A change of name has certainly produced a change of fortune for the UK's leading developer in the Middle East. Created in October 2000 from the demerger of National Power, International Power has wasted little time in making its mark on the Gulf power sector. Success on the Al-Kamil independent power project (IPP) in Oman was followed up last year with the award of the region's biggest independent water and power project (IWPP) so far, the Shuweihat development in Abu Dhabi. And having established a foothold, International Power is now intent on expanding its regional presence, as it strives to achieve the goal of setting up a self-financing and self-sustaining operation in the Middle East.
International Power's roots can be traced back to the late 1980s, when, following privatisation of the UK's Central Electricity Generating Board (CEGB), National Power embarked on an overseas investment drive. One of its first forays was into Pakistan, where it acted as lead developer on the ground-breaking Hub river project.
In recent years, the 1,292-MW Hub project has been hitting the headlines for all the wrong reasons, becoming embroiled in Pakistani politics and controversy. Nevertheless, its largest shareholder still sees it as a success. 'As a deal it was tremendous,' says Ranald Spiers, International Power's director for the Middle East and Africa. 'It was the first real IPP in Asia. It was a flagship project for Pakistan. And it was innovatively financed.'
Hub also played a part in National Power's decision in 1996 to establish a business development office in Abu Dhabi to target emerging opportunities in the Gulf. 'Paradoxically, one of the rationales for setting up in the Middle East was that we had so many people serving Hub from the region that it made sense to establish a permanent presence,' Spiers says.
The office's first major target came in 1998 with the Taweelah A-2 IWPP in Abu Dhabi, where it narrowly missed out on the second round of bidding. It was a similar story a year later, when National Power was ranked third by Abu Dhabi Water & Electricity Authority (ADWEA) for the Taweelah A-1 IWPP.
National Power's regional breakthrough finally came in 2000, when it was named as preferred bidder for the 280-MW Al-Kamil IPP in Oman. By then, however, it was in the process of hiving off its overseas interests into a separate publicly listed company, focused exclusively on the international market.
'The timing of Al-Kamil was very good. We wanted something in the Middle East and it happened in International Power's first year of operations,' says Spiers.
But not everything went according to plan. Its strategy for Oman had centred on winning both Al-Kamil and the subsequent Barka IWPP. Having won the former, it lost out on the larger Barka development, after failing to follow the request for proposals (RFP) document closely enough.
Al-Kamil also presented its own difficulty. The developer's nominated engineering, procurement and construction (EPC) contractor - South Korea's Hyundai Engineering & Construction Company - ran into financial difficulties, forcing International Power to review its construction strategy. In the end, it decided to undertake the EPC package for the turbine island itself and to appoint Egypt's AIC to carry out the balance of plant works.
The Al-Kamil challenge was nothing compared to the one International Power and its co-developer, the US' CMS Energy, faced on the Shuweihat IWPP in Abu Dhabi. Having signed last August the 20-year power and water purchase agreement with ADWEA, the International Power/CMS group was looking forward to a smooth ride to financial close on the $1,600 million project. Then came 11 September.
'Immediately after 11 September was certainly not the ideal time to have a major Middle East financing in the market,' says Spiers. 'There were a couple of weeks of serious wobble. Banks operate in a herd mentality and many said 'don't ask us now'. We bullied and gave the bankers a hard time. We also decided to go to the Islamic market. It was a bold move but we thought we might be $250 million-300 million short.'
On 1 December, all the effort was rewarded when the Gulf's largest financing package of 2001 was signed. In addition to a commercial loan of $1,285 million, incorporating a $250 million Islamic tranche, project company Emirates CMS International Power secured a $351 million bridging facility, which will be used to cover the equity positions of shareholders ADWEA, CMS and International Power. Says Spiers, 'Shuweihat has been structured as a 75:25 debt/equity package. We have a 20 per cent stake in the project, which gives us an actual equity commitment of $80 million. But the bridging facility means that we won't need to put any money in until 2004, when the plant enters full commercial production.'
The Shuweihat project has elevated International Power into the major league of foreign developers in the Gulf. It has also given the company a high-profile reference. 'The paradox of the Shuweihat deal is that it has become a better deal because of the financing challenges we had to overcome,' says Spiers. 'We have learnt a great deal from the project and we want to plug that knowledge into other markets.'
The Shuweihat calling card, as Spiers refers to it, is likely to be handed out most in Saudi Arabia, where projects of similar size to the Abu Dhabi IWPP are being talked about. 'We are ready to invest there, whether it be through the core ventures, the sector restructuring or the industrial IPPs. But it is still early days and we don't expect much in terms of real projects until the second half of the year,' he says.
Elsewhere, the company is monitoring developments in Kuwait, where the 2,400-MW Al-Zour project could be implemented as an IPP. Although it did not bid for the Ras Laffan IWPP, due to commercial risk issues in the documentation, Qatar remains a future target market, as does Iran. 'Iran is a place we need to look at,' says Spiers. 'I am watching the progress of the Parehsar project (the Islamic republic's first IPP) very closely.'
But it is Oman and Abu Dhabi where the most immediate prospects lie. Having secured two grassroots projects, International Power's next target is a brownfield scheme. 'We want to have the right mix between greenfield and brownfield projects. International Power's objective is to demonstrate solid earnings growth year after year. In that respect, acquisitions can make more sense than new builds, since there is a steady stream of revenue right from the beginning and you know what the assets look like and where you can add value,' says Spiers.
The year ahead looks set to provide it with ample brownfield opportunities. The developer is planning to bid for Abu Dhabi's next IWPP, the acquisition and expansion of the Umm al-Nar co-generation plant, which is expected to be tendered in the spring. It will take on a partner for Umm al-Nar, although no decision has so far been made on which one. One thing is for sure: it will not be CMS, which announced in the autumn that it would not bid for any more IPP work in the Gulf, as the result of a major corporate restructuring.
The company is also closely following developments in Oman, where the next stage in the government's power privatisation programme - the disposal of existing assets - will begin once the new sector law has been published. The programme is set to kick off with three generating companies, covering the Ghubrah, Wadi Jizzi and Rusayl plants.
International Power has interests in some 13,000 MW of operating capacity, spread across North America, Asia, Australia and Europe, as well as about 4,200 MW under construction. Backed by a healthy balance sheet and a war chest estimated at more than $1,500 million, further expansion is very much on the cards, not only in existing markets, but also in new ones such as the Middle East. 'The advantage of being a global player is that if one market changes, you can focus on opportunities elsewhere,' says Spiers. 'The Middle East is very high in our priorities, not least because it is contract-based as opposed to most others which are merchant-based. We like that as it gives us certainty of revenues.'
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