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Plausible scenario of refinery's strategic partner

According to the daily newspapers, the only remaining applicant to become a strategic partner of the Jordan Petroleum Refinery Company is an investment fund called Infra Mina, registered offshore in Jersey Island, with a nominal capital of $500 million.

The public was also told that this potential strategic partner who will undertake the expansion and modernisation of the ageing refinery, will subscribe to 38 million shares to raise the paid up capital of the Jordanian company to JD70 million, thus acquiring 54 per cent of the company and controlling it administratively, financially and technically. The fund partners will be supervising their own work.

Assuming that the share price will be JD7.1 or $10 per share, the partners will not need more than JD270 million ($380 million) to inject in the company to raise its equity. Knowing that the fund has no money of its own, the partner may have to borrow this amount from local banks, as there is no evidence that Infra Mina has any funds available. Its own capital is not fully paid.

Since the cost of the project is roughly estimated at $2.1 billion, the Jordanian company led by Infra Mina will undertake to borrow some JD1,235 million ($1,740 million). According to some experts, the real cost of the job may not be much more than one third of the suggested cost.

It is not known if local or foreign banks will be ready to extend such a large amount of credit to the refinery or to the investment fund without obtaining the guarantee of the government. Such possibility was not mentioned and was not included in the vague conditions of the concession that the government came up with after granting the concession. Government guarantee is not specifically ruled out.

Under the circumstances, it is surprising that Citi Group, as consultant for the refinery, would certify that Infra Mina is qualified to perform the job financially and technically. Such certificate is anyway a worthless statement because Citi Bank Group itself is financially in deep trouble and needs a certificate to establish its own financial and technical qualifications. We are told that Citi preliminary certificate was subject to conditions that have not been met yet.

This scenario is not presented as a fact or a solid plan. It is only a logical possibility presented to the government to make sure that such a bizarre scenario will not happen.

So-called strategic partners should invest their own funds, or borrow the funds on their own, not on behalf of the Jordanian company. They should repay the debt with interest out of their profits, if any. They should not be allowed to borrow in the name of the refinery and make it bear the cost, which will be carried forward to the consumers who will have to pay not only the cost of refining but also the cost of financing the strategic partner that seems to play the role of an investment manager rather than a real investor or contractor.

If it is necessary to have a strategic partner for the refinery, which will enjoy a concession and exclusivity for 15 years, it should be a well-known and respected petroleum company with a history of success, not an unknown fund placed offshore to avoid laws and regulations.

It may be useful to know who are the real owners of Infra Mina, their nationalities, and their financial and technical status.

By Fahed Fanek

© Jordan Times 2009