What is the National Liquefied Petroleum Gas Project?
The Project is a Public Private Partnership, through a Build, Own Operate, and Transfer (BOOT) agreement between National Gas Company (Belize) Ltd. (NGC) and the Government of Belize (GOB), to build a marine terminal at the port of Big Creek and two regional wholesale depots in Belmopan and Orange Walk.
The Project leverages private sector technical and financial strengths/resources to build needed public infrastructure – a proven development model.
The marine terminal will be built to American Society of Mechanical Engineers (ASME) standards and have a storage capacity of 1.5 million gallons (150% of current monthly demand), and capable of receiving a 5000 cubic meters (CBM) dedicated LPG vessel.
The Project facilities will be state of the art technology with a control room, leak detection system, fire suppression system, etc.
In country construction has started at the sites and the first shipment of storage tanks is due on October 6, 2019. Mechanical Completion is on schedule for February 2020 and commercial operations should begin late February or early March 2020.
Why is this Project important for Belize?
The Project was developed to address key issues of energy security, quality standards, and transparent pricing.
Over 83% of households in Belize use LPG for cooking, and more and more transportation needs are being met by vehicles converting to LPG as a fuel source, not to mention the need for grain drying as that industry expands.
Currently LPG ships from the US Gulf Coast bypass Belize to Puerto Omoa in Honduras and LPG is then trucked to Belize via Honduras and Guatemala. This critical energy source for Belize is thus supplied by LPG tanker trucks crossing the Melchor border on daily basis.
There has been no significant investment in storage capacity in Belize over the years, creating a serious dependency on the daily stream of importation, and consequently posing a critical threat to energy security and reliability.
The Regulator for the industry, the Belize Bureau of Standards (BBS), is also severely challenged to properly regulate quality standards and pricing under these circumstances.
How is the Project being financed?
The total Project cost is $60 million BZD. The project is geared at 70% Debt and 30% Equity. The weighted average cost of capital (debt and equity) for the Project is 9.43%.
The Debt will be primarily in the form of project bonds placed on the domestic market targeting local institutional investors. The bonds are for 10 years with a coupon rate of 7%.
The financing of the Project is well advanced with all equity contributions received, and project bonds and loans tied to and secured as needed to meet cash flow needs.
What are some of the Direct and Indirect Benefits of the Project?
The Project will address the storage capacity issue, will source LPG directly from LPG producing countries, and will provide a central point for entry of LPG into the country, which will facilitate regulation of Pricing and Quality.
The project will provide an opportunity for local participation in the wholesale and distribution of LPG in Belize on a level playing field.
This local bond issuance has provided a sorely needed investment opportunity for domestic financial institutional investors such as insurance companies, pension funds, credit unions, etc. This model allows the benefits of greater returns to institutional investors to be ultimately passed on and benefit their client base, be it credit union members, insured persons, pensioners, etc.
How does the Government of Belize participate in the Project?
NGC (a Chapter 206 company) is the Project Developer; 25% is owned by the GOB. At the end of 15 years, NGC will exit the Project and the GOB will then own 100% of the Project facilities (marine terminal and wholesale depots). The GOB will have a seat on the Board of Directors of NGC and be involved in all the decision making by the company.
Is the Project creating a monopoly?
While all the LPG entering the country will have to pass through the terminal, the sourcing of the LPG will be by tender in accordance with the tendering process established in the Finance and Audit Act. The current importers will not be locked out of this importation process but will be encouraged to participate in the tendering process. NGC will not be involved in retail distribution. So although NGC will be the sole importer, there will be competitive forces in play in supply to NGC and in the distribution and retail sector.
How will LPG distributors (large and small) be affected?
The current retailers in the distribution sector will continue to operate their existing distribution network except that all retailers will now be sourcing their wholesale supply from the terminal and two wholesale depots (Belmopan and Orange Walk) at the same wholesale price and with no limitation on quantities supplied.
This will encourage more local retailers to expand their market share and more local businessmen to invest in the industry.
How will LPG be priced?
The Wholesale Pricing of the LPG will be regulated by the Belize Bureau of Standards (BBS) in accordance with the Pricing Methodology established under the LPG Act which provides for a price build up based on a Landed Cost, a Financing Fee, an Operations Fee, and a Regulatory Fee.
The Regulatory fee provides a source of funding to the BBS to help in their regulatory efforts in the LPG industry.
When compared to the historical pricing of LPG over the past 10 years, the regulated price derived from the Pricing Methodology indicates a real possibility of savings to consumers even with the financing and operations costs associated with the establishment of the Project facilities. After the Project’s debt and equity obligation falls away in 15 years the ability to provide savings to consumers will be even greater.