First, although the $179 million uncovered debt on Qurayyah is around half the size of the equivalent debt tranche on Shuweihat 3 (S3) – the other benchmark independent power deal in the region last year – the pricing came in significantly lower. The commercial bank debt on S3 starts at 175bp, rising to 200bp over the construction-plus-20-year tenor, while Qurayyah starts at 160bp, dropping to 145bp post-construction and ratcheting to 200bp over its construction-plus-19.5-year tenor.

Second, the ACWA Power-led bid for the project was equally as competitive on tariff, and ultimately wrong-footed the competition by enabling the grantor Saudi Electricity Company (SEC) to only have to tender once for what was originally to be two projects – Qurayyah 1 and 2.

The combining of the two Qurrayah projects was catalysed by ACWA submitting an unsolicited dual bid. In November 2010, the SEC issued a request for proposals for a 2,000MW gas-fired power plant on the eastern coast of Saudi Arabia, next to existing SEC facilities at Qurayyah. A consortium led by ACWA Power, including Samsung C&T and MENA Infrastructure Fund, submitted a bid on 26 March that proved to be the lowest tariff by a margin of 15.6% under the second bidder.

ACWA bid R0.07416 ($0.019 at current rates) per kWh opposed to the next best, Marubeni’s R0.085702 per kWh. The bid was a record benchmark for the GCC region and 45% cheaper than the $0.28 per kWh achieved by GDF Suez on Riyadh PP11, the last similarly sized gas-fired IPP in the country, from December 2009.

The consortium also submitted an alternative proposal doubling the installed capacity to 3,927MW, with an even cheaper tariff of R0.07073 per kWh, making the difference with the second ranked bidder 21%.

ACWA was able to take advantage of economies of scale across the two projects and maintain the sponsors’ internal rate of return by obtaining cheaper construction pricing from Samsung C&T, pooling spare parts, reducing operating costs and sharing the same seawater intake and outflow infrastructure.

The record tariff reflects highly competitive offers from the full project spectrum, including Samsung C&T as contractor, Siemens as equipment provider, ACWA Power subsidiary NOMAC as operations and maintenance contractor, and strong bank appetite.

The $2.795 billion financing comprises a Murabaha equity bridge loan of $724 million and debt of $2.071 billion, on a 74:26 debt-to- equity ratio, which was, like the tariff, tightly priced.

The cheapest source of funding is the 14-year $548 million US Ex-Im direct tranche which is priced based on the commercial interest reference rate (CIRR), followed by the 14-year $1046.9 billion Islamic riyal tranche at 145-175bp: Dollars and riyals are split 50/50, the maximum the sponsor could go to allow hedging of the riyal exposure.

There is also a 19.5-year $179 million uncovered tranche priced at 145-175bp, a 19.5 year $76 million Kexim-covered tranche priced at 150-190bp, a $92.9 million Kexim direct loan priced at 200bp flat, and a $128.5 million Hermes-covered tranche – solely provided by KfW – which is also CIRR based.

The Kexim payment guarantee covers 100% of payment obligations, while Hermes provides a comprehensive 95% insurance cover. All construction-plus-19.5-year facilities come with a 15% balloon payment.

Commissioning of the plant – the biggest combined cycle IPP in the world – is expected between 31 March and 30 June 2014, with operations scheduled to start on 30 June 2014. The project company – Hajr Electricity – will sell its entire power capacity and output to SEC under a 20-year power purchase agreement (PPA). SEC will source gas to fuel the plant under a separate agreement with Saudi Aramco, with the PPA taking the form of an energy conversion agreement.

Hajr Electricity Production Company
STATUS: Signed 2 December 2011, first draw on equity bridge 7 December 2011.
TOTAL PROJECT COST: $2.795 billion
DESCRIPTION: Development of 3,927MW IPP in Saudi Arabia
SPONSORS: ACWA Power (17.5%), Samsung C&T (17.5%), MENA Infrastructure Fund (15%), Saudi Electric Company (50%)
MLAS: Banque Saudi Fransi, National Commercial Bank, Standard
Chartered, HSBC, Samba, Saudi Arab British Bank, Arab National Bank, SMBC, KfW
EQUITY BRIDGE PROVIDERS": Arab National Bank, Banque Saudi Fransi, National Commercial Bank, Samba Capital, Saudi British Bank, Saudi Hollandi Bank.
SPONSOR LEGAL COUNSEL: Chadbourne & Parke
LENDER LEGAL COUNSEL: Allen & Overy
SEC LEGAL COUNSEL: Muhannad Al-Rasheed; Baker Botts
SEC FINANCIAL ADVISER: Citi
SEC TECHNICAL ADVISER: Fichtner
EPC CONTRACTOR: Samsung
EQUIPMENT SUPPLIER: Siemens