Thailand government proceeds with 21st Petroleum Bidding Round despite opposition-
The Thailand Ministry of Energy (MoE) launched the 21st Petroleum Bidding Round on October 21, 2014. Pursuant to this, 29 blocks, comprising 23 onshore and 6 offshore blocks, have been offered. However, in early January 2015, the National Reform Council (NRC) – an advisory body appointed by the military under the interim constitution in October 2014 – voted against the ongoing bidding round. Despite this, the Thailand government has decided to proceed with it, stating that a failure to do so would undermine the country’s international credibility.
The reasons cited by the NRC to vote against the ongoing bidding round was lack of transparency in the concession granting system. Additionally, the concession method would bar public participation, thereby denying people the right to access information regarding petroleum exploitation. There were also environmental concerns in some of the offered blocks. In addition, the government has been facing opposition by several public groups regarding the bidding round. Against this backdrop, the last date for submission of bidding applications has recently been pushed to March 16, 2015 from the earlier scheduled date of February 18, 2015. In order to clarify the situation with these groups, the government convened a public hearing on March 20, 2015.
Prior to this, the Thailand government had offered oil concessions in 2007, when the Department of Mineral Fuels awarded 28 concessions for onshore and offshore exploration blocks. At present, Thailand is facing a domestic shortage of fuel in the country. Domestic consumption of crude oil and natural gas is higher than domestic production, leading to significant dependence on imports. The trend in Thailand’s fuel consumption and production in the past is depicted in Figures 1 and 2.
Favourable fiscal terms for operators
According to the MoE, the blocks currently on offer under the 21st Petroleum Bidding Round are estimated to hold between 1 trillion-5 trillion cubic feet of natural gas and 20-25 million barrels of crude oil. Under the bidding round, the government is seeking greater foreign participation in the exploration of the offered blocks. For this, the government seems determined to undertake appropriate measures to bolster investor confidence in Thailand’s oil and gas sector, highlighted by the fact that the current fiscal regime for the 21st Petroleum Bidding Round remains favourable to operators. The fiscal terms of the new concessions will be governed by the “Thailand Three” petroleum concession regime, which also governs the concessions awarded in the previous bidding rounds. The maximum effective rate for royalty fees continues to be only 13 per cent of oil revenues. The fiscal terms also include an annual incremental royalty of 5 to 15 per cent, a 50 per cent tax on net profits, and an annual incremental special benefit that varies based on revenue and exploration investment. In addition, concession holders will have to contribute a minimum of $30,950 per annum on educational development in the localities where exploration is taking place.
Notably, there are two conflicting views regarding the current petroleum regime, under which the concessionaire exclusively owns all the petroleum produced as well as controls the rate of production during the concession period (typically 20 years). As Mike Doyle, Senior Partner, Seri Manop and Doyle Limited, points out, “On one hand, certain civic groups believe that a country’s government should have control over the production and use of its natural resources. Additionally, they argue that the fiscal terms Thailand offers to its concessionaires are too generous as compared to those offered by its neighbours in the region”. Following the announcement of the bidding round in October 2014, energy reform groups in Nakhon Ratchasima province (where most of the 23 blocks offered are located) signed a petition demanding the government revoke all existing petroleum concessions. “However, the other point of view holds that the current regime is the most suitable for Thailand. As Thailand’s prospectively is limited, it is essential that the government continues to use the current concession system, which offers favorable fiscal terms. This helps attract international oil and gas conglomerates, which have the technology, resources and expertise”, reiterates Doyle.
In order to attract further investment in Thailand’s oil and gas sector, industry players estimate that the government may complete amendments to the much-delayed 2007 Petroleum Act, which have repeatedly been postponed over the years. Overall, the amendments are expected to be beneficial for operators of the concessions. However, these may also include stricter environmental compliance requirements to restrain local opposition on account of the Koh Samet oil spill. In July 2013, there was a major oil spill off the coast of Koh Samet. This led to massive public protests in the affected areas and filing of several legal cases against the government and state-owned companies by the fishing and tourism industries.
Conclusion
Against the backdrop of a rising demand-supply gap for oil and gas in Thailand, the launch of the 21st Petroleum Bidding Round is expected to provide respite to the country in the long term. The government’s decision to move ahead with it despite opposition from the NRC indicates its determination to undertake the measures required to provide a leg up to the oil and gas industry. Of particular significance in this context would be the expected completion of the 2007 Petroleum Act amendments.
