THAILAND--Electricity Users Complain of High Prices to Cover Cost of Gas Not Received : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread


You don't get what you pay for

Thai electricity users are paying high prices to cover the cost of gas we do not receive. Something could be done about it, but this might be seen as an admission of another example of typical government bungling.

Pipob Udomittipong

The price of electricity has been rising dramatically in line with the increased cost of fuels such as oil and natural gas. Since nearly half our electricity is produced from natural gas, higher gas prices mean higher prices for consumers.

One of the main reasons for the expensive gas prices is the disadvantageous contracts the Thai government has signed with foreign petroleum companies. Eighty percent of the gas purchased from foreign companies is burned for power production, so these contracts have a significant impact on consumer prices.

The Yadana gas project uses natural gas from the Andaman Sea off Burma which is shipped to a Thai power plant via a 500km pipeline.

Repeated delays have put the project almost two years behind schedule, and Thai consumers are paying for gas they are still not using. The government negotiated a take or pay contract, and Thai consumers are bearing the cost through unnecessarily high utility prices.

This is one of the many examples of government mismanagement and putting the country at a long-term disadvantage that jeopardises national interests.

The nature of the purchase contract means that constant payments have to be made regardless of the amount of gas taken or the needs of buyers. Even though the Petroleum Authority (PTT), the main energy procurer, has not received any gas from Burma, it has to pay the amount agreed to in the contract in advance. Delivery should have begun more than one and a half years ago.

Prasert Bunsampun, president of PTT Gas, said the PTT has paid up to $55 million (two billion baht) to the Yadana consortium led by Total-Fina of France and Unocal of the United States. The power plant which will use the gas also is not completed, so the PTT is now thinking about seeking a review of the contract, according to Mr Prasert, which could save the Thai public as much as $990 million (37.5 billion baht) over the next decade.

The contract requires that the purchase ceiling price rise steadily based on estimates made during the economic boom years. Despite the adjustment in projected demand in 2005 from four billion cubic feet per day of gas to 2.68 billion cubic feet, the PTT is paying advances for nothing and this is hurting its financial position.

As a result of these advance payments and the recapitalisation of several PTT subsidiaries that have been hit hard financially, the spending deficit of all state enterprises including the PTT will increase.

In other words, the late delivery of gas from Yadana has worsened the financial situation of all state enterprises and has reduced their net profit. Thai consumers are bearing the brunt of this financial burden as people pay more for electricity.

The Electricity Generating Authority (Egat) uses a fuel adjustment factor to calculate the price of electricity. If gas prices rise, this factor rises, and so too do electricity rates. The burden has been passed on to the people, who should not take responsibility for the government's poor decision making.

The contract signed by the PTT and the Yadana consortium forces us to buy gas at a fixed incremental rate for 30 years. It does not matter whether our demand for gas rises or falls. We have to purchase the gas or pay advances for gas we do not use. Even though we have found other cheaper fuels, we cannot make use of them as we must abide by this long-term fixed contract.

The long-term contract puts us at financial risk due to foreign exchange fluctuations. Fluctuations have already occurred and the exchange rate of the baht has gone from 25 to one US dollar to almost 40 baht in just over two years.

Recently, Suwat Liptapallop, the industry minister, said the government had to pay $75 billion for gas that we are unable to use as a result of the poor contracts surrounding the Yadana and Yetagun fields (the other gas source from Burma) and seven other sources in the Gulf of Thailand. He ordered the revision of all the contracts, an attempt that may be opposed by the various consortiums.

The price of gas from the Yadana and the Yetagun fields is almost 50% more expensive than that of domestic gas and that purchased from Unocal from the Gulf of Thailand. The high price of the Yadana gas was reported as early as September 1994, when Savit Bhodivihok, the minister attached to the Prime Minister's Office, flew to Rangoon to sign the memorandum of understanding before the sales contract was signed officially in February 1995. Conservation groups which have campaigned against the Yadana project have suggested to the government that, in light of the economic crisis, the project should be postponed without breaching the terms of the contract. This recommendation was based on the findings of a legal committee appointed by the prime minister to review the purchase contract. According to these findings, the government, as the buyer, can cite the force majeure clause to delay the commencement of delivery without being fined. Details of the findings can be found in the report submitted to the prime minister on Jan 12, 1997.

Conservation groups have proposed a number of times that the economic crisis could be cited as force majeure to delay construction. This was rejected by the PTT and the government. They claim there can be no flexibility and the country badly needs energy. Both claims have been proven specious.

First, late in 1999, the PTT successfully negotiated a reduction in the advance payment to the Yadana consortium. Secondly, the country now faces a power glut. The reserve margin of electricity is now more than 50% of the actual need despite the fact that several generators have halved output.

Ironically, Mr Suwat is bragging about his idea to revise the contracts just as the conservation groups have been suggesting for some time.

The construction of the Yadana pipeline has greatly affected local villagers as well. Their property has been damaged by the use of explosives, and the market value has declined because no one wants to live near the pipeline, which may cause fatal accidents at any time as well as damage their farms.

The PTT also has not followed the recommendation of the Committee to Review the Yadana Conflict appointed by the prime minister. The committee said the PTT should provide proper damages to affected villagers immediately, but the PTT has ignored the locals and has not paid fair compensation.

The Yadana project also has led to extensive logging and the looming extinction of endangered species such as elephants, hog-nosed bats and the smallest crabs in the world. The project also required the laying of hundreds of pipes (1m in diameter) in class A1 watershed areas, the most important forest classification in Thailand. The Yadana project has involved extensive and gross human rights abuses and the impediment of democracy in Burma. Two lawsuits are pending in the United States against Unocal with the plaintiffs claiming they suffered abuse including forced labour, rape, torture and looting as a result of the pipeline and security measures imposed by the Burmese military to protect the company's investment.

But it appears the PTT cares very little about its mistakes and the impact on the national interest. As the sole supplier of oil and gas, it enjoys all the profits and passes any burden on to ordinary people.

Pipob Udomittipong is with the Kalayanamitra Council, which has been campaigning with local groups in Kanchanaburi and others in opposition to the Yadana gas pipeline. ) Copyright The Post Publishing Public Co., Ltd. 2000

-- (, March 14, 2000

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