You are on page 1of 46

IDB Infrastructure Financing

M. Hasan Mahmud, Senior Investment Officer, PPP Division, Infrastructure Department, IDB
July 21, 2010

‘Together we build a better future’


Islamic Development Bank ٠
1. INTRODUCTION
. O UC O
ISLAMIC DEVELOPMENT BANK

Islamic Development Bank ١


The IDB Group
The IDB Group

Islamic Development Bank (IDB) Group

1975 1981 1994 1999 2008

Islamic Development  Islamic Research &  Islamic Corporation  Islamic Corporation  International Islamic 


Bank (IDB) Training Institute  for Insurance of  for the Development   Trade Financing 
Foster the economic  (IRTI) Investment  &  of the Private Sector  Corporation (ITFC)
d l
development and 
t d Undertake applied & 
U d k li d & Export Credit (ICIEC)
di ( ) ( )
(ICD) Promote and enhances 
P d h
social progress of MCs  basic research in  Provide Shariah‐ Promote development  intra‐trade and trade 
and Muslim  Islamic Economics and  compatible export  of private sector  cooperation through 
communities.  Finance.   credit insurance,  development.  trade finance and 
political risk insurance
political risk insurance,  promotion programs
promotion programs
technical assistance.

Shari’ah Compliance
p

Islamic Development Bank ٢


Islamic Development Bank
Islamic Development Bank
Snapshot IDB Scorecard
• Jeddah, Kingdom of Saudi Arabia
Jeddah Kingdom of Saudi Arabia
As of 17 December 2009
• Regional Offices: Kazakhstan, Malaysia, Morocco and Senegal 
Total Assets : US$ 13.1 bn
• Field Representatives in several Member Countries
A th i d Capital
Authorised C it l : US$ 46.0
46 0 bn
b
• AAA Rating by Moody’s, Fitch, and S&P. Zero‐Risk Rating by the European Commission
Paid
Paid-up
up capital
Capitalof
: US$
US$5.5
5.5 bn*
bn
Mission Statement
“We are committed to alleviating poverty; promoting human development, science &  Rated : Aaa/AAA/AAA
technology, Islamic banking & finance; and enhancing cooperation amongst member 
countries, in collaboration with our development partners” Member Countries : 56

Priority Areas Africa – 22


Middle-East & North-Africa – 19
• Human Development South & South-East Asia – 8
Central Asia –7

• Agricultural Development & Food Security
Total Employees : 1,014
• Infrastructure Development
p
• Private Sector Development
• Intra‐Trade among Member Countries
• R&D in Islamic Banking & Finance
R&D in Islamic Banking & Finance

Islamic Development Bank ٣


Aggregate IDB Financing (1975 2010)
Aggregate IDB Financing (1975‐

Net Approved IDB Financing: US$ 63.9 bn *  Cumulative Sectoral Distribution 

Social, 6% Other, 4% Energy, 36%


Agriculture, 1
1%

Industry, 12%

Transport & 
Coms; 31%
Coms; 31%

* Excluding operations of ICIEC & ICD

Islamic Development Bank ٤


Infrastructure Department
Infrastructure Department
Mandate To Develop infrastructure projects in Member Countries. Infrastructure Scorecard

As of May 2010

Organizational Structure Total Financing : US$ 15.5 bn

Total Operations : 939

Active Projects : US$ 9.8 bn


Walid Abdulwehab
Active Operations : 279
Director, Infrastructure
Total Employees : 48

Irfan Bukhari Idrissa Dia


Farrukh M. Mian
M Mian Walid A. Fagih
A Fagih
Division Manager, Division Manager,
Division Manager, Division Manager,
Public‐Private  Urban Development & 
Energy & ICT Transport
Partnerships Services

Non‐ Sovereign 
Operations Sovereign Guaranteed Operations

Islamic Development Bank ٥


Eligibility for IDB’ss Infrastructure Financing
Eligibility for IDB Infrastructure Financing
• The project should have the following key characteristics:
p j g y
– located and incorporated in the MCs.
– strong developmental impact
– socially and environmentally sound
y y
– acceptable risk profile
– sufficient local support
• Preference for green projects
P f f j t
• The transaction should be Shari’ah compliant
• PPP projects must have repayment capacity
PPP projects must have repayment capacity
• Tenor depends on the project needs & related risks
– Maximum tenor of up to 20 years

