The former Petrotrin refinery is on the market again.
For the second time in three months, the Government has rejected an offer by Patriotic Energies and Technologies, the company owned by the Oilfields Workers’ Trade Union (OWTU), to acquire the Pointe-a-Pierre based refinery.
It follows 14 months of negotiations between both parties, with the liens (debt) of the assets being the sticking point.
According to Energy Minister Franklin Khan and Finance Minister Colm Imbert at a virtual news conference held yesterday, after months of deliberations, Patriotic did not have US$500 million to pay upfront for Guaracara, the company to which the refinery was transferred after Petrotrin was closed.
This would have released all liens on both Guaracara and Paria, given that Patriotic had already secured restart financing from Trafigura.
As such, Khan said Trinidad Petroleum Holdings td (TPHL)—the parent company of Guaracara, Heritage, Paria Fuel Trading and Petrotrin—has been advised to issue new requests for proposals (RFPs) for the refinery in the shortest possible time frame.
And should it so choose, Patriotic can exercise their option to rebid again.
Khan and Imbert made it clear that the Government will not use taxpayers dollars to restart the refinery, which has been mothballed since October 2018.
Despite Khan labelling it a “cancer”, the Government is keen to have the refinery operational.
The decision was made following a special Cabinet meeting on Monday.
“The Government bent backward to conclude the deal, but at the end of the day, we must protect the public interest in matters like this,” said Khan.
According to Khan, Patriotic’s first offer was rejected because there were key issues surrounding the purchase price financing, restart financing and the issue of first priority lien on the asset, inclusive of environmental matters, statutory approvals and taxation issues.
The second rejection
Following the Government’s first rejection, Patriotic submitted a revised proposal.
According to Khan, there were three issues that Government wanted Patriotic to address—the purchase price, restart financing and the liens on Trinidad Petroleum Holdings (TPHL) assets. Patriotic, in the Government’s view, did not meet the requirements.
1. Purchase price
Khan said Patriotic had engaged a to provide the upfront cash of US$500 million for removal of the lien on the assets, but RBC advised it would have to do a due diligence, which could take between six to eight months. He said the evaluation committee required a letter of assurance from RBC.
According to Khan, the evaluation team had also met with Credit Suisse to discuss the process and requirements to remove the lien on Paria and Guaracara assets for the purpose of exploring a facilitation of the sale to Patriotic.
To remove the lien on the assets, it was advised that an upfront cash consideration of 75 per cent had to be considered, said Khan.
Khan said when the evaluation committee met again with Patriotic on November 20, 2020, it reaffirmed its interest in acquiring the assets of Guaracara Refinery and Paria, but RBC had not committed to provide a letter of assurance.
Khan said the evaluation committee was of the view that the financial relationship between Patriotic and RBC was unworkable; the financial relationship between Patriotic and Trafigura was one which could be considered workable; and it was not advisable or feasible for Government to finance the removal of the lien on the assets of Paria and Guaracara for the purpose of facilitating a sale to Patriotic.
“The principal issue in the deliberations related to the lien on Paria and Guaracara assets by bond holders and local and international banks. The debt of TPHL comprises bonds on the international capital market for $601.4 million, a three-year Tranche A Term loan for $388 million and a seven-year Tranche B Term loan of $205.6 million,” said Khan.
He explained that in June 2019, Imbert granted approval for TPHL to enter into a new senior secured loan facility in an amount up to US$720 million for a term of three to seven years, subject to all guarantees provided by TPHL.
“The term loan facility was subsequently secured by TPHL and is currently being serviced by Heritage. In summary, this loan facility placed a lien on the assets of TPHL, including Guaracara and Paria. As a result, the Government’s offer to Patriotic of a three-year moratorium followed by a ten-year repayment period was effectively negated by the lien.
“The only way the lien goes away is if Patriotic is able to raise the US$500 million upfront cash payment to satisfy the bondholders. This is the financing arrangement that is currently in the hands of the local bank, who indicated that such a transaction would take six to eight months to close. Also, Patriotic was unable to provide to the evaluation committee a letter of assurance from the said bank to commit to the transaction was not provided,” he said.
At a post-Cabinet news conference on November 11, 2020, Imbert said the following: “The Leader of the Opposition also said we can’t sell it because there is a mortgage. Nonsense.
“Obviously, if you are selling someone something, it must be free of all encumbrances. If any of you—and I am sure some of you have—are homeowners and would have entered into a purchase agreement to buy property; one of the most basic clauses in a purchase agreement is that the vendor (who is selling it) agrees that on completion of the sale, it would be free of encumbrances. We are not selling anything with any mortgage or lien on it. We will deal with that. That is a Government matter. That’s a matter for the Cabinet, for the Corporation Sole.
“If there is a lien, we can get the lien put on other assets. We can get the lien changed to something else. That is a matter for the Corporation Sole.”
3. Restart financing
As for restart financing, Khan noted that on October 28, 2019, Patriotic and Trafigura entered into a MoU (memorandum of understanding) for the financing of the start-up of the facility.
“This agreement was valid for one year and allowed for a non-binding framework to be used by the parties to discuss the potential transactions and negotiate the terms of the certain agreements that may be entered into.
“Trafigura reaffirmed its interest in providing financial support to Patriotic in the amount of US$500 million for the restart of the refinery via a renewal of the MoU for a further 15 months from October 27, 2020; and committed to engaging in contractual agreements with the Government to ensure that there are no disruptions in the supply of fuel to the country. This arrangement is the only one of the three identified above that appears to be workable to both parties. For us to have a successful restart of the refinery, all three of the above conditions have to be met unconditionally,” Khan said.
Khan pointed out that both Paria and Heritage have been a financial success, with Paria making successive profits and contributed just over $1 billion to Government’s revenue, and Heritage contributing approximately $1.98 billion to Government’s revenue.