BOO Rapport Mei 2010 - Hernandez Report

7/29/2019 BOO Rapport Mei 2010 - Hernandez Report

1/23

:r I t,;.


2/23

Tableof Contents


3/23

,

A. TheComrnittee

!nstruct'onThe CuraaoUtilitiesCompanyN.V. (hereafter eferred o as uclJc' or "BOo") has no t beenable to keep its power plant runningon an adequate evel n order to supply he energydeliverieso both Aqualectra nd the lsla Refinery hereafter eferred o as ,,lsta,,).The mainproblemat this currentmoment s that a community s sufferingdirectly and/or ndirectly romthe continuousmalfunctioningnd evencomplete hutdownsof the Boo.Nature and Scopeof ProceduresPerformedAn independent ommitteehasbeen nstalled y Commissioner umphreyDavelaar, onsistingof experts n the technical rea JavierHernandez),inancial rea(ErickStatius an Eps) nd helegalarea GlennCamelia), ith the instructiono enter nto and perform a ,,quickscan,,withintwo daysof the company.During his "quickscan" he Committeeshouldconcentrate n the technical,organizationat,financial,egaland he commercial spects f the compan%n respect o the malfunctioning fthe company. heCommittee houldpresentpossible olutionswhich will enabte he pfant orestart the deliveryof products to lsla and to Aqualectra.Together with the solution theCommittee hould ndicate er activity he actor,his directactionand the time framefo r theexecuton f eachspecific ction.


4/23

g

ActivitiesTheactivities ere he following:29th f April: - meetingwith the Commissionernd adviserso discusshe scopeofprocedures30thof Mayl't of MayWithin this limited time and with limited amount of information and documentation heCommittee ame o somepreliminary onclusions.he Committee ecommendsneverthelessfor furtherand moredetailed esearch ndanalyzeso be conducted n this matter.It is mportant o note ha t thesepreliminary onclusionsre basedon the assumptionha t therefinerywill be n operation t leastuntltheyear2019.

B. FinancialAspects

meetingwith lsla meetingwith BOO CUOC) nd tsla- meetingwith technicalstaffBOO- PlantwalkBOO technicalnspection)- Presentationsla


5/23

'F ,BBHF&Hf,il

The o'owng s highreveroverviewof how this projectwas subsequentfyfinanced:Financng f the project

Invested in or paid tu:Plantandequipmentslegal feesArrangementand upfront fees

SeniorDebt

fnvesteeJ-BIC anda syndicateof comrnerciafbanks)Refeneria iKorsouAqualectra49% cE(Marubeni) 5L%(Mitsubishicorp &cEC


6/23

'ilPer below a scheduleof the annual nterestpaidthe seniordebt hroughout he years:

OutstandingBookyear principle of loan lnterest paid lnterest %2003 723,732 4,030 3.27%200,4 7t0,L70 6,881 6.25%2005 97,209 7,947 7.56%006 84,248 6,6!7 7.85ys2OO7 7L,288 5,576 7.82%2008 58,325 4,532 7.77%2009 45,3 4,!73 g.2o%

The oanwas highlycollateralized:ll of cuc's assets ncluding fl rights, itle and interestofcuc in any realand personalproperty,all contracts o which cuc is a party, alt rightsof cuc toreceivemonies, nd all bankaccounts nd al l stock n CUChavebeenpledgedas security.Al lcuC's monies and amounts receivedon any agreementsare to be deposited n accountsmaintainedby a security DepositAgent fo r the benefit of the collateral Agen! and al l

and the developmentof the interest ate of


7/23

Cash lowBased n the financing rrangementsha t were agreed-upon nd he other signedagreements,we constructed cash low that shouldhavebeenknown rom the startof CUC,s perations:FORECASTEDASHFIOWCASH nflowRevenueCASHOutflow- Fndncereloted pymentsInterestenorebtPreferredtockLetter of creditRepayment rincipleof seniordebt

