Need of funds for start-up of the LNG terminal business During the project implementation, the largest investments are as follows:
• Lease (acquisition) of the floating LNG storage with a regasification facility;
• Harbor dredging, jetty construction and preparation of jetty facilities;
• Construction of the pipeline linking the terminal with the gas-main;
• Preparatory design, obtaining permits, project management and other works;
Total investment demand before the start-up of the LNG terminal is about LTL 613 million..
FSRUwith a regasification facility is the largest investment of the project. It will be leased, eliminating the need for additional funds from financial institutions or the State budget. According to the agreement, the lessor of FSRU will take on infrastructure operations risks and provide supervision services. This is especially important for Lithuania, which does not have that type of equipment maintenance experience.
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Below is a comparison of contract terms of similar transactions concluded in recent years.
32 Figure No. 11. Prices for a lease of FSRU’s on the market
Until the start-up of the LNG terminal at the end of 2014, Klaipėdos Nafta will perform preparatory works: project organization and obtaining the necessary permits, LNG terminal connection with the gas-main, construction of jetty facilities and start-up works (total LTL 453 million). Start-up works include testing of LNG terminal infrastructure which will require first supply of LNG amounting to LTL 120 million. Most likely part of costs will be recovered on sale of used LNG, however for purposes of simplification, it is assumed no costs will be recovered.
Table No. 4. Klaipėdos nafta investments for the LNG terminal project
Klaipėdos Nafta investments*, LTL million 2012 2013 2014 Total 1. Project management and infrastructure testing (incl. cost
of LNG for testing purposes) 30 78 116 224
2. LNG terminal gas pipeline and gas metering station
design and construction - 53 88 141
3. LNG terminal jetty suprastructure design and construction - 29 59 88
Total: 30 160 263 453
Source: project FEED prepared by the lead advisor Fluor
Jetty infrastructure construction and harbor dredging works are entrusted1 to Klaipėda State Seaport Authority, which is required to adapt existing and build new infrastructure objects in Klaipėda harbor (total funds needed LTL 160 million). KSSA will finance their investments from own and borrowed funds.
1 2012-02-15 Resolution of The Government of Lithuania on LNG Terminal Construction
33 Financing capability of the LNG terminal by Klaipėdos nafta
In order to compensate the said investments, the Company is going to raise funds from the following sources:
a) about LTL 250 million would be funds borrowed from Lithuanian and/or international financial institutions (international financial institutions require State guarantee);
b) about LTL 200 million would be natural gas consumers’ funds, i.e. revenue from the additional and integral component to the upper limit of the natural gas transmission price (the LNG terminal extra) in 2013 and in 2014 (the LNG terminal extra funds collected from gas transmission tariff in 2013 would amount to LTL 113,798 thousand).
The National Control Commission for Prices and Energy (hereinafter, the “Commission”, NPECC) in its meeting of 19 October 2012 approved a draft of the investments planned by the Company into the liquefied natural gas terminal, installation of its infrastructure and connection. Preliminarily, by 2015 these investments will amount to approximately LTL 453 million.
The Company will also secure LTL 120 million overdraft facility for cashflow management purposes until long-term financing is secured in relation to the fact that cash inflow from LNG terminal premium will come after 5 months from the relative investment period.
Besides, the Company is going to address commercial banks for: (1) a bank guarantee2 in the amount of
$ 50 million intended for securing the performance of the contract for the lease of the FSRU, (2) a bank guarantee intended for securing the performance of the gas supply contract, (3) a bank loan intended for formation of the working capital necessary for gas purchasing.
The financial resources of the Company during the project period could amount to about LTL 100 million. The Company could allocate these funds towards financing the gas trading activities through LNG terminal.
Also, seeking to secure proper performance of possible financial obligations to financial institutions, the Company has submitted an application to the Ministry of Energy of the Republic of Lithuania, asking it to address the Ministry of Finance of the Republic of Lithuania for including a limit of State guarantee intended for financing loans for investments into the LNG terminal infrastructure (LTL 200 million), into the draft Law of the Republic of Lithuania on Approval of the Financial Indicators of the State Budget and Municipal Budgets for 2013. The requested limit was included into State Budget of 2013.
The Company notes that all the data given in this notification are preliminary and planned, but not yet final, and may change during the implementation of the project (if the project will be implementable).
2 According to 2012-03-02 agreement between Klaipėdos Nafta and Hoegh LNG on acquisition of LNG FSRU
34 Table No. 5. LNG terminal project financing scheme
investment in
LNG Terminal Infrastructure LNG Terminal Trading Activities
LNG Terminal
Financing of the LNG terminal business (from 2015)
Selected purchase method of the Floating Storage and Reregasification Unit (FSRU) is an operating lease agreement with a purchase option after 10 years (2025) to purchase for its residual value , set in the time charterer party agreement.
FSRU operating lease costs and other fixed LNG terminal operation costs will be financed from the natural gas tariff, controlled by the NPECC. The redemption amount of the FSRU will be financed by financial institutions as the LNG terminal operator would have an established track record of operation which would allow borrowing the required amount by plegung the FSRU.
35 Figure No. 12. LNG terminal income / expenses (mln. LTL)
LNG import and trade financing activities
The gas trading company and its profit will bee regulated by the State Price and Energy Control Commission, setting fixed income margins. LNG supply revenues and expenses will directly depend on LNG import volume. The main financing need for the LNG trading company will be necessary guarantees to LNG suppliers as well as financing of working capital. It is planned that the LNG trading company will be able to pledge purchased LNG resources and accounts receivable from sales of LNG to satisfy its financial needs.
LNG terminal income / expenses (mln. LTL) Income
Redeemed FSRU
Completely acquiredFSRU Lease of FSRU
Lease of servicing
Other costs (fuel, deterioration)
Operating costs of FSRU
36