INDUSTRIAL action, low productivity rates and work-quality issues among some civil works contractors have contributed to the delay in the scheduled completion of the Caribbean Gas Chemical Ltd (CGCL) plant on the Union Industrial Estate in La Brea, a company official told Express Business last week.
With project costs estimated at US$1 billion, the plant was originally scheduled for completion in December 2018 and its operations were due to commence in March 2019, according to information on the Japanese financier’s website. When completed, the plant is expected to produce one million tonnes of methanol per year and 20,000 tonnes of di-methyl-ether (DME) per year, according to information on the CGCL website.
Speaking last week, CGCL corporate affairs manager, Josieann Richards, said while the facility is not likely to start up this year, “at this point in time, given the progress being made with pre-commissioning activities, the company maintains its position that the project is less than a year behind schedule.”
Richards outlined five factors that have caused delays in the construction of the methanol and di-methyl ether (DME) facility.
“Over the life of construction, several factors have impacted the project schedule, notably, delays in receipt of certain approvals from some regulatory agencies; low productivity rates and work quality issues among some civil works contractors; also, heavy rainfall in 2017 and 2018 (which resulted in many ‘rain-off days’), and intermittent stand downs by temporary workforce (industrial action) ranging in duration from 7 to 21 consecutive days in 2017 and early 2018 also impacted progress.
“As a consequence of the delay, budgetary revisions have been necessary.
“Notwithstanding, at this stage, the plant is close to achieving mechanical completion (MC) and commissioning activities have commenced.”
Questioned on which of the five factors contributed most to the delay, Richards said: “All factors identified contributed to a greater or lesser extent, depending on the stage of construction. For example, during the rainy season, consecutive days of heavy rain would necessitate de-watering of work sites and in such circumstances work had to be suspended.
“However, for the past year there has been a persistent challenge with low productivity and related causal factors such as absenteeism and tardiness. The Engineering Procurement Construction (EPC) contractor continues to work with sub-contractors to ensure corrective action is taken to increase productivity, improve punctuality and reduce absenteeism.”
She said between 42 to 45 days were lost as a result of industrial action—what she referred to as standdowns—taken by the construction workers on the site, which occurred between Jan 2016 and Jan 2018.
The CGCL spokesperson said the factors cited by the construction workers for the industrial action included disputes over pay rates and health and safety claims.
“In some instances, workers cited health and safety issues, all of which were promptly addressed once brought to the attention of the EPC contractor, Mitsubishi Heavy Industries (MHI). For the most part, the industrial action resulted from dissatisfaction with the rates of pay for the various job categories identified in the Memorandum of Understanding. The MOU (created by MHI) provided guidelines to sub-contractors on issues such as rates of pay, benefits and working conditions for contracted workers.
“An independent review of the MOU determined that given the prevailing economic climate of the country, the rates of pay were within the range of reasonableness for civil (construction) works.
“While no adjustments were made to rates of pay, some adjustments were made to benefits which were paid retroactively in some cases. There were instances in which contractors paid above the MOU rates.
“Further, the MOU provided for a five per cent increase across all (31) job categories in 2017, 2018 and 2019 and there has been total compliance by all sub-contractors with this provision.”
Similar disputes over pay and allegations of health and safety breaches contributed to an industrial relations climate in 2015 in La Brea that was partly responsible for BPTT relocating the fabrication of its Juniper platform jacket and piles from Trinidad Offshore Fabricators Co’s (TOFCO) yard in La Brea to a fabrication yard in Texas in an effort to keep its Juniper project on schedule. The TOFCO yard, which continued to fabricate the Juniper topsides, is located right next door to the CGCL facility.
Richards said the EPC contractor implemented a a programme of mitigation works which commenced in the latter half of 2018 and continued through most of 2019.
“These mitigation works resulted in the achievement of some critical milestones which were necessary for commencement of the pre-commissioning activities, now in progress, and which are moving steadily toward completion,” said Richards
Asked to quantify by how much the project’s US$1 billion budget has been revised as a result of the delays, CGCL said it is “unable to elaborate on this issue.” The company also declined to say if the revised budget was coming from additional debt or equity or both.
The company did agree that the delayed startup of the facility is going to cost the company in terms of revenue foregone, “as revenue projections would have been based on prevailing market rates for the proposed start-up period (initially projected at Q4, 2018, then revised to Q4 to 2019).”
The CGCL spokesperson said the US$1 billion plant is being financed by 70 per cent debt and 30 per cent equity. That means the promoters of the project originally estimated loans of about US$700 million and equity contributions of US$300 million.
The loan agreement for the project financing was signed on September 2, 2015, just days before the last general elections. The lenders were the Japan Bank for International Cooperation (JBIC), which agreed to provide up to US$485.1 million. The project was cofinanced by the Bank of Tokyo-Mitsubishi UFJ, Ltd, which arranged the balance, bringing the overall cofinancing amount to US$693 million, according to the JBIC news release of the project financing.
In an interview placed on the JBIC website in September 2016, the bank’s deputy director in the energy and natural resources finance group, Masahiro Ito, said the bank received a request to consider project finance at the end of 2013.
“We had experience to provide project finance to methanol plants in Venezuela and Brunei, but never to Trinidad and Tobago. In addition, the Government of Trinidad and Tobago had no experience in handling project finance deals, so we started from explaining how project finance works.” The JBIC website defines project financing as “a financing programme whereby the repayment of a loan extended to a project relies solely on cash flows generated by the operation of the project, with collateral limited to project goods and other assets.”
The CGCL shareholders comprise Japan’s Mitsubishi Consortium (Mitsubishi Gas Chemical, Mitsubishi Corporation and Mitsubishi Heavy Industry) with a 70 per cent stake; State-owned National Gas Company (NGC) 20 per cent stake; and Massy Holdings ten per cent.
Given the project’s equity of US$300 million, the original budget would have required the Mitsubishi Corporation to contribute about US$210 million in equity with NGC and Massy Holdings contributing approximately US$60 million and US$30 million, respectively.
Uses of DME
When it starts operations, CGCL will be the only producer of DME in the Caribbean, Central and South America, according to the company. And a subsidiary of NGC, called NGC Petroleum Ltd will be the sole offtaker for the 20,000 tonnes of DME a year to be produced at La Brea.
DME can be used as a substitute for LPG or as a substitute for diesel in automobiles or in power generation. New shipping rules are due to be implemented on January 1, 2020 that mandate that cleaner-burning fuels must be used in ships.
Richards said: “DME is an extremely versatile product, and yes, it is well known as a potential substitute of the diesel fuel. But it has other interesting market options such as a propellant for aerosols. Further, DME can be used in the extraction of natural essences; however, for this application, R&D activities must be conducted.”