New PTT chief to push ahead with integrated gas business

The incoming president of PTT Plc, Prasert Bunsumpun, plans to push ahead with the company's five-year, 100 bn-baht integrated business project, of which 90 % involves its natural gas business. Mr Prasert, who will take the helm of the country's largest petroleum conglomerate, said the key investment plans slated to start include the construction of its third offshore gas pipeline, the Sai Noi North-South power plants, and its fifth gas separation plant, to be located in Rayong.
In addition, the construction of the Trans-Thai Malaysia Gas Pipeline has finally begun, more than two years behind schedule due to disputes over its environmental impact, and is scheduled for completion in the middle of 2005. On completion of the full investment plan in 2007, PTT will have an integrated gas operation, which in turn will increase the value of the company and provide more income, Mr Prasert said.

PTT plans to issue bonds worth 50 bn baht to refinance debt during this year and next. Mr Prasert said that with lower debt costs from the refinancing, and expected profit gains during the next few years, PTT would probably not need new loans to finance its projects. He added that earnings in the third and fourth quarters would exceed the level seen in the second quarter but less than in the first quarter.
PTT's net profit in the first quarter jumped to 10.8 bn baht from 5.27 bn in the same period last year. By segment, the petrochemical business is expected to grow by 3-5 % this year, the natural gas business by 7-8 % and the oil business by 5-6 %, according to outgoing president Viset Choopiban, who is completing his term and decided not to seek another two-year extension. He said the up-cycle in the petrochemical industry, which is expected to peak in 2004-05, would be the main driver of PTT's earnings during the next several years.

As well, the company will benefit from its interest in various petrochemical subsidiaries and affiliates, particularly Thai Olefins Co in which it holds a 63.03 % stake, National Petrochemical and Aromatics Thailand. Thai Olefins is expanding its ethylene production capacity to 700,000 tpy from 385,000 tons to accommodate the upturn cycle. PTT will sell 500,000 tons of ethane a year to Thai Olefins for use as a raw material for its expanded production.
"In the next three to five years, PTT will have an integrated infrastructure and sufficient capacity as well as assets which all put the company in a position to generate huge profits," Mr Viset said. In addition, he said that from now until 2009, PTT would receive $ 100 mm a year as a result of a contract to buy gas from the Yadana and Yetagun gas fields in Burma.

Four years ago, PTT paid a huge advance to gas producers in Burma under a take-or-pay contract, meaning it had to pay for the natural gas whether it used it or not. In 2001, the total advance payment for the contract, worth $ 830 mm, was booked as an asset. PTT can now take this gas and sell it at much higher price.
Mr Prasert and Mr Viset conceded that the company might not have sufficient pipeline capacity to supply local power plants in 2004-05, when the pipeline bringing gas from the Gulf of Thailand to heavily industrialised Rayong is expected to be operating at full capacity. They said demand for natural gas among local power producers, on the back of the strong recovery in the economy, was likely to exceed PTT's original projection.

According to Mr Viset, energy demand in Thailand grows 1.4 % for every 1 % gain in economic growth. So if the economy expands 6 % as projected, power demand would jump by 8.4 %.
To meet the rising demand for gas, PTT will try to accelerate the continuing construction of its third pipeline network.