Nam Theun 2 Hydropower, Lao PDR

5.1 Location

The 1,075 MW Nam Theun 2 (NT2) hydropower project is a trans-basin scheme being developed via the diversion of the flow of the Nam Theun river from the Nakai plateau down to the Xe Bang Fai river. It comprises 4 x 250 MW units designed for the supply of power to Thailand and 2 x 37.5 MW units for Lao PDR domestic power consumption. The project also includes a 138 km long 500 kV transmission line from the power station to Thailand border near Savannakhet.

In terms of financing, NT2 is the largest private sector crossborder project, as well as being the largest private sector hydropower scheme, in Southeast Asia. Construction was started immediately after financial closure in June 2005. The project has been constructed at an estimated cost of US$1.45 billion (Table 8 [ PDF 40.6KB | 1 page ]). The official handover of the project to the Lao PDR Government is planned for June 2010.¹⁵

5.2 Implementation Arrangement

The project is being implemented by Nam Theun 2 Power Company Limited (NTPC), a company incorporated under the laws of Lao PDR and mandated through a BOOT concession agreement to build, own, operate, and transfer the project to the Government of Lao PDR at the end of the 25-year operation period.

The shareholders of NTPC comprise EDF International (EDFI), a subsidiary of Electricité de France (35%); Lao Holding State Enterprise (LHSE), a company fully owned by the Government of the Lao PDR (25%); Electricity Generating Public Company Limited (EGCO) of Thailand (25%); and the Italian-Thai Development Public Company Limited (ITD) of Thailand (15%).

The concession agreement for implementation of NT2 was executed between NTPC and Government of Lao PDR in 2002. Under the terms of the 30-year concession agreement, of which the operating period is 25 years, NTPC has full responsibility for timely completion of project. The main construction activities are contracted under a turnkey contract to EDF. The NTPC and Government of Lao PDR have joint responsibility for implementation of resettlement and social development activities. In case of defaults, termination rights have been provided to both parties.

The PPA was executed between NTPC and EGAT and Electricité de France in 2003. Unlike the Theun Hinboun project, the PPA is based on the take-or-pay principle under which 95% of the project's energy would be sold to Thailand for the first 13 years, and later subject to a spot market, if operated. The energy tariff has been built on system avoided cost¹⁶ in Thailand.

5.3 Financing Arrangement

Equity contribution of nearly 31% of project cost has been made by the shareholders and debt funding of about 69% has been raised from international financial institutions (IFIs), commercial banks/lenders. A combination of financial institutions, comprising 5 multilateral, 4 export credit, 2 bilateral and 16 Thai and international commercial banks, are involved with financing of the project.

The World Bank has provided a Partial Risk Guarantee loan under International Development Association (IDA) (US$42 million), and MIGA has extended a guarantee for debt (US$42 million), while ADB has extended a Political Risk guarantee (US$42 million). The World Bank has also provided IDA grant assistance (US$20 million), and ADB has extended loan assistance (US$50 million) and a public sector loan (US$16.1 million) to the Government of Lao PDR.

In addition, nine international commercial banks (ANZ, BNP Paribas, BOTM, Calyon, Fortis Bank, ING, KBC, SG, and Standard Chartered) and seven Thai commercial banks (Bangkok Bank, Bank of Ayudhya, Kasikorn Bank, Krung Thai Bank, Siam City Bank, Siam Commercial Bank, and Thai Military Bank) are providing long-term loans to NTPC. The equity contribution of LHSE (one of the shareholders of NTPC) is financed through loans, grants, and other tools by AFD, ADB, European Investment Bank, and the World Bank.

5.3.1 Mitigation of Project Risks

Some of the major issues related to private sector participation in crossborder infrastructure projects are the political, contractual, and legal risks associated with such projects. As noted above, these risks have been appropriately addressed by the international funding agencies. The NT2 is a classic case of PPP with limited recourse financing, ably supported by international funding agencies, export credit agencies, and multiple commercial lenders.

