Banks in Saudi Arabia are expected to struggle to get approval for 25-year loans for the development of the Rabigh 2 power project in Saudi Arabia, according to sources in the kingdom.
Talks between potential bidders on the project and local lenders have already started, but have hit problems with matching the length of loans that banks are prepared to make with the elongated power-purchase agreement (PPA) that has been introduced for the Rabigh 2 scheme.
Saudi Electricity Company (SEC) extended the length of the PPA to 25 years, from 20 years on its last project. Sources close to SEC say the decision was intended to lower the tariff bid by potential developers by extending the life of the project. However, banks in Saudi Arabia say they will struggle to do any loans of more than 23 years.
“Developers will try and get the debt to be as long as possible, but there is no way Saudi banks will do 25-year loans,” says one local project finance banker. “We are already getting resistance from our credit committee to the idea of doing a 25-year loan,” adds another source.
At least four bids are expected for the project, from consortiums led by the local Acwa Power, the UK/French IP-GDF Suez, South Korea’s Korea Electric Power Company (Kepco) and Japan’s Marubeni Corporation. Fourteen firms were shortlisted to bid to build the 1,700MW project.