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A CASE OF PRIVATISATION: SO NICE THEY DO IT TWICE

posted 7 Dec 2020, 18:13 by Gerry Kangalee   [ updated 7 Dec 2020, 19:12 ]
For those who may not be aware, the privatisation of the Local Energy Sector also includes the outright sale of a Gas-To-Liquids plant (GTL) formerly
Ainsley Gill
owned by the state enterprise Petrotrin.


The GTL plant was acquired  in August 2015 by Niquan Energy Trinidad; a private company, which is a subsidiary of the Washington D.C based Niquan Energy L.L.C. The founder of the local branch is Ainsley Gill a former Washington D.C–based lobbyist for Trinidad and Tobago under the PNM Patrick Manning administration.

PRIVATISATION JOINT VENTURE STYLE

Trinidad and Tobago’s first Gas-To-Liquids plant (GTL) located at the Pointe-A-Pierre refinery goes back to the year 2005 when World GTL Trinidad, a joint venture company, was formed between Petrotrin and World GTL INC. of New York to build at Petrotrin “the first commercial. GTL plant in the western hemisphere” (PetroConnect No. 66- March 2007)

By January 2006, both companies entered a shareholder agreement giving WGTL 51% equity and retaining 49% for Petrotrin. One year later the budget and requisite funding was completed and was pegged at U.S $165 MILLION, funded by a loan of U.S $125 MILLION from Credit Suisse, U.S $30 MILLION in preference shares from local investors and U.S $ 10 MILLION from Petrotrin.

The project was received with great expectation and optimism in official energy circles. GASCO NEWS, the corporate quarterly journal of the National Gas Company of Trinidad and Tobago Ltd (NGC) reported:

“Trinidad and Tobago has recorded another milestone in the Petrotrin industry by being the location of a gas to liquids (GTL) plant to be constructed at the Pointe-A-Pierre refinery. The $170 MILLION plant, the first in the Western hemisphere, is set for mechanical completion in May, with the start of production targeted for the end of 2008.” (GASCO NEWS VOL. 21 NO. MARCH 2008).

The plant was established to produce ultra-clean, high-quality diesel and clean naphtha. It is an environmentally friendly product which is supposed to reduce the tailpipe emissions from cars, trucks and buses by 20 to 60%. The historical records reveal that the engineering, procurement and construction contractor was Ventech Engineers from Pasadena, Texas. Twenty-three local firms were subcontracted to support the project. Using proprietary technology from WGTL, the plant was supposed to produce liquids from natural gas for Petrotrin to blend and sell. Licensed technology in the syngas generation and hydrocracking process was to be provided by Haldor Topsoe.

COLLAPSE OF GTL PROJECT


In a summary of the failed energy mega project, the Ministry of Energy reported that the credit agreement with the Swiss bank, CREDIT SUISSE had stipulated that the plant should be producing by July 2009, enough products to make repayments on the loan.

By this time, the project had already cost twice the budget that it was allocated. In 2009 when that plant was expected to be completed with enough to produce, it was way behind the delivery deadline and the cost escalated from the U.S $165 MILLION to more than U.S $399 MILLION. WGTL was unable to fund its portion of the repayments and Petrotrin bought out the entire Credit Suisse loan.

The project was placed in receivership that same year. Commenting on the WGTL/Petrotrin fiasco, a regular contributor to the opinion column stated: “Although WGTL’s proposal involved the use of an
OUTRIGHT DIVESTMENT OF GTL PLANT
unlicensed catalyst and unpatented technology, a board of experienced men decided to invest huge sums of tax dollars to buy into a novel gas-to-liquids technology that had not even been proven to work on the scale proposed. Despite WGTL’s “patent pending” technology Petrotrin lost TT$2.7 BILLON on that dubious investment and reported it as “impairment losses.”
(Steve Smith WGTL –Petrotrin Opinion. Guardian. Thursday May 9th 2019.)

What needs to be noted is that this write off by Petrotrin effectively converted profits for those years 2009 and 2010 into losses. In 2010, when the government changed, Petrotrin stopped all funding to complete the project and by 2012, Niquan Energy emerged as the company with an interest in purchasing the idle and incomplete GTL plant.

At that time, the plant was still a heated topic of conversation in Trinidad and Tobago. Petrotrin Chairman, under the new government, Lindsay Gillette, told the Trinidad Express newspaper the investment was a “total disaster.” He added that the GTL plant “cannot function” and the best option was to “scrap it or do nothing and let it rot.”

Another insight into the many challenges of this project reads as follows: “A ROCKY START: Trinidad’s plant was initially designed using refurbished methanol reactors from various plants in Delaware, Louisiana and South America. It has been dormant since 2000, when a Petrotrin (49%) and WORLD GTL TRINIDAD (51%) venture defaulted on a $125milion, 15-year project finance loan from multinational financial services provided by Credit Suisse. Under the conditions of the loan, the venture was required to begin commercial operations by July 2009 or pay back the loan in full.