Learning from shortcomings from the Theun Hinboun Hydropower project, the NT2 has been carefully designed, with adequate planning for economic, environmental, and social safeguards that are extensively monitored by internationally recognized and independent panels, project lenders, and IFIs. The safeguards were designed in consultation with local villagers and under international guidelines and recommendations from the various financial institutions involved with the project. These measures are fully funded as part of the project cost and cover the entire project area including catchment reservoir and downstream areas. As it is based on the take-or-pay principle, revenue risks for the project are minimal. A 5-year tax holiday followed by 10% and 15% corporate profit tax during the next 5-year period applies to the project.

5.3.2 Expected Project Benefits

Given the relatively small size of the national economy, the project is expected to have significant economic impacts in Lao PDR.¹⁷ The project will generate considerable revenue through taxes, royalties, and dividends for the government, and this revenue can be effectively ploughed back to provide necessary public goods and services required for sustainable growth and poverty reduction. The Government of Lao PDR, via the revenue to be generated from the project, is planning to establish a poverty reduction fund with the objective to promote economic and social development throughout the country.

It is expected that the NT2 could lead to doubling in private investments (IMF, 2003) during the construction period. Construction activities are providing job opportunities to nearly 4,000 workers in the neighborhood and local areas. All these effects are expected to boost the economic growth of Lao PDR from the current 6% to nearly 7% up to 2011. In addition, availability of additional electricity from the power station and better access due to about 140 km of new or upgraded roads under this project would improve the living condition of the population in the adjoining areas.

Revenues generated from the project will provide substantial funding for the government's National Growth and Poverty Eradication programs. The NT2 project would help the Lao PDR economy grow at higher rate in coming years, which would lead to higher personal incomes and per capita consumption, thereby bringing economic well-being and reducing poverty in Lao PDR.

5.4 East–West Economic Corridor in the Greater Mekong Subregion

With an eye toward addressing their mutual development needs, the GMS countries adopted a program of economic cooperation with assistance from ADB in 1992. The program was conceived to create an integrated, prosperous, and equitable Mekong subregion, complementing individual national efforts to promote economic growth and reduce poverty. In 2001, the GMS countries endorsed a 10-year strategic framework targeting enhanced connectivity, increased competitiveness, and a greater sense of community in the region. About 11 flagship projects were identified, out of which the North-South Economic Corridor (NSEC), East-West Economic Corridor (EWEC), and Southern Economic Corridor (SEC) dominated the GMS transport sector plan. The corridors were planned to encourage trade, investment, and tourism, and ease crossborder movement of people and goods in the subregion and were intended to serve about 2.6 million sq. km. of surface area and nearly 320 million people.

Out of the several flagship programs, the EWEC is in the most advanced stage of completion, and several transport, energy, telecommunications, industrial, tourism, and other programs have been successfully launched or are under implementation. Most of these projects are being funded through public resources, and private participation is limited. The case study of EWEC has been included to appreciate the catalytic role played initially by the government and donor agencies in funding basic infrastructure, which, in turn, attracts the private sector to develop other economic infrastructure in the subregion.

The EWEC flagship initiative focuses on transport (road, water, railway, and airports), energy, telecommunications, tourism, and other initiatives with the intent to further strengthen economic cooperation, and facilitate trade, investment, and development along the East–West transport corridor. A pre-investment study for EWEC (ADB, 2001) has developed a framework for cooperation and development in agro-industry, infrastructure, trade and investment, tourism, and industrial estates, and recommended about 74 projects, including policy and institutional development initiatives.

5.4.1 Completed/Ongoing Infrastructure Projects along EWEC

Data from ADB's GMS Development Matrix has been used to appreciate the financing trends for completed and ongoing infrastructure projects along the EWEC. About 11 projects, comprising 9 transport and 2 investment projects are either completed or are under implementation along the EWEC. Transport projects comprise the improvement of road links and construction of missing links along the EW transport corridor, and rehabilitation of port facilities at Da Nang, Viet Nam. The investment projects comprise the Lane Xang Mineral project in Lao PDR and the feasibility study for Special Economic Zone (SEZ) in Savan-Seno along the Lao PDR-Thailand border.

