Natural Gas Reform Process in Thailand

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Natural Gas Reform Process in Thailand

• November 1999
• National Energy Policy Office

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Outline

• Energy Supply and Demand Balance in Thailand
• Policy Background
• The Study
• Market Reform
• Enterprises Reform
• Cabinet Resolution on Natural Gas Reform
• Regulatory Organisation
• Policy Direction

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Production (Import / Export) and Consumption of
Primary Commercial EnergyUnit KBD (COE)
4
Demand Supply of Natural Gas (Unit MMSCFD)
Demand
Supply
Onshore
EGAT, EGCO, IPP
SPP
Industry
GSP
5
Power Generation by Type of FuelUnit GWh
6
Policy Background
Key cabinets initiatives before the
resolution on 16 February 1999

• Cabinet resolution on 23 January 1996 to provide
  for the restructuring of PTT and the promotion of
  free and fair trade in natural gas
• Cabinet resolution on 13 August 1996 in relation
  to
• The regulation of prices for gas and for pipeline
  usage
• The promotion of private sector participation in
  the natural gas industry
• The National Economic and Social Development Plan
  1997-2001
• Sought to promote private sector participation
  and competition in the natural gas industry and
• Set out guidelines for the restructuring of PTT

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Policy Background(contd)

• Cabinet resolution on 11 August 1997 in relation
  to
• The approval of the corporatisation plan for PTT
  and
• The review of the monopoly powers and obligations
  of PTT in natural gas procurement from
  concessionaires, gas distribution and LPG trading
• Cabinet resolution on 1 September 1998 to approve
  the State Enterprise Reform Master Plan
• The approval of the corporatisation plan for PTT
  and

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The Study

• PTT engaged financial advisers to prepare a plan
  for the public offering
• NEPO engaged a consultant company to undertake a
  study on the deregulation of the Gas Supply
  Industry so as to promote competition

9
Existing Structure of PTT
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State Enterprise Corporatization Act.

• The Act allows RTG to transform SOE not already
  registered as company under Commercial and Civil
  Code into company wholly owned by MOF by issuing
  Royal Degree.
• Avoiding long process in passing legislation to
  transform SOE created by act of Parliament into a
  company.
• Upon corporatization of SOE, the rights and
  privileges of SOE may be transferred to new
  company or to "interim independent regulatory
  committee.
• Interim independent regulatory committee will
  cease to function once establishment of a
  permanent regulatory body.

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PTTs Proposed Structure for Privatisation
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PTT Gas

• PTT Gas will remain as a business unit of PTT/PTT
  Plc, responsible for the gas supply and marketing
  and the gas separation plant business.
• PTT Transmission Co., Ltd will be established,
  with PTT/PTT Plc holding 100.
• PTT Transmission Co Ltd will operate the
  transmission pipeline system and other investors
  pipelines to be connected to the PTT transmission
  network.

13
Structure of PTT Gas
14
Current GSI Structure
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Wellhead Prices of Natural GasUnit Baht/MMBTU
16
Retail Price of Natural Gas(PTT vs Users)
Baht/MMBTU
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Regulation on Transmission Tariff
Principles

• Calculation on BTU basis in terms of Baht/MMBTU
• Demand Charge to cover fixed cost
• Commodity Charge to cover variable cost
• Calculation of Demand Charge based on 3 Zones
• Zone 1 Offshore Rayong
• Zone 2 Offshore Khanom
• Zone 3 Onshore
• Periodic adjustment

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Regulation on Transmission Tariff
Methodology/Assumption

• Demand Charge (currently 18 baht/MMBTU)
• IRR on Equity 18
• Debt/Equity Ratio 7525
• Long-term interest 10.5
• Depreciation Straight Line
• Commodity Charge (currently 0.24 baht/MMBTU)

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Long Term GSI Structure
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Cabinet resolution on 16 Feb. 1999
Key aspects of the guidelines for long-term gas
industry restructuring in Thailand

• Separation of transmission,supply and marketing
• Third party access on the transmission pipeline
  system
• Definition of existing and new gas supply
• Definition of existing and new gas demand
• Determine extent of private sector participation
  in the gas transmission system
• Determine regulatory arrangements for the gas
  industry

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Separation of transmission,supply and marketing

• PTT Transmission Co., Ltd. to be established as
  a wholly-owned subsidiary of PTT and to operate
  the PTT assets and connected pipeline assets
• Transactions between the separate legal entities
  to be through transparent arms length contracts
  of international standard
• The contracts between separate legal entities to
  be approved in principle by NEPC/NEPO

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Third party access onthe transmission pipeline
system

• "TPA will be introduced on the pipeline system
  where excess capacity is available and on new
  pipeline. In the part of the pipeline system
  where TPA has been introduced, non-discriminatory
  services shall be provided, with clear and
  accountable rules and criteria"
• PTT and the DMR to be responsible for developing
  the third party access regime before being
  presented to NEPO for consideration and NEPC for
  approval.

