The regas terminal is mated with a 530-megawatt (MW) combined-cycle gas turbine (CCGT) generating station that is being built concurrently to be the primary taker of gas from the new regas terminal.

Early in the development cycle, GDF Suez brought in Japan’s Marubeni as a 50% partner in a joint venture, GNLS, on a 15-year BOOT contract to build, own, operate and, eventually, transfer the regas terminal to Gas Sayago, the joint venture made up of ANCAP, Uruguay’s national oil company, and UTE, the national electric utility.

Last week, in a stunning blow to Uruguay’s grand plan, Engie and Marubeni walked away from the project. In an address to the lower house of Uruguay’s congress, Energy Minister Carolina Cosse said that the parting of the ways was amicable and that Uruguay would not pursue litigation.

However, under terms of the contract, Cosse said that GNLS will pay a penalty of US$100 million to Gas Sayago in order to abandon the project. Gas Sayago retains all intangible assets generated so far by the project, including knowledge, information and technology. The state firm will seek a new company to continue building the terminal, for which dredging works are 90% complete, according to the government.

The regas terminal is the linchpin of a grand plan to replace existing thermal capacity that runs on diesel with the new CCGT plant and some conversion of existing capacity. With planned regasification capacity of 350 MMcfd, GNL del Plata will have ample excess capacity to enter into export trade with Argentina and Brazil, both large LNG customers.

A big part of the problems that have dogged the project from the start is Uruguay’s very limited use of thermal generation capacity. Historically, over 80% of the electricity in the tiny country (3.4 million pop.) comes from four dams. In many years, over half the national supply comes from a single source: Uruguay’s 50% share of electricity from Salto Grande, the giant 2000-MW bi-national dam built with Argentina across the Rio Uruguay between the two countries.

In the past eight years, as shown by statistics from the Direccion National de Energia (DNE), hydro’s share of total electric output dipped as low as 56% in 2008 and 2012, but then it shot back up to 85% in 2010 and stood at 82.3% in 2014.

The upshot is that when the nation really needs thermal capacity, it could generate 3,517 gigawatt-hours (GWh) of thermal in 2008, 44% of total electric output of 8,018 GWh, and 4,194 GWh in 2012, 43% of the load. But when ample rainfall fills up the reservoirs, like last year, thermal output dropped to 1,343 GWh, a mere 11.5% share of the total load.

Uruguay’s total generating plant currently stands at 3,720 MW of installed capacity — 1,538 hydro, 1,175 thermal, 425 biomass, and 581 eolica (wind). Thus, the 530-MW Punta del Tigre plant now under construction represents a 45% addition to current thermal capacity. Some of the old capacity running on gasoil will be shuttered, so the new plant will likely represent a third of the country’s thermal capacity.

The burning question for project developers is whether they will get to run the new plant at high enough utilization rates to pay out the investment. Running flat out for a full year, 100 MW of capacity generates 876 GWh of electricity, for a max utilization rate of 8.76. In a big year for hydro like 2014, the dams produced 9,649 GWh output, for a utilization rate of 6.27 (very high in the real world). Conversely, thermal capacity produced 1,343 GWh, for terrible utilization of 1.14.

Too late, it appears, Engie and Marubeni saw the warning flags and went back to their client, Gas Sayago, to adjust the terms of their contract. The contract stipulates payments of $14.5 million per month for 15 years, or $2.61 billion over the contract life. The project team came back with a request for $20 million for 20 years, $4.8 billion, a princely hike of 84% over the amount they initially bid.

Uruguay rejected this rebid of the contract out of hand. One problem for contractors in Uruguay is that if a major project hits the skids, you aren’t just dealing with your customer. You’re dealing with the president of the country. In this case, Uruguay’s President Tabare Vazquez, just sworn in in March, was the offended party who informed the project team that there was no way they were going to get a higher payback.

But this was a project in deep trouble from early on. In 2014, when construction of the receiving dock and breakwater was supposed to be in high gear, disputes arose between the GNLS developers and their prime contractor, Construtora OAS out of Sao Paulo, over the proper design and execution of the offshore facilities.

The basic design concept of GNL del Plata is that it will be a floating storage and regas unit (FSRU) anchored 2.5 miles offshore from Montevideo’s harbor, in full view of a jaundiced citizenry not enthusiastic about fossil fuels in general.

The dispute between OAS and GNLS led OAS, in March, to call for a layoff of 150 of the 700 workers contracted to work on the project. That immediately got them crossways with SUNCA, the syndicato (union) in charge of the construction trades. SUNCA promptly called a strike, and the workers on the project have now been idled for six months, collecting mountains of unemployment and union strike benefits.

As if all this were not enough, OAS was being swept up into the Lava Jato (Carwash) corruption investigation against Petrobras and two dozen of Brazil’s leading contractors. After calling for the layoff, and triggering the total shutdown of work on the regas terminal, OAS filed for bankruptcy.