The Government of Dubai has agreed to provide a guarantee for the financing of the emirate’s first independent power project (IPP) at Hassyan. Dubai Electricity and Water Authority (Dewa) secured the financial backstop last week, according to a source at the authority.
Dewa received around 30 expressions of interest (EOI) from developers earlier this month to build the IPP. The high level of interest was hailed as a strong indication of support in favour of the project. Had Dewa not received the guarantee, developer interest may have waned.
Dubai’s creditworthiness has been called into question in recent years, in particular following the high-profile bailout of the emirate by Abu Dhabi in November 2009. Nevertheless, explicit government backing for the project continues to hold weight with potential developers and lenders.
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Significantly, many banks will see the Dubai government guarantee as being a proxy for backing by Abu Dhabi, which has shown itself ready to support Dubai to ensure its government-owned companies can avoid defaulting on their debts.
Dewa is considered to be one of the strongest companies owned by the government of Dubai, although profit fell by 20 per cent in 2010 due to increases in costs and one-off gains in 2009.
Advisers on the project have been quick to point out that Dewa’s creditworthiness is almost the same as sovereign backing. In October 2010, Dewa raised $1.5bn in bonds for a period of 10 years at a rate of 7.375 per cent, while the government of Dubai raised $750m in the same month for the same tenor at 7.75 per cent.
Dewa will now assess the expressions of interest alongside its advisers, the UK’s HSBC Mott MacDonald and Clifford Chance. According to Bert Kleinveld, Dewa’s director of special projects, a request for proposals (RFP) is set to be issued to shortlisted companies by the end of April.
Hassyan 1 IPP is expected to be followed by five or six similar independent projects as part of Dewa’s private power programme.
The IPP at Hassyan was originally to be developed as an independent water and power project (IWPP), but the desalination element was subsequently dropped. According to Dewa, the decision to adjust the project plan was taken following a revised water demand forecast. While power continues to increase at a steady rate, meeting water needs in coming years will be less difficult.
The Hassyan 1 project will be constructed on a build-own-operate (BOO) basis. When complete, it will generate 1,500MW. The project is expected to be commissioned in 2014. The chosen developer will take a 51 per cent stake in the Hassyan 1 IPP. Dewa will buy all of the power produced by the project.