Mon | Sep 21, 2020

Seprod investing in two LNG power plants - Projects one-third savings on electricity costs

Published:Wednesday | August 8, 2018 | 12:00 AM
Richard Pandohie, CEO of Seprod Limited.

Seprod Limited is investing nearly a billion dollars in the construction of two gas-powered energy plants on-site two of its subsidiary companies that will generate three megawatts of electricity for their operations.

The company is investing in cheaper energy to drive down the cost of production and improve competitiveness of its products through cheaper pricing for the Jamaican and overseas markets.

The energy project is estimated at US$6.8 million ($$940 million). The payback for the plants, which will run on liquefied natural gas, or LNG, will be 2.5 years.

Seprod expects the cost for electricity for the two companies to decline by a third, leading to annual savings of US$2.8 million ($380 million).

"We are driving down costs and improving our competitiveness," said Pandohie, who explained that the plants should dip the cost of energy down from about US$0.22 per kilowatt hour to US$0.14/kWh. "The savings from the project are expected to surpass US$1.4 million [each]," he added.

Contextually, the cost of energy in Jamaica reached its peak at US$0.43 per kilowatt hour less than a decade ago, which reflected oil price movements. In contrast, energy costs about US$0.06/kWh for manufacturers in Trinidad & Tobago, said Pandohie.

"We won't be as competitive as them in terms of energy, but it is an improvement and allows us to make an impact on import substitution. We have to do everything we can to drive our competitiveness," he said. "Gone are the days of passing on costs to consumers. In order to grow, we have to compete."

The power plants will be built in Kingston at Caribbean Products Company Limited, which primarily makes oils, shortening and margarine; and in Bog Walk, St Catherine, at Musson International Dairies Limited, which makes Betty condensed and Supligen milk products.

Each of the two units is designed as a 1.5MW steam and power plant costing US$3.4 million, Pandohie said on Wednesday.

The plant at Caribbean Producers is to be completed in December, while the one at Musson International Dairies will be commissioned in February 2019, he said.

Seprod is procuring the base generating equipment from Genplant in the United States, while New Fortress Energy will supply LNG to the plants.

"Everybody is going down this route of LNG plants," said Pandohie. "For a long time, energy costs have been a crippling factor affecting our competitiveness."

New Fortress - part of the Fortress Investment Group founded by US businessman Wes Eden but now owned by SoftBank of Japan - continues to be linked with local LNG projects for corporate entities, including Jamaica Public Service Company, Jamalco, CB Group, and Red Stripe Jamaica. New Fortress offers gas supply, infrastructure, bunkering and project capital services.

At Seprod, foreign sales reportedly contribute 15 per cent of group revenue, but the Jamaican conglomerate wants to grow that to around 30-35 per cent of total revenue in two to three years.

Seprod, a listed company primarily engaged in manufacturing and distribution, made net profit after tax of $305.5 million in the second quarter ending June, up 71 per cent year-on-year. It benefited from a jump in its revenues to $1.96 billion from $993 million a year earlier.

Over six months, Seprod Group achieved net profit of $598 million, up 29 per cent due to increased earnings from the Jamaican dairy operations acquired from NestlÈ Jamaica and incorporated within the group, effective January 1. In 2017, these operations were operated by Seprod under a management services contract and were not included in the group's results.

Seprod recently commissioned its grain mill, which continues to "improve" steadily with increased distribution of its Gold Seal flour brand. Its sugar operations, however, continue to hurt its bottom line, with the segment booking another $220 million loss so far this year.

"Management has exhausted almost all options to make these operations achieve even a break-even status and we are committed to, in very short order, eliminating these nine years of erosion in shareholders' value," Seprod said.