Metor: National serenity

The financing for the $525 million Metanol de Oriente project funded in January 2008, though the debt signed in the final months of 2006. The financing, which benefited from the involvement of the International Finance Corporation (IFC) and Japan Bank for International Cooperation (JBIC), was not affected by credit market conditions. But it had to contend with a host country, Venezuela, that has made many project lenders very nervous.

Metor has an established presence in Venezuela, and has been in existence since 1993. Its sponsors are Petroquimica de Venezuela (Pequiven, 37.5%), the state-owned petrochemical company, Mitsubishi Corporation (23.75%), Mitsubishi Gas Chemical (MGC, 23.75%), local holding company Inversiones Polar (10%) and the IFC (5%). Before the expansion it was producing 750,000 tonnes per year of methanol, primarily for export.

The plant is located at the Complejo Petroquimico de Oriente (East Petrochemical) Complex in Jose, in the state of Anzoategui. The complex, located on Venezuela's Caribbean coast between Puerto Espiritu and the cities of Barcelona and Puerto Cruz, is well-situated for exporting.

The plant takes advantage of cheap gas feedstock from another state-owned player, Petroleos de Venezuela SA (PDVSA), and uses technology developed by Mitsubishi Gas and to be installed by a joint venture of Mitsubishi Heavy Industries and Inelectra. Metor has previously borrowed from its shareholder the IFC.

Perhaps the most surprising part of the financing is that it was closed against a backdrop of the nationalisation of several project-financed heavy oil projects in Venezuela. The country's president, Hugo Chavez, spent the period of high oil prices redrawing the terms of foreign investment in the country's oil and gas industry and turning PDVSA into an instrument of his social and diplomatic policy.

The renegotiation of these projects is now complete, and has not resulted in any losses to project lenders, although two sponsors, ExxonMobil and ConocoPhilips, are still pursuing claims against the country. Despite the Chavez rhetoric, the US is still an attractive destination for Venezuela's hydrocarbons industry.

Japan maintained its links with the country throughout, and in recent years has pursued oil resources in Latin America aggressively, part of a strategic decision to minimise its dependence on Middle Eastern producers. JBIC led a $3.5 billion loan to PDVSA in February 2007, which supported sales to Mitsui and Marubeni, and a second of a roughly similar size in May 2008, which supported Itochu and Sumitomo purchases.

The financing consists of s $198.8 million 15-year term loan from JBIC, an $82.5 million 10-year commercial bank loan from Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Trust & Banking, which benefits from JBIC's cover, but is nonetheless priced at a startling 110bp over Libor, and a $50 million 15-year term loan from the IFC.

The Metor expansion proved to be the first test of new regulations designed to promote investments in petrochemicals projects in the country. While a privatization of Pequiven is no longer under consideration, as it was when Metor was first set up, the new regulations do offer recognition of the rights of international private investors and the importance of export sales. The project's offtakers are the sponsors, under long-term agreements.

These agreements are important, though they do not protect the project from price volatility. For this, access to PDVSA's cheap feedstock is key. Venezuela has so far been unable to put in place ambitious schemes for the export of gas in large quantities, including pipelines and liquefied natural gas terminals. For now, methanol and petrochemicals projects offer much better prospects of gaining value-added revenues.

The project documents were signed in December 2006, in part to accompany a high-level diplomatic announcement. The close of the financing preceded by a short period the first of the large JBIC-backed oil prepayment deals. Meeting the conditions precedent, normally a short set of boxes that an agent needs to tick, was a long and arduous exercise. Fortunately the existing Metor plant unencumbered by debt, and presented no obstacles to the lenders.

The financing was dependent on strong Japan-Venezuela ties, but was still the first new money coming into Venezuela's energy infrastructure since the late 1990s. It also, unlike the heavy oil projects, produced a commodity that could be used domestically. While the heavy oil projects were designed so that their output could only be exported to suitably equipped refiners, many of them in the US, Metor relies upon the premium that Japanese consumers will pay for the project's output. Its economic rationale, then is almost as strong as the diplomatic one.

Metanol de Oriente
Status: Closed January 2008
Size: $525 million
Location: Jose, Anzoategui, Venezuela
Description: Expansion of methanol plant to a capacity of 1.6 million tonnes per year
Sponsors: Mitsubishi Gas Chemical Company, Mitsubishi Corporation, Petroquimica de Venezuela, Empresas Polar, IFC
Debt: $334 million
Providers: IFC, JBIC, Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank, Sumitomo Trust and Banking
Financial adviser: Bank of Tokyo-Mitsubishi UFJ
Insurance adviser: Willis
Sponsor legal counsel: Hogan & Hartson (project), Ide Tamarie (Japan counsel to Mitsubishi), Braun Moriya Kubota & Fukuda (Japan counsel to Mitsubishi Gas), German Marcano (Venezuela counsel to Pequiven)
IFC legal counsel: Chadbourne and Parke (international) Rodner Martinez & Asociados (local)
JBIC legal counsel: David Polk & Wardwell (international) Rodriguez and Mendoza (local)
EPC contractors: Mitsubishi Heavy Industries; Inelectra