MADRID, April 24 (Reuters) - An Egyptian liquefied natural gas plant, majority-owned by European utilities, has filed a complaint with the International Chamber of Commerce alleging that a state partner has failed to comply with contracts, a source with knowledge of the situation said.
The Damietta LNG plant is 80 percent-owned by Union Fenosa Gas (UFG), a joint venture between Spain’s Gas Natural and Italy’s Eni. The remaining 20 percent is split evenly between state-owned companies EGAS and EGPC.
The LNG plant has stopped operating due to a lack of gas supply since the government began keeping natural gas for the domestic market after fuel shortages and power cuts last summer, rather than sending it to the plant for liquefaction and export.
Egypt has also been delaying payments to firms producing oil and gas on its territory as it has struggled with dwindling currency reserves, rising food bills and sliding tourism revenues since the 2011 revolution that overthrew Hosni Mubarak.
Even if there is no production at the plant, Damietta’s partners are still obliged to pay for contracted LNG capacity. UFG is obligated to take 60 percent of the plant’s production and EGAS 40 percent, the source said.
“EGAS is not paying the amount that it should be, and this is having an impact on the rest of the plant,” the source said.
The contracted payments are needed to cover the plant’s operating expenses, investments and debt servicing.
Damietta filed the complaint against EGAS with the ICC International Court of Arbitration in Paris on April 12, seeking a ruling from the arbitrator that EGAS does in fact have to make payments, the source said.
Gas supply to Damietta has been completely cut off, and analysts do not expect the plant to restart this year. If the situation continues, UFG could seek international arbitration against Egypt, a wider and more serious complaint than the one filed with the ICC.
“UFG is still hopeful for dialogue with the Egyptian government over the gas supply situation but has not ruled out seeking international arbitration if an agreement is not reached,” the source said. (Additional reporting by Shaimaa Fayed; Editing by Fiona Ortiz and Jane Baird)