Project finance opinion

New York Project Finance Bank, as prospective Lender
1021 Park Avenue
New York, NY 10017
Re: Dominica LNG Project– Financial Information Memorandum Reaction

Dear Mr. Myers,
Pursuant to your request, we have analyzed the legal aspects of the Financial Information Memorandum for the Dominica LNG Project (the “Financial Memorandum” and the “Project”, respectively) as a part of the duediligence review being carried out by New York Project Finance Bank (the “Lender” or “Bank”), in its capacity as prospective bank lender in the Project. The scope of this legal memorandum encompasses exclusively our comments related to: (i) the Project, as presented in the Financial Memorandum; and (ii) the loans to be made in connection with the Project, as set out in the Financial Memorandum.
For yourease of your reading, we have structured this memorandum in the order set forth in Financial Memorandum where we deemed relevant commenting, but have included a summary of the main issues that we have identified in connection with the Project at the end of this legal memorandum.
1. Dominica LNG Project
A - Project Background
As per the information presented in the Financial Memorandum, weunderstand that the Project is located on the island of Dominica, has an estimated cost of US$ 335 Million and consists in the development and operation by the LNG Company of Dominica (the “Company”) of a natural gas liquefaction plant.
Ownership of the Company will be shared between subsidiaries (collectively, the “Shareholders”) of Big Oil Corporation (“Big Oil”), English Gas Company, an Englishutility company (“English Gas”), and the National Gas Company of Dominica, Limited (“NGC”, and Big Oil and English Gas, collectively, the “Sponsors”). No Sponsor will initially own more than 65% of the Company. Feedgas for the plant will be delivered by pipeline to the plant’s inlet flange by Big Oil Dominica Oil Company (“BODC”) from the offshore gas fields of Dominica. The gas will be liquefiedat the plant for offtake by LNG Corporation of Florida (“Florida LNG”) and English Gas.
B – Offtake Arrangements
As further discussed in item 5 A of this legal memorandum, we understand that the relationship between the Company and English Gas, one of the offtakers of the liquefied natural gas (“LNG”) to be produced in virtue of the Project, could be subject to conflicts of interest.Additionally, we recommend the adjustment of the term of the offtake arrangements, as set out in item 5 Aherein.
C – Plant Technology, Construction Contract and Operations
We understand that the use by the Company of a newly developed and innovative liquefaction process may involve a relevant risk of the Project, since such process could prove to be less effective than foreseen or even ineffective. As ameasure to mitigate this risk, we understand that a performance insurance should be contracted (with an insurance company previously approved by the Lender) in order to provide compensation to the Company in case of problems with the performance of the Project.
Furthermore, we believe that another way to mitigate the above mentioned risk is to require the formation of a new reserve in the capitalexpenditure of the Project, which would be destined to pay for the costs associated with the adjust / improvement of the plant. This provision is relevant, since additional adjustments / improvements might be necessary in order to implement the new liquefaction process set forth in the Financial Memorandum.
The provision and facilitation by the Shareholders of management and operation servicesto the Company could also raise conflicts of interest. Likewise, notwithstanding the fact that the Company will have three Shareholders, the provision of services by an interested party may reduce the likelihood of the Company being considered as a bankruptcy remote entity, as it will depend on Shareholders’ personnel to operate the Project. In order to mitigate these risks, we deem advisable for...