Trinidad Government Re-negotiating Multi-billion Dollar Gas Project

PORT OF SPAIN, Trinidad and Tobago December 2, 2016 (CMC) – The Trinidad and Tobago government, today, said it is re-negotiating the TT$6.3 billion Caribbean Gas Chemical Ltd. (CGCL) plant in La Brea, south of here, after accusing the former administration of agreeing to a number of items that raised cause for concern and potentially exposed Trinidad and Tobago to billions of dollars worth of claims.

The plant is a collaboration amongst Japan’s Mitsubishi Corporation, Mitsubishi Gas Chemicals, Mitsubishi Heavy Industries, the National Gas Company (NGC) and Massy Group.

Minister in the Ministry of the Attorney General and Legal Affairs, Stuart Young, told parliament that during the 2010-15 period of the coalition People’s Partnership government of Kamla Persad Bissessar, the true position, with respect to the availability and supply of natural gas to the hydrocarbon downstream industry, was not provided.

He said since 2010, there were serious gas curtailment issues that affected the downstream gas industry and these curtailments were not as the result of maintenance, either scheduled or unscheduled.

He told legislators that, soon after coming into office in September last year, the Keith Rowley government was immediately faced with several matters relating to the project, including have to deal with billions of dollars in claims, from down-streamers, who claimed that they were not getting their full daily contractual gas supplies from the NGC as a result of the ongoing curtailment situation.

He said, in addition, expired contracts between NGC and down-streamers led to a “situation whereby disputes arose, due to no long term contracts being in place to govern the volumes of, and the prices to be paid for, the gas being supplied.

“A failure to commence negotiations and discussions, with respect to a number of both upstream and downstream contracts that were due to expire and no plan to deal with the alleviation of the gas curtailment situation that existed”, were also problems facing the new government.

Young, who is also the Minister in the Office of the Prime Minister, said that five days after the government was installed, it was approached by Massy for the provision of an opinion by the Attorney General, with respect to the legal documentation for this project.

“When the files at the Ministry of the Attorney General were perused, they reflected that pressure was being placed on the public servants — at both the Ministry of Energy and Energy Affairs and the Ministry of the Attorney General on Friday 4th September, 2015 and Monday 7th September, 2015 — for them to agree that the Attorney General should execute an opinion for the CGCL project.

“The public servants at the Ministry of the Attorney General resisted this pressure and the opinion of the Attorney General was not signed,” Young said, adding that what was later discovered, after Persad Bissessar turned the sod for the project, “was that the former administration had agreed to a number of items that raised cause for concern and potentially exposed Trinidad and Tobago to billions of dollars worth of claims”.

He said an inspection of the files at the Attorney General’s office revealed that the legal officers in the Solicitor General’s office did not agree to the Attorney General issuing the requested opinion.

“The legal officers objected, in red ink, to what had been agreed to, previous to September 7, 2015. The legal officer wrote, “I am of the view that no legal opinion should be given as per my comments…,” Young said, adding that “these warnings were coupled with written warnings, issued to the former Minister of Finance and the former Minister of Energy, that the agreements that they were proposing be entered into, exposed NGC to claims for damages and losses”.

He said in examining the agreements it was found that Trinidad and Tobago was disadvantaged by the terms of the Debt Tail Buy Down Agreement, which was the first type of agreement of this nature that had ever been entered into by Trinidad and Tobago.

“This agreement bound NGC to guarantee payment of the loan installments of CGCL and the liquidation of the whole loan amount, in the event of a gas shortage, based on an agreed formula, without NGC receiving any benefit. NGC would have to liquidate the whole loan for CGCL without getting the plant in return.”

Young said that this was a policy that had been decided by the Cabinet in December 2013, which the public was never informed of.

“This policy exposed NGC to billions of dollars in claims for damages. The policy was “the Green Field Gas Priority Policy”, it dictated that, where there is a shortage of gas supply, downstream gas supply contracts entered into after January 1, 2014, would receive priority gas over gas supply contracts entered into prior to January 1, 2014.”

Young said that even though the issue was pointed out to the former Minister of Finance and the former Minister of Energy, that this gas assurance policy could potentially place NGC in breach of existing Gas Sales Contracts, the “warning was ignored and the former government proceeded with the policy, which exposed NGC to billions of dollars in claims, especially in the climate of gas curtailment as it would discriminate against third parties, who had signed their gas supply agreements prior to January 2014…”.

He said the new Standing Committee on Energy has appointed a team to re-negotiate the terms of the agreements with Massy, Mitsubishi and the government of Japan through its Bank, Japan Bank for International Cooperation (“JBIC”).

“Having regard to the current gas curtailment climate, Trinidad and Tobago would have been exposed to billions of dollars in claims against NGC and there was the potential to collapse our gas industry. Additionally, if the Debt Tail Buy Down scenario occurred, NGC would potentially be expected to repay billions of dollars on behalf of CGCL without any security or benefit to NGC.”

Young said that after many months of negotiations, the government was able, in August, to execute amended agreements which have protected NGC.

“This government rescinded the Green Field Gas Priority Policy and renegotiated the effects of this removal with Massy, Mitsubishi and Japan. The Debt Tail Buy Down Agreement was also re-negotiated to ensure that NGC is protected by a number of mechanisms including that a fund be set up by CGCL to ensure that there is cover for loan instalment payments and, if NGC has to make any payments on behalf of CGCL, it receives security.

“The re-negotiated agreements and the rescission of the Green Field Gas Priority Policy mean that NGC is no longer exposed to the potential billions of dollars of claims for damages,” Young said.