5.4.2 Transport

The transport segment of the EWEC has been implemented with assistance from ADB, Japan Bank for International Cooperation (JBIC), Japan International Cooperation Agency (JICA), and other donor agencies and national governments. The transport corridor (1,450 km) starts near the Andaman Sea west of Myanmar and traverses through Thailand and Lao PDR before terminating near the South China Sea east of Viet Nam. The corridor links Mawlamyine–Myawaddy in Myanmar; Mae Sot–Phitsanulok–Mukdahan in Thailand; Savannakhet–Dansavanh in Lao PDR; and Lao Bao–Hue–Dong Ha–Da Nang in Viet Nam. While most of the highway is now operational, work on few sections in Myanmar is yet to be taken up. The highway provides crucial access to ports in northeast Thailand and central Lao PDR, and has opened opportunities to several medium-sized cities.

In the port sector, rehabilitation of the Da Nang port (in Viet Nam), intended to meet the region's increased tourism and trade needs prior to the completion of the EWEC transport project, was completed through JBIC (now JICA) loan assistance. A 15 km access road from the port to Highway 1 was also constructed.

Table 9: List of Ongoing and Completed Projects along the East-West Economic Corridor [ PDF 21.8KB | 1 page ]

Transport projects along the EWEC have attracted investments of US$813 million, primarily from donor agencies and from public resources of member countries. As noted in Figure 8 [ PDF 24.8KB | 1 page ], the JBIC has contributed about 53%, JICA 8%, ADB 7%, and others comprising financing from country governments, and other donor agencies, about 32%. Thus, transport projects along EWEC have not attracted finances from the private sector. On a few sections, a toll is being imposed, and the revenue generated is used to maintain the facility and service the debt.

5.4.3 Trade Facilitation and Crossborder Transport Agreement

The transport crossborder barriers along the EWEC have gradually decreased since 2000. For example, travel time between Khanthabouly (Savannakhet) bordering Thailand to Dansavanh bordering Viet Nam has been reduced from 12 hours to as low as 3 hours. Further, accessibility to education and medical services has also improved. In 2003, all member countries had signed the crossborder transport agreement (CBTA), and, with completion of the second Mekong bridge in 2006, developed through JBIC assistance, a major portion of the EWEC was ready for movement of goods and people.

Under the crossborder trade and investment flagship, a number of technical assistance (TA) programs were extended to the GMS countries. The assistance comprised formulation of the CBTA and support to member countries for framing annexes and protocols, institutional development and capacity building, laws and regulations improvement, and identification of means to mitigate non-physical barriers for crossborder movement. So far, an investment of US$5.5 million has been made, with ADB contributing about 74%, country governments nearly 22%, and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) about 3%. The procedures are being pilot tested along the Thai–Lao PDR border at Mukdahan–Savannakhet and at the Lao PDR–Viet Nam border at Dansavanh–Lao Bao and is being prepared for full implementation starting 2009.

5.4.4 Industrial Investment

A number of SEZ/industrial zone projects have been developed along the EWEC. Completion of the east-west corridor has shown positive impact in Savannakhet, including rapid increase in foreign direct investment (FDI). It is reported that total FDI increased from US$17.9 million during 1995–2000 to US$207 million during 2001–2005. This has resulted in the creation of jobs, which has improved socioeconomic conditions, and reduced poverty among people living in the border areas.

The Lao Bao SEZ, spread over 15,800 hectares of land, was the first SEZ developed in Viet Nam in 1998. An investment of US$25 million was made in providing basic infrastructure like electricity, water, and telecommunications. To attract private investors, preferential treatment was provided, including exemption from value-added tax, export/import tax, and special consumption tax. Corporate tax was waived for the first four years and discounted thereafter. Half of the personal income tax of laborers was waived and land lease was exempted for the first 11 years. As a result, about 45 projects with investment of nearly US$120 million were made by the year 2006. In addition, a major private sector project (Lane Xang Minerals Ltd.), costing US$205 million, has been developed by the Australian gold and copper producer, Oxiana, in this area.

