Project finance values recovered in 2016, with 23 deals worth a total of $27.2bn closing in the Middle East and North Africa region, according to the UK’s Dealogic. This compared with 34 deals totalling $22.8bn in 2015.

Oman was the most active market for project finance: six transactions closed with a combined value of $5.7bn.

The biggest was the $3.5bn debt financing of Oman Oil Refineries & Petroleum Industries Company’s (Orpic’s) Liwa Plastics Complex. In total, 19 local, regional, and international banks lent to Orpic for the scheme, including several export credit agencies.

A steady stream of power and water transactions made the sultanate a busy market in the first half of 2016, despite concerns over liquidity and a falling sovereign credit rating. Most notably, Japan’s Mitsui and Saudi Arabia’s Acwa Power, the developers of the Ibri/Sohar 3 independent power project (IPP), agreed a debt deal worth $1.4bn with 10 international and local banks.

The largest project finance deal globally for 2016, and the largest ever energy project financing, was the UAE’s Baraka nuclear power plant, according to Dealogic. Abu Dhabi revived the $23.7bn deal after it was shelved three years ago, and borrowed $6.9bn from local, UK and South Korean institutions. Some $16.2bn was secured from the Department of Finance of Abu Dhabi.

The UAE saw six schemes reach financial close last year. Acwa Power and China’s Harbin, the developers of the Hassyan coal-fired IPP, secured project finance reaching $2.5bn, mainly from Chinese lenders.

Utility schemes

Oman and the UAE will continue to be active project finance markets in 2017. Oman Power & Water Procurement Company (OPWP) received bids in late 2016 for two desalination schemes – the Salalah and Sharqiyah independent water projects (IWPs) – with a combined capacity of 39.5 million imperial gallons a day. Prompt financial close this year would show banks still have appetite for well-structured Omani risk, despite a large government budget deficit. An 800W IPP at Misfah is also at the prequalification stage.

In the UAE, two renewables projects could reach financial close in 2017. Dubai Electricity & Water Authority (Dewa) signed a power purchase agreement with Abu Dhabi Future Energy Company (Masdar) and Saudi Arabia’s Abdul Latif Jameel Energy for an 800MW photovoltaic (PV) solar plant in late 2016. A preferred bidder is also expected to be announced soon for Abu Dhabi Water & Electricity Authority’s 350MW-plus Sweihan PV solar scheme.

Kuwait could also become a key project finance market in 2017, after delays with tendering several public-private partnerships (PPPs) disappointed the market in 2016. Three schemes – the Al-Zour North 2 independent water and power project (IWPP), the Kabd waste-to-energy scheme and a schools development programme – are likely to be awarded early in the year, and should progress quickly through the financing stages.

The remainder of the Kuwait Authority for Partnership Projects’ pipeline, which includes the Al-Abdaliyah integrated solar combined-cycle power scheme, the Umm al-Hayman wastewater treatment plant, the Al-Khiran IWPP and rail projects, means Kuwait should see regular project finance syndications over the next few years.

Qatar is, meanwhile, preparing to tender its next IWPP: Facility E. Bahrain, after a return to the project finance market in 2016 with the region’s first liquefied natural gas terminal PPP, which raised $741m from local and international banks, will be focused on the Al-Dur 2 IWPP.

“There is a steady baseload pipeline of project finance throughout the GCC in utilities, namely IWPPs and IWPs” says Maarten Wolfs, partner and Middle East project and infrastructure finance leader at the US’ PwC. “These procurements will continue as usual in Oman, there are conventional power and renewables projects in the UAE, and Facility E in Qatar. Saudi Arabia is about to launch a series of wastewater PPP schemes in addition to several renewable energy and desalination [build-operate-transfer deals].”

PPP pipeline

Saudi Arabia, usually the most important project finance market in the region, saw only one new transaction reach financial close in 2016. Two power plant refinancings brought the yearly total to $4.3bn, well down on 2015’s $10.9bn of transactions.

The kingdom is now gearing up to use PPPs across multiple sectors. The Fadhili IPP, which reached financial close on $950m of project finance in January 2017, was the last of the pre-Vision 2030 deals. New IPPs, IWPs and other PPPs are now at the early stages of procurement.

“My expectation is that the most active market, in volume and value, will continue to be Saudi Arabia,” says Wolfs. “The dip in 2016 can be attributed to the entire capital expenditure programme, indeed all government spending, being brought under review. Many government bodies and procuring authorities were watching and waiting. The capital expenditure programme will continue to be reviewed well into 2017, but now that the direction of travel is understood, we will see increased private financing.”

Similarly, Oman and Qatar are launching PPP programmes covering education, healthcare and other sectors. For example, studies have been undertaken on Oman’s medical city project, in which the UK/local Carillion Alawi has already agreed to invest alongside the Oman Investment Fund.

Qatar is looking at diverse PPP schemes, with schools, hospitality and stadium deals in the pipeline.

For all three countries, project finance volumes in 2017 will depend on how fast these PPP programmes can progress.

“There still needs to be some understanding developed around the role of the government, for example, providing long-term-payments for social infrastructure through availability charges or rental, and guarantees to backstop and underpin these payment flows,” says Wolfs. “Without a well-structured PPP you can’t attract equity, and private finance does not mean government obligations disappear.”

Social infrastructure projects need more complex structures to attract developers and financiers, often including government support. Legal frameworks can encourage investors by providing clarity, but in Oman, the launch of the PPP programme has been delayed by some months as reforms to an existing privatisation law are studied.

Several large downstream oil schemes are also in the pipeline, which, if they were able to secure financing, would make 2017 a good year for project finance. In Oman, the Duqm refinery project has been delayed, but a new investment commitment from Kuwait Petroleum International (Q8) in November 2016 has signalled fresh progress.

In Bahrain, Bahrain Petroleum Company is working on a $5bn expansion of its Sitra refinery.

These financings could be challenging as lenders test the business model of developing new refineries while oil prices are low.

The rest of the Middle East

Outside the GCC, less activity is expected, but Egypt as usual will be the main market. The second round of PV solar and wind feed-in tariff projects is under way, and several are seeking financing. As many as 40 projects of 20-50MW will need development bank support.

“The problem with Egypt is the foreign exchange, the availability of dollars and the restrictions around that, and the impact on liquidity,” says Wolfs. “There has been some stabilisation recently, but solutions will have to be led by multilaterals such as the World Bank, the European Bank for Reconstruction & Development [EBRD] and the African Development Bank. If they are there to assist on foreign exchange and liquidity issues then there is a high chance of some transactions closing.”

These issues have also slowed the financing of the local Carbon Holding’s $7.2bn Tahrir Petrochemicals Complex and Middle East Oil Refinery’s $1.2bn Alexandria refinery expansion, among other schemes.

Morocco and Jordan are also likely to see power projects reach financial close. Acwa Power is lining up development banks including the International Finance Corporation and EBRD to finance the development of the 485MW IPP5 in Jordan, and numerous developers have signed power purchase agreements for renewables schemes.

In Morocco, Acwa Power was awarded the right to develop 170MW of PV solar schemes in late 2016, and other renewable projects are progressing, thanks to development bank support. Tendering for the much anticipated $4.6bn Jorf Lasfar gas-to-power scheme has yet to start, so financing is unlikely to be completed before 2018.