Two local banks agree to fund power plant contract
Ras al-Zour power project timeline
June 2008: Sumitomo consortium named low bidder for Ras al-Zour IWPP
March 2009: Malakoff leaves Sumitomo consortium
April 2009: Riyadh scraps Ras al-Zour as IWPP
May 2009: Ras al-Zour IWPP merged with other power schemes
November 2010: SWCC signs contract with Al-Arrab and Sepco III to develop Ras al-Zour on EPC basis
January 2011: Contractor financing expected to close
SWCC=Saline Water Conversion Corporation; EPC=Engineering, procurement and construction; IWPP=Independent water and power project. Source: MEED
The contractors working on the $4.18bn Ras al-Zour power project in Saudi Arabia, which was scrapped as an independent water and power project (IWPP) in 2009, are putting in place a several billion dollar short-term loan to fund the development.
Saline Water Conversion Corporation (SWCC) awarded the contract to build the project to the local Al-Arrab Contracting Company and China’s Sepco III Electric Power Construction Corporation in early November. The two firms are now in talks with lenders about financing the construction contract.
The local National Commercial Bank and Arab National Bank are acting as lead arrangers on the financing. Several other banks were approached about the deal, but say they declined to be involved because of the low pricing offered.
Depsite the pricing concerns, one source close to the deal says NCB and ANB could try and syndicate the debt next year. “We hope the financing is completed with the lead arrangers by early January, then there could be a wider syndication later in the year,” says the source.
It is not yet clear exactly how much will be raised from banks, but it is expected to be a major part of the cost of developing the project. The loan is also expected to have a tenor of under five years.
The financing will bring to an end the long saga surrounding the Ras al-Zour scheme. Originally conceived as an IWPP by Water & Electricity Company, it hit trouble when Malaysia’s Malakoff International pulled out of the developer consortium. The project was then merged with another power plant and switched to SWCC’s control.
The Ras al-Zour deal is also indicative of a trend in Saudi Arabia for contractors to raise bank finance to help their cash flows on large development projects. Contractors on the King Abdullah Financial District have already raised $3.9bn from banks to help finance the development and cover their costs in between receiving payments from the project sponsor.
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