4L,600

5,6004,6002,1.00

13,00025,300


8/23

Basedon the Utility ServiceAgreement USA)with lsla,CUCwas guaranteeda minimum ofUSD 7,5 mil l ionper year from lsla.Through he years his amount becameapproximatelyUSD 0,5mil l ionbasedon lsla's onsumption. he remaining mount of revenue ame romAqualectra r residue old rom CUC's wn production.Basedon the agreed inancingarrangements see above),CUC had to pay approximatelyUSD 5,3 million per year for interest, inancing ees and loan repayment.This meant thatUSD16,3mllionwas eft to cover he remaining xpenditures.Basedon contractualobligations,CUChas to pay USD 1,2 million per year to CEC or aManagementServiceAgreement. n additin,CUChas o payapproxmatelyUSD7O0K er yearto COUCor an Operations nd Maintenance greement ntered nto. Theamountspresentedabove in the forecastedcash flow for Labor, Insurance,operation expensesand housing &administrationare basedon the averageamount paid n the last 7 years.Thetotal ,other fixedcash outflou/ amounts o USD10,8 million.As presented n the schedule his would leaveapproximatelyUSD 5,5 million per year for maintenanceand investments.Basedon thetechnicalassessmentne canconclude ha t suchan amountwas no t sufficient or a plant ofthissize.Givensuch a tight cashbudget, he incentive o use he plant at its full capacity reaching he


9/23

g '

Theschedule elowpresentshe cashbarances er year-end:

CashBook ear balance2003 13,75t2004 27,2082005 26,5102006 32,5772007 20,4442008 ,5352009

under he termsof the oanagreement,uc mustmaintain t least he short-term bligationwith regard o the senior oannamely sD 13 millionat ai l times n a bankaccount. heincreasef the bankbalancesn theyears2oo4,2005 nd2006 s primarily ttributedo thefact hat he interest n the preferredtock usD46 millionperyear)andotherpayablesorefated arteswerenot being aidand nvestments erekeptat a minimum. n 2oo7andfurther, hese elatedpartybalanceserebeing ettledandalsomore nves;;;;;'*;;ffi;


10/23

.flBookyear Equity profit (loss) profitability

2003 55,906 8,870 !6702004 63,8 7,958 72%2005 70,430 6,566 g%2006 73,483 3,0s3 4%2007 80,106 6,624 8%2008 77,760 (2,3461 _s%2009 6j,9 (72,1261 _18%

Perabovescheduleone could see hat from 2003 through 2007 (with the exceptionof 2006),the resultswere ndeed n the vicinityof what was probblyexpected. n 2006 more than theusual ostswere ncurred or maintenancendoperatingexpenses ausinghe result o drop ousD 3 rnillion' n 2008 he company ncurredusD 6,54K n legal ees (fr an abritationcase)causingts result o go from positiveusD4196Kto negativeusD 2,346K.In 2009 he initialbusinessmodel(o f maintenance nd investmentof approximately sD 5,5millionper year) esulted o be unsustainablend he lackof sufficientmaintenance aughtupwith the organization. great amountof backlogmaintenancehad to be incurredat once,including or exarnple he leaseof a water distiller, because he original one was no longerfunctionng


11/23

Duringour plantvisitemployees tsocompfainedo us about rackof spareparts.Accordingosomeemployeeshe current inventory evelscould not exceedusD 45 ,ilon. According othe financial ecordsper 2009 year-end he inventorywas usD g,4 million. Thismatter alsowarrants urther nvestigation.

Allocationof the Initial InvestedFundsAs presentedn the caption financingof the projecf, usD 2og million was received rom theinvestees,rom which approximately sD 200 millionwas invested n plant and equipmentsand us I millionwas paid on legaland financing ees. The engine"ring procurementandconstruction f the plant{EPC ontract)was granted o Mtsubishi orporation or an amountof usD 147million'Mitsubishis alsoa sharehlderhroughcEC curaaoEnergy ompanyLtd)in the Company.For the rernaining sD 53 million (usD 2oo - usD 147 million)we need to ge t some urtherclarification n how hismoneywasspend.

