AMENDED GAS ACT: JUST HOT AIR?

UNCLAS SECTION 01 OF 02 SINGAPORE 001167 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 ¶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 ?- 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 they planned to take "unspecified action" to frustrate Island Power's efforts in Singapore. They further expressed their "hope to disrupt [Island Power's] contracts with the Indonesian government." ¶6. (U) More details of the Gas (Amendment) Bill can be found in MTI's website (http://www.mti.gov.sg) and Parliament's website (http://www.parliament.gov.sg). Comment -------------- ¶7. (SBU) Singapore's amended Gas Act represents a welcome, albeit long-delayed, step towards a more liberalized electricity market in Singapore. However, it remains to be seen how and whether the law will be implemented. We will continue our advocacy efforts on behalf of U.S. industry ?- which has included representations by the Ambassador and discussions during the May 11 annual FTA review (ref A) -- and closely monitor how the GOS balances the interests of GLCs and independent competitors. The amended Act's provision for more licensing also highlights Singapore's concerns about energy security and strong desire to decrease its dependence on Malaysia and Indonesia, currently the suppliers of almost all of Singapore's energy needs (ref B). In addition to constructing a liquefied natural gas terminal, funding research for renewable energy sources, and encouraging energy conservation, Singapore would do well to ensure new entrants into its electricity market enjoy the level playing field the amended Gas Act is meant to guarantee. SINGAPORE 00001167 002 OF 002 HERBOLD