TURKEY: Fine terms negotiated for thermal power financing

01 July 1994

Keen terms have been negotiated by the treasury for the commercial financing of around DM 400 million-450 million ($245 million-276 million) to support the $500 million contract to expand the Cayirhan thermal power plant, bankers say. Documentation is being prepared for a signing soon, they add.

A rate of 1.75 per cent over the London interbank offered rate (Libor) for a term of six years has been agreed for the commercial portion of the financing package. The remainder will be provided in export credits from Germany, Austria, France and Japan.

The lead banks for the Euroloan, Berliner Handels & Frankfurter Bank, Bank Austria, and Banque Nationale de Paris, reflect the sourcing of the financing package. The interest rate is very competitive for the treasury given the economic crisis and the general hardening against fresh Turkish risk in the international markets, the bankers say. Before the crisis, such project funding was being negotiated at about 1.25 per cent over Libor on average, but conditions have changed considerably since then.

The financing supports an award made in December to expand the plant, which is to the west of Ankara, and install flue gas desulphurisation (FGD) units. The contractor is a consortium led by Austrian Energy & Environment (AEE), and including Germany's Gottfried Bischoff & Company and Siemens, Japan's Mitsubishi Corporation, and the local Guris. The contract calls for two extra 150-MW units and an FGD system at the plant. The same group installed the existing two 150-MW units and FGD system.

This is the largest of a series of awards by the Turkish Electricity Board (TEK) for the installation of FGD units at thermal power plants fuelled by the sulphurous and polluting lignite (brown coal). Contractors hope this means that the treasury will now move to negotiate financing for other contracts in the series. Doubt remains as to whether it will be prepared to shoulder the total additional financing burden of around $1,000 million for the whole series in the light of present austerity reviews of investment expenditure (MEED 17:6:94). The keen terms negotiated for the Cayirhan deal reflect the treasury's pressing need to economise, but will still prove expensive in the long-term, bankers say.

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