INTERNATIONAL BITS AND PIECES - MONDDAY A.M. 10/26/98
Gulf Arabs slowly switch on private power
DUBAI, Oct 26 - Racked by low oil prices and eager to boost efficiency, Gulf Arab states are looking to the private sector to try to keep up with fast-rising electricity demand.
Most Gulf governments are moving with typical caution, but analysts say the power sector in the region's traditionally closed economies may offer battered emerging market investors an oasis of relative stability.
"Normally with power, if there is an offtake arrangement, it's a fairly secure business. It is not volatile like equities or stocks," said Tony Georgiou, a director at Oman's United Power Co <UPC.OM>, the region's first private power generator.
"It is a sort of instrument people should be looking to investing into in such times of volatility. There are no surprises," he told Reuters from Muscat.
Oman is leading the region's switch to private power. The government is talking with United Power on tripling capacity at its two-year-old 90-megawatt (MW) Manah plant. Oman is also evaluating bids on a project in Salalah that introduces private generation and distribution for the first time.
Abu Dhabi followed Oman's lead by last month awarding a CMS Energy <CMS.N> joint venture with a state agency a $700 million deal to build and operate a 710 MW gas-fired plant.
ON THE SIDELINES OF EMERGING MARKET TURMOIL
"As far as the Gulf region is concerned, there is still some stability, political and economical," said Francois-Xavier Reignier of the Paribas structured finance team in Abu Dhabi.
"I think it's a region where investors still have some appetite," he said.
As other emerging markets have been plunged into turmoil, Gulf Arab states have survived largely unscathed as their economies remain mostly closed to foreign investors.
They may have escaped the chaos of capital flight, but the oil-dependent Gulf has been hit hard by depressed crude prices. The knock-on effects of lower state spending are now emerging.
Qatar, which has borrowed heavily to launch its gas industry, is in the tightest spot. The tiny oil producer is accelerating privatisation, including transferring the operation and maintenance of a power and water plant to a public company.
Bahrain and Kuwait are also examining moves towards private financing, but have yet to get the plans off the drawing board.
Even Saudi Arabia, the world's biggest crude producer, is feeling the strain as it seeks to more than triple capacity to almost 70,000 MW by 2020 at a cost of $117 billion.
Like other Gulf states, Saudi Arabia's high population growth is boosting power demand running at 16 percent a year.
FACING UP TO AN OIL PRICE SLUMP
"If you take Saudi Arabia, for instance, how can they expand their electricity network and continue subsidising the prices with the drop in oil prices? It's going to be impossible," Reignier said.
Power generation in the kingdom is handled by four joint stock companies, private in name but whose projects are usually financed by the state, which also controls the prices. The firms lose money hand over fist.
Analysts blame the tariff structure with its underpriced electricity for stalling the kingdom's plans for its first private project, the $2 billion Shuaiba plant.
"You cannot have a BOT (build-operate-transfer project) with the existing tariff structure," one Gulf industry analyst said.
"I don't think that the government is willing to review the tariff structure for the time being," he said.
CAUTION IS THE WATCHWORD
Conservative Gulf governments, which dominate their economies, are usually very cautious about policies that could leave their mollycoddled citizens out of pocket.
But giving over the industry to private hands could bring savings for both governments and customers.
An efficiency drive is the main motivation in Abu Dhabi, the wealthiest of the UAE's seven members, whose enormous cash reserves could have financed the new plant, analysts said.
The plant is expected to bring down the price of electricity by about a third, officials have said.
"The whole system in the Gulf is inefficient," said Jamil al-Alawi, president of Bahrain's Business Promotion Centre, a consultancy which is working on power projects in the Middle East.
Alawi said Gulf governments should tap their own citizens' wealth and encourage competition in the industry if they want to ensure a government monopoly is not simply handed over to a monopoly of foreigners demanding high returns.
"I am not against foreign investors in an open, competitive market," he said. "I am against foreign investors where there is no competition."
Saudi heir sidesteps oil right issue,leaves Japan
TOKYO, Oct 23 - Saudi Arabia's Crown Prince Abdullah left Japan on Friday, after making a plea for more investment but gently sidestepping the question of whether the kingdom would renew important drilling rights held by Tokyo.
