Friday, Apr 26, 2013
By Summer Said
A liquefied natural gas plant majority owned by Spain's Gas Natural SA (GAS.MC) and Italy's Eni SpA (E) has taken Egyptian state-controlled Egas to arbitration over failing to comply with a supply contract, a person familiar with the matter at Egas said.
The Damietta LNG plant, 80% owned by Union Fenosa Gas, a joint venture between Gas Natural and Eni, complained to the International Chamber of Commerce's arbitration court in Paris that it has been inactive since December after Egas halted gas supplies and kept the gas to meet soaring domestic needs, the person told Dow Jones Newswires.
Egas, which jointly owns the remaining 20% of the plant with state-owned Egyptian General Petroleum Corp., is contracted to guarantee 40% of natural gas supplies to the LNG facility for liquefaction and export for 25 years.
"This is a case of force majeure. Things have changed in the country and Egas found itself in a situation where it has to meet its domestic needs and even restoring to LNG imports," the person said.
The plant, which has an annual processing capacity of about 7.6 billion cubic meters of gas, is operating on a "tolling" scheme, where each toller, like Union Fenosa and Egas, puts its gas at the inlet of the facility paying a tolling fee.
The system obliges Egas to pay for the contracted LNG capacity even if the plant is inactive but the Egyptian natural gas producer hasn't paid the entire amount, the person said.
"Egas wanted to resolve the situation and stop it from reaching international arbitration but officials at the company were taken by surprise when they received a letter from Fenosa informing them of their action," the person said, but declined to say if Egypt may take some actions to resume supplies and make the full payment.
Union Fenosa couldn't be reached for comment.
Egypt, a significant gas producer with much of its output consumed domestically, began reining in exports last year and is planning to issue a tender soon for local firms to import liquefied natural gas to meet its domestic needs. The north African country has been facing recurrent electricity blackouts over the past few years.
Continuing unrest in the country since the ousting of former president Hosni Mubarak has led to a risky economic mix of dwindling foreign-exchange reserves, declining tourism revenue and costly price subsidies, economists say. To prop up the Egyptian currency, the central bank has gone through nearly two-thirds of its foreign-currency reserves, pushing the country to the brink of a liquidity crisis.
Egypt is trying to secure a $4.8 billion loan from the International Monetary Fund, a move viewed as critical to rescuing its economy and mending its reputation.
The IMF wants to see Egypt reduce its subsidy spending as part of a reform plan for the loan, say those familiar with details of the talks. But any subsidy changes will probably only further enrage the legions of poor who rely daily on cheap fuel.
--David Roman in Madrid contributed to this report.
Write to Summer Said at summer.said@dowjones.com
(END) Dow Jones Newswires
26-04-13 1650GMT
