has failed to pay the deficit between the actual transported gas and the ship-or-pay volume stated in the agreement, which amounted to $1.9 million in 2015, $8.8 million in 2016 and $21.5 million last year.
The company has only paid for the actual gas transported through the Kalija I pipeline in the 2015 to 2017 period, PGN further recorded.
The ship-or-pay clause in the agreement binds Petronas to pay certain fees, even though no gas was delivered from its Kepodang field.
“There is no payment yet, even when it was PLN that was paying for the ship-or-pay [volume deficit] in 2015. In 2016 it was Petronas that failed to transmit, hence it should pay the ship-or-pay deficit,” he said on Tuesday.
In 2015, PLN was not ready to fully operate the Tambak Lorok combined-cycle power plant.
Before ending up in arbitration, the case went through a mediation, which was set up by the Downstream Oil and Gas Regulatory Agency (BPH Migas) in the first quarter of this year.
However, PGN president director Jobi Triananda Hasjim said on Tuesday the mediation had also failed to put both parties on the same page. “We only do what we should as stipulated in the contract, which is first mediation, but as you know that failed,” he said.
Petronas Carigali corporate affairs and administration manager Andiono Setiawan told The Jakarta Post on Wednesday the discussion between both parties was ongoing.
“[…] We will seek a solution that can be accepted by all parties,” he said briefly.
Responding to the case, Deputy Energy and Mineral Resources Minister Arcandra Tahar said the government had tried all options to settle the case, hence leaving both parties to choose the best conclusion.