Japan's leading oil producer Arabian Oil Co Ltd (AOC) and Saudi Arabia are in the midst of talks to renew a concession in the Neutral Zone before it expires in February 2000.
The offshore concession in the Neutral Zone, which is shared by Saudi Arabia and Kuwait, has a daily crude output of 300,000 barrels and is Japan's most significant upstream oil interest.
Renewal of the drilling rights is widely recognised as implicitly linked to Saudi Arabia's request -- made publicly last November when then Prime Minister Ryutaro Hashimoto visited Riyadh -- that Japan buy more of its crude oil.
Although the Saudis refrained from repeating the request in meetings with Japanese leaders during the 74-year-old crown prince's three-day visit, Japanese oil industry sources say the demand still holds.
"I think we know the starting position... the renewal of the concession on the one side versus the Saudi desire to get more oil into Japan on the other," an oil industry source said.
An official at a Japanese oil company said Japan's Ministry of International Trade and Industry (MITI) had asked Japanese oil refiners in early September to try to "accommodate the request to buy more Saudi crude".
"But we can't do it," the official said.
He said MITI's request went against the ministry's own commitment to push forward industry liberalisation.
AOC has enjoyed strong government backing from the time of its establishment in 1958 because of its position as a major Japanese oil producing venture.
But the oil company official said there was disapproval within the oil industry -- and even within the Trade Ministry itself -- of the government's backing for a private company.
The sales drive by Saudi Arabia -- the second-largest oil exporter to Japan -- appears not to be bearing fruit, however.
Data released by MITI on Friday showed that imports from Saudi Arabia amounted to 26.7 million kilolitres (kl) during the first half of fiscal 1998/99, down three percent from the same period last year.
Although Japan's total crude imports fell four percent to 122.7 million kl during April to September, shipments from the United Arab Emirates -- the number one source of crude oil for Japan -- rose 2.2 percent to 35.1 million kl.
A MITI official attributed the decline to Saudi Arabia's cut in crude export allocations made in line with its pledge to cut output to try to boost sagging global crude prices.
Industry sources say Japan is likely to buy less crude rather than more in the future because of declining domestic energy demand.
But many in the Japanese oil industry believe the AOC concession will be renewed.
Prince Abdullah, the appointed heir to Saudi Arabia's King Fahd, will visit South Korea and Pakistan before flying home.
China's Crude Imports Fall, Breaking Trend
SINGAPORE, Oct 26 - China's cumulative crude imports have fallen for the first time in several years-- as the country drives to cut its reliance on imports, analysts said on Monday.
"China has been doing everything in its power to improve its self-sufficiency both upstream and downstream in the current year," said James Brown, regional energy analyst for Merrill Lynch.
"I would see this as a result of this initiative," he said.
Customs data on Monday showed that China's imports of crude in the first nine months of the year fell 2.3 percent to 23.5 million tonnes compared with the same period in 1997.
The data represents the first cumulative decline in crude imports since 1994 when China turned into a growing net importer of crude.
It also represents a dramatic turnaround in imports when compared 57 percent growth in 1997 over 1996.
Analysts, however, said the data was expected as China has been encouraging local refiners to use more domestic crude oil.
Kang Wu, a China energy analyst at Hawaii based East-West Centre, said that China has taken steps to reduce the attractiveness of foreign crudes to domestic buyers.
In June, China freed up domestic crude price controls which Wu said resulted in a fall in the price of local crudes and brought them closer to international levels.
"Crude imports in China are still more affected by policies than by the natural markets, but the lower prices do help," Wu said.
"Local refineries are forced in many cases to choose domestic crude oil, but this (policy) makes it easier for them to choose," he said.
The fall in imports has occurred despite a fall in domestic output and would indicate that China was drawing down stockpiles to meet demand, analysts said.
Domestic production of crude oil between January and September was down 0.9 percent at just less than 120 million tonnes, compared to the same period last year.
January to September crude exports were down 16.5 percent at 12.56 million tonnes, on a year-on-year basis.
At the same time, China's refinery throughput was up 0.3 percent in January to September at 120.6 million tonnes compared with the year-earlier period.
"If domestic production is down, imports are down and the economy's growing, where is it coming from? They must be drawing down on inventories," Brown said.
The steady throughput has occurred despite a cutback in refinery operating rates, official media reports would indicate.
