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24| pfi | Middle East Report 2010 Gulf Power M&A


Power M&A in the Gulf


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our assets developed by AES and its partner in the AES Oasis joint venture, the Islamic Development Bank Infrastructure Fund under a 68/32 split, were put up for sale in May 2009 – Barka 1 in Oman and Almanakher in Jordan plus the Lal Pir and


PakGen assets in Pakistan. Ras Laffan A in Qatar was devel- oped solely by AES and it was decided to sell this holding separately.


AES had decided to pull out of the power development business in the Gulf. Citigroup and HSBC were appointed to advise. Initially, sales price targets were high with US$1bn mentioned, given that the portfolio had free cashflow of US$180m pa. But the sales process proved a lot more complex than expected and the expectations were too high in any case. And just as the sales were agreed, AES received a 15% equity injection from China Investment Cor- poration – and is now back bidding for Gulf projects. By the end of 2009, Barka and the Pakistani assets sales had been announced – to Saudi developer Acwapower and Pakistani conglomerate Nishat Mills respectively. But the 370MW Jordanian asset was taken out of the portfolio sale. There were said to be issues with the project’s debt fun- der JBIC, which wanted the plant to have a year’s oper- ating track record before being sold on. This showed up a key issue in the Gulf power market – most power assets are owned by a consortium. In many cases, the owner is a mix of the private and pub- lic sectors. Selling individual stakes can therefore be tough. In the case of Almanakher, it is 60% owned by AES Oasis and 40% by Mitsui . And it was not Mitsui that stopped any sale, it was the debt funder linked to it. With AES’s change of heart over the Gulf, it now appears to be keeping its stake. The Islamic fund has decid- ed to push ahead with selling its stake on its own – now the plant has an operating history. NM Rothschild has been appointed to advise.


The sale of the AES Oasis portfolio was a drawn-out saga but as the power sector grows in importance in the Gulf, it can be seen as an important trailblazer. By Rod Morrison.


The Ras Laffan A asset was held in the more traditional private/public sector joint venture. AES simply sold its 55% holding in this scheme to its public sector partner, QEWC, for US$181m. The scheme has 756MW of power and 40m gallons a day of desalination capacity. By contrast, the sales process was simpler in Pakistan where AES Oasis held nearly all the assets, 90% of both AES Lal Pir and PakGen. Nishat Mills paid US$117m for the 362MW and 365MW oil-fired assets, with the sale being finalised in June this year. Luckily for AES Oasis. By August, the two plants were under water due to the nat- ural disaster that hit the country.


The Barka asset, in the end, was the only part of the AES Gulf portfolio sold on the open market. Perhaps sur- prisingly, given the Gulf power development market has been active now for a decade, there has been little power project M&A activity.


There had been a small asset sale in 2009, when HSBC’s


MENA Infrastructure Fund won the competition to buy Suez’s Manah plant in Oman with a bid of about US$40m. The scheme totals 270MW and was one of the first IPPs developed in the region in 1994. In addition, the project includes 180km of transmission lines. Suez sold 33% of project company United Power Company (UPC) and 60% of the operating company.


But Barka is a more up to-date plant, whereas Manah was a one-off in its time. And Barka included both power, 456MW, and desalination, 20m gallons a day. Yet it is inter- esting that both Manah and Barka are in Oman. Inter- esting because, under the Omani power procurement model, at least 35% of the project company has to be float- ed on the local stock market.


AES Oasis held 58% of Barka, with 35% of the equity held on the local stock market and 7% by Multitech . The sale to Acwapower was finalised in August this year for US$205m. Subsequently, Acwa is onselling 8% of the asset to local infrastructure fund Instrata.


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