Japan's Marubeni bids low for Hassyan independent power project

12 December 2011

Japanese-led consortium low bidder for Dubai’s first 1,500MW private power plant


  • Marubeni (Japan)/Abu Dhabi National Energy Company (UAE)/SK E&S Company (South Korea): AED0.19057 ($0.052) a kWh
  • Siemens Power Ventures (Germany)/Qatar Electricity & Water Company: AED0.19134 a kWh
  • Acwa Power (Riyadh)/Korea Electric Power Corporation/Samsung C&T (South Korea): AED0.2027 a kWh
  • International Power (UK)/Mitsui (Japan)/GS Engineering & Construction (South Korea): AED0.2048 a kWh

A consortium led by Japan’s Marubeni has submitted the lowest bid to develop Dubai Electricity & Water Authority’s (Dewa’s) first ever independent power project (IPP).

The consortium was one of four to submit bids for the 1,500MW Hassyan 1 project on 12 December. Despite initial concerns about the creditworthiness of Dubai, which has forced the restructuring of tens of billions of dollars of debt, Dewa attracted four strong bids from international firms, although it had prequalified 14 companies to bid for the scheme.

Attractive project

“Dewa has positioned this project at just the right size for the market, it is not too big to make financing difficult,” says a source at one of the bidders. “This has been a good response for the first ever IPP in Dubai,” says another bidding source.

This is good news for Dewa, which plans to develop a further five or six IPPs at the same site, close to the Abu Dhabi border. It also bodes well for the Dubai government’s wider plans to start using public-private partnerships more widely for the development of infrastructure in the emirate.

According to sources close to the scheme, the debt on the project will be about $1.2bn, although only up to $500m will be commercial debt provided by banks. Some bankers say the commercial debt amount could be even smaller in the final structure.

Raising the commercial debt, even in an environment of constrained liquidity, should not be too difficult as the bidders already have some significant commitments in place.

The UK’s HSBC, which is also advising Dewa on the project, and the local Emirates NBD, have agreed to provide $200m to any bidder on the project. Saudi Arabia’s Samba has offered all four bidders an additional $100m of commercial debt and also has offered several of the bidders funding for export credit agency (ECA) guaranteed loans.

ECAs, including Japan Bank for International Cooperation is backing the two consortiums with a Japanese company involved in the bid, and is expected to provide about $500m of direct loans for the project. The tenor of the debt will be over 20 years.

The Marubeni group is being advised by Citigroup, with financing from the UK’s Standard Chartered and Germany’s Kreditanstalt fur Wiederaufbau (KfW). Germany’s Siemens, which is the second-lowest bidder, has finance from KfW and Qatar National Bank. Saudi Arabia’s Acwa Power is being advised by National Bank of Abu Dhabi and has backing from Standard Chartered. The UK’s International Power does not have an external adviser.

Late prequalifiers

About 10 other firms were also prequalified, but did not submit bids. “We were a bit late in trying to form our consortium, so we didn’t bid, although we are fairly comfortable with the creditworthiness of Dubai,” says a source from one of the prequalified firms.

The prices submitted by the four companies appear high compared with other regional IPPs, but higher fuel costs have inflated the bids. About 70 per cent of the prices are made up of fuel costs. The fuel will be supplied to the Hassyan project at $5.50 a million BTUs. In Abu Dhabi, Abu Dhabi Water & Electricity Authority supplies its IPPs with fuel at $2.10 a million BTUs. IPPs in Saudi Arabia access fuel at $1.50 a million BTUs, making bid prices of 2 cents a kilowatt hour conceivable in the kingdom.

Dewa has said it will select a preferred bidder to develop the project in February and wants financial close to be reached by the end of the first half of 2012.

The Hassyan project will be constructed on a build-own-operate basis and will use natural gas/distillate fuel. The project is expected to be commissioned in 2014, with Dewa as the sole offtaker of power produced.

The successful bidder will own 49 per cent of a special purpose company, which will be formed to own the project. The rest will be held directly or indirectly by Dewa.

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