Welcome to my private journal generally on Brunei issues. Any opinions expressed are in my personal capacity. All rights to the articles are reserved.

Sunday, May 6, 2007

My Take on Brunei Methanol Company (BMC)

I was at the ceremony for the signing of the public financing documents for the Brunei Methanol Company (BMC) yesterday at Rizqun. Both our Minister of Energy and Japan's Minister of Trade were there as the official witnesses. The ceremony itself is not much to speak of, we had to sit through 7 different speeches, every single one linked to the financing of the new company seemed to want to speak. The $500 million methanol plant is financed mostly by JBIC (Japan's Bank of International Cooperation) which is owned by the Japanese government and a smaller percentage by Standard Chartered Bank, Japan.

I heard the PB CEO thank JBIC for the generosity of the loan - so I presumed the consortium was charged only a very low interest probably not even 100 basis point above zero. My presumption as that's what Japanese banks charged business customers in Japan anyway. My worry is not so much about that. I think the project can make money and should be returning handsome profits within the next few years (the project is at least 20 years). With Mitsubishi, one of the partners as the sole buyer for the methanol, we don't have to worry about sales. That's a guaranteed 100% offtake.

My worry is about the cost of the gas supplied to the project. From what I gather from the various talks that John Perry did before he left or dumped, not sure which, the whole project should used up about 0.5 tcf of whatever LNG we produced and besides under the concession agreement, the LNG consortium is supposed to supply some 1.0 tcf to downstream industries. They are already obliged to so why not use it.

0.5 tcf doesn't sound like much. But then nobody outside the industry knows how much that is. But I remembered one slide when he was arguing and he said 0.5 tcf is equivalent to how much we are using now domestically and that to me looks like a lot. The next question is how much are we losing? We lose 0.5 tcf of market value should we sell it minus how much we are gaining from selling it to the methanol plant. We are definitely not selling the methane gas to the methanol plant at the same price as we are selling it in the open market. That much is obvious. Otherwsie you won't get the Mitsubishi's etc to come here to invest in the methanol plant.

It's okay if the methanol plant uses it and creates employment and at the same time creates business opportunities for other companies to provide logistics and services to the plant as well as technology transfers and other what nots. So the value of all these economic creations should exceed the amount of revenue loss by not selling it at the full market value. The question is - is it? Some have argued that if we are not going to gain economically by having a methanol plant why not we instead of selling the gas to the plant and lose out on the revenue, we might as well pay out unemployment benefits or something. That might be cheaper.

I am in a quandry. I have heard both sides of the argument. But nobody argues about this in the open public forum but closed arguments have been among various quarters in the government. If you are against this BEDB's plan for 'diversifying' the economy, BEDB will accuse you of not thinking long term, not wanting to diversify and not having the country's best interests at heart thus condemning our future generations to a bleak future. If you are in agreement with BEDB, the other side will accuse you of squandering the few natural resources we have and losing out on the revenues that we could have earned thus condemning our future generations to a bleak future. You can't win.

But we are going to have the plant. We now have to supply them with the gas that they need. I really really hope it works out. This is too costly to be an experiment.


David said...

I think the big question is what we stand to gain from the technology transfer and whether we (our engineers/scientists) can learn from it rather than what we can gain economically. The japanese companies would not invest in this if it were not to their advantage and this is a given. I think we should forget revenue streams from this at the moment and consider if we can apply what we can learn from them over the next ten years and apply this to creating new plants of our own implementation and funding to produce new downstream products from our natural resources. Up to now, we do not have the experience in such endeavours and I believe this is a good opportunity to gain this experience.

David said...

I just hope our new generations have the initiative to exploit this potential rather than sit around and have everything served up to them in a silver platter.