Osaka Gas in Talks to Sell Power Plant Stake to Oman

By Shigeru Sato, Michio Nakayama and Yuji Okada

Oct. 15 (Bloomberg) -- Osaka Gas Co., Japan's second-largest gas distributor, may sell a share in a power plant to Oman in an effort to secure supplies of liquefied natural gas, company officials said.

The company is negotiating to sell an equity stake of less than 10 percent in Senboku Natural Gas Power Generation Co., a subsidiary that operates a 100 billion yen ($990 million) gas- fired plant in the Osaka Bay area of western Japan, two company officials with knowledge of the talks said on condition of anonymity because the accord hasn't been sealed yet.

Stronger ties with Oman will help the utility get better access to supplies at a time Japan is paying record prices for the fuel as competition increases from China, India and Europe. The move gives Oman access to Japan's expanding power market, which saw demand gain by 10 percent in the last four years.

``Oman taking a downstream equity position in Senboku would be akin to LNG buyers like Osaka Gas taking small upstream stakes in LNG projects to gain some value-chain integration,'' said David Hewitt, an energy analyst at CLSA Asia Pacific Markets in Tokyo. ``We presume Osaka Gas has sourced LNG from Oman's Qalhat project as feedstock gas for the Senboku plant.''

Toru Kinukawa, a spokesman for Osaka Gas, said he hasn't heard about the talks. Oman's Ambassador to Japan, Khalid al- Muslahi, said he wasn't able to comment on the matter.

The shares rose 3.5 percent to close at 327 yen on the Tokyo Stock Exchange, tracking gains by Japanese power and gas utilities.

Osaka Gas started importing liquefied natural gas from Oman, Japan's seventh-biggest supplier of the fuel, in 2000 when it signed a 25-year annual supply contract for 660,000 metric tons.

LNG Projects

In 2006, Osaka Gas acquired a 3 percent stake in Oman's Qalhat LNG project and signed a 17 year purchase agreement for 800,000 tons a year of the fuel. Delivery will start next year.

Osaka Gas imported a total of 7.3 million tons of LNG in the year ended March. Indonesia was the largest supplier with, sales of 2.6 million tons, while Australia and Oman shipped 1.1 million tons each, Osaka Gas spokesman Kinukawa said.

Osaka Gas plans to start operation of the 1,109-megawatt, four-turbine Osaka Bay plant in April.

In the past, no foreign buyer, except for investment funds, has acquired stakes in Japanese power plants. A national security law allows the government to block foreign acquisitions of more than 10 percent in certain industries, including electric utilities and arms manufacturers.

Electric Homes

Deregulation has allowed Osaka Gas to enter the electricity market in competition with Kansai Electric Power Co., Japan's second-largest utility. For its part, Kansai Electric started in December 2000 selling natural gas, a fuel for thermal power generation, said company spokesman Hirotsugu Minehata. The utility's LNG imports rose to 5.8 million metric tons in the year ended March from 3.6 million tons in March 2004, Minehata said.

Kansai Electric and other Japanese power utilities have tied up with banks to deflect competition by promoting the construction of houses and condominiums that use electricity exclusively for cooking and heating, rather than natural gas, kerosene, or liquefied petroleum gas.

By July, the number of electric houses and condominiums in the Osaka area more than doubled to 600,800 from 269,000 in March 2005, Kansai Electric said on its Web site.

Mizuho Financial Group Inc.'s banking unit offers housing loans with an interest rate 1.3 percentage points lower than ordinary loans to customers buying new all-electric houses, according to the bank's toll-free phone service.

Housing Loans

Mizuho joined Kansai Electric to promote the houses to help reduce global warming because they can run on emissions-free nuclear power, spokesman Makoto Kato said by phone.

In Tokyo and eight surrounding prefectures, the number of homes and condominiums powered solely by electricity increased from 34,000 in 2003 to 500,000 in July, said Ryo Shimizu, spokesman for Tokyo Electric Power Co., the country's largest utility.

Thirty-eight local financial institutions including Mitsubishi UFJ Financial Group Inc. are providing mortgages with lower rates to customers buying all-electric houses and condominiums, according to Tokyo Electric.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Michio Nakayama in Tokyo at mnakayama4@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.