BG plc joint venture First Gas Power Corporation has concluded a pioneering international financing arrangement of US$680 million (£425 million approx) for a gas-fired power plant to be built on Luzon island, in the Philippines.

The financing has achieved highly attractive terms and broken new ground in several key areas. The agreement marks a major step towards creating a natural gas industry in the Philippines, and paves the way for developing other gas projects.

Stephen Brandon, Executive Director responsible for BG plc's International Downstream operations, said: "This is a good example of how, using our strengths and experience across the gas chain, we are working with strong partners to establish an integrated gas industry in an emerging 'tiger' economy.

"The financing demonstrates the confidence of the financial community in the project arrangements, and in the Philippines as a host country. The fact that our funding requirements were oversubscribed by a factor of six is a powerful indication of this confidence."

Notable firsts for the project include the European Investment Bank's first loan to an Asian independent power project, and a new standard in matching the drawing of loans to the construction programme with US private placement investors. The innovative financing has been achieved for a totally private sector project, with no government guarantees having been provided.

The limited recourse financing was signed in Hong Kong yesterday, and will be marked by a ceremony in Manila today. The total cost of the power project is expected to be US$890 million (o556 million approx).

In June 1997, First Gas Holdings agreed in principle the terms for the purchase of natural gas to fuel the power plant with suppliers Shell and Occidental. The supply will come from the Camago-Malampaya field offshore the Philippine island of Palawan and will run for 22 years from January 2002. Prior to that supply being available, the plant will be fuelled by imported condensate under a contract with Enron.

First Gas Holdings President Peter D. Garrucho Jr said: "With the conclusion of the financing for the First Gas Holdings power project, the development of the country's indigenous fuel supply has moved one step closer.

"The power plant marks a cornerstone in the demand that will justify the development of the Philippines' first major gas field, and will pave the way for future development of an integrated gas industry and reduced dependence on imported fuels."

In December 1996, First Gas Holdings - First Gas Power's parent company, in which BG plc has a 40 per cent interest -signed a US$496 million (£310 million approx) contract with Siemens to construct the first 1000MW of generating capacity. Initial site preparation began in July 1997, and the signing of the financing clears the way for full mobilisation of the contractor.

The power plant will sell electricity to local distributor Meralco under a 25-year power purchase agreement, starting in late 1999. A further 500MW of power generation is planned, and is expected to be on line in 2001.

First Gas Holdings is looking to develop other gas-related business opportunities in the Philippines, including further power plants and the construction of a high-pressure pipeline system. The pipeline would carry natural gas to major areas of industrial and commercial growth.