Mirant
pulls out of Powergen
By
Energy Correspondent
Trinidad
Express
Port
Spain
Petroleumworld.com
07 23 06
On July 11, Atlanta based Energy Company Mirant
announced its decision to sell its interest in power
plants in the Caribbean and the Philippines as part
of a strategic plan to enhance shareholder value.
This decision will affect four Caribbean countries
including Jamaica and Trinidad and Tobago, in which
Mirant has power generation assets. The news sent
shock waves in Jamaica, where Mirant owns 80 per
cent of the power generation plant. The following
day, the Government announced its intention to open
negotiations with Mirant, in accordance with its
Sales Agreement.
In
Trinidad and Tobago, however, the news was like
the proverbial passing cloud. We have heard nothing
from either the Public Utilities or Energy ministers.
Among the various media houses, there seems to be
a general ignorance about the fact that Mirant owns
39 per cent of the Power Generating Company of Trinidad
and Tobago (Powergen). Notwithstanding its relatively
smaller stake in T&T, Mirant's Caribbean pull
out represents an occasion for proactive Government
engagement and a significant opportunity for regional
capital.
Formed
in 2001, the Mirant Corporation has had a history
tarnished by lawsuits, failed ventures, fraudulent
accounts, poor governance and high debts. Its troubles
culminated with a filing for Chapter 11 Bankruptcy
protection in Texas in June 2003, less than three
years after embracing its new identity. The decision
to sell its offshore assets is an attempt to turnaround
the company by eliminating its debt and refocusing
on its domestic interest.
Mirant
entered Trinidad and Tobago in 1994, as Southern
Electric, which took a 39 per cent stake in Powergen,
a joint venture formed to acquire the divested generation
assets of T&TEC. (BP 10 per cent and T&TEC
51 per cent, are the other shareholders in Powergen).
Mirant was expected to invest US$39 million, as
its share of a 208 MG expansion project announced
by Powergen earlier this year. The expansion project
is backed by a 30 year power purchase agreement
with T&TEC.
Mirant's
stake in Powergen represents 43 per cent of its
1050 megawatts power generation assets in the Caribbean.
Other holdings include Jamaica Public Service (80%),
Grand Bahamas Power Company (55%) and the Curacao
Utilities Company (25.5%). In 2005, these assets
contributed US$158.00 million to Mirant's earnings
before interest, tax, depreciation and amortization
(EBITDA). Investment brokers estimate the asking
price for these assets to be around US$.2 billion
or 8 times EBITDA contribution. Using its share
of megawatt capacity in Powergen as a proxi - the
Mirant could be asking for upwards of US$550 million
for its Powergen equity. It is likely, however,
that Mirant may wish to sell all its Caribbean assets
as a package.
Mirant's
decision was very untimely for Jamaica. The Government
had recently announced plans to place its 20 per
cent stake in the light and power company on the
Jamaican Stock market. This is a highly commendable
initiative, which the column has advocated time
and again. However, it has now been placed on hold
pending the conclusions of mandatory negotiations
between Mirant and the Government. The sales agreement
between the Government of Jamaica and Mirant prohibits
Mirant from holding less than 51 per cent of the
company the Jamaica Public Service, unless it receives
the content of the minority shareholder- Government.
Whatever the outcome of the negotiations the Government
is likely to honour its pledge to increase public
ownership in the JPS.
It
is not clear how Mirant's pull out will impact on
Powergen's expansion plans. It is also not known
whether there is a provision in the Powergen Joint
Venture agreement which places limiting conditions
on the sale of shares. The options of the Government
or even BP may be restricted if the minority shareholder's
rights to sell are unfettered. If T&TEC as majority
holder can exercise some leverage a number of exciting
opportunities can arise for the Governments and
people of the Caribbean.
More
specifically, this opportunity may be of interest
to strong regional firms like our own NGC and Barbados
Light and Power Company. The former because its
historic and perhaps disadvantageous relationship
with T&TEC as well as its role in the Jamaica
LNG project. The latter because it is an experienced
efficient profitable private sector company, whose
shares are presently traded on the Barbados Stock
exchange. One way to proceed is for the Government
of Trinidad and Tobago either directly or through
a consortium of state and private sector capital
to pursue the purchase Mirant's entire Caribbean
holdings.
For
example, the National Gas Company should have a
keen interest in pursuing this as a growth opportunity
given the close historic relationship between natural
gas and power generation in Trinidad and plans to
sell LNG to Jamaica. Following acquisition and any
necessary restructuring, at least 51 per cent of
the company should be further divested to Caricom
firms and nationals. A block of divested shares
should be reserved for employees and people's organisations
such as credit unions and trade unions.
As
a relatively risk free investment, a stake in power
generation also may be attractive to pension funds,
mutual funds and other institutional investors.
In the short term, this strategy would serve to
mop up some of the excess funds available in the
financial system and add a new dimension to the
regional stock market. In the long-term, it would
be demonstrative of the practical side of CSME and
serve to strengthen the regional integration movement.
Can the two P's of Caricom, Patrick and Portia,
seize the moment?
Feedback:
energyczartt@ yahoo.com
Trinidad Express
Wednesday, July 19th 2006
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©2006 Trinidad Express . All Rights Reserved.
