Shearman And Sterling

LNG oil tanker, energy industry

Nov 11, 2020

Update on Colombia’s Bid Process for Pacific LNG Import Terminal and Associated Transport Infrastructure

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UPDATE ON COLOMBIA’S BID PROCESS FOR PACIFIC LNG IMPORT TERMINAL AND ASSOCIATED TRANSPORT INFRASTRUCTURE

Following our previously published Client Alert titled, “Colombia Relaunches Bid Process for Pacific LNG Import Terminal and Associated Transport Infrastructure,” (“Previous Client Alert”) on October 29, 2020, the Mining and Energy Planning Agency (UPME) released the final version of the tender documents for the USD 700 million LNG regasification facility and related pipeline project, commonly known as Pacific LNG (“the Project”). The revised and final version of the tender documents includes a new timeline for the development of the Project, but did not provide greater clarity on some of the more sensitive issues related to this strategic Project for Colombia.

Under the final version of the tender documents[1] UPME pushed back the deadline to submit bids by two months and the deadline to complete the Project by more than two years. The most notable milestones now being as follows:

  • Deadline to submit bids: April 27, 2021;
  • Project award: May 18, 2021;
  • Deadline to submit counteroffers (only if there is one bidder): May 27, 2021
  • Project award if there is a counteroffer: June 18, 2021; and
  • Project commercial operation date: 58 months after the Project award (that is, March or April 2026). The tender documents now provide for an optional early COD to be achieved on or before December 2024.

Although the final version of the tender documents included several changes to the previous version of the tender documents, the overall structure of the tender and the Project remains largely unchanged. In this regard, in addition to the revised timeline discussed above, the most significant change was that the time period during which the winning bidder will be entitled to receive the “annual expected remuneration” (or IAE) was reduced from 20 years to 15 years. All of the other main features of the Project that we discussed in our Previous Client Alert remain unchanged.

Similarly, the challenges that we noted in our Previous Client Alert (such as the Challenges of the Source of Payment, the determination of the IAE, the 42 percent cap for the USD Tranche, and the assignment restrictions) were not clarified or mitigated in the final tender documents. 

Undoubtedly, the revised timeline for the development of this Project is more realistic, but it still remains to be seen how and when some of the most fundamental features of this Project (such as the identity of, and mechanics related to, the beneficiaries or demanda beneficiada) will be clarified. We will continue to monitor the additional regulation that may be enacted for this Project and the measures (if any) that may be announced to, hopefully, mitigate certain construction-related risks (e.g., permitting, easements) and the risks related to the counterparties responsible for the IAE payments, to help ensure that this Project benefits from cost-efficient bids and a successful financing.

Shearman & Sterling’s Oil & Gas Practice

Ranked as a top-tier law firm in energy and natural resources in Latin America by leading legal directories, Shearman & Sterling continues to be at the forefront of the most complex and innovative transactions in the oil and gas industry. Our Oil & Gas industry group lawyers are based throughout our global offices and advise on cutting-edge transactions around the world. Shearman has been a global leader in the LNG sector since its introduction as a new product, pioneering the development of commercial and financing structures for LNG facilities in nearly every corner of the world and Latin America, including in Chile (GNL Quintero), Brazil (Açu LNG Terminal), El Salvador (El Salvador LNG to Power Project), Panama, Puerto Rico, Dominican Republic, and Uruguay, among others. Additionally, we have deep experience in Colombia spanning across all industries and practice groups, notably advising Ecopetrol, Ocensa, Grupo SURA subsidiaries, Grupo Argos, and Davivienda in connection with their various transactions. We also advised on the proposed financing of a regasification/liquefaction LNG project in the jurisdiction.

Please contact Gregory Tan and Christian Rudloff of Shearman & Sterling’s Project Development and Finance practice should you have any queries related with this matter.

Footnotes

[1] Although this is the final version of the tender documents, UPME reserves the right to amend the tender documents until April 23, 2021.

Special thanks to visiting attorney Pedro Lladó, who co-authored this publication.

Authors and Contributors

Gregory Tan

Partner

Project Development & Finance

+1 212 848 8324

+1 212 848 8324

New York

Christian Rudloff

Counsel

Project Development & Finance

+1 212 848 4301

+1 212 848 4301

New York

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