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Definition of existing andnew gas supply

• " Existing gas supply means all domestic
  concessions which have contracted with PTT,
  including gas supply for which contracts are
  being negotiated ie. Bongkot 4, JDA,
  Yadana/Yetagun (extension)
• Concessions other than those mentioned above are
  considered as new gas supply on which TPA is
  allowed"
• "PTT assigned to draw up detailed determination
  of existing gas supply in accordance with the
  principles prescribed above and present it to
  NEPO/NEPC for further consideration and approval."

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Definition of existing andnew gas demand

• Definition of existing gas demand to mean
  particular gas purchase agreements between PTT
  and EGAT, IPP's and consumers in the industrial
  sector.
• Other agreements are defined as new gas demand.

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Determine extent of private sector participation
in the gas transmission system

• New main transmission pipelines will be open to
  the private sector for bidding for investment or
  for construction and ownership of the
  infrastructure
• Bidding for transmission pipeline construction
  and ownership to be regulated by the MoI,
  NEPO/NEPC, or in future, by the relevant
  independent regulatory agency
• PTT be responsible for pipeline investment under
  the Natural Gas Pipeline System Master Plan No. 2

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Determine extent of private sector participation
in the gas transmission system (Contd)

• PTT Transmission Co., Ltd. to be the operator of
  pipelines connecting to the main transmission
  system
• NEPO and the MoI will jointly establish the
  bidding criteria, selection criteria and key
  conditions of the contracts, including technical
  conditions and service quality.

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Natural Gas Pipeline

• NEPO is proposing to increase private sector
  participation in gas transportation.
• Private Investment Projects
• Erawan - Ratchaburi (onshore) 3rd Pipeline
• Natuna Pipeline (potential)
• Future Gas pipelines
• Joint Investment Projects
• JDA - Songkhla pipeline
• JDA - Malaysia pipeline

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Existing Regulation
Currently GSI being regulated by

• Regulatory instruments
• Governing agencies

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Regulatory Instruments

• National Energy Policy Council Act
• Petroleum Act
• PTT Act

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Governing Agencies

• NEPC/NEPO
• Approving major policies, plans and projects
• Defining the roles of government agencies involve
  in energy sector
• Regulating pipeline investment and tariffs
• DMR
• Controlling bidding for oil and gas concessions
• Controlling supply at the wellhead of oil and gas
• PTT (as SOE)
• Specific legal mandate and direct jurisdiction
  over natural gas transmission pipelines

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Determine regulatory arrangements for the gas
industry
Different regulatory arrangements apply in the
short and long term for transmission pipelines

• In the short term, the NEPO/NEPC and MOI to
  regulate the industry in accordance with their
  respective regulatory soles
• In the long term, economic regulation of the
  industry to be conducted by the independent
  regulatory agency.

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Long Term Regulatory Structure of the GSI
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The State Enterprise Reform Master Plan
The State Enterprise reform Master Plan sets out
guidelines for the Governments reform program as
follows

• roles and responsibilities of participants in the
  reform program
• legal and regulatory reforms
• use of proceeds from privatisation
• corporate governance and performance monitoring
• social, labour and environmental issues and
• a public information campaign.

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Proposed powers of independent regulatory agencies

• issue licenses and monitor compliance with
  license conditions
• determine license fees
• if competition insufficiently established,
  determine tariffs in accordance with Government
  policies
• regulate anti-competitive practices
• conduct inquiries on their own initiative, or at
  request of the relevant Minister
• advise Parliament and the relevant Minister, as
  required, on regulatory issues.

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Policy Directions for the GSI (1998-2002)

• Market Reforms
• Detailed study on structure of GSI undertaken in
  1998 and implemented in 1999
• Third Party Access regime established (1999)
• Market opened to competition (2000)
• Enterprise Reforms
• PTT corporatised (end 1999)
• PTT privatised (within 1999, process commenced)

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