Schedule elowshows he capitalizedixedassets usD201,032K) nd subsequentmovementsin thisbalance throughnvestments nddepreciations):


12/23

ilfl The ollowing s he profitand ossaccountsor the years2003 hrough 2oo9:cuRAAOUTttrTtESoMPANY .V.{lnUSD'0001

OPERATINGEVENUE- lsla evenue- Aqualectra fuel revenue & charges- Ful exoenseJ

- Other ncome

OPERANONNDMAII{TEIIANCE- Labor xpenses- Mantenancxpenses- Operatonxpenses- Admnstraton

200323,105L,748

2004 200539,756 40,7281,260 4,6

Audted

(1 )

200640,6485,002

23,!24

t

40

200740,98r7,573

39,960

479

20747,334,978

2008 200947,583

387

4,O522,2757,487

Unaudited

4,557 48383,881 5,0192,742 4,326

443

42,O34 42,U2

4,9096,76L1,402

4,66,506

962

43,069


13/23

C. TechnicalProblemslslahascontracted he deliveryof the ollowing ndustrial ervicesrom BOO:L. Compressed ir (560Nm3/min.)2. Electricity

3. Steam4. Distillated ater (26m3/h)The IntegratedUtilty Company Aqualectra) asindustrial ervicerom BOO:1. lectricity 20MW)2. Electricity 22 MW)Thebasicequipments eeded o perform heseservices re :Ai r CompressorsAC),Boilers B) ,GasTurbinesGT), teamTurbinesTA) ndseawater Distillers swD).The echnical roblems an be described s ollows;Air Compressor ituation

(60Mw)(380 /h )

contracted he delivery of the following


14/23

SteamSituationln the beginning he installedcapacitywas more or tess he double of what was neecjed.Neverthelesshe situation ight now isvery ight or the foltowing easons.The3 new boilersU2/3 hascombustion roblems burners), s rom the beginning.81 s n maintenancenti lJune. 2 hasa hotspotandhas o b e repairbefore tarting providedthe Governmentnspectorgives he permissiono do as the mandatorymaintenance f theboiler s overdue.83 is running,B-75 s out as rom August2009and without neutralizationprotectionsprobably uffering nternalcorrosion.t needs o go into maintenance.B-74 needssome repair (CostingapproximatelyUSD4O,OOO).p to the 29thof April, thisarnountwas not approvedyet. WHB:77gt a catastrophic ailure.WHB-gneedsmaintenance(newsuperheater).At this moment even f B-L/2/3will be ready or start-up, peoplewilt not be allowedto start upbecausehereareonly3 boilerswater feedpumps.Theother two pumpshavego t catastrophicfaifure. New boilers t/2/3 has presentedseveral"hot spots". This could be an indication ofsome design hortcoming.CUChas approached 'combustioncompany' o try to solve heproblem. n our opinion his has o be solvedas soon as possible o make the boilersmorerel iable.

Even he fuel pumpsare in trouble. Of the 3 pumps,only one is ready.A new one hasbeenpurchasedndwill


15/23

D. LegalAspects!-egalStructureThe total legal structure issimplification an be achievedtransparentmanner.The main companycuc N.v. (cuc/Boo) is owned ro r Looo/oy curaao utlitescompanyHofdingN'v'cuc HoldingN'v' (cucH).cucH is owned for 49%by ntegrated rttyHoldingN.V.Aqualectra/tuH 'v') and fo r 5t% bv curaaoEnergy ompanyN.v. (cEc).Aqualectraon hiserm is owned for too% by the lslandGovernmenileil"nagebiedcuraao).This xplains heegaland financial nvolvementof the local governr"nt. ce s

";;;; so%by Mitsubishicorporation nd or so%by Maru Energy uraaoLtd. Marubeni).The main company cu thi'ough severalagreements,delivers a vital produc! namelyelectricity,o Aqualectra the community) nd lsla,which on his erm delivervital products(gasoline,gasoil, gas, kerosene; et fuel) to the community. This explains the generafresponsibilityf the localgovernmentn hismatter.Besideshe participationof Aqualectra or 49%n the total sharesof cucH, there is RefineriadiorsouN'v' (RdK)hat haspurchased preferred quitycapitar usD34 milon) rectly n cuc.he RdK s completely wned

quite compricatedand the question arises whether sornein order to have the responsibiritiesnd riabiritiesn a more


