Operation difficulties have plagued North America’s largest wheat ethanol plant since its grand opening last summer, but the plant’s owner says that is about to end.
Universal Energy Group, a natural gas and electricity provider that owns Terra Grain Fuels Inc. had been embroiled in a legal battle with the construction company that built its 150 million litre ethanol plant at Belle Plaine, Sask.
The dispute was recently resolved when EllisDon Corp. dropped its $41 million construction lien against the facility in exchange for a one-third equity interest in Terra Grain.
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federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
As part of the settlement, the contractor agreed to invest $10 million in the plant.
“We are pleased to have settled all claims with EllisDon and welcome them as a partner in our ethanol division,” Universal Energy Group chief executive officer Mark Silver said in an April 16 news release.
“The $10 million cash infusion is expected to provide ample capital to bring the plant to full capacity, and EllisDon’s investment reaffirms its commitment to ensuring that full production at the Belle Plaine facility is achieved in a timely manner.”
The plant has been operating at 70 percent capacity because of ongoing problems with its evaporator vessel, grain milling, distillation and drying equipment.
“It’s fair to say there has been operational challenges,” said Shawn Dym, senior vice-president of business development with Universal Energy Group Ltd.
“We’re still undergoing some.”
However, now that the dispute with the contractor has been resolved, he is confident the plant will be able to address those production bottlenecks.
“We’ve made considerable progress and I think with EllisDon now an equity partner and committed to rectify any problems, we’re on the path to achieving full production,” Dym said.
“We’re optimistic that we’ll be at full production by the end of this year.”
Dym said the dispute with EllisDon was over the construction contract.
“We had a fixed price contract to build the plant and they were saying that there were costs over and above that, that were owed to them.”
In its 2008 annual report, Universal Energy Group said the claim was without merit, that it would “vigorously defend” itself and that it was considering launching legal action relating to delays in commissioning the plant.
The settlement with EllisDon came just days before an April 22 news release announcing an agreement that would see Universal Energy Group acquired by Energy Savings Income Fund, another natural gas and electricity provider.
Based on the closing price of Energy Savings Income Fund on April 21, the deal would be worth an estimated $261 million.
The transaction is expected to close in late June pending the removal of certain conditions including approval by Universal Energy Group’s shareholders.
Universal Energy Group’s board of directors will recommend that shareholders approve the arrangement, said Universal in a news release. As well, the directors, officers and significant shareholders holding 51 percent of the outstanding shares of Universal Energy Group have entered into agreements to vote their securities in favour of the deal.
Dym said the soon-to-be new owners are equally committed to getting the plant up to full capacity, at which point it would consume about 410,000 tonnes of wheat a year.
“That means more grain purchases for the farmers,” he said.
