Three of Saudi Arabia’s largest lenders have joined forces to offer AED3.8bn ($1bn) in riyal-denominated loans to bidders for Saudi Electricity Company’s PP11 independent power project (IPP).
The banks, Samba, Al-Rajhi and Alinma, hope that by clubbing together to offer a large pool of liquidity, they can entice bidders to pay them more in fees.
“Saudi banks are very liquid at the moment and are trying to find ways of increasing their returns,” says one Saudi project finance banker. “The three banks are just adopting a strategy to try to boost yields on loans.”
According to Saudi banking sources, the three have already approached Japan’s Marubeni Corporation, France’s GDF Suez and the UK’s International Power.
“We are looking to make firm commitments on a non-exclusive basis to two or three consortiums,” says one banker within the group. “I think it will enable a larger number of consortiums to secure financing and make the bid process more competitive.”
The prequalified bidders for the 2,000MW project are currently in talks with banks to raise money for the scheme ahead of the 7 December bid deadline.
Under the terms of the request for proposals, bidders can borrow money from no more than three Saudi banks. The bidders only need to secure 50 per cent funding to qualify for the bid round.
Saudi Electricity is keen to avoid the situation that occurred with its last project, the Rabigh power and water plant, for which it received only two bids.
If several bidders end up with the same funding agreements, they will have to compete on other aspects of their bids, such as construction costs.
Some sources close to the project disagree with the banks’ strategy. “We will not condone such cartel-type behaviour,” says one of the parties involved in the process. “The issue is that three prominent banks have come together seeking to exercise their muscle to take an unfair advantage.”
The banks involved could not be contacted for a response to this.
Five groups are preparing to bid. The first consortium comprises Japan’s Marubeni Corporation and Kansai Electric with Saudi Masader Company for Power, Water & Gas. Germany’s Siemens will provide turbines, and South Korea’s Samsung Corporation will be the engineering, procurement and construction (EPC) contractor.
Belgium’s Suez Energy International has formed the second group with Saudi Arabia’s Al-Jomaih Group. The US’ GE is the group’s nominated turbine supplier and South Korea’s Hyundai Heavy Industries is its EPC contractor.
A third group of Malaysia’s Tenaga Nasional Berhad, Japan’s Sumitomo Corporation and Saudi Binladen Group has teamed up with France’s Alstom as its turbine supplier and the local Arabian Bemco Contracting Company as its EPC contractor.
A fourth consortium comprises the UK’s International Power, Saudi Oger and Korea Electric Power Corporation. The group’s nominated EPC contractor is South Korea’s Doosan Heavy Industries & Construction. It has yet to tie up with a turbine supplier.
A fifth team of Saudi Arabia’s Acwa Power International with Japan’s Mitsubishi Corporation and Tokyo Electric Power Company completes the list. South Korea’s Daelim is the EPC contractor while Mitsubishi Heavy Industries will supply the turbines.
Saudi Electricity Company projects
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Source: Saudi Electricity Company