16/23

On the other hand,within the differentagreements etweenparties, he local aw, good faithand goodbusness ractice,he several esponsibilities,iabilities, ccountabilities nd rolesof"partiet'and "persons"nvolved houldbe analyzed nd determined.It shouldbe taken nto account or this matter, ha t besideshe tegal ompaniesnvolved,hereare directors nd supervisory-directorsith their own responsibilitynvolved.Additionally e would lke to emphasizehat Government RdKshould be involved n apossible olution conditionaloan).Theacceptance r nor of a reasonable olutiondeterminesthe chances f partiesn e.g.a short procedurecase. KortGeding)TheAgreements nd ResponsibilitiesThe commitment or constantdeliveryby CUC and ndirectlyby lsta),besideshe importancefor the community s alsopart of the agreementsbetween parties.Some relevant agreementsare he following:A. Power PurchaseAgreement between: CuraaoUtilties Company N.V. and Kompania diDistribushon i ElektrisidatAwa di KorsouN.v. (localGovernment)In article8 of the agreement,he DamageCompensaton ecauseof the failure to deliverelectricitys imited o certainamount, egardlesshe damage.


17/23

D' lease Agreementbetween:Petroleosde venezuelas.A. and Refineria di KorsouN.v.This san agreementwithouta direct nvolvement f cuc N.v.(Boo). Neverthelesst shouldbetaken n account n caseof anyeventuatity.contrary o the sHELL erod,PDVSA uring he negotiation f the leaseagreementexpressedtheir desirenot to operate he existingPowerplant.Articleg.5 of this leaJeagreement tatesthe followingon this opic.The needs or steam,electricity,water and ai r shall be satisfiedby an IndependentutltiesProducer cheme. his ecamehe BOO CUC).lf the necessity s expressed y the government (the commissioner) he lawyer in thecommitteewill givea separate dvice n this article8.5and he correspo;ng t achment.


18/23

A. ConclusionsFinancialThe cucs busnessmodel, ncluding he agreed inancial rrangements in particularlythe repayment erm of the loan- resulted n a (too) heavycash flow burden on thecompany' As a consequence n insufficientamount was ailocated to the annualmaintenanceand investments'. he fact that the company'sbusinessmodel was no tsustainablehouldhavebeen known at a much earlierstageand action shouldhavebeen akenaccordingly'gnoring,neglecting r not takinganyvisibleaction o this ssuewhile knowing ts potential onsequencesan be considred completedisregard nddisrespecto the communityof curaao.To remainwithin the tight cash tow budget(and financingrequirements),managementhave opted too often not to execute henecessary i'e' mandatory) mantenanceand/or investment. After seven years, themaintenanceacklog aughtup with the organizationnd subsequentlrplacig hem inan insolventpositionwhere additional inancial njection s the onry wy to re]start trreoperation.Technical


19/23

The role and responsibility f the government hough no t party in the contracts s ahigherone.Thegovernment orrectlys assumingnd shouldcontinueassumingheirresponsibility.The start-upof the power plant at this moment has priority, bu t at the same timeaccountabilitynd possibleiabilities f those nvolved houldbe analyzed. heso caltedCODbetweenRefineriaSLA ndCUC lsohashighpriority.


20/23

i,''BIEtB F. Short-termRecommendationsFinancialBffiBH.

