Macau energy supplier Sinosky admits there have been delays in the supply of natural gas to the city, but the company chairman points the finger at an indecisive government All of a sudden, everybody woke up. Last month, legislator Kwan Tsui Hang requested information from the government about Sinosky Energy. She was referring specifically to supply delays and asking if there had been any breach of the agreement signed with the government in 2007. Almost immediately, a slew of news, most of which had already been revealed in a series of articles in this publication, surfaced raising questions about the gas business. Sinosky Energy (Holdings) is a consortium made up of China Petroleum & Chemical Corporation and Macau Natural Gas (Sinopec/MNG), which was granted a 15-year monopoly for importing and transporting natural gas to Macau. Half-cocked The supply of natural gas to Macau should have reached 180 million cubic metres in 2008 and again last year, but the numbers only reached half of what was settled with the government. In 2008, Sinosky imported 82.55 million cubic metres of natural gas, less than half of what was planned, and last year the company supplied to Macau 93.15 million cubic metres, up 13 percent compared to the previous year, said Chang Kuo Tien, Sinosky’s chairman of the Board of Shareholders. Besides falling short on numbers, the construction of the Liquefied Natural Gas (LNG) terminal has been delayed for several years. It was supposed to be operational on a man made island last year, but is probably only going to be ready in 3 or 4 years, said Chang. Moreover, Sinopec, one of China’s largest state-owned companies, is no longer involved in the LNG terminal construction project – although it still holds a 50 percent share in Sinosky. These are all concerns that Kwan raised in the letter she wrote to the government. The lawmaker argues that the company didn’t follow the agreement and neglected the construction of the LNG terminal, failing to supply the predetermined amount of natural gas. This has severely harmed the public interest, she wrote. Who fault is it? Sinosky boss Chang acknowledges that the project is delayed, but says they are not to blame. “It is taking so long because it seems to be the government culture. Nobody does anything,” he told Macau Business. Chang says information that has been coming out is not accurate. “We are following the agreement. We are supposed to supply natural gas to the power company for the first two years – which we have been doing – and in the third year we have to build a temporary terminal, with capacity to store natural gas for seven days. “Since the first year we asked the government for a piece of land where we could build the terminal. Until today there is no land,” he explains. Additionally, the corruption cases of disgraced secretary Ao Man Long – jailed for 28 and a half years for corruption – and former president of Sinopec Chen Tonghai – accused of bribery and corruption in a US$30 million scandal involving Asia’s largest oil refinery, and responsible for signing the agreement in Macau – have also frozen the project. Nothing to hide “After what happened, the new secretary doesn’t want to touch the projects that started under Ao Man Long’s term. But there are no problems. We don’t have anything to hide,” says Chang. “In addition, the new general manager of Sinopec also wants to wait to see how the court rules in the case of Chen. But I had to tell them that we could not wait more, since we had signed the agreement with the government. Sinopec told us that we could go ahead without them,” he adds. Sinopec, as a partner in Sinosky, will take care of wholesale commerce in the territory. Sinopec is not going to build the LNG terminal, but MNG has already found new partners and a company called Macau Liquefied Natural Gas Holdings (MLNG) has already been established. 80 percent of this company is owned by MNG, while the remaining 20 percent will stay in Japanese hands: Chubu Electric Power Company, builder and manager of several LNG terminals in Japan, and Marubeni Corporation, that is developing projects in UK and USA, each with ten percent. “We have set up the company and informed the government. Now all we can do is wait for the approvals,” says Chang. Wall of silence For the past six months Macau Business has tried to get a reaction from the government on the changes in the project and the agreement. But the Office for the Development of the Energy Sector says it doesn’t know anything about new developments and new partners. “If they say they don’t know that Sinopec is not going to build the terminal, they are lying. “For the big project, the offshore LNG terminal, I personally took the project to the top people in charge,” Chang explains. Once the Macau Government approves the project, it will go to the Central Government, since it’s going to be built on water, and only after their approval the company – MLNG, not Sinosky – can start construction. “At the moment, all the reports and feasibility studies are in government hands; we are just waiting around for good news,” Chang says. Timid reaction Macau Business tried to reach Sinopec’s representative in Sinosky, but they declined to comment. The Office for the Development of the Energy Sector and secretary Lau Si Io’s office also refused to answer any of our enquiries. Instead, the government sent out two press releases that add confusion to the gas puzzle. First, on March 24, the Office for the Development of the Energy Sector said that it had received a report from Sinosky, stating that the annual supply would rise to 180 million cubic metres this year, as previously established. In the same document, Arnaldos Santo’s office explained that the unstable energy prices between 2007 and 2009 prevented the concessionaire from getting a steady source of LNG. It was impracticable to go forward with the construction of the terminal, added the press release. Three weeks went by, and on April 15 a new press release came out, with Arnaldo Santo’s office saying that it will order Sinosky to follow the agreement. The statement was based on the same information but was released just after Kwan’s letter to the government and the news hitting the media. However, there are still a lot of doubts that have to be clarified. The government should explain its position regarding the fact that Sinopec will not be an active partner in the construction of the LNG terminal, and the choice for a man made island for the project. Raising prices Sinosky’s chairman of the board says the supply of natural gas will be stable this year – and the final goal of 180 million cubic metres will be met. Chang Kuo Tien says: “Our supplier – China National Offshore Oil Corporation (CNOOC) – has left the problems behind and from now on the supply will be stable. “For the next three years I think 180 million cubic metres of natural gas is more than enough for Macau.” Chang says the joint-venture registered a financial loss of MOP9.2 million last year, taking the total accumulated losses to MOP21.37 million. The Sinosky boss attributed the continuing losses to the rising value of the renminbi over the past year and the repeated damage by typhoons on the offshore gas station of CNOOC, which affected the gas supply volume and led to losses. Taking all this into account, Sinosky is seeking a price increase: “We have already talked with the government and they will accept that we increase a little bit the price, trying to get a balance with our costs,” Chang told Macau Business. However, there are still no figures. Despite the losses, Chang says the company will increase the investment in Macau this year, including MOP12 billion for the LNG terminal that will be built on a man made island, 6.2 kilometres off Coloane. Still, the budget might go up approximately 10 percent, says Chang. “Everybody is doing new construction and looking for sand. If we want to build an island we need sand. We will possibly have to pay more,” he explains. According to the schedule, it will take two years to build the island and one more year for the assembly. “After three years we will be able to supply 1 million tons of LNG. In the second year we will raise the capacity to 2 million tons. After 5 years we will have capacity to supply 5 million tons,” says Chang. The deal to import LNG was signed last year with BPMigas, and the Indonesian party committed to supply gas to Macau at the end of 2013.