Japan’s Mitsui & Company and Saudi Arabia’s Acwa Power reached financial close on 25 August on the Salalah 2 independent power project (IPP) in Oman.

They secured project finance of approximately $450m. The new 445MW plant is estimated to cost $620m.

The firms expect to draw down the funds this week.

The seven banks financing the project are Japan’s Sumitomo Mitsui Banking Corporation, Mizuho Bank and Sumitomo Mitsui Trust Bank, the local Bank Muscat and Bank Dhofar, the UK’s Standard Chartered, and German development bank KfW Ipex.

The financing has a 15-year term, with a grace period for construction.

Mitsui and Acwa Power signed a contract to build, own and operate the Salalah 2 IPP, and a 15-year power purchase agreement with Oman Power & Water Procurement Company (OPWP) in April.

They each have a 45 per cent stake in the project company, Dhofar Generating Company (DGC). The local Dhofar International Development & Investment Holding holds the remaining 10 per cent. DGC will also acquire the existing Dhofar power plant, which has a capacity of 273MW.

DGC will list on the Muscat Securities Market (MSM) after the new plant enters commercial operations.

China’s Sepco 3 will be the consortium’s engineering, procurement and construction (EPC) contractor to build the plant. The facility is scheduled for commissioning in January 2018.

The UK’s Allen & Overy and Trowers & Hamlins advised the project consortium, while the US’ Shearman & Sterling and the local Al-Busaidy Mansoor Jamal were the lenders’ advisers.

The projects are part of efforts to meet the increasing demand for power in the Salalah system, which currently has about 77,000 customers.

Peak demand in Salalah in 2013 reached 420MW, an increase of 8 per cent on the 389MW peak in 2012. The full commissioning of the Salalah 2 independent water and power project (IWPP) boosted the system’s contracted capacity to 718MW, from 372MW in 2011.

Population growth, infrastructure development and industrial and tourism growth are expected to increase the peak demand growth for electricity in the Salalah system at an average rate of 10 per cent a year until 2020 – from 420MW in 2013 to 553MW in 2020. Most of the demand, about 9 per cent, will come from non-industrial sectors.