Saudi Electricity Company (SEC) has begun to raise finance for the 2,000MW PP10 power plant near Riyadh, which is expected to cost SR11.5bn ($3.1bn) after awarding the construction contract to the local Arabian Bemco.

Banque Saudi Fransi and Samba are acting as arrangers and bookrunners on the deal and are seeking support from banks for the project, which is expected to include a SR8.5bn facility lasting four and a half years.

Sources close to the deal say that only Saudi institutions have been invited to compete to be among a group of up to six banks that will fund the scheme.

The decision to use local institutions and price the debt exclusively in riyals has been influenced by the selection of a local contractor to build the plant.

Using riyals and a local contractor eliminates the currency risk and should help the financial advisers raise the funding at a lower price than if it been priced in dollars.

Recent deals in the region priced in dollars have been agreed at more than 100 basis points over the London interbank offered rate (Libor), and SEC will be hoping to raise its financing at similar or lower level.

There has been a shift towards tapping into local currency liq-uidity to access cheaper funding, but bankers in the region say the disparity between dollar pricing and GCC currencies is coming to an end.

The SR8.5bn facility will be split into tranches, each one with different pricing and levels of commitment from the local banks, making it difficult to get an idea of the overall cost of the debt.

The bookrunners are hoping to get responses from banks by mid-July and close the deal before the end of the year. There is not expected to be any syndication of the debt. Most of the major Saudi banks have been invited to participate in the deal, including Saudi Hollandi Bank, Sabb, National Commercial Bank and Riyad Bank.

The remaining SR3bn needed for the project will be provided through equity funding.

The plant will use three fuels - crude oil, distillate and gas - with SEC responsible for securing feedstock from Saudi Aramco.

The construction phase is expected to take 37 months, with the first 1,000MW of power coming on stream from the plant in about two years.

Three groups prequalified for the construction contract in July 2007, including National Contracting Company and Al-Toukhi Contracting (MEED 12:2:08).

The project forms part of the kingdom’s drive to increase its power production to 70,000MW by 2020.

As part of that initiative, it is also expanding the existing PP8 and PP9 plants in Riyadh.

The PP10 plant was originally conceived as a 1,750MW plant, but was upgraded to meet burgeoning power demand.

Bemco is already working on the $688m project to expand the existing PP9 power plant in the Saudi capital.