Commissioned in November 2005, financing for the Cross Island Pipeline closed one week prior to start of 2005 and should not strictly have been included in this year's deals of the year. However, in the spirit of giving credit where it is due – Project Finance has made an exception.

The project is the first pipeline deal to come out of Trinidad and Tobago and the largest natural gas pipeline in the western hemisphere. Furthermore, although a feedstock for the Atlantic LNG 4 project, Cross Island is the first of the Atlantic LNG related projects to be solely sponsored by state-owned National Gas Company of Trinidad and Tobago (NGCTT).

Structured through NGC Pipeline Co Ltd, the Cross Island project is a 76.5 mile, 56 inch diameter pipeline designed to transport 3.8 Bcf/d of natural gas produced off Trinidad's east coast to the fourth liquefaction train of Atlantic LNG in which NGCTT also has a share. The project is a necessity for Atlantic LNG train 4 to operate and has therefore been built in tandem.

Sponsored by BP, BG, Repsol and NGCTT, Atlantic LNG train 4 is an expansion of the existing 1-3 train LNG production facility at Point Fortin, Trinidad. Given its geographic location the project has the ability to supply LNG to either Europe or the US and has expanded rapidly since train 1 was project financed in the late 1990s. Train 4 will expand production at the site to 15 million tonnes/year.

Cross Island's record 56 inch size means that it will be underused for a time – Atlantic LNG 4 only needs supply of 2.4 Bcf/d. But expectation is that demand will pick up and there is talk of adding 5 and 6 trains to Atlantic in the future.

Cross Island is backed by two key elements: collateral in the form of a 20-year gas supply contract with the sponsors of Atlantic LNG 4, with gas amounts offtaken and processed that correlate to each sponsors' shareholding in Atlantic LNG 4 – BP (37.78%), BG (28.89%), Repsol (22.22%) and NGCTT (11.11%); and, at time of financing, completion guarantees from NGCTT that have fallen away with start of operations.

The project was tendered to the bank market in the first half of 2004 and closed rapidly, within seven months. Twenty-five institutions prequalified for the deal with an eventual shortlist of four. The winning bid came from Calyon and the three nearest other bidders – ING, Mizuho and SMBC in that order – were also asked to join as lead arrangers and at the same rates as the Calyon bid.

BNP acted as financial adviser to NGCTT and although not officially barred from taking an arranger role, was advised that any bid it put forward would not be accepted by the sponsor because it wanted to avoid any possible accusations of 'chinese walls'.

Total project cost is $268 million of which NGCTT put up $53 million in equity and a sponsor loan of $15 million as a credit facility for the project company – NGC Pipeline Co Ltd. The commercial debt comprised a 15-year $200 million term loan with a 2 year construction period. The project was already 35% complete prior to financial close having been pre-funded by $100 million of NGCTT money.

The debt priced at 150bp over Libor during construction, rising to 162.5bp at start of operations and then 250bp in five-year increments over the life of the loan. Commitment fees were 50bp.

Lenders could take comfort from gas transmission cashflows being assigned to a JP Morgan offshore account, and because tariffs are in US dollars there is no currency risk on the deal.

Lead arranger takes were originally $50 million but were scaled back to $30 million holds in syndication. Banks joining in syndication included: NordLB with arranger status and a $25 million hold; IKB Deutsche Industriebank, Natexis and Dexia with holds of $15 million; and Bayerische Landesbank with $10 million.

The deal was aimed primarily at European lenders in an effort to get minimum withholding tax treatment. Under Trinidad's double tax treaty with the US withholding tax is 15%; with Japan 20%; and with European jurisdictions only 10%.

Ironically, given the economic impact Cross Island will have on Trinidad and Tobago, the deal has also been structured around World Bank restrictions on borrowers pledging state assets.

Because of the World Bank's general articles of lending, the bank has the ability to repossess state assets if any given country defaults on one of its loans. Consequently, lenders faced the unlikely, but possible, event of repossession of the pipeline by the World Bank in the event of a default by the government of Trinidad and Tobago on state loans.

Consequently, NGCTT has had to provide a corporate guarantee for any portion of the loan that is not repaid in the theoretical event of a World Bank foreclosure.

Cross Island Pipeline Project
Status: Financial close and first drawdown 23 December 2004
Description: First pipeline financing in Trinidad and Tobago and first sole project financing by NGCTT.
Sponsor: National Gas Company of Trinidad and Tobago
Financial adviser: BNP Paribas
Lead arrangers: Calyon; ING; Mizuho; SMBC
Participating banks: NordLB; IKB Deutsche Industriebank; Natexis; Dexia; Bayerische Landesbank
Sponsor counsel: Vinson & Elkins; Lex Caribbean (local)
Lender counsel: Shearman & Sterling; Hamel Smith (local)
Insurance adviser: Marsh
Gas reserves consultant: Ryder Scott
Independent engineer: Stone & Webster
LNG market consultant: Gas Strategies
EPC contractor: Bechtel