The Savan-Seno SEZ (Lao's first SEZ) is under implementation and is scheduled for completion in 2011. The SEZ was identified by a JICA study, while the cost (US$300,000) for preparing the Feasibility Study was provided by the Government of Thailand. The SEZ comprises twin sites, one located near the Second Mekong International Bridge (305 hectares) and the other in Seno at east of Savannakhet (20 hectares). The industrial estates will function as export processing zone, free-trade zone, and free service and logistics center. To attract investments, preferential treatment is provided, including exemption from corporate tax for the first 5–10 years, exemption from import and consumption tax, as well as personal income tax discount of 5%. Land lease is allowed for 75 years, comprising free lease for the first 12 years if total lease period is more than 30 years.

Further, with an objective to enhance PPPs and competitiveness, a 10-year fund with target capitalization of US$20–25 million has been created. The fund identifies sectors and industries for investment in Cambodia, Lao PDR and Viet Nam. ADB has extended 25% of the equity capital, while the balance has been contributed by other development financing institutions and private investors. The fund provides long-term equity support to small and medium-sized enterprises (SMEs) and invests in enterprises with strong growth potential, export orientation, and capable management. It targets enterprises that are able to generate employment, promote an environment that fosters economic growth, and forge regional cooperation in the GMS.

5.4.5 Financing for future Projects along East-West Economic Corridor

The ADB Development Matrix has identified about 356 projects throughout the GMS at an estimated cost of US$27.1 billion, out of which transport and energy sectors would comprise 66% and 28% respectively.

Forty projects, at an estimated cost of US$1.44 billion, are proposed along the EWEC. Considering that most of the east-west transport link is now functional, future initiatives shall be focused towards economic and industrial infrastructure. Accordingly, transport, investment, and energy projects are expected to constitute 59%, 22%, and 18% of the estimated cost respectively. It should be mentioned that the costs for some major initiatives, such as development of the western end of the EWEC and economic activities to be established by the private sector, are not included.

Figure 9: Estimated Cost for Proposed Projects in Greater Mekong Subregion [ PDF 38KB | 1 page ]

The ADB report on GMS Flagship Initiative EWEC (ADB 2005d) indicates that major sources for funding these projects shall comprise government, multilateral development, and international lending agencies, foreign and local direct private investment, international private equity funds, and international and domestic capital markets. As mentioned above, the participating governments will have to shoulder a significant share of project costs, along with policy/program formulation, and implementation, and institutional development. In several cases, implementation of projects will require multi-country support, and cost-sharing will have to be evolved on a case-by-case basis.

5.4.6 Government Support

The EWEC traverses four countries and the road projects can be categorized as CBIP. However, all road improvement projects along the EWEC are funded by national governments and/or external donor partners, and private sector participation has been negligible. Such transnational roads do not cater for large traffic volumes and are not financially viable. These projects are considered as basic infrastructure projects and do not attract the private sector investment. However, once the basic road network is made available, other economic activities start gaining momentum and the private sector may later participate in ventures that are financially remunerative. Accordingly, leadership from national governments in planning and funding such crossborder transport projects and from the external funding agencies that support future development is highly important.

5.4.7 Project Benefits

To sum up, the GMS economic corridors would link the subregion with a direct outlet for trade with the rest of the world. There is no denying that the combination of improved access to trade and reduced impediments to crossborder trade would accelerate the economic development of the region, primarily along the corridors. These GMS corridors would encourage trade, investment, and tourism in the Mekong region, and ease the crossborder movement of people and goods, thereby increasing subregional economic growth and reducing poverty.

