Investing in Methanol Plants pays off for MAN Ferrostaal

18.04.2006 -

• Investing in plants that it builds, as a business model
• Transferring a successful model to the Arab world
• Stable trends in the methanol market

Over the last 15 years, MAN Ferrostaal and its partners have evolved into the second-largest producer of methanol, producing over 4 million tonnes per year. During this period, the Company has invested in five methanol plants on Trinidad, wherein it acted as general contractor and organised profound financing possibilities for the projects.

Because there was not sufficient physical collateral to offer the creditors for the construction of the first methanol plant in 1990, MAN Ferrostaal and the banks providing the financing had to look for new solutions. The financing had to be supported largely by assets that were not yet built and by the plant's future expected cashflow. MAN Ferrostaal developed a new financing model in which the Company itself acquires an investment in the plant, thereby assuming part of the risk. The essence of this concept was that MAN Ferrostaal had to secure every link in the value-added chain, from processing the methanol to transport to marketing the product.

The conditions for building methanol plants on Trinidad were good: a competitive natural gas price; a favourable geographic location for supplying the largest markets, Europe and the USA; low taxes; favourable tariff regulations and a well-qualified local workforce. Therefore, as in many previous projects, MAN Ferrostaal was able to convince the Kreditanstalt für Wiederaufbau (KfW, Germany's promotional bank for Germany and for developing economies) and the credit insurance company, Euler-Hermes, to join it as partners and start construction. Three years later, the first methanol plant went into operation and immediately started yielding profits.

In 2000, after building two additional methanol plants, MAN Ferrostaal began planning the world's largest methanol plant, the M5000, likewise to be built on Trinidad. As Jens Gesinn, MAN Ferrostaal's Chief Financial Officer, explained, financing this project was incomparably easier than for the first plant: “No new capital from the shareholders was needed for this major investment, because we were able to finance the required equity from the cashflow from the already existing methanol plants. At the same time, we were able to use the assets of the almost completely debt-free &ldquoold” plants as additional collateral for debt financing for the new M5000 plant.” This so-called structured project financing is a combination of some aspects of project financing with components of classic corporate financing.

This model, whereby the general contractor takes an equity stake in the project, turned out to be very advantageous to the clients in the case of the five plants built on Trinidad. All of the plants were finished ahead of schedule and within the planned budget. Likewise, all of the plants attain or exceed the agreed production capacities and are producing according to specifications, with a very high level of operational availability. By using this business model, in which the general contractor itself becomes a co-investor, MAN Ferrostaal also changed the role of the general contractor in building large industrial plants. The focus in building the plant was not just on turnkey delivery, but rather on profitable operation of the plant over its entire life cycle.

Oman also offers favourable conditions for reapplying this successful model: a good investment climate, an excellent infrastructure and available sources of natural gas. The sultanate also has local partners who are extremely interested in investments in the petrochemical industry. In April 2005, construction started on a 400 million dollar methanol plant in the industrial area of Sohar, 250 kilometres northwest of Muscat, the capital city. Oman Methanol Company, the joint-venture company, is supported by three solid partners: Methanol Holdings (Trinidad) Limited (the owner of the plants), the OMZEST Group, an Omani company, and MAN Ferrostaal. Like the plants on Trinidad, this project is largely financed through HERMES-insured KfW loans.

For this investment, MAN Ferrostaal is directly responsible for providing engineering services and for supplying imported equipment and materials. Local construction and assembly services are being handled by the Omani company, Proman Contracting & Trading LLC. The target market for the methanol produced at the Omani plant is the chemical industry in Europe and Asia.

In recent years, the market for methanol has seen a stable, upward trend. While the price per tonne of methanol was still around EUR 125 at the beginning of 2002, it is currently around EUR 250. There is a constant demand for methanol. It can be used either as a high-octane fuel or as a raw material for further processing in the chemical industry. Thus, methanol can be found in plastics, synthetic textiles, pigments, coatings and many other chemical products. Under normal temperatures and atmospheric pressure, methanol is a liquid and is therefore easy to transport over long distances by ship and by lorry.

About MAN Ferrostaal AG:

MAN Ferrostaal is a worldwide supplier of industrial services for the construction of large-scale industrial plants and machine supply. As a general contractor for plant construction, the company offers project development, project management and financing solutions for turnkey plants in the areas of solar thermal power plants as well as biofuels, petrochemical and industrial plants. In ccoperation with manufacturers of machines and production lines, MAN Ferrostaal offers sales and services in the areas of automotive industries, print and packaging, piping, ships and transport solutions. With 4,200 employees MAN Ferrostaal is represented in more than 60 countries. The company achieved a turnover of EUR 1.4 billion in 2007.

MAN Ferrostaal is a subsidiary of MAN Aktiengesellschaft, Munich. The MAN Group is one of Europe’s leading manufacturers of engineering equipment and vehicles, generating annual sales of around EUR 16 billion. MAN supplies products, systems and services to the capital goods industry and employs approx. 55,000 people worldwide. The core areas operated by the MAN Group, Commercial Vehicles, Industrial Services, Diesel Engines and Turbomachines, all hold leading positions in their markets. MAN is a member of the DAX German Share Index, Germany’s top 30 public limited companies.