Brazil scandal clouds Uruguay LNG project

OREANDA-NEWS. February 05, 2015. A planned LNG terminal in Uruguay is among several strategic projects across Latin America that could fall behind schedule because of growing financial problems facing major construction firms in Brazil.

GNLS, a joint venture between France?s GDF Suez and Japan?s Marubeni, is installing the 10mn m?/d floating LNG vessel in the La Plata river off the Uruguayan capital of Montevideo on behalf of Gas Sayago, a joint venture between Uruguayan state-owned oil company Ancap and state-owned utility UTE. GDF Suez signed a 15-year build, own, operate and transfer contract with Gas Sayago in October 2013, and brought on Marubeni as a 50pc partner in February 2014.

GNLS in turn contracted OAS to build the terminal with a plan to complete it by around the third quarter of 2015.

The contractor?s financial problems could now delay completion of the project, possibly into 2016.

"There is a few months' delay, and we are working to control it and its potential effects. It is premature to assess at this time the precise completion date," GDF Suez told Argus.

"Since OAS is the contractor best positioned to complete construction, GNLS is currently working jointly with OAS to assist them in those areas in which GNLS could contribute and strengthen OAS. However, in case of bankruptcy, GNLS will have to take contractual steps and assess alternative contractors," the company said.

OAS is among 23 mostly Brazilian firms that have been temporarily banned from signing new contracts with Brazil?s state-controlled Petrobras because of their alleged ties to a widespread corruption scheme.

Under the scheme, Petrobras contracts were said to be systematically inflated to divert funds to politicians allied with the government.

In many cases, the companies generated a substantial amount of their revenue from business with Petrobras, which is governed by strict local content rules.

OAS already renegotiated a contract last month with Gas Sayago to build a natural gas pipeline that would run about 3km from the planned terminal to shore and another 12km to Uruguay?s gas grid. An Uruguayan official close to the project said the terminal is now scheduled to be completed before the southern hemisphere winter of 2016.

OAS did not immediately comment on the status of the Uruguayan project.

Gas Sayago said the official timetable for the project, starting with the installation of a bridge regasification vessel GDF SUEZ Neptune in the third quarter, remains in place.

Ancap and UTE have yet to sign a contract for LNG supply.

The Uruguayan terminal, known as GNL del Plata, is likely to serve as a regional hub because of limited demand in Uruguay itself. Neighboring Argentina and Brazil are already major LNG importers. Uruguay could help to satisfy their demand by either reloading vessels or delivering gas along existing pipelines, or even gas-based electricity through interconnection routes. Chile is another major importer in the southern cone.

The Brazilian corruption case, which erupted last year in the tense run-up to Brazil?s presidential election, is the target of several investigations in Brazil. The US Securities and Exchange Commission (SEC) is also investigating. Earlier today, Petrobras chief executive Maria das Gracas Foster and five company directors resigned. Three former executives of the firm have been arrested.

Petrobras has said it is a "victim" of the corruption and plans to declare significant financial write-downs for the extra costs.