5.5 Hydropower Projects in Bhutan

Hydropower stations in Bhutan can be seen as success stories of crossborder energy projects between two friendly neighboring countries. Bhutan has 26 hydropower stations, out of which 4 major hydro plants (Table 10 [ PDF 17.7KB | 1 page ]) are crossborder projects. Since the country's electricity generation is significantly higher than the maximum domestic demand of 130 MW, Bhutan is a net exporter.

5.5.1 Bhutan–India Hydropower Cooperation

The hydropower cooperation between the two neighboring countries started with the signing of the Jaldhaka agreement in 1961. The Jaldhaka hydel is located on the India side of Indo-Bhutan border in West Bengal. The 27 MW Jaldhaka Hydel Power Station Stage-I was commissioned in 1967–1972 and the Stage-II Power House, with an installed capacity of 8 MW was commissioned in 1983. Most of the power produced at Jaldhaka is exported to Southern parts of Bhutan. The benefits of the crossborder energy trade have encouraged Bhutan, which has a hydro potential of over 30,000 MW, to seek Indian investments in setting up power plants.

The India–Bhutan partnership in hydropower effectively started in 1978, when India extended US$200 million for construction of a 336 MW hydroelectric plant at Chukha in Bhutan. The Chukha hydel project was entirely funded by the Government of India with a 60:40 ratio of grant and loan. It was successfully commissioned in 1988, and the project was handed over to the Bhutanese government in 1991. About 70% of power generated from this project is exported to India. India is also helping Bhutan in providing training and human resource development in the power sector.

Apart from Chukha, India has also implemented the Kurichhu and Tala hydropower projects in Bhutan. Looking at the financial benefits of crossborder energy projects, the Royal Government of Bhutan has requested India to develop a 1095 MW hydro plant at Punatsangchhu.¹⁹

5.5.2 Tala Hydropower and Transmission Project

The Tala Hydroelectric project is the biggest crossborder power project in South Asia. This 1,020 MW project has been constructed with an investment of around US$1 billion, that is entirely funded by the Government of India (GOI) by way of grants and loans at a 60:40 ratio. Once the project is fully completed, all power from this project will be exported to India. The first phase (170 MW) of this project was commissioned in May 2008.²⁰ This project has attracted several public and private sector investors in construction (mostly Indian contractors) such as Bharat Heavy Electrical, Hindustan Construction Company, Larsen and Toubro and Jaiprakash Industries.

The project has also attracted private sector investment downstream of the development. For example, a joint venture company has been formed for transporting power from the station to the northern states in India.²¹ The joint venture company (Powerlinks Transmission Limited (PTL)) established under the PPP format is jointly owned by Tata Power and the Power Grid Corporation of India, a government-owned company. In 2003, ADB extended a US$62 million loan for this power transmission project, which is a classic case of multi-lateral funding support for private sector power projects in India. The transmission lines were developed under a BOOT basis with a concession period of 30 years; thereafter the ownership will be transferred to the government-owned Power Grid Corporation of India.

5.5.3 Proposed PPP in Hydropower

The Bhutan Government has planned the Dagachhu hydropower project (114 MW), which aims to export power to India. This project is proposed as a demonstration project to be financed by leveraging public and private capital in line with a new policy for private participation in hydropower in Bhutan. The hydropower site will be a run-of-the-river type with barrages where water will be diverted to the powerhouse, and no major backwater will be created (ADB 2007). The project is planned to be implemented under the clean development mechanism as defined in the Kyoto Protocol. The Government of Austria has supported the feasibility study and preparation of the project design document.

5.5.4 Challenges and Needs

Theoretical potential for hydropower in Bhutan is 30,000 MW, with only about 5% tapped so far. The hydropower sites are mainly export-oriented and run-of-the-river types. To accelerate them on a sustainable basis, Bhutan has to establish a policy and institutional framework for private participation such as PPP and independent power producers (IPPs).

