AMENDED GAS ACT: JUST HOT AIR?

UNCLAS SECTION 01 OF 02 SINGAPORE 001164

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR AUSTR WEISEL AND DAUSTR JENSEN
COMMERCE FOR JBAKER

E.O. 12958: N/A
TAGS: EPET ENRG EINV ETRD EFIN ECON SN
SUBJECT: AMENDED GAS ACT: JUST HOT AIR?

REF: A) SINGAPORE 996

B) 06 SINGAPORE 1916

(U) NOT FOR INTERNET DISTRIBUTION

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DISREGARD SINGAPORE 1164.

MESSAGE WILL BE RESENT UNDER ANOTHER MRN.

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1. (SBU) Summary: Singapore's amended Gas Act came into effect
June
11, holding out promise that U.S. company InterGen might finally
become the first non-government entrant into the heretofore tightly

controlled electricity market. However, looming contract deadlines

and legal uncertainties continue to cloud the horizon for InterGen's

local subsidiary, Island Power. The long-delayed legislation aims
to
increase competition in Singapore's natural gas sector by
authorizing
the Energy Market Authority (EMA) to grant new players access to
existing pipelines. The Act also allows EMA to increase the number
of
gas import licenses in order to enhance the security and reliability

of the gas supply (i.e., through shipments of liquefied natural
gas).
End summary.

Island Power's Struggle for Access
--------------


2. (SBU) InterGen, through Island Power, has been developing a
785MW
natural gas-fired power station in Singapore since 2002. However,
its
S$1 billion (US$650 million) investment has been continually plagued

by uncertainties about pipeline access. InterGen recently completed

financing arrangements and construction contracts for this project,

which include Indonesian gas provided by ConocoPhillips, but
arbitration between two Singapore government-linked companies (GLCs)

- PowerGas and Gas Supply Q- has prevented third-party access to the

section of pipeline that brings this gas onshore to Singapore.
(Note:
Gas Supply, the sole user of PowerGas' underutilized pipeline,
initiated legal proceedings in 2004 to prevent third-party access.

According to press reports, the arbitration was recently concluded
with an undisclosed settlement. End note.)

Don't Open That Spigot Just Yet
--------------


4. (SBU) Island Power's managing director, Michael Reading, told us

that, while he was optimistic about the project's continued
viability,
major hurdles still remained. He noted that the new law would not
immediately resolve the access issue; EMA would have to exercise its

legislated authority for this to happen. (Note: Press reports
indicate EMA has given only a broad timeframe -- possibly six months

or longer -- during which it will "thrash out pipeline access
issues."
End note.) InterGen in the meantime is still obligated to honor
several tight contract deadlines with private companies involved in

the power plant's construction, as well as with the Indonesian
government. Reading expressed concern, as also reported in the
press,
that Indonesia might terminate its gas supply agreement with Island

Power due to the continued delays. InterGen would likely withdraw
its
investment if this were the case, Reading concluded.


5. (SBU) Reading also anticipated that his GLC competitors might
challenge the new law. He relayed that in a recent meeting between

Island Power and Gas Supply, ostensibly to reach an access agreement

without EMA's intervention, Gas Supply representatives told him that


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