Of all the regions of the world, it could be argued that the Caribbean is among the most sensitive to climate change issues, and as such governing bodies across the islands are collectively seeking cleaner ways to meet electricity demand.

With that in mind, Jamaica Public Service Company (JPS) is planning to shift about 20% of its power baseload to LNG in a move away from relatively costly and environmentally-unfriendly heavy fuel oils. As a result, a project that could have been a simple power plant retrofit grew into an independent LNG-to-power development that could serve as a cornerstone for an emerging LNG marketplace in the Caribbean, as well as the largest private-sector project financing in Jamaican history.

The project

The Old Harbour power plant in St Catherine, Jamaica, sits adjacent to the waterfront in Old Harbour Bay about 40km from Kingston. In 2015, JPS began contemplating a retrofit to its existing plant, setting off development of a 194MW dual-fuel power plant. 

Originally, it was expected that Spanish infrastructure developer Abengoa would handle the retrofit. But when Abengoa was threatened with bankruptcy last year and stepped away from the project, the sponsor put in place an agreement with Power China to complete the work. In February however, JPS hired Spanish firm TSK as engineering, procurement and construction (EPC) lead. General Electric is providing equipment.

Separate from the plant is an inter-dependent LNG offshore floating storage regasification unit that is planned to be co-located nearby as well as an onshore ADO storage tank. New Fortress is leading the LNG development, with plans to supply Old Harbour from its export facility in Florida. New Fortress is selling natural gas to JPS subsidiary Southern Jamaica Power Company under a 20-year GSA through an agreement that is said to put production cost for the power plant at about $0.13 cents per kWh.

For New Fortress, this project is merely the tip of the spear, as it plans for the Jamaican facility to become a hub for LNG supply to the whole region. 

The package

Most financings in Jamaica have come from DFIs such as OPIC, Proparco and others, which tend to favor participation in renewables transactions in the region. But given the size of the financing and the complexity of the project, it would have taken multilaterals a long time to digest, as one adviser put it.

Financing for Old Harbour comprises a total of $330 million divided among sponsor equity and a $200 million debt package including a syndicated loan and around $60 million in bond facilities, IJGlobal was told.

Sponsors include JPS, Marubeni and the Korea East-West Power (EWP) company. Direct ownership is split with 50% held by JPS and 25% stakes by Marubeni and EWP, though the latter two in truth hold 45% stakes indirectly through their 40%-each ownership of JPS alongside the minority-holding Government of Jamaica.

On the banking side, National Commercial Bank (NCB) led the arrangement of financing with participation from CIBC FirstCaribbean’s local Jamaican contingent, and Sagicor. On the capital markets side, bondholders were said to include Clarion and the Jamaican National Building Society along with other non-Jamaican investors by a source close to the transaction. 

A Norton Rose Fulbright team led by Charles Whitney and Chris Down advised NCB and JCSD Trustee Services as well as other financing partners on the transaction. 

The process

While a retrofit of an existing power plant can be relatively straightforward, and the LNG side of the Old Harbour project is actually very simple in terms of the infrastructure involved, there were many overlapping risks for this particular project that needed to be ironed out before financing could close.

Part of the complexity stems from the fact that the LNG and power infrastructure projects are not fully integrated, forcing the transaction to contemplate the interdependence of these elements. Additionally, the development timeline is much shorter for the LNG side than for the power project side, while at the same time closure on the non-recourse financing for the power project was dependent on an LNG terminal project that was yet to be completed.

Originally JPS was planning to move forward with a single-fuel, gas-fired power plant, but technical advisers pushed early in 2016 for a dual-fuel option as a hedge against any risk that the LNG project – which was at a much earlier stage in development at the time – hit snags in development. After that proposition came to light, the deal was said to go quiet for a few months before activity began again in August, by which time the sponsors had become comfortable with the concept of a dual-fuel power plant. 

Because of regulatory constraints in the country, JPS was not able to absorb the capital cost of the liquid fuel handling facilities in their regulated tariff base and as such they handed off responsibility of handling liquid fuels to the same company that is providing gas. As a protectionary measure against insolvency risk, JPS was granted the right to build the liquid fuel infrastructure.

Adding comfort for the sponsors is a stipulation that if the contracted supplier fails to meet the needs of the power plant, the power company can then step in and suspend that right, sourcing supply from another provider. Meanwhile, the gas supplier, realising they had a large exposure, mitigated a piece of its risk by taking out third-ranking security on the power project.

With ground broken on the construction phase of the power project last week, commercial operation is expected in May 2019.