The Bhutan–India example is a classic case of cooperation between two friendly neighboring countries under which a power-deficient country is allowed to set up hydropower stations under a majority grant and low-interest loan contribution. All power from the station is sold to India on a commercial basis, which means the project has negligible risk exposure.

In order to strengthen hydropower generation, rural electrification, region-wide energy efficiency, and crossborder economic cooperation through PPPs, ADB has sanctioned a US$1.91 million technical assistance (TA) to Bhutan. The TA is being financed on a grant basis by the Japan Special Fund, funded by the Government of Japan. The Government of Bhutan is expected to finance US$310,000, equivalent of local currency costs through in-kind contributions.

5.6 Malaysia-Singapore Second Link

This is the second border crossing bridge (also known as ‘Second Crossing' or ‘Linkedua') between Malaysia and Singapore, and connects Tanjung Kupang/Johor in Malaysia with Tuas in Singapore. The bridge was built with an objective to reduce traffic congestion at the Johor–Singapore Causeway (the first border crossing between the two countries constructed in 1920). On the Malaysian side, the bridge connects the Second Link Expressway (Linkedua Expressway), while, on the Singapore side, it connects with the Ayer Rajah Expressway and the other supporting roads around the Tuas industrial area.

The 1.92 km twin deck bridge accommodates dual three-lane carriageways. Besides the bridge, the project comprises 44 km of expressways, a customs, immigration, and quarantine complex, 3 toll plazas, 2 rest and service areas, and other ancillary facilities. In addition, development of a new town in Johor State, Malaysia is also included. The bridge, designed to cater to about 200,000 vehicles a day, was opened to traffic in January 1998.

5.6.1 Project Facilities

The crossborder link provides safe and congestion-free travel, with quick customs and immigration clearances. The checkpoint on the Singapore side, the Tuas Checkpoint, has 24 immigration lanes for light vehicles (cars) and 10 lanes for motorcycles. The corridor is equipped with traffic monitoring and surveillance systems that provide travel advisories through variable message signboards. The rest and service areas provide for restaurants, Muslim prayer room, toilets, showers, playground, petrol stations, and public phones. The toll plaza provides for manual and semi-automatic system (using smartcards). Cash at the toll plaza is accepted in both currencies, however, on a one-for-one basis.

5.6.2 Implementation Arrangement and Investors

A concession agreement (CA) was signed in July 1993 with United Engineers Malaysia Berhad (UEM) for implementing the project on a BOT basis. The CA gave exclusive rights and authority to UEM to design, construct, manage, operate, and maintain the bridge and expressways for a period of 30 years. In May 1994, through an agreement, UEM assigned all its rights, liabilities, and obligations in respect of the CA to Linkedua Malaysia Berhad– LINK, a wholly owned subsidiary of UEM.

Being a crossborder facility, an intergovernment agreement (IGA) was signed in March 1994 for defining the responsibilities of both governments with regard to the design, construction, operation, and maintenance of the bridge. Further, in September 1994, a Supplemental Concession Agreement (SCA) was signed to take into account the IGA between the Governments of Malaysia and Singapore. As per the SCA, LINK's obligation to carry out the project and its rights under the CA are consistent with the Malaysian government's obligation under the IGA relating to the works and the rights in connection with the Malaysian side of the bridge and the customs complex. A joint committee comprising representatives of each government was formed to oversee the project implementation. The award was valued at RM1.6 billion plus a S$600 million component from Singaporean investors.

Project sponsors on the Malaysian side include the Malaysian Highway Authority (LLM), Government of Malaysia; PLUS Expressway Berhad; and Linkedua Malaysia Berhad; the Land Transport Authority, Government of Singapore, was the sponsor on the Singapore side. The project on the Malaysian side of the bridge is maintained by Malaysia PLUS Expressway Berhad and Linkedua Malaysia Berhad, while the Land Transport Authority (LTA) of Singapore is responsible for maintaining the project on the Singapore side.

