Apr 2013 Financial News

N&M CEO on T&T/Mitsubishi project: Penalty if group fails to go downstream

Apr 18, 2013

President and group chief executive officer of Neal & Massy Holdings Ltd, Gervase Warner, has told the Business Guardian that proponents of the methanol to petrochemicals project will have to pay a penalty if they fail to deliver on the promised downstream projects.

Speaking with the Business Guardian following the Energy Chamber’s luncheon, Warner insisted the consortium that is led by Mitsubishi Corporation was committed to downstream project and was not using it as a ruse to simply build a methanol plant.

Warner was reminded that in the past, companies had promised to go further downstream if the Government allowed them to build an initial plant, and later reneged. He was asked why the country should believe that the consortium will, in fact, pursue the downstream projects once it has built its methanol plant.

He said: “You have a local firm that is committed to the downstream. That is what we are in this project for…But, by the way, there is a penalty to us if we do not get these downstream projects off the ground. They made sure there was a cost to us and a penalty if this did not happen.”

Asked for details about the penalty, Warner said: “I am not going to disclose that. That would be inappropriate. It is fair of you to ask, but I don’t think it will be appropriate to say.”

Warner said both the Government and Neal & Massy were interested in downstream projects and happy that the consortium and the Government can work together in achieving their goals. He conceded that the issue of trust over the downstream projects was a major concern for the Government, which had to take a risk along with the others involved in the project.

Under the agreement, the consortium will invest an estimated US$850 million in the first phase of a methanol project on 50 hectares of land at Union Estate, La Brea. The project has two phases: phase one requires capital expenditure of US$850 million and a gas requirement of 100 mmscfd. This phase involves a methanol project with a component of that methanol being converted to dimethyl ether (DME).

DME is increasingly being used in the Far East and Europe as a substitute for propane and diesel. Energy Minister Kevin Ramnarine has said the project will help ease with the reduction of the subsidy on liquid petroleum gasoline and diesel, whilst using a clean fuel.

Warner said at the moment there is nothing happening in the downstream sector in terms of new projects, and it was crucial the economics were strong.

“For us to bring a project of this magnitude, you have to start with something that will bring a good strong economic foundation. Because of that strong economic foundation, you can get a company like Mitsubishi Corporation here in Trinidad. Why we are talking about these two first? Why they go first? Why you see that going first is because that is the most proven track. The others are less proven. We are working on them right now,” Warner said.

He said the consortium will be working with the Government to promote DME and had committed itself to a minimum of US$5 million for this purpose. He said already Neal and Massy had spent money on DME promotion because it believes in its application and potential to contribute to reducing the energy challenges faced, not just in T&T, but in the region.

“We have spent a lot of money out of our pockets already doing DME promotions. We have people overseas this week at a DME conference because we believe this thing has real legs. We think it’s a real opportunity for us to be part of the energy solution for the region in this being a product that is clean-burning and available at a lower cost.”

He said DME has not been produced on a commercial stage and was, to a large extent, a new application and this was one of the reasons for the strong economics of the project as 85 per cent of the methanol produced will be exported.

Warner said the project was a win-win one for the Government.

“The guys were very good, they were very clever. They did not leave a penny on the table and yet got to a point where we could put something on the table where the project works. So if the project is enjoying great profit, then the Government will participate.”

Warner said the Government would get a 20 per cent stake in the project, but he did not want to go into details.

“Based on the way the Government was willing to create conditions for the project to fly, the Government will over time earn 20 per cent, not paying in cash. They will earn an equity interest and that will be 20 per cent. So it will mean if the methanol company is making great profits, 20 percent of the dividend will flow to the Government.”

He dismissed suggestions that Neal & Massy were benefitting from cheap natural gas prices.

“This is no favourable gas price as compared to what has gone in the past. There is nothing like that. This is the National Gas Company trying to look at what the future regime from the upstream will look like and make sure it negotiates a place where it can be comfortable with the gas price and the structure of the gas price that they give.”


Source:
Trinidad Guardian
Thursday April 18, 2013

http://www.guardian.co.tt/business-guardian/2013-04-18/nm-ceo-ttmitsubishi-project-penalty-if-group-fails-go-downstream