EBIC Mulls Expansion As Ammonia Plant Construction Proceeds
As construction on Egypt Basic Industries Corporation (EBIC) greenfield anhydrous ammonia plant proceeds, the company is already contemplating expanding its facilities, Chairman and CEO Basil El-Baz said on 18 April at the Projects International conference held by ICBI in Paris. However, expansion would entail securing another gas feedstock agreement from Egypts Ministry of Petroleum. With respect to future gas, and the future signing of gas agreements, EBIC is now evaluating the expansion of its facility and feasibility studies are being conducted, he explained, adding that the government was carefully assessing awards of future gas supply agreements and was tending to lean towards domestic companies in order to keep the revenue stream in Egypt. The countrys gas supply had grown exponentially in the last few years, he continued, but with foreign companies vying for position, its energy sector was experiencing growth pains similar to those seen in the Gulf in the 1960s and 1970s.
The EBIC plant (25km south of the base of the Suez Canal) is 70% complete and is due to enter its pre-commissioning phase in the third quarter of 2008. Its long-term supply-or-pay/take-or-pay agreement with the Egyptian General Petroleum Corporation (EGPC) is dollar-based and indexed to the ammonia price. Indexing the feedstock price to the end product gives EBIC some breathing space in the event of a market downturn and would allow the company to pay both the debt principal and interest, said Mr Baz, noting that when prices were good the government would be able to share the profits and benefits. Where feedstock prices were not indexed, he said, a hostile relationship could develop between the two parties, as the supplier started to perceive it as subsidizing the end-user when end-product prices were high. EGPC is a 15% shareholder in the project adding comfort in terms of gas supplies, Mr Baz continued. The project will produce 2,000 tons/day of ammonia, assuming operations of 350 days per year, thus yearly output is around 700,000 t/y, which is nearly 0.5% of world ammonia capacity of 16mn t/y. However, on the basis of maintenance seen at comparable plants elsewhere, such as Trinidad, Mr Baz anticipates that production could surpass planned levels.
The product offtaker is Transammonia in New York which has agreed to take 100% of the ammonia produced and available for export, which gives EBIC the flexibility in future to enter into downstream ventures, said Mr Baz. Primary use is fertilizer, but also explosives, plastics and pharmaceuticals, and for other uses such as specialist chemicals. One important market is Jordan. The plant is eight hours from Jordan by vessel giving EBIC a competitive advantage to other producers given the 40-50% differential between the FOB and the CIF price, he added. Given it is a liquefied product, the product can only be sold to countries that host receiving terminals (similar to LNG). Other markets are India, South East Asia and the occasional vessel may be directed to Australia.
Financing Terms
The project achieved financial close on 30 March 2006. Total cost is $540mn with US Export-Import Bank (Exim) providing $225mn and commercial banks contributing $126mn, both with a 15-year tenor (three-year grace period and 12-year repayment). Equity of $189mn was paid in full prior to financial close. The transaction would not have been completed without the Exim guarantee, said Mr Baz, noting that this attracted the five commercial banks (BNP Paribas, Natixis, Soc Gen, West LB and HSBC). The project was financed on a club deal basis. In addition to Exims key role, participants effectively bought into contractor KBRs ability to construct the facility and operate at the designated capacity, explained Mr Baz. KBR signed a $394mn lump sum turnkey contract with EBIC to construct the plant (Orascom Construction Industries is the sub-contractor). KBR, which provides technology for 50% of worlds ammonia projects, is also providing operations and maintenance in an agreement which is reimbursable through the 15-year tenor.
The $225mn from Exim finances US equipment and 15% of the local costs and includes Exim exposure fee and interest on the facility, and the US export credit agency (ECA) guarantees 65% of total debt in the event of default. Exims participation made the risk palatable for commercial banks, Mr Baz said, adding that there were no completion guarantees. Critically, EBICs repayment schedule permits a six-month lag period. If the market is turning down, this takes off the pressure and minimizes default. This type of flexibility is crucial for any owner in the commodities business, he said. EBICs financing was somewhat complicated because of two separate site locations. The ammonia plant is located on land owned by EBIC, but two 40,000-ton ammonia tanks and a loading arm are on a port site that is leased to the company. This presents an interesting dynamic with lenders with respect to the structure of the transaction because it is at the very essence of security rights, he said.
EBIC is the first transaction of its type in Egypt to attract international financing, said Mr Baz. There is no local bank participation, although HSBC sold some debt down to its affiliate, HSBC Egypt. All shares in the company are pledged to the onshore security trustee with the exception of those owned by EGPC (aside from World Bank negative pledge restrictions).
