RIYADH, 30 October 2005 — Saudi Arabia took a major step in the launch of the independent water production and power (IWPP) scheme when government-owned Shuaiba Water and Electricity Company authorized Riyad Bank to act as the lead bank-cum-adviser for raising funds for the SR9.375 billion ($2.5 billion) power and desalination project.
Shuaiba project will be the first of the four IWPP projects in the Kingdom with a power generation capacity of 900 MW and water desalination capacity of 880,000 cubic meters per day. On the power generation side, there will be a 380 kV sub-station, besides back-pressure steam turbines and light crude oil fired boilers.
The project will be environment-friendly and comply with all Saudi, World Bank/IFC and other environmental standards. It is the first IWPP project that will serve as a template for all future IWPPs in the Kingdom. To this end, Shuaiba Water and Electricity Company has concluded the PWPA (Power & Water Purchase) Agreement with the Water and Electricity Company (WEC) for a 20-year term. The offtake and payment obligations of WEC, including termination payments, are guaranteed by the Ministry of Finance.
However, there are provisions in PWPA which could declare the agreement null and void in the event of default on the part of the Shuaiba company, seawater contamination, damage to the plant rendering it unserviceable, or in the event of a boycott of or embargo on Saudi Arabia by the governments of Korea, the US or EU.
Giving this information to Arab News, Ghazali Inam, vice president and senior corporate finance officer at Riyad Bank, the lead bank for the syndication of the project, said a novel aspect of the project finance scheme is the involvement of three different types bank loans. They include the conventional type of financing, Islamic finance and credit finance.
The participating banks in the syndication of loans led by Riyad Bank include Arab Bank from Bahrain, Saudi Hollandi Bank (Riyadh); Al Rajhi Investment Banking Corporation (Islamic finance); ABN Amro (international participation). Korea Eximbank, the Export-Import Bank of Korea, will provide export credit along with Hermes Agent of ABN Amro of Holland.
Ghazali said: “Today was the first day syndication and road show to which Saudi banks were invited.
The road show moves to Dubai on Oct. 31, when all the international and GCC banks would be invited. After that meeting we expect the banks to come back to us with their commitment by the third week of November, while the third week of December will mark the financial close.”
He said the duration is three and a half years. The plant will be commissioned in mid 2009. The financial component of the scheme is for a 20-year term. Riyad Bank is the lead bank by virtue of its providing the largest amount of underwriting, in its capacity as the financial adviser for the project, and also for being the coordinating bank for the whole transaction.
The sponsors of the project are Acwa Power Project of Saudi Arabia (the Abunayan Group) and TNB, Malakoff and Khazana of Malaysia. One of the Malaysian companies is a technical investor with a commitment for ten years.
The other sponsors from the Kingdom are the government agencies — the Public Investment Fund (PIF) and the Saudi Electricity company (SEC).
These government agencies will also be shareholders in the project, which will be executed on a BOO (Build, own & Operate) basis.
