When UK developer International Power and France’s GDF Suez merged their non-European energy assets in February 2011, the deal brought together 72,360MW of operating power generation assets and a combined pipeline of planned projects equivalent to 15,503MW.
Both developers had established a significant presence in the Middle East and North Africa region and the size of the new company was expected to impact the sector.
The enlarged company has created opportunities in the capital markets and mergers and acquisitions sectors. At the same time, other private developers have been keen to see how the company will perform in the latest round of tenders for independent power projects (IPPs).
The merger of the two developers has created a huge company, but according to Shankar Krishnamoorthy, president and chief executive officer of International Power-GDF Suez Middle East, Turkey and Africa, the fundamentals of the two firms have not changed.
“There wasn’t much difference [between GDF Suez and International Power] in terms of culture and risk appetite,” says Krishnamoorthy. “A bigger company has the ability to source things at a lower cost, so that you can keep operational costs low and also switch suppliers. An example is when we wanted to keep our plants in Bahrain running through the unrest, we were able to find alternative sources for consumables.”
These benefits can be passed on to the client and, ultimately, electricity consumers, he says. “You can debate on whether a small company can do the same. If all goes well, you don’t even need to have developers. You just need suppliers and contractors to build the plant and, automatically, everything works perfectly.
“But you may have problems every now and then. I think that you will then need the might of a large company,” he adds.
The merger announcement prompted questions about the ownership of assets in countries, including Oman, the UAE, Qatar and Bahrain.
This has created a conundrum for the enlarged firm. In countries where it has a large presence, it can either divest some of its assets/ownership stakes or hold off from new projects until the level of power demand, and hence installed capacity, has increased significantly. In Oman, the company has exceeded its permitted ownership share and this affected its participation in the recent Sur IPP tender.
“As we saw in the Sur project, our growth is temporarily constrained,” says Krishnamoorthy. “The law says that you can have x number of licences and y capacity and if you want to grow now, either the market has to grow for you or you have to sell something.”
In 2009, United Power Company, a project firm that was developed by Belgium’s Tractebel (later acquired by GDF Suez), was listed on the Muscat Securities exchange. An initial public offering was also held for the Sohar IPP. In October, SMN Power Holding was listed. The latter owns the Barka 2 and Rusail power plants and is part-owned by International Power.
As for the direction of the merged firm, the Middle East continues to dominate. “As far as growth is concerned, the main focus is [the Middle East, Turkey and Africa], Asia and South America,” says Krishnamoorthy.
International Power is keen to participate in upcoming tenders for new IPPs and independent water and power projects (IWPPs) across the region. It partnered with Japan’s Sumitomo to bid for the Al-Zour North IWPP in Kuwait and also intends to bid for the Hassyan IPP in Dubai, for which it has partnered with Japanese-based Mitsui.
The firm is consequently in line for funding from the Japan Bank for International Cooperation (Jbic) if selected to build the projects. It has also brought Japan’s Mitsui into the Safi IPP deal in Morocco, for which it has already been awarded the contract.
“Once you have Jbic on your side… liquidity [is not a problem],” says Krishnamoorthy. “You are also entering into an unspoken agreement with Jbic with respect to pricing. All of the developers have come to the conclusion that it always works with Jbic.
“If you look at international money that is available for investments in infrastructure projects in the Middle East today, it is mostly available with the Japanese government and banks.
“It is hard to find the international banks who used to be around. At one point in time, several banks had the ability to borrow money in the inter-bank lending market. But that has taken a beating since 2008.”
International Power has also opted to work with the contractors and suppliers that it has previously used. The firm has partnered with Germany’s Siemens and South Korea’s GS Engineering for its Hassyan bid. The line-up replicates that of the Barka 3/Sohar 2 bids in Oman.
“Regarding Chinese contractors, just as every other organisation has done or will do, we have looked at them. [But] you don’t get to see many conventional thermal plants in the Middle East,” says Krishnamoorthy. “You get many more combined-cycle projects and this is not the area that Chinese companies can necessarily be the most competitive in.”
It looks likely to be business as usual for the enlarged International Power.