World's largest desalination project in UAE secures $758mln green loan

Independent assessor certifies Taweelah IWP's project finance loan as aligned with Green Loan Principles and Social Bond Principles

Photo used for illustrative purpose. Image of a thermal desalination plant.

Photo used for illustrative purpose. Image of a thermal desalination plant.

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The UAE has made a big stride in the Environmental, Social and Governance (ESG) -linked project finance landscape worldwide.

On Wednesday, a desalination project, majority-owned by Abu Dhabi government secured a sustainability-linked loan certification, for its global project called Taweelah Independent Water Project (IWP).

The $758 million loan was closed in September 2019 with a 32.4- year tenor.

The Taweelah plant’s loan structure is a “Soft Mini Perm”, with an expected refinancing period of a maximum three years starting after the commencement of the Taweelah project’s commercial operations.

The total project cost is estimated at AED3.19 billion. The funding is sourced from a combination of senior project finance loans worth a total of AED2.71 billion.

Taweelah IWP features

The Taweelah IWP project involves the design, construction, operation and maintenance of a 200 million imperial gallons per day (MIGD) desalination plant and associated infrastructure and facilities.

What makes the project sustainable is that it includes a 68-megawatt peak (MWp) solar photovoltaic (PV) plant to complement the energy supply from the grid.

The project is 40 percent co-owned by Saudi-based ACWA Power and is estimated to be the world’s largest reverse osmosis (RO) plant, when completed in 2022.

According to a joint statement issued by the project’s lead arranger Natixis, a French financial services firm and ACWA Power, France’s ESG rating firm, Vigeo Eiris, has provided an independent second party opinion on the sustainability credentials and management of the project finance loan.

Vigeo Eiris confirmed that the project is aligned with the four components of both the Green Loan Principles (published by the Loan Market Association in 2018) and the Social Bond Principles (published by the International Capital Market Associatiton (ICMA) in 2018, and used for the project in the absence of published Social Loan Principles).

State-owned Emirates Water & Electricity Company (EWEC) is the sole off-taker of the project under a 30-year contract.

The project has secured the lowest tariff - 8.26 dirhams ($2.25) per 1,000 gallon - achieved to date and is poised to set another world record by utilising the lowest amount of energy per gallon of desalinated water produced, the statement said, adding, higher monitoring standards for effluent water quality will be implemented.

The technology employed is considered by the World Bank as the most energy efficient and best-in-class among existing desalination technology.

Vigeo Eiris expects that the “new desalination plant will significantly increase - almost doubling - the volume of water supply available to the local water network and population - mostly residential end-users - aligned with the projected doubling of local water demand by 2050.

According to the firm, renewable energy is expected to account for at least 30 percent of the project’s electricity consumption within 10 years, with a target of raising this figure to 55 percent by the end of the first quarter life of the project.

Moreover, the new plant is expected to substitute two local thermal desalination plants of lower capacity that would be decommissioned in the coming years, improving local air quality and reducing greenhouse gas emissions.

Vigeo Eiris noted that the “project is likely to contribute to four of the United Nations’ Sustainable Development Goals (SDGs), namely SDG 6 - Clean Water and Sanitation, SDG 7 - Affordable and Clean Energy, SDG 11 - Sustainable Cities and Communities and SDG 13 - Climate Action.”

ESG issues increasingly influence credit quality assessments and investment decisions, Moody's Investors Service said last month in a roundup report. The report said stricter climate policies will raise transition risk for the most exposed carbon-intensive sectors, which includes utilities. Rising concerns of future asset write-downs and reduced cash flow may raise companies' cost of capital or reduce access to funding, impairing their ability to raise, service or refinance debt, the report said.

(Writing by Anoop Menon Editing by Seban Scaria)


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© ZAWYA 2020

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