Earlier this month, China's Market Daily publication said that China National Petrochemical Corp (SINOPEC) cut refinery production 14.5 percent in the third quarter compared to last year.
It said that for the fourth quarter SINOPEC aimed to cut throughputs by 11.4 percent from 1997. Since a national reorganisation, SINOPEC refinery capacity totals around 2.56 million bpd, analysts said.
China has also told crude suppliers that in the third quarter it wanted to limit imports-- including term volumes where possible-- because crude stocks were high.
"China has been almost absent from the spot market, clearly they were expected to reduce imports as they haven't been buying," a trader with a major oil company said.
CHINA'S Energy Output down
BEIJING (Oct. 25) - China's total energy output in the first eight months this year amounted to 738.9 million tons of standard coal equivalent, down 5.5 percent from the same 1997 period, according to the State Statistics Bureau.
The country produced 720 million tons of coal between January and August, down 8 percent. The output of crude oil was 106.5 million tons, down 0.9 percent; and that of natural gas, 14.1 billion cubic meters, down 1.6 percent.
Conference to Focus on Heavy Oil
BEIJING (Oct. 24)- A United Nations-sponsored conference on heavy oil is to be held in Beijing between October 27-30.
The seventh U.N. institutions for Training and research (UNITAR) international conference on heavy crude and tar sands is expected to be attended by more than 500 representatives from the U.N. and 24 countries.
The theme of the conference is "Heavy oil -- a major energy resource for the 21st century."
It will be the first time such a conference to be held outside the American continent, today's "China Daily" says. The previous six conferences were held in Canada, the United States and Venezuela.
"The reason to choose Beijing as the conference site is mainly that the heavy oil industry in Asia, especially in China and Indonesia, has been booming in recent years," said conference chairman Wang Naiju.
The conference is sponsored by the China National Petroleum Corp (CNPC) and the China Petrochemical Corp (Sinopec), and co-sponsored by UNITAR's Heavy Crude and Tar Sands Center, Petrole De Venezuela SA, and the Energy Department of the United States.
The conference will focus on two key problems: finding new ways to improve technology and strengthen management to reduce production costs, and mapping out a development scheme able to cater to the increasingly critical need for environmental protection, Wang said.
India Seeks Closer Ties with Russian Oil Sector
MOSCOW, Oct 23 - India is looking for closer ties with Russia to plug a widening energy gap, and expects to sign deals for Indian companies to work in Russia shortly, Petroleum and Natural Gas Minister V.K. Ramamurthy said on Friday.
"India must either considerably increase imports or go outside the country and look for Production Sharing Contracts," he told a news briefing. "The government has taken a conscious decision to go for the second option."
But despite an upbeat account of his visit to Russia, the first ever by an Indian petroleum minister, no deals have yet been signed, though Ramamurthy said he expected agreements soon.
The deal closest to completion was a proposed joint bid between India and Russian state-owned oil company Rosneft to participate in the Sakhalin 4 and Sakhalin 5 projects, he said.
He added that India's Oil and Natural Gas Company (ONGC) is also involved in a partnership with U.S. Samson International (SIL.CM) to develop a field in Russia's Udmurtia republic.
The field's development has been cleared at the local level but needs approval by the Duma lower house of parliament.
Ramamurthy pointed out that although Russian-Indian cooperation had traditionally been close in defence, agriculture and other spheres, energy had not been a priority for India until demand started to soar.
But closer energy cooperation with Russia is a matter of urgency now as consumption booms.
Ramamurthy said current demand is 134 million tonnes of crude per year (2.7 million barrels per day), but this is expected to rise to 200 million tonnes (4 million bpd) by 2000.
Just five years ago demand was a mere 70 million tonnes. India is already the sixth largest energy market in the world.
Indian domestic gas supply of 22 billion cubic metres (bcm) per year is far short of current demand of 37 bcm, while domestic crude accounts for just 32 percent of demand, he said.
Ramamurthy dismissed Indian press speculation that the country was preparing to invest $1 billion in the Russian oil sector as "nothing but an exaggeration."
He added that since no concrete plans had been made or contracts signed, it was impossible to say what the level of investment might be.
