The concurrent completion of the financing for the Barka-3 and Sohar-2 power projects in Oman suggests that lender appetite for Omani power remains strong. This will be welcomed by the Omani authorities, which are now seeking developers for their next independent power project (IPP). The Barka-3 and Sohar-2 financing was oversubscribed, with eight international banks and two export credit agencies (ECAs) agreeing to provide $650mn apiece for each project, with total investment cost for both put at around $1.7bn (MEES, 27 September). As is typical with post-credit crisis project financings, the ECAs are providing the lions share of the debt, at 75%, with the banks supplying the remaining 25%.

The pricing was relatively thin compared to other recent power deals in the Gulf, with Barka-3 and Sohar-2 securing starting margins of 220 bps for the uncovered tranche, while the tranche provided by Korean ECA KEXIM begins at around 180 bps, and the tranche from Germanys ECA, Euler-Hermes, begins at around 160 bps, MEES understands. Tenor is 15 years post-construction for the uncovered tranche and 14 years post-construction for the ECA-covered tranche. The PP11 power plant in Saudi Arabia, which completed its financing in June this year, saw higher starting margins of 250 bps, and for projects closing in the Gulf in 2009, shortly after the global financial crisis, they were in the 260-290 bps range (MEES, 21 June).

Barka-3 and Sohar-2s margins were agreed on in 4Q09, and while they were seen as fairly aggressive at the time, they are representative of current conditions. I dont think that in the current market you could have something dramatically lower, GDF Suezs Head of Acquisitions, Investments, Financial Advisory, Karel Breda told MEES. GDF Suez is leading the consortium developing the plant. In addition to Kahrabel GDF Suez Group with 46%, the consortium comprises Bahwan Engineering Group (22%) and Omans Public Authority for Social Insurance (10%), and Japanese partners Shikoku Electric Power Company and Sojitz Corporation (each 11%).

There is decent appetite for Oman. Its a country with the longest history in an IPP program. Suez developed the independent power project template in Oman with the government in the early 1990s. Its always been successful. Banks have confidence in the Omani program, comments Mr Breda. There are however no Omani banks participating in the financing, and he notes that with the exception of Saudi Arabia, lender liquidity in the region remains limited, and an Omani Riyal tranche would have been prohibitively expensive.

The Barka-3 and Sohar-2 projects are ring-fenced, so they are separate deals, despite the fact that they are have the same time horizon and the same group of lenders, GDF Suezs Sandrine Vandeloise, who is responsible for the project, explained. It is unlike the financing GDF Suez closed in 2007 for the Barka-2 independent water and power project (IWPP) and associated purchase of the Al-Rusayl Power company (MEES, 5 March 2007). Barka-2 and Al-Rusayl were linked to a holding company, so were viewed as one deal, while Barka-3 and Sohar 2 are almost identical, yet completely separate projects. During the bidding round, developers could have won one or both of the Barka-3 or Sohar 2 projects, and because GDF Suez managed to get the two, it was able to run the financing programs concurrently.

Barka-3 and Sohar-2 have reached a new milestone as the only Omani power projects since the first were launched in the 1990s to be financed without an accompanying government guarantee (from the Oman Power and Water Procurement Company OPWP). Banks typically like guarantees and changes raise questions, but given that the laws of Oman stipulate that OPWP remains government-owned, and it is the procurer for Barka-3 and Sohar 2 under 15-year power purchase contracts, state involvement remains high and lenders were satisfied.

The two greenfield natural gas-fired power plants, with a capacity of 744mw apiece, will add almost 1.5gw to the Sultanates current existing capacity of some 3.6gw. They already have a gas allocation. Early power for Barka-3 and Sohar-2 is expected by May 2012 and full completion of the plants is pegged for April 2013. A consortium of Germanys Siemens AG and GS Engineering of South Korea signed the engineering, procurement and construction (EPC) contract to build the plants on 15 September.

Oman Issues RFP To Develop Sur IPP

OPWP issued its request for proposal (RFP) last week for its next IPP, which is the 1.5gw plant being planned for Sur. This invites bids from developers to provide around 400mw of early power ahead of peak summer demand in 2013, and proceed with full commissioning ahead of 2014 peak summer demand. OPWP had originally planned to set up an IWPP at the al-Ghubrah site, which would have taken advantage of existing infrastructure and allow older plants to be retired. But, in line with good environmental practice, the sultanate is seeking to locate plants away from residential areas. OPWP is still planning to develop a reverse osmosis water plant, of around 40mn gal/day capacity, at al-Ghubrah.

In July, when the Sur IPP plans were announced, OPWP CEO Bob Whitelaw said that gas will be provided by tapping into the existing pipeline feeding the Oman LNG plant, which runs on the outskirts of the proposed Sur site. He said that implementation of the Sur IPP follows recent confirmation by Oil and Gas Ministry Under-Secretary Nasser bin Khamis al Jashmi that the power sector would receive priority in the allocation of Omans gas resources (MEES, 26 July). This reinforces the governments commitment to the long term development of the electricity sector in which private sector investment plays a key role, he added.

Copyright MEES 2010.