Islamic Development Bank ٦


Typical Project Lifecycle
Typical Project Lifecycle
Detailed  Monitoring & 
Project Stage Identification Preparation Approval Execution
Appraisal Supervision

Desk Review by a  Intra‐ Board of Executive 


Project cross‐functional  Departmental  Directors (BED)
team Review

Project
Project 
Processing/ Inter‐
Departmental 
Credit  Review
Committees

Management  Results
Review APPROVAL Execution
Analysis

Project Concept  Project Appraisal  Financing 


g
Deliverable Document (PCD) Document (PAD) Agreements

• Member Country • Review of • Due Diligence: • Approval from • Subsequent to • Regular


Partnership feasibility study Technical, Legal, Credit BED’s approval monitoring by
Strategy (MCPS) and available Committees and Financing Project Officer
• Receipt of project docs Environmental, S
Environmental Board of Agreements are through KPIs
Request • Appointment of ocial, Financial, I Executive finalized. specified in the
• Country consultants nsurance Directors (BED) • Signing Results Analysis
Comments Programming • Coordination • Site Visit • Satisfaction of • Impact Analysis
and inclusion in with lenders • Meetings with conditions carried out by
the yearly work • Initial Concept stakeholders precedent to ‘Group
program Clearance • Credit disbursement Operations
Assessment • Disbursement Evaluation
• Negotiations of Department’
Project Docs & after project
Terms and completion
Conditions
Islamic Development Bank ٧
Risk Rigor
Sovereign vs. Non‐Sovereign

Risk Mitigation Tools
Ri k Miti ti T l

Sovereign Non‐Sovereign 
Project Risks Guaranteed Project Guaranteed Project
Sovereign Structure PPP Structure
Country:
• Implementation Agreement
a. War and Civil Commotion Government Guarantee • Concession Agreement
b. Transfer and Convertibility
Legal: 
• Implementation Agreement
a. Enforcement of Judgments Government Guarantee • Concession Agreement
b. Court Procedures
Construction: •EPC Bonds & Guarantees
a. EPC/ other contracts •Sponsor Guarantees
Government Guarantee •EPC Contract
b. Site Conditions

Operation:
a. Operations •O&M
O&M Contract
Contract
Government Guarantee •O&M Bonds
b. Inputs (utilities)
c. Economic Environment
Financial: •Assignment over project cash‐flows
a. Repayment Capacity
p y p y • Implementation Agreement
Government Guarantee
Government Guarantee • Concession Agreement
b. Market Risk 
• Off‐take Agreement

Islamic Development Bank ٨


Infrastructure Department
Security & Assets Sharing in Islamic Project/Corporate Finance

Multisource Financing
ƒ All payment obligations in respect of the facilities rank pari passu at all times.

(IDB) Islamic Facility
ƒ Utilizations, draw‐downs and any prepayments are typically addressedConventional Facility
pro rata across all
facilities.
1 Common Terms Agreement
1. Common Terms Agreement
ƒ The asset of the Islamic Facility Providers is treated as security and is assigned/pledged
2. Shared Security Agreement
to the common pool for the benefit of all lenders.

Ownership
The common Rights of pool (typically overseen by the Lenders
ƒ Ownership Rights of 
security Lenders’ Security In the event of a 
In the event
Agent of a
Inter
or Inter‐
the Leased Assets 
creditor Agent) is shared pari passu liquidation the 
by all the lenders (conventional and Islamic).
Common Security Pool
Assigned/Pledged to  common security pool 
ƒ In thethe Pool
event of enforcement of security all parties act in accordance is shared by all lenders 
with the inter
creditor arrangement. on a pari passu basis

IDB Owned  Lease Project 


A
Asset C
Company

Islamic Development Bank ٩


Aggregate Infrastructure Financing (1975‐2010):
Sectoral Distribution
US$ 15,520 m 
Net Approved Financing*
Net Approved Financing*

* Total Approvals less Cancellations

Islamic Development Bank ١٠


Public Private Partnerships (PPP) Division
Public‐Private Partnerships (PPP) Division

Key Focus Areas
K F A
• Non‐sovereign Financing in the Energy, ICT and Transport sectors
• Infrastructure Financing in Africa
• Creating relationships to leverage IDB’s participation in Infrastructure development
• Going forward, create Products/Funds
– Credit enhancement tools/instruments
Credit enhancement tools/instruments
– Position IDB as a catalyst for attracting co‐financiers and mitigating risk
– Advisory services for PPP focused project development/country capacity building

Signature Achievements
• Aggregate Net Financing* of over US$ 2,200 m. 