ONGC will open an office in Moscow following Ramamurthy's visit. It already has a presence in Libya, Egypt, Iraq, Uzbekistan, Azerbaijan and Vietnam as part of the government's drive to start production abroad.
But none of these are producing yet, although gas from a project in Vietnam is expected to come onstream soon, and sourcing more oil remains a priority.
As well as proposing to explore and form joint ventures and make equity investment in Russia, Ramamurthy said he wanted to invite Russian companies to explore in India.
At a meeting with major Russian oil company LUKoil (LKOH.RTS), India offered some Indian blocks to LUKoil for development while LUKoil offered similar blocks to India in return, although Ramamurthy gave no further details.
The Indian delegation also visited gas monopoly Gazprom (GAZPq.L) and Ramamurthy said Gazprom and Gas Authority of India Ltd (GAIL) were close to a deal on setting up a joint venture.
India is also looking to sign deals for joint venture companies between the two countries to work in third countries.
Ramamurthy said he had invited Russian fuel minister Sergei Generalov to lead a delegation to India by the end of the year.
Ecuador Expects New Oil Boom
QUITO, Oct. 22 - Ecuador's state oil company Petroecuador announced Thursday that it expects a "new oil boom" in the country.
Petroecuador executive president Ramiro Gordillo told reporters that the country's oil output will increase to 705,000 barrels per day in 2003, which is 300,000 barrels more than the present level, or more than three times the figure in 1973.
He said the state company plans to construct a new oil pipeline, sell new oil fields, modernize refining plants and conduct studies to increase crude reserves.
It is planned that 3-3.5 billion U.S. dollars will be invested in the next three years to start the program and private companies will provide the bulk of the needed funding.
An investment of 466 million dollars is foreseen for the construction of a new oil pipeline, which will run parallel to the existing one that goes from the Amazonian oil fields to the ports of shipping in the Pacific.
The new oil pipeline is expected to operate in the first quarter of 2001.
Gordillo said that at least five of the oil fields will be auctioned.
Britain Deplores Rebels for Colombia Oil Tragedy
BOGOTA, Oct 23 - Britain condemned Colombia's Marxist rebels Friday for a fiery weekend attack on a major oil pipeline in which at least 62 people were killed.
But Junior Foreign Office Minister Tony Lloyd, who spoke at a news conference while on a three-day official visit to Bogota, urged Colombians not to let the attack derail their country's fledgling peace process.
Lloyd said the attack by National Liberation Army (ELN) rebels had provoked "absolute outrage" given the deaths of scores of civilians, many of them children.
"We do offer our very sincere condolences to the Colombian people ...and state our absolute outrage and condemnation of those who took part in this act... whatever excuses are offered by the ELN."
But drawing parallels with the Omagh bombing that killed 28 people in Northern Ireland in August, Lloyd encouraged Colombians "not to accept or condone the acts of those who try to derail the process."
The death toll from Sunday's pre-dawn attack on the Ocensa pipeline, which is Colombia's biggest and pumps crude from the Cusiana-Cupiagua oil field operated by British Petroleum Plc to the Caribbean lifting terminal of Covenas, had been set at 56 late on Wednesday.
But health officials said it rose to 62 Friday, after six more burn victims died of their injuries.
Children make up about half of the fatalities so far, and authorities the final death toll could easily surpass 70, given the number of people still listed in critical condition in hospitals.
The Cuban-inspired ELN, which was founded by radical Roman Catholic priests in the mid-1960s, claimed responsibility for blowing up the pipeline, which is operated by a British, French and Canadian consortium.
But the ELN, Colombia's second-largest guerrilla force and a specialist in economic sabotage, has insisted that it was not responsible for the fire that erupted after the blast and tore through Fraguas and Machuca, gold-mining villages in rural Antioquia.
In two communiques issued earlier this week, ELN commanders said the blaze began more than one hour after the initial explosion and was probably started by troops on patrol in the area.
Oil experts, along with government and army officials, have said the fire began seconds after the explosion.
The ELN and larger Revolutionary Army Forces of Colombia (FARC) have both agreed to open peace talks with the government of President Andres Pastrana, who took office in August and has vowed to pursue a negotiated settlement of long-running civil conflict.
But Sunday's attack and the ELN's denial of responsibility for the oil fire clouded the outlook for full-fledged government talks with the ELN anytime soon.
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