5.6.3 Project Risks and Mitigation Measures

Projects of such magnitude require large cash flows during the initial years of operation, followed by sustained revenue through user charges to meet the project's expenses and service the debt component. In order to make the project attractive, the financial viability was enhanced by providing rights to the concessionaire for developing a new township in southwest Johor Darul Ta'zim called Prolink 2020. The township was jointly developed by the project company based on a cost-sharing arrangement with Prolink Development (PD), also owned by UEM. After completion of the bridge, all rights, liabilities, and obligations under these agreements were to be transferred by the project sponsor to PD against a pre-determined cash payment.

For road projects of such nature, future growth in traffic is a major risk and can considerably affect the project revenues. After it opened in 1998, traffic on the bridge was only about one-third of the original estimate. As a result, the project company has been continuously facing problems in its debt-service payment. Information in the public domain reveals that cumulative revenue of the concessionaires in the year 2007 was RM27.6 billion, while the total cumulative net profit was RM3.5 billion. In order to ensure financial returns to the project developers, the government is planning to pay compensation to toll concessionaires in the form of prolonged concessions.

Recently, after realizing that higher toll rates are a deterrent to road use, the Malaysian government is considering revisiting the concession agreements with the possibility of reducing toll rates by balancing toll reduction with O&M cost and payback to financiers. Considering the risks associated with private sector transport projects, the recent interventions by the Government of Malaysia can be seen as positive steps in building the confidence of the private sector.

5.7 Indonesia–Singapore Gas Pipelines

The Indonesia–Singapore gas pipelines are successful cases of crossborder energy projects. Both countries have intensified interaction and cooperation in the energy sector and have played a leading role in setting up the “Trans-ASEAN Gas Pipeline” (TAGP) that envisions the establishment of a transnational pipeline network linking the major natural gas producers and consumers in Southeast Asia.²²

In January 1999, the Singaporean consortium SembGas signed an agreement to purchase West Natuna natural gas from the Indonesian state energy company Pertamina. Indonesia began exporting natural gas in 2001, with the opening of a 400-mile, 325-million cubic feet per day (ft3/day) sub-sea pipeline from West Natuna to Singapore. In August 2003, a second natural gas connection to Singapore was opened when the South Sumatra–Singapore pipeline was completed. This line reached 350 million ft3/day maximum capacity during 2006 and will deliver natural gas to Singapore over a 20-year contract. Another 100 million ft3/day of natural gas is expected to be delivered via the Asamera pipeline from the Conoco Phillips field to power Singapore's planned Island Power station; however, the project has experienced numerous delays.

The gas transmission pipeline is operated by Indonesia's PT Perusuhaan Gas Negara (PGN). The pipeline cost of US$420 million, was raised in the form of US$112 million in loans from the European Investment Bank, US$88 million from ADB and the remainder from PGN.

5.7.1 Emerging Issues

Natural gas use is rising rapidly, as the Singapore government promotes policies aimed at reducing carbon dioxide and sulfur emissions, ensuring energy security, and promoting the country as a regional hub for an integrated gas pipeline network. In 2002, the Singapore government set a target of 60% of the country's electricity to be generated from natural gas by 2012. By 2003, this goal was already achieved, and Singapore's Energy Market Authority (EMA) reports that about 80% of the country's electricity demand comes from natural gas today. However, in November 2003 and June 2004, Singapore experienced power outages that were the result of natural gas supply disruptions. After the June 2004 incident, the government set up the Energy System Review Committee (ESRC) to study the root causes of the gas disruptions and evolve measures to strengthen the energy system's reliability. Among other recommendations, the ESRC called upon Singapore to diversify its sources of natural gas, as it has historically relied on Indonesia for its natural gas imports.

5.8 Myanmar–Thailand Gas Pipelines

The bulk of gross national hydrocarbon production in Myanmar is accounted for by the prolific Yadana and Yetagun offshore fields, which have a combined average output of over 800 million ft3/day of gas. About 80% of this yield is piped to Thailand, with the balance going to domestic needs, all of which is used for electrical power generation. Myanmar and Thailand have two crossborder gas pipelines (Figure 10 [ PDF 133.5KB | 1 page ]), developed through PPP: the Yadana (Myanmar)–Ratchaburi (Thailand) pipeline, completed in 1999, and the Yetagun (Myanmar)–Ratchaburi (Thailand) pipeline, completed in September 2000.

