Goradia affiliate sues Williams over Canada PP project

HOUSTON (ICIS)–An affiliate of Goradia Capital has sued Williams Companies over a polypropylene (PP) plant it planned to build in conjunction with the midstream company’s proposed propane dehydrogenation (PDH) unit in Canada.

The affiliate, North American Polypropylene (NAPP), alleged that Williams portrayed itself as willing and ready to proceed with the project – when, in fact, the company was considering significant corporate deals that would prevent it from making such a strong commitment, the lawsuit says.

After NAPP agreed to participate in the project, Energy Transfer Equity attempted to acquire Williams. Later, Williams agreed to sell its Canadian business to Inter Pipeline. This is the business in charge of developing the PDH unit.

The lawsuit alleges that these corporate deals prevented Williams from committing to the Canadian project to the extent that it portrayed to NAPP. Without such a strong commitment from Williams, NAPP would never have agreed to participate in the Canadian project, the lawsuit says.

NAPP alleges that it suffered more than $400m damages as a result.

Williams said on Friday that it does not comment on pending litigation. However, it did say in a filing that Inter Pipeline would pursue the PDH plant.

NAPP alleges that Williams approached it about the project in late 2012.

Under the project, Williams would build a PDH unit in Redwater, Alberta province in Canada. The unit would have a capacity of 1bn lb/year (454,000 tonnes/year).

NAPP, in turn, would build a homopolymer PP plant nearby that would rely on propylene produced from the unit.

The two companies signed a propylene purchase and sales agreement in August 2015, the lawsuit says. Under it, NAPP agreed to purchase nearly all of the PDH plant’s propylene to be used as feedstock for its PP plant.

During talks with NAPP, Williams allegedly made several statements to induce the company to sign the supply agreement, the lawsuit says.

Williams allegedly provided NAPP with projections showing that the value of the propylene from the PDH plant would be $590m/year, the lawsuit says, and the value of the PP would be $868m/year.

NAPP alleges that these projections and other statements were critical to its decision to sign the supply agreement, given how much money it would need to spend on the PP plant. The company estimated that such a plant would require an investment of $1bn.

Also crucial were Williams’s alleged statements about its commitment to the project, NAPP says.

“Defendants repeatedly assured plaintiff that Williams was ready and willing to perform its promises and obligations with respect to the project and committed to the project for the long-term,” the lawsuit says.

The supply agreement imposed what NAPP described as unusually burdensome requirements, the lawsuit alleges.

Under the agreement, NAPP had to obtain fully termed financing for the project within a one-year period, the lawsuit says. NAPP alleges that the normal timeline for fulfilling such requirements was 20-24 months.

Again, NAPP says it agreed to such terms because of Williams’s alleged statements about its commitment to the project.

One month after NAPP signed the supply agreement, Williams allegedly told the company that it entered into a merger agreement with Energy Transfer Equity.

Four months later, Williams told NAPP that it intended to defer development of the PDH plant and drastically cut how much it planned to spend on the project, the lawsuit alleges.

Then, in February 2016, Williams told NAPP that it intended to sell the business that would develop the PDH plant, the lawsuit alleges.

NAPP alleges that Williams should have known that obtaining financing for the Canadian project would have been made impossible by these corporate deals. Instead, Williams allegedly insisted that it was committed long term to the project.

“The defendants’ belated disclosure of these previously secret developments left the project infeasible to be financed and completed due to the uncertainty,” NAPP alleges in the lawsuit. “These now-public developments have stymied progress of the project, the future of which is up to the new owner of the assets.”

Had NAPP known about this, it would have pursued a PP project with another company, it says.

Meanwhile, NAPP has spent more than $40m in development costs associated with the PP plant, including those involved in clearing the site, the company alleges. It also had to establish a $300m equity reserve to fund the project’s expenses, the company alleges. This is money NAPP alleges it could have spent on other projects.

Finally, the company alleges that it lost the opportunity to build and develop the project, which it valued at $366m, the lawsuit says.

NAPP filed the lawsuit on Thursday in Texas state court, District Court of Harris County. The case number is 2016-53287.

NAPP is an affiliate of Goradia Capital, a family private investment group operating in the chemical industry. The firm’s director, Vijay Goradia, developed the international chemical trading firm Vinmar International.

Additional reporting by Stefan Baumgarten