The announcement made by the president of Cosep that the power plant that the American New Fortress Energy (NFE) is building in Puerto Sandino, will start operating until April 2023, raised doubts about the economic viability (but also technical and political) of the work projected to generate up to 300 MW, burning liquefied natural gas (LNG).
In February 2020, Salvador Mansell, head of the Ministry of Energy and Mines, and Wes Edens, co-founder and co-director of NFE, announced that Disnorte and Dissur had signed a contract for the sale of firm power and associated energy (known in the industry as a Power Purchase Agreement, or PPA) for 25 years, with plans to start working in the second half of 2021.
Then, in the first half of last year, the company informed its shareholders that they expected to have the central online from September of that year. Then, in October, Minister Mansell announced the start of ignition tests, and from then on, his hope that the plant would start generating in a very short time. None of that happened.
The issue returned to the national agenda, when in the second decade of June, the president of the Superior Council of Private Enterprise (Cosep), Cesar Zamora admitted that “Investments in the energy sector have stopped a bit; [aunque] NFE about to enter the country, in April 2023, which will accommodate the loads, and will be an important addition to the energy sector, because generating electricity with gas guarantees a relatively more competitive energy.”
This is close to the assertion made by the company during its “investor presentation” in December 2021, when it announced its intention that the Puerto Sandino plant be in operation in the next 18 months, that is, no later than on June 30, 2023.
If Zamora’s announcement (also president of the Nicaraguan Energy Chamber, CEN) is fulfilled, the commissioning of the gas-fired power plant would occur seven quarters late, and although that would already be a major breach, four sources from the private sector who agreed to speak with CONFIDENTIAL On condition of anonymity, they do not rule out that the underlying problem is economic, but also political and technical.
Invest… to lose?
The reason why the sources believe that NFE’s delay is linked to money is quite basic, and stems from an inescapable fact: at the time of signing a contract with Disnorte and Dissur to generate electricity and sell at $110 a megawattthe million BTU of liquefied gas was quoted at less than 20 dollars per unit.
As of July 4, 2022, the same amount of gas costs just over $165. Futures contracts, traded on the TTF (Title Transfer Facility, the virtual trading point for natural gas operating in the Netherlands), expect it to continue to rise, falling to $138.5 in April 2023.
“NFE is delaying the project, because it is more profitable for them to sell [el gas] in the United States and Canada, than to bring it to Nicaragua to generate energy. It is cheaper for them to pay the penalty for the delay in the works than to fulfill the contract,” said an industrialist who has contacts with government officials who are familiar with the project.
An executive of a company in the Nicaraguan energy sector admits this thesis, but believes that perhaps it is not a matter of “selling more expensive elsewhere, but that the numbers simply do not work out in Nicaragua with current prices… and that will not change, unless they are projecting that the international price of gas will drop in the short term.”
The custom is that this type of contract has a clause of law change, but not price changes, because a plant that generates with gas, bunker or diesel, has a price indexed to some international reference. The executive assumes that NFE “dared to accept a non-variable price, something that companies never accept for a project of this type, because such a case has never been seen to be successful.”
“You also have to see what your PPA says. If the traded price is fixed, without indexing, they may be delaying on purpose so they don’t have to generate at a loss. The problem is that we don’t have access to that contract,” he confirmed.
But if NFE signed a contract with a fixed price, perhaps it did so believing that the price of gas was going to collapse, or at least, that it was going to remain stable “but the numbers were against them. As this company is not financed by banks, they do not have the same controls that a project that must render accounts to lenders would have”, the executive illustrated.
The ballast of those sanctioned
To the price problem of its main raw material, the company must also add others of a technical nature, although the most important are the regulatory ones, which can derail the entire operation, especially when their counterparts are officials sanctioned by the United Stateslike Minister Salvador Mansell, the manager of the Cargo Dispatch, Rodolfo López Gutiérrez, and the president of the Board of Directors of the Nicaraguan Institute of Energy (INE), José Antonio Castañeda.
“The State Department has a defined strategy to sanction investments in telecommunications, mining and energy. It seems that the NFE felt that they were well connected, because they had the Trump’s direct patronageso they ignored the embassy [de Estados Unidos en Managua]. They were not approached, far from it”, said a consultant with experience in the field of investment attraction.
In the report as of March 31, 2022, filed with the Securities and Exchange Commission (SEC), the company admits that “we may be able to invest time and capital in a project involving a counterparty that may be subject to sanctions”.
“If any of our counterparties become subject to sanctions As a result of these laws and regulations, changes thereto, or otherwise, we may face a number of issues, including, but not limited to, (i) having to temporarily or permanently suspend our development or operations, (ii) not to be able to recover before ”, adds the document.
Finally, the sources do not rule out that technical difficulties are also responsible for the project’s delay. The consultant quoted above said that “indeed, there are unresolved technical problems with the connection of the gas pipe”, but a source from the professional field that provides services to companies in the electricity sector, said that “it does not seem to be due to the pipe gas, because there is no pipe. It is a problem with the discharge of gas, because there is no gas pipeline. At least, I don’t see works out there”.
“The last thing I heard from a foreign colleague, is that they actually had a problem in the first unloading of the gas and the flat sank (in reference to the barge that transported the gas), so they commissioned a better structure of download and are waiting for them to be delivered”, he added.
“It would be necessary to see if they were able to set up the plant, because if it is not ready, the conversation is different,” said the executive quoted above, indicating that it takes three to four years to build them. “What happens is that in Nicaragua they always said that it was going to be lightning, so the explanation could be as simple as that they oversold the deadline to finish it and now they are ‘late’, but it was always known that those deadlines were very exaggerated” , sentenced.
