Rurelec still constrained despite looming EDS insurance payout

Rurelec said on Wednesday that is has been informed that the management of Energia del Sur (EDS), which owns and operates the 136 MW Southern Patagonian CCGT power plant in Argentina, were expecting to sign an insurance settlement agreement accepting an accelerated insurance payment of $2.5m regarding a loss of profit and material damage claim.

The AIM-traded firm said the UK-based insurance brokers to the insurance policy had confirmed that as of Wednesday they were holding funds of $2.49m sent to them by the insurers to pay the claim, and they expected funds to be transferred to EDS within “days”.

Anticipating the claim, EDS had resumed monthly debt repayments against the current outstanding debt of $3.558m owed to Rurelec Project Finance, albeit at a reduced level of $0.3m per month for five months, although it had plans to make further debt repayments in cash during 2018 despite the reduction in its revenues.

There remained “significant uncertainty” regarding the deliverability of those plans, Rurelec’s board noted.

“As previously announced, the EDS plant has been operating at a reduced output following the September 2017 shutdown associated with the failure of certain blades in the steam turbine,” the board explained in its statement.

“The planned maintenance of the turbine, which had been expected to commence in April and which should restore the plant back up to full output, will suffer further delay due to CAMMESA's shortage of liquidity.

“CAMMESA is the organisation administering and regulating the Argentinian wholesale electricity market and had agreed to provide loan finance to enable the major maintenance to take place.”

That delay would affect the return of EDS's plant to full operating mode.

EDS management was said to be “actively seeking” alternative finance to proceed with that overhaul as soon as possible, thereby mitigating its loss in revenue from operating at reduced output.

“Until Rurelec receives further insurance payments from EDS or EDS resumes full output or Rurelec sources alternative funds, Rurelec's working capital position will remain severely constrained.

“Given the fluidity of the situation with CAMMESA and the consequent uncertainty regarding the timing of when the plant will resume full generation, there is currently limited certainty associated with further debt repayments in 2018, including the monthly payments of $0.3m.”

Further updates would be provided, Rurelec said.