An amountof usD7 mil l ion hould e ransferred y Refineria orsoummediatelyo the cuc.Thiswill enable he cuc to purchase nd executesornedirectshort-termnecessities. asedonthe total fist(AnnexA) , an additional mountof usD 20 million s necessaryor zo1o-2011. helistattachedconsistsmainlyof repairs, artsand aborcost,divided n usD 10.25million or thefirst 4 monthsand usD L6.75million or until the end of ZorL fo r a total amount of usD 27mil l ion.SubsequentlypproximatelySD 0 mil l ionwil l be needed nti l2015.In addition o the above he following5 itemsneed o get immediateattention:1' Re-financingf the senior oan or lower he % andextentionof the repaymentperod2' combine he preferred tockwith the additionalfunding nd reduce he currentnterest ate3. Establish strictmantenancend nvestment lan4' Negotiatewith Aqualectraor a compensation ackageor the overcapacityhat eventualtywill be produced nddeliveredo Aqualectrawhen he plant sonceagainat it , rrll capacity.5. lmmediate mplementatonf an nventorymanagement ystem

Technicalw


21/23

; e 4...1

The second oan shouldbe negotiated nd an agreementshouldbe reachedwithin a month.RdKmight want to ask fo r some guarantee rom luH N.v., beinga 4g% hareholder,whichshould econsidered reasonableemand.Thepaymentsn this irst weekshouldbe basedon prepayments voorschotten) nd shouldbeexecutedn good aith.once RdKmakesa certainamountavailable,t shouldalwaysbe basedon the loan agreement.These rnounts,within 3 months, houldbe converted n preferredequity.since he purposeof these oans s; o sustain nd acilitate he faststart-upof the cu duringthisperioda coordinator f RDK houldbe apointed. Y' v'within a monthallfinal oanagreementshouldbe signedby parties.These oanagreementswill at leastcontain he following aspects:

1.2. The oans houldbe subordinatedachtergesterde)oans.A coordinator houldbe appointedby RdK o give support o the cuoc personnet orthe period t 2 years) hat the required rocedures re takingprace.Paymentso suppriers nd contractors ii l be donedirectry y RdK.Payback eriodwon't exceedZOI1.Interestwill be charged ccordinglyo the currentmarketvalue.Partieswill negotiatehe conversion f ths

3.4_5.6.


22/23

r ' > q " 7

G. Medium-termRecommendationson a medium errn,a change n ownership s highly recommendable. itherby achieving he5r% or sharesowned by cEC or by achievingal l the sharesby a government agent. Theimportanceof this company or the community brings along a strong need of cntrol bygovernment gents t anymoment.

JavierHernandezMScErickR.Statius an EpsCPAGlennH.E.CameliaLM

l


23/23

ANNEXAF'irst 4 MonthsOrderAC-B 300nm3)OrderSPrHtrsvpB74/75 77Order rumsBT4/75OrderEconomizerB74/i 5 77OrderTubes874/75/77Order FW,s t-2) FlpppOrder 0StBIwrs 74/75/77OrderControls 74/7S 77 g0prde D/FDandSwgr874/75lnstallDeminpumpRebuild C-6Rebuild C-5+

1,000,000500,0002,000,000300,0001,300,000750,000200,000300,000500,000100,0001,300,0002,000,000

ShortTerm - 2010*GT9MajorOverhaul+ $ 4,500,000BoilerWorkB75l77* :,OO,OOhsgflBW's 2)Hpppl 'zo,ooSWD-8MajorMaint 1,200;000C-oolingWarerTie In 300,000NewDeminTrain+TieHpppl f !0,ONew l5KV XFMR/Swgr 1,000;000TA-4 OEM partsrA-6n"*to*n t333;333!5- *e HdrB74/75 200,000fjo lnruug{ M_ajoraint o,oolue sysrem ebuild 500;000!.emoteConrrols eruMococo oo,oInstallAC-BBFW,sMppp s7!3i333

$ tuJto,too- 10,250,000-

Long erm 0I1-201sfey B.oSystem300 pH)Redundant5BargHdr Hppp2RedundanrB BargHdr Hppp285BargTie-InHpppt to Hppp2IIPPP2 o TA CoolingWarerMajorRebuild 74HPPPZo TA CoolingWarerTA l-4 Major nspectlonsWater n-Take/RoiaryS reens

7,000,000650,000700,000400,000200,0003,000,000200,0007,000,000650,000

-$ l9,8oo,ooo, / u,.'

Date post:	04-Apr-2018
Category:	Documents
Upload:	gerrit-schotte
View:	223 times
Download:	0 times

BOO Rapport Mei 2010 - Hernandez Report

Documents