Oman independent power projects reach financial close

19 September 2010

Siemens and GS Engineering awarded engineering procurement and construction contract

A consortium led by France’s GDF Suez has closed the deal for the financing of the Barka 3 and Sohar 2 independent power projects (IPPs) in Oman.

Financing closed on 16 September for the two 744MW greenfield natural gas-fired power plants. Together they will add almost 1,500MW to the sultanate’s existing electricity generation capacity of around 3,600MW.

The development of the two power plants is worth a combined total of around $1.7bn. The projects have been financed in tandem with an identical structure. Barka 3 has a slightly higher project cost of around $900m while Sohar 2’s cost is closer to $800m.

Of the $1.7bn total project costs, around $400m has been provided for the IPPs in equity by the following sponsors:

SponsorPer cent
GDF Suez (France)46
Shikoku Electric Power Company (Japan)11
Sojitz Corporation (Japan)11
Bahwan Engineering Group (Oman)22
Public Authority for Social Insurance (Oman)10

The GDF Suez-led bid emerged as the frontrunner for both projects in mid-May, which was followed by exclusive negotiations with Oman Power & Water Procurement Company (OPWP).

Debt for the project has been provided in three tranches with around 70 per cent provided or covered by export credit agencies (ECAs). German ECA Hermes has covered just less than half of the total $1.3bn debt while Export-Import Bank of Korea (Kexim) arranged 25 per cent of the debt in a combination of direct lending and cover. The final 25 per cent has been provided as a commercial loan with no ECA cover.

According to a source close to the deal, the transaction stands out as it involves “Two ECAs which we haven’t seen that much of in the power sector in the region for some time. It’s been about four years since they were on a power deal.”

The following banks are commercial lenders on the deal across all three tranches:

  • Bayern LB (Germany)
  • Credit Agricole CIB (France)
  • Natixis (France)
  • CIC (France)
  • Europe Arab Bank (UK)
  • HSBC (UK)
  • KFW (Germany)
  • Standard Chartered (UK)

KFW supplied $350m debt while the other 7 banks have put forward around $100m each. Bayern LB, Credit Agricole CIB and Natixis were the original backers of the GDF Suez-led bid. The other banks joined later with Standard Chartered, one of the banks backing Saudi Arabia-based Acwa Power’s unsuccessful bid for the projects, the final lender to enter the club in August.

Debt pricing starts at 200bps for the commercial tranche, 180bps for the Kexim loan and 150bps for the Hermes tranche. First drawdown on the loans is anticipated before the end of September. The debt has a tenor of 15 years post-construction.

A consortium of Germany’s Siemens and GS Engineering of South Korea was awarded the engineering, procurement and construction (EPC) contract for the projects on 15 September. Early power for Barka 3 and Sohar 2 is expected to be commissioned by May 2012 and full completion of the plants by April 2013. Electricity generated by the projects will be sold to single-offtaker Oman Power and Water Procurement Company (OPWP) under two 15-year power purchase agreements (PPAs).

US-based firm Chadbourne & Parke was legal adviser to the sponsors while the US’ Milbank acted as legal adviser to the lenders. The UK’s Mott MacDonald is technical adviser on both projects and the UK’s Jardine Lloyd Thompson (JLT) was the insurance broker. OPWP was advised in the tender by the UK’s Berwin Leighton Paisner, Finland’s Poyry and Oman’s Bank Muscat.

Rival bids to build the projects were submitted by teams led by Acwa Power International and Japan’s Marubeni Corporation. The developers submitted their technical and commercial proposals in early December 2009, which were opened in January.

Acwa Power bid with the local Sogex and was supported by a lender group comprising Jordan-based Arab Bank, the UK’s Standard Chartered and Japan’s Sumitomo Mitsui Banking Corporation (SMBC). US firm Milbank advised Acwa Power International while Shearman & Sterling, also of the US, advised the lenders.

Marubeni submitted a bid with Qatar Electricity & Water Company (QEWC) in a 50:50 joint venture. Their bid was backed by SMBC, Japan’s Bank of Tokyo-Mitsubishi, Credit Agricole CIB and Japan Bank for International Co-operation (JBIC).

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