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26| pfi | Middle East Report 2010 B3/S2

The power of two

he financing for Barka 3 and Sohar 2 was completed over 15 weeks, a remarkable achievement for a transaction entailing two separate projects. Key to this success was the sponsors’ approach in creating a “power of two” by leveraging all similar- ities and parallels between the two projects to build a generic financing solution while holding the specific intri- cacies of each project until the very end. The other key success factor was the presence of two export credit agencies, Euler-Hermes and Kexim, that were instrumental in bringing together the necessary liq- uidity for the transaction.

T Introduction

The Sultanate of Oman has an outstanding track record of tendering IPPs and independent water and power projects (IWPP) in the private sector going back more than 15 years. The contractual framework, enshrined in comprehensive legislation called the Sector Law, has changed little over this period. Therefore, it is well established and represents a sound foundation for the development and financing of the projects. There is a similarly long and established track record of successful operation of Omani IPPs and IWPPs. The two projects are greenfield natural gas-fired power plants with a capacity of 744MW each. Together they will add almost 1,500MW to the Sultanate’s current capaci- ty of about 3,600MW. The power output will be sold under two separate 15-year power purchase contracts to Oman Power & Water Procurement Company (OPWP), which will be the single off-taker.

Project background At the end of May 2010, GDF Suez was awarded the mandate for the construction and operation of Barka 3 and Sohar 2 following an international competitive ten- dering process. After the launch of the tender process in

At the end of May 2010, GDF Suez was awarded the mandate for the

construction and operation of Barka 3 and Sohar 2, Oman’s next two IPPs. By the GSEI financing team: Karel Breda,

Sandrine Vandeloise and Markus Fischer.

August 2009, it had been decided to put an export cred- it agency-driven financing solution in place to circumvent the continued restraints in respect of liquidity in the inter- national financial markets.

Each of Barka 3 and Sohar 2 will deliver electricity to the OPWP under a 15-year power purchase agreement. Early power for both projects is expected to be commis- sioned by May 2012 and full completion of the plants by April 2013. Each project will have a capacity of 744MW of power. They are the eighth and ninth IPP/IWPP being developed in the Sultanate of Oman. The EPC contractor for both projects is Siemens of Ger-

many and GS Engineering & Construction Company of South Korea (GS) acting as a consortium on a joint and several basis. Siemens will provide the majority of the power island equipment, including gas turbines, steam turbines and generators, and GS will provide heat recovery steam gen- erators, civil works and the balance of plant. Both have con- siderable EPC experience in the GCC region and in Oman.

Financing background

The power of two – The US$1.3bn financing backing the two projects adding up to US$1.7bn of total investment cost is further evidence of the expertise and creativity of the GDF Suez teams, who have just completed the financ- ing of Riyadh IPP in Saudi Arabia. From the award date at the end of May 2010 to financial close in mid-September 2010, only 15 weeks were needed to complete and finalise the financing. The key contributing factor to such momentum was the ability to draw on the numerous sim- ilarities of both projects.

The sponsors negotiated the financing structure on the basis of a single generic project that was combining all the similarities of both projects. This approach was maintained until the very last moment when duplication of financing documents was undertaken. It is also worth noting that the closing was completed in a period during

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