After blast, PTT's Egypt pipeline assets in doubt

PTT, Thailand’s largest oil and gas conglomerate, is in the process of protecting its investment in a gas-pipeline project in Egypt whose operation has been suspended since February last year. 

PTT holds a 25-per-cent stake in East Mediterranean Gas (EMG), the operator of the Egyptian pipeline. PTT and other shareholders in EMG are considering an arbitration process through which they can claim losses from the disruption to the pipeline’s operation caused by an explosion last year. 

“PTT wrote down Bt5.8 billion of its assets in the gas pipeline in Egypt in 2011,” said Tevin Vongvanich, PTT’s chief financial officer. “The remaining asset value for our investment proportion is about Bt7 billion. We may or may not write off the remainder, depending on the process that we’re undertaking to protect our investment.” 

He said EMG had operated the pipeline since 2009. It shut it down last year because of an explosion near the pipeline facility. There was no structural damage to the pipeline, but EMG could not resume normal operations, resulting in lost revenue. 

Tevin said EMG had retained its assets, so the company could resume operations once the unrest in Egypt has ended. PTT cannot tell yet whether it will have to write off the remaining Bt7-billion value of its investment in EMG. It depends on the situation in Egypt, which has not fully regained stability since the overthrow of the regime of Hosni Mubarak last year. 

 

Many legal solutions 

Chitraphong Kwangsuksathit, president of PTT International, said PTT and other shareholders in EMG could launch legal actions to claim compensation for the business disruption. There are many legal solutions, and arbitration is one of them. PTT International has invested more than US$400 million (Bt12 billion) in EMG. 

PTT has invested a 25-per-cent stake in EMG through its subsidiary PTT International. EMG was set up under the peace treaty and memorandum of understanding relating to the pipeline transmission of natural gas from Egypt to Israel. EMG purchases natural gas from Egypt and has been awarded contracts to sell it to power plants and industries in Israel for 15 years.

Tevin said PTT had tried to increase its return on investment. 

In 2010, PTT’s return on equity was 20 per cent, up from 18 per cent in 2010, whereas the return on assets last year was 8 per cent, compared with 7 per cent in 2010. The supporting factor is the high global oil price; however, the financial problems in Europe and economic slowdown in China are the main uncertainties, as they result in low demand for petrochemicals and petroleum. 

“We’ve tried harder to increase our return. So, from now on, we have to consider overseas investment cautiously,” Tevin said.