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DOE Seeks Comment on Loan Guarantee Provisions for Alaska Pipeline/LNG Project

The Department of Energy (DOE) is taking comments on multiple issues related to the loan guarantee provisions of the Alaska Natural Gas Pipeline Act, which authorizes the secretary of Energy to issue federal loan guarantees to facilitate construction of a pipeline or liquefied natural gas (LNG) project to bring gas from the Alaska North Slope to the continental United States.

DOE said it may develop a notice of proposed rulemaking on the loan guarantee provisions and regulations it must develop for the massive infrastructure project. The act authorizes the Energy secretary to issue loan guarentees for up to $18 billion or 80% of the project costs to one or more holders of a final FERC certificate for such a project and to the owners of the Canadian portion of the project.

According to the act, the Energy secretary has authorization to issue loan guarantee regulations but the act is silent on many of the customary loan guarantee requirements. As a result, DOE is taking comments on the establishment of certain minimum requirements and terms for the loan guarentees. The agency is inviting comments and analysis from financial institutions, potential project sponsors and others on the development of these regulations and implementation of the guarentees.

One of the issues is whether the agency can or should negotiate a "conditional commitment" with one or more potential project sponsors prior to the issuance of a FERC certificate for the project. Such negotiations could expedite the process, DOE said.

The agency also wants to know what other unusual financing terms and conditions might apply to this project. It requested comment on whether the provisions of the act allow for any "lender risk" in the project debt. DOE is considering the imposition of a loan guarantee fee in the form of an origination fee or an annual fee. It also believes that the project sponsors should be responsible for a 20% equity commitment that should be made during the construction and start-up phase of the project.

In addition, DOE is seeking comments on what type and form of assurance it should require from the project sponsors to assure that the scheduled equity contributions will be available and will be made when needed.

Regarding the maximum 30-year term of the loan, DOE is seeking comment on whether the term should begin in the construction phase and continue with the operation phase.

The act also is silent on procedures related to collateral. DOE wants to know what recourse or options it should have in the event of default. Should security other than project assets be pledged? Should DOE have a first lien on all project assets?

The act also is silent on potential cost overruns or how a debt instrument guaranteed pursuant to the loan agreement might be used to fund cost overruns.

Written comments are due July 26. They can be sent via email to bettie.corey@hq.doe.gov or mailed to the Office of the General Counsel, GC-72, Attention: Lawrence R. Oliver, U.S. Department of Energy, Forrestal Building, Room 6B-256, 1000 Independence Avenue, SW, Washington, DC 20585. DOE requires, in hard copy, a signed original and three copies of all comments.

For further information contact Lawrence R. Oliver at (202) 586-9507, lawrence.oliver@hq.doe.gov.

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