Managing unprecedented complexity
Our client — the financial division of a large multinational company — realised that this deal was enormously complicated and that, in some respects, had no precedent. They asked us to provide the commercial support required to make a decision over a potential equity investment.
The integrated nature of the project, the likelihood of additional power generation in the future, and the fact that the shareholders of the project development company were also the port owner, LNG supplier and power plant developer made this a difficult opportunity to assess.
Complicated commercial agreements
We began by reviewing all the commercial documents relating to the investment, including the LNG sale and purchase agreements (SPAs), the Floating Storage and Regasification Unit (FSRU) agreement term sheet, and the power purchase agreements (PPAs) for the chain in which our client planned to invest.
Our initial work uncovered some major risks that posed a threat to commercial operations and the financing of the project. Particular areas of complexity included the significant need for flexibility in the LNG arrangements to address the flexibility required in the PPA, and future-proofing a project that would be developed over at least two phases – each with separate financing and LNG supply arrangements.
We worked with the client to identify necessary amendments; understand the value of various possible options; and develop negotiating points and strategy.
We also provided commercial advice on other parts of the investment, including the FSRU provider selection process, and a technical review of the engineering, procurement and construction (EPC) proposals received. After carrying out a commercial review of the draft agreements, we provided advice and supported our client in negotiations relating to LNG SPAs and other operational agreements.
Informed investment decisions
With a full picture of the risks and potential rewards, our client was able to make an informed decision on their investment.
We gave guidance to help them navigate LNG SPA and FSRU agreement negotiations. The first phase of the project has now taken FID and work is ongoing to finalise agreements for the financing of the second phase. We continue to offer commercial guidance when it is needed.