Malaysian steel group advises members to sign new gas supply pact

The Malaysian Iron & Steel Industry Federation (Misif) has advised its members to sign the new gas supply agreement with Gas Malaysia Berhad following a meeting with the country’s energy regulator.

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This brings an end to a disagreement between Misif and Gas Malaysia over some of the terms in the agreement that the former initially deemed unfair and impractical.

Representatives from both sides met with the Energy Commission of Malaysia to discuss the issues on April 11.

“We have informed our members that they can consider signing the agreement,” Misif president Soh Thian Lai told Steel First this week.

The deadline of April 15 to sign the agreement has not been extended, but Gas Malaysia has given users until the end of the month to sign it, Soh said.

Gas Malaysia – the country’s sole supplier of natural gas to the non-power sector – declined comment on the matter, citing confidentiality.

The signing had been postponed twice after attempts in December and February failed.

Key issues among the terms in dispute in the new agreement were the take-or-pay mechanism and the requirement of a daily forecast.

Now, Gas Malaysia has agreed to give Misif a trial period until the end of the year, Soh said.

“They have given us a trial period until year-end – for end-users to get used to the new terms and conditions,” he said. This means "there will be no penalty even if we do not forecast accurately”.

Take-or-pay agreements linking sellers and buyers through long-term contracts are common in the energy business, where producers are required to make huge initial investments and consumers need a steady long-term supply, representatives from Misif were told during the meeting.

Take-or-pay contracts are frequently used by gas suppliers as collateral for loans to build plants and transportation/transmission facilities.

In certain instances, a purchaser who must pay for the product but cannot use it in one year may be permitted to take more of it the following year or sell it back to the seller at a discount.

The new gas supply agreement comes ahead of a schedule to start up Malaysia's first liquefied natural gas re-gasification terminal off the Sungai Udang port in Malacca in the second quarter of this year.

The project was developed in anticipation of future increase in gas demand in the face of depleting domestic gas resources.

The Malaysia Steel Assn, which had been invited by Misif to the meeting with the energy regulator, could not be reached for comment.

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