Prime Minister Prayut Chan-o-cha's decision last week to defer the 21st round of bidding for petroleum exploration and production concessions for three months until laws are amended has signalled that public pressure has grown too much to be ignored.
For the civic sector, this is a positive start, paving the way for energy reform. But for the Energy Ministry, this might be a major setback that could put national energy security at risk.
Conflict has flared between the ministry, which favours the Thailand 3 Plus concession system, and civic groups, which strongly oppose the system and propose an alternative of a profit-sharing contract (PSC) scheme.
With the Thailand 3 Plus scheme, the ministry says the state will receive more than 70% of concessionaires' profits including loyalty fees and income tax plus additional annual fees. Yet the ownership of resources will be in the hands of concessionaires until the concessions end.
PSC scheme is prone to possible corruption, says Mr Kurujit. Wisit Tham-ngern
Under the PSC system, the ownership of resources remains with the government and so it holds rights to manage resources and contracts. The government will get loyalty fees, agreed profit-sharing and income tax but will have to shoulder the costs of equipment and exploration.
It is hoped the controversy will be resolved soon as the country needs to move forward with its reform plan.
The Bangkok Post has interviewed two key representatives of government bodies that hold opposing views: Rosana Tositrakul, a National Reform Council member, and Kurujit Nakornthap, deputy permanent secretary for the Energy Ministry.
Their arguments are based on the following questions:
1) What do you think about the prime minister's decision to delay the 21st round of concession bidding for three months?
2) Is Thailand really in need of new concessions for oil and gas exploration now?
3) What are the pros and cons of PSC and Thailand 3 Plus?
4) Will the preferred scheme benefit consumers by ensuring cheaper energy prices?
5) Will the preferred scheme lead to national energy security?
Kurujit Nakornthap
1) The Energy Ministry is ready to comply with the government's decision if it wants to revise related laws. Meanwhile, the ministry is ready to provide information as we have done at previous public forums. We hope that the National Legislative Assembly (NLA) will take into account reasons, academic information and the country's interests for these law amendments.
2) Yes. The Mineral Fuels Department insists that it is vital the country is open to new exploration bidding because our natural gas reserves have continued to dwindle in recent years. The situation has driven the country to import more than 55% of overall demand, accounting for 1.44 trillion baht annually.
If there is no new exploration to seek new sources of energy, the energy shortage will become severe and inevitable. Then the country will need to import not only natural gas but also power to meet rising demand. The process for the 21st round of bidding has not been rushed and we have prepared for it since 2012.
The bidding process is only the beginning to seek interested concessionaires. We believe any revocation of laws will affect investment sentiment, which will inevitably impact national energy security.
3) Cons of PSC scheme
The system requires negotiations between the state and contractors at every part of the process. This is seen as being prone to possible corruption. However, all conditions of the Thailand 3 Plus scheme are stated clearly in the laws and regulations.
The system does not encourage foreign investment as contracts and benefits are based on negotiation, which is uncertain.
If PSC is to be implemented, some laws need to be amended. That is going to be time-consuming. However, the country's current energy situation does not permit further delays in resource exploration. The opening of concession bidding should be started soon while studies of law amendments proceed at the same time.
Pros of Thailand 3 Plus scheme
There are clear regulations and conditions stated in the laws without the need for individual negotiation and that makes clarity and transparency possible.
The clarity and certainty of conditions and regulations promote investment sentiment and investors' confidence.
4) Energy prices do not depend on the system being used. They are based on supply and demand, location of production sites and global oil prices.
However, if the Thailand 3 Plus scheme is implemented, it is estimated that energy resources of 1-5 trillion cubic feet would be discovered. But it is likely to take seven to nine years for production. It is projected that 5 billion baht will be invested and 200,000 jobs created. The country will benefit from loyalty fees, income tax and special remuneration benefits.
5) If the bidding is opened and concessions are given, it is estimated energy resources of 1-5 trillion cu ft will be discovered even though it will take seven to nine years for production.
Whether new energy resources are discovered or not, exploration will reveal the truth of the country's energy situation, which will be vital in energy management to create national energy security.
Ms Rosana says ministry's scheme will not lead to national security. Kitja Apichonrojarek
Rosana Tositrakul
1) It's definitely a good start that the PM is listening to the voices of civic groups. But there are still obstacles ahead as the Energy Ministry is insisting with the concession system. So it totally depends on the PM.
2) No. There should be amendments to the Petroleum Act 1971 and the Petroleum Income Tax Act 1971 and other related laws before opening the 21st round of concession bidding in order to allow other forms of resources management such as the PSC system.
The ministry claims the country will face an energy security crisis within seven years. In fact, concessions of the Bongkot and Erawan fields will end in seven years but natural gas and oil in the fields will not. However, the ministry has tried to distort information with an attempt to proceed with bidding without amendment of the petroleum laws that have put the country at a disadvantage.
Civic groups believe the government should take charge of exploration. The ministry has disagreed, saying that would cause financial loss if the exploration fails to find new gas or oil resources or only a minimal amount. If that's the reason, then the 21st round will not provide national energy security.
3) Cons of Thailand 3 Plus scheme
The tax system stated in the Petroleum Act 1971 is considered unfair to new concessionaires and discourages newcomers to join the bidding but encourages existing ones. The Thailand 3 Plus scheme also requires an initial fee of 200 million baht that will discourage newcomers from bidding.
The condition stating that Thai companies are eligible for a joint investment, for 5% of the overall stake, when natural gas and oil are found can be viewed as a double standard granting benefits to some companies having political influence or connections.
The scheme does not lead to national energy security as petroleum produced belongs to concessionaires and they are allowed to sell it at the same level of imported prices.
Pros of PSC scheme
The government owns resources and shares of petroleum production, which is key to ensuring national energy security. The government is also required to set up a wholly owned National Oil Corporation to manage upstream petroleum resources. However, like a democratic system, the success of the PSC system requires integrity, transparency in management and disclosure of information to the public.
4) Under the PSC scheme, the government will be entitled to the profits and benefits shared between itself and concessionaires. If the government sets energy prices at levels suitable for economic status, consumers will benefit. If the government sets energy prices at higher levels, there will be more revenue going into its coffers to develop public welfare.
5) With the PSC system, petroleum production that belongs to the government will allow it to set up a national oil storage system to ensure energy security instead of importing crude oil as reserves.
For natural gas used for power generation, the government can sell its share of production to the Electricity Generating Authority of Thailand for more revenue.