GDK Seeks Gas Pipeline Financing in China

Brazilian engineering company GDK is in talks with Chinese financial institutions to obtain financing for the acquisition of 120km of 12-inch tubes for a natural gas pipeline, Pernambuco state natural gas distributor Copergas president Romero de Oliveira told BNamericas.

Copergas contracted GDK to build the 120km Recife-Caruaru pipeline in Brazil's northeastern state of Pernambuco for 95mn reais (US$39mn).

The pipeline is part of its 300mn-real 2005-2006 expansion program and will have an initial capacity of 1 million cubic meters a day (Mm3/d). GDK bought the tubing from Chinese company PCK and now it is seeking financing for the acquisition, de Oliveira said. "Since it's hard to find financing here in Brazil, gas companies have to seek it abroad," he said.

Copergas will invest 60mn reais in the pipeline in 2005 and another 35mn reais in 2006. Caruaru is the second largest city in the state and the pipeline is an extension of Copergas' 200km network to the state's countryside. The project aims to prepare the company for the extra gas that should arrive in the state when federal energy company Petrobras (NYSE: PBR) concludes the 960km northeastern Malha expansion project that will expand gas supply in the region by 2007.

Copergas started operations in 1997 and currently sell around 850,000m3 of gas a day. Like other gas distributors, Copergas has trouble in obtaining financing since it is controlled by a state government. Brazilian legislation does not allow state-controlled companies to tap financing from government-controlled banks, such as national development bank BNDES.

"Gas companies are in talks with BNDES to allow us to use future receivables as guarantees for the financing, but so far there has been no advance," said de Oliveira, who is also president of natural gas distributors' association Abegás, which represents some 24 companies.

However, some companies are seeking financing from BNDES to allow development of expansion programs that add up to 2.3bn reais. Local press recently reported that BNDES was ready to allow gas distributors to use receivables guarantees, but no official announcement has been made.

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