The plant was plagued with 33 cost overruns as well as numerous construction disruptions as a result of noxious gas fumes from the sulphur unit at Petrotrin’s refinery complex. Ultimately, the plant was not completed and defaulted on its loan, leaving Petrotrin to repay Credit Suisse despite a joint and several liabilities clause in its single loan agreement, which holds each party responsible for the loan.

A legal battle to determine who was responsible between WORLD GTL TRINIDAD and Petrotrin ensued. Petrotrin, ultimately, won, but the victory could not expunge their company’s embarrassment for having lost a total of TT$ 2.8 billion (U.S. $ 436MN) over the project’s lifespan. PwC took the plant into receivership and courted buyers for the assets.

Identified as the exclusive buyer by PwC, Niquan also became entangled in a dispute when the accounting firm was accused of bringing foreign investors into the plant’s facilities.”
(THE OIL AND GAS YEAR. TRINIDAD AND TOBAGO 2014 “SMALL SCALE GTL PLANT).


ACQUISITION HISTORY

According to Malcom Wells, Niquan’s Vice President Corporate Affairs, after the WGTL Project was put into receivership, the WGTL Facility at Pointe-A-Pierre was subject to an open bidding process managed by Price Waterhouse Cooper (PwC).

Niquan energy was chosen as the preferred bidder because it submitted the only proposal which envisaged operating the plant as a commercial enterprise rather than simply scrapping it.” He also remarked that it was only after extensive due diligence by the Receiver, multiple governments, and Petrotrin Boards, Niquan Energy was allowed to acquire the Plant.


PROJECTED BENEFITS OF THE INVESTMENT

In 2018, according to information from the Ministry of Energy, the government fully supported Niquan energy. The Energy Ministry stated that:

1. The deal was expected to provide Petrotrin with a US $35 Million Injection. 

2. A further US $125 MILLION in the economy. 

3. Some TT $2 BILLION in taxes and statutory payments over the life of the project.

In terms of employment the Vice President Corporate Affairs stated that the Plant will create some 65 permanent Jobs and about 700 during the construction phase. The company will not favor former Petrotrin employees. “There is no special treatment for anyone. It is fundamental to our philosophy that everyone is treated equally and fairly.

Ainsley Gill, Founder and Managing Director of Niquan Energy, forecasts net revenues of US $ 532 MILLION when the project is operational. Bringing the plant online needs to be done quickly, as proximity of time-to-market is key. “Whoever gets small-scale GTL to market first has bragging rights in the future,” Gill remarked in an interview with the OIL & GAS YEAR in 2014. GTL allows for small volumes of natural gas to be converted into liquid fuels that are sold at premium prices.
PRICING

According to Gill, Niquan’s Price of GTL will be indexed to the US Gulf Coast Ultra-Low Sulphur Diesel Price.

RISKS

The risks investors face are:

1. The unavailability of cheap and adequate supplies of natural gas especially in light of recent developments in the Point Lisas Industrial estate where some plants have been forced to close.

2. The complicated technology used has proven to be an operational challenge.

ADVANTAGES TO THE INVESTOR

Niquan enjoyed the colossal advantage of purchasing a US $ 399 MILLION Plant for just US $ 35 MILLION which can be described as a steal of a Deal! The real losers are the Taxpayers of Trinidad and Tobago who have to pay the heavy debt owed by the government to its creditors!

The Plant’s Managing Director boasts that “It was an attractive buy because of the facility, buyer and gas supply— 736,320 m3 (26 mcf) per day— were all there.

The government also set up a company - the Trinidad and Tobago Upstream Downstream Energy Operations Company Limited, to sell natural gas to Niquan.

CONCLUSION

Clearly, the original privatization strategy of a joint venture between Petrotrin and the foreign investor, World GTL, failed miserably with an incomplete plant which was put into receivership with tax payers having to foot a debt of US $ 125 MILLION!

It must also be noted that the permanent employment benefit is not impressive especially against a background where over twenty thousand workers have been retrenched in the local energy sector over the past few years.

Furthermore, the plant is a classic case of a capital intensive technology project. In this case, US $35 MILLION is spent to acquire a plant which creates only 65 permanent jobs. This really means that the project spends just over US $400,000 to create only one (1) permanent job!

The original decision to invest in this project smacks of a total absence of risk analysis. It was expedited against the background of a new brand gas to liquids Technology that has No Proven Track Record on the Scale Proposed!

The history of such projects reveals that the large scale ones were primarily financed with private equity funding. Initially, banks refused to fund such projects. Moreover, small-scale GTL projects are still in their pilot phases in the western hemisphere! What needs to be also noted is that the GTL Plant experienced two forms of privatization: First joint venture and second total divestment.

It was reported that GTL Plant was to be commissioned in early 2016. Niquan Energy Trinidad is now carded to be commissioned on 12th December, 2020.

(Economic Analysis unit of the Labour Advisory Bureau)
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