DEAL ANALYSIS: IPP3


The first independent power project procured by the National Electric Company of Jordan (NEPCO) reached operations in 2009. The sponsors of that 370MW gas-fired plant, located in Amman, were AES and Mitsui. NEPCO subsequently awarded the Korean Electric Power Corporation (Kepco) and Xenel the concession for the 370MW IPP2.

In the middle of 2010, Nepco launched the request for qualifications to potential sponsors for its IPP3 project, and drew up a shortlist of six consortiums in December of that year. The original tender was for a 300-350MW diesel-fuelled power plant, with a peaking option for an additional 200-250MW unit. NEPCO reserved the right to choose whether to award the contract for the construction of both units or just the base case single-plant option.

Responses to NEPCO’S request for proposals were originally scheduled to arrive in May 2011, just as the Arab Spring was spreading across North Africa and the Middle East from its birthplace in Tunisia. Despite this backdrop, the only delays caused to IPP3 were due to structuring issues. It took three months longer than expected to confirm the preferred bidder, but just four months for the winning consortium to agree financing documents, once the power purchase agreement was signed. NEPCO may have used the prolonged negotiation period to convince bidders to remove unwanted exceptions from the project documentation.

One consequence of the Arab Spring that did affect the deal was the change in Jordan’s power procurement strategy. From February 2011, armed gangs started targeting the Egyptian gas pipeline that delivers fuel to Jordan and Israel. Amid the resulting gas shortages, NEPCO decided to split the project into two separate plants, IPP3 and IPP4. This decision was also prompted by a strong bid from a Kepco-led consortium to deliver both stages. The Kepco consortium won the adjusted 573MW IPP3 tender in January 2012, with the developers of IPP1, AES and Mitsui, winning the 250MW IPP4 peaker plant.

The Kepco consortium and ACWA Power were the final two groups bidding on IPP3, and NEPCO asked them to propose tariffs based on four different plans for the site; base case run on heavy fuel oil; base case run on gas; base case and peaker run on oil; and base case and peaker run on gas. On all four options, Kepco offered a lower price, by 2.75%, 8.47%, 3.52% and 7.53%, respectively. Its offer for the larger plant run on diesel was JD0.131 per kWh.

Kepco (60%), Mitsubishi (35%) and Wartsila (5%) are developing the project through their special purpose vehicle, the Amman Asia Electric Power Company. Wartsila and Lotte are carrying out the plant’s engineering, procurement and construction contract, and Wartsila is supplying the turbines for the plant, while Kepco will operate the plant. Total project costs for the expanded development reach $812 million and the sponsors are covering $205 million of those costs with their equity contributions. NEPCO will supply fuel to IPP3, and will be the plant’s sole offtaker under the 25-year power purchase agreement.

The $607 million in debt for the project takes the form of direct export credit agency (ECA) loans and an ECA-covered bank facility, with each equivalent to about half of the total requirement. Kepco and Mitsubishi’s involvement brought Asian export credit agencies Kexim and NEXI into the deal, with each lending directly. Asian banks Mizuho, BTMU and SMBC, along with German lender KfW are sharing equal ticket sizes on the commercial tranche, with Standard Chartered providing a slightly smaller amount. All of the commercial debt has been covered by guarantees from the two ECAs. The financing has a tenor of 19.8 years.

The deal highlights increased Korean-Japanese cooperation in big-ticket project financings, with Kexim saying it took the lead in bringing Nexi into the financing. Japanese and Korean contractors have historically competed for construction contracts, with their export finance support constituting a key component of their bidding strategy. With fewer deals in the key Middle East region coming up for tender, however, Asian developers are starting to appreciate the benefits of pooling expertise.

Sponsors signed the financing in January 2013 and were expected to reach financial close before the end of February. Construction of the plant is scheduled for completion in September 2014, with first repayments on the debt due six months later.

IPP4 is going to be located alongside the existing IPP1 plant, which reached financial close in 2007. IPP4 has been designed to run on either diesel, heavy fuel oil or natural gas, giving extra protection against future fluctuations in market prices or supply disruptions. The US Overseas Private Investment Corporation is providing a $270 million loan on IPP4, and the European Bank for Reconstruction and Development is also set to participate in its financing. Wartsila will also be a supplier to IPP4, which benefits from its proximity to IPP3 in Amman. The plant is set to be operational by July 2014. 

Amman Asia Electric Power Company
STATUS
Financing documents signed 16 January 2013
SIZE
$812 million
DEBT
$607 million
DESCRIPTION
The 25-year build, operate and own concession for a 573MW diesel-fuelled power plant 28.8km from Amman, Jordan.
SPONSORS
Kepco (60%), Mitsubishi (35%), Wartsila (5%)
LEAD ARRANGERS
Mizuho, BTMU, KfW, SMBC, Standard Chartered
ECAs
Kexim, Nexi
OFFTAKER
NEPCO
SPONSORS LEGAL ADVISERS
SNR Denton
LENDERS LEGAL ADVISERS
Ashurst
EPC CONTRACTOR
Warsila, Lotte