5.8.1 Yadana gas pipeline

The Yadana gas field is located about 60 km offshore to the nearest landfall in Myanmar. This major energy resource contains more than 5.3 trillion ft3 (150 billion m3) of natural gas, with an expected field life of 30 years. Output from the field averaged over 19.3 million m3/day per day in 2006, where Thailand imports about 700 million ft3/day. The Yadana pipeline is 256 miles (412 km) long, most of which is underwater. Construction of the pipeline was completed in 1998 and had a cost of US$1.2 billion, US$394 million of which went to laying the pipeline.

The Yadana project is operated by Total S.A., France, with Unocal Corporation, USA, as its junior partner along with PTT, a Thailand-owned oil and gas company, and Myanma Oil and Gas Enterprise (MOGE), a state-owned enterprise of Myanmar. The field was developed under a conventional production-sharing contract by four investors:

• Total, S.A. (operator): 31.24%
• Chevron Corp: 28.26%²³
• Petroleum Authority of Thailand Exploration & Production (PTT-EP): 25.5%; and
• Myanma Oil and Gas Enterprise (MOGE): 15%

A memorandum of understanding was signed by Total and MOGE on 9 July 1992 for operation of this gas field and the pipeline. In addition to the construction of offshore gas facilities by the partners, a separate company in which PTT-EP, MOGE, and other subsidiaries of Total and Unocal are investors (the Moattama Gas Transportation Company (MGTC)) built a 346-kilometer sub-sea pipeline to bring the gas to landfall in Myanmar, and a 63-kilometer onshore pipeline, with control and metering units, to carry the gas to the border with Thailand, which purchases most of the field's output under a long-term contract. Construction was carried out between the fall of 1995 and mid-1998, with gas production beginning in July 1998. Since its inception, this gas pipeline is working successfully.

Yetagun gas pipeline

The Yetagun natural gas field is located in the sea at the depth of 337 feet and about 125 miles away from Myanmar coast. It is estimated that the Yetagun natural oil and gas field has 1.1 trillion cubic feet of natural gas (PTT, 2007). Thailand imported about 1.16 billion cubic feet per day from the Yetagun gas field during 2007.²⁴

This second gas field was developed through PPP at a cost of about US$830 million, of which US$325 million was for laying the pipeline, both onshore and offshore, between Yetagun, Myanmar and Ratchaburi, Thailand. Malaysia's Petronas²⁵ is the operator of the Yetagun gas field, along with Nippon Oil, PTT, Thailand, and Myanmar-owned MEPE, and the project has the following shareholdings:

• Petronas (operator): 40.9%
• Nippon Oil, Japan: 24.8%
• PTT, Thailand: 19.3%
• MOGE, Myanmar: 15%

The project is developed under a long-term contract and a 30-year power sales agreement (PA) was signed in March 1997 stipulating a daily contract quantity (DCQ) of 260 million ft3/day of natural gas to be delivered to PTT, Thailand. Construction was carried out from 1997 to 2000, and transmission started in 2001.

The two crossborder gas pipelines developed under PPP have been providing enormous wealth to Myanmar. Gas has thus become a major export earner for Myanmar, accounting for over 30% of its yearly export earnings (Thein and Myint 2008). Even then a large population of Myanmar does not have access to electricity. Setting up a domestic power plant from the crossborder gas export earnings would help Myanmar to strengthen rural electrification and industrialization. At the same time, Myanmar should open prospective hydropower projects to local and regional private sectors in order to achieve targeted objectives in the short term. In parallel, creation of a better investment climate and energy regulatory environment would be essential for proper energy sector development in Myanmar and regional cooperation.

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