Bank calls for clarity on Omani power project support

08 December 2009

Export credit agency seeks government guarantees for Barka 3 and Sohar 2 power plants

Muscat is being asked to clarify the level of support it will give for two independent power projects (IPPs) in the event that they run into financial difficulty, sources close to the schemes tell MEED.

Japanese export credit agency Japan Bank for International Co-operation (JBIC), which is providing financial backing for two of the groups bidding for the Barka 3 and Sohar 2 IPPs, has asked Muscat to clarify its role so that it can assess the projects’ creditworthiness.

It is the latest sign of deteriorating investor confidence in the region in the wake of the Dubai government’s decision not to provide backing for the debts held by Dubai World.

While sources say JBIC’s move is not directly linked to Dubai’s debt problems, it highlights the pressure on governments to provide explicit support for projects.

JBIC normally requires some form of government guarantee before it can commit to financing a project.

“JBIC prefers to have the government involved as guarantor of the offtake agreement,” says one source close to the bank. “But there could be other ways that the government gives assurances that it will support the project, and these are being explored.”

It is not clear what other type of support might be offered. In the past, the Omani Finance Ministry has explicitly guaranteed the financial obligations of the Oman Power & Water Procurement Company (OPWP) to developers, under any power and water purchase agreement.

However, the government’s request for proposals for the latest OPWP schemes, which was issued in July, said the guarantee would expire once OPWP had maintained at least two credit ratings for two years.

The minimum ratings were set at BBB from Standard & Poor’s (S&P), Baa2 from Moody’s Investors Service and BBB from Fitch Ratings. OPWP has kept a higher, A2 rating from Moody’s since 26 Oct-ober 2007 and an A rating from S&P since May 2008, meaning the guarantee could soon expire.

The talks could affect the financing arrangements of the two groups JBIC is backing.

The first group is led by Marubeni Corporation of Japan. The second is led by Belgium’s Suez Energy International.

Six other groups submitted bids by the deadline of 8 December.

OPWP will open the technical and commercial bids in January.

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