Sr. No. Project


j Description
p ||DB Participation  (US$ m)
p ( $ ) Countryy
1. TIFERT 150 Tunisia
2. ADB/IDB Infra Fund 150 Regional
3. SNIM 108 Mauritania
4. South Klang Valley Expressway 75 Malaysia
5
5. D l h Container Terminal
Doraleh C t i T i l 65 Djib ti
Djibouti
6. Laraib Hydropower IPP 37 Pakistan
* Total Approvals less Cancellations

Islamic Development Bank ١١


Energy & ICT Division
Energy & ICT Division
y
Key Focus Areas
• Regional Power Transmission Integration 
– CASAREM
• De‐Carbonizing Energy Generation
– Renewable Energy (RE) 
• Small Hydro, Wind, Solar, Geothermal 
• Increasing Energy Security through  Energy Efficiency Enhancement (EEE) 
• ‘Energy for the Poor’ for timely achievement of MDGs
‘Energy for the Poor’ for timely achievement of MDGs
– Rural Electrification 
• Bridging Digital Divide

Signature Achievements
Sr. No. Project Description |DB Participation  (US$ m) Country
1. Janub Combined Cycle Power Plant 170 Azerbaijan
2. Rural Electrification 146 Morocco
3. Neelum‐Jhelum Hydropower 138 Pakistan
4. Renewable Energy Program 100 Turkey
5. Tehran Power Transmission Project 66 Iran
6
6. Regional Power Transmission Interconnection
Regional Power Transmission Interconnection 30 Afghanistan &
Afghanistan & 
Tajikistan

Islamic Development Bank ١٢


Transport Division
Transport Division

Key Focus Areas
Key Focus Areas
• Facilitate Regional Integration
– Promoting economic cooperation and regional integration among MCs
• Development of Transport Corridors
p p
– Focusing on the Development of international transport corridors within MCs
• Improve transport Infrastructure
– Improving the transport services through better infrastructure 
• Increase Accessibility
– Provide access to the remote areas.

Signature Achievements
Signature Achievements

Sr.
Project Description IDB Participation (US$ m) Country
No.
1.
1 Khanewal ‐ Multan Motorway
Multan Motorway 160 Pakistan
2. Akieni‐ Okondja Road 107 Gabon
3. Marrakech ‐ Agadir Highway 106 Morocco
4. Arboutchatak‐bitkine Road 62 Chad
5. Singrobo‐yamou Soukro Highway (Phase Iii) 61 Cote d'ivoire
6. Aqaba
b Coastall Highway
h 31 Jordan
d

Islamic Development Bank ١٣


Urban Development & Services Division
Urban Development & Services Division

Key Focus Areas
Key Focus Areas
• Facilitate Access for all to water and sanitation services
– Promoting cost‐effective solutions
• Improve health conditions and standards of living
Improve health conditions and standards of living
– Raising awareness on the link between sanitation and health issues
– Strengthen capability of Municipalities in handling solid waste
• Improve water supply and sanitation
– Promote  sustainable water infrastructure 
• Increase accessibility/affordability of  private housing for low‐income populations
– Provide access to land and shelter to most the needy
– Innovative housing solutions including “green houses”.
I ti h i l ti i l di “ h ”

Signature Achievements
Sr. No. Project
j Description
p IDB Participation (US$ m)
p ( $ ) Countryy
1. Qom Water Supply 129 Iran
2. Expansion Of Damascus Water Supply 106 Syria
3. Mashhad Sewerage Project  69 Iran
4. Choutrana & Meliana Waste Water Mgmt. 28 Tunisia
5
5. Abidj W t S
Abidjan Water Supply Reinforcement
l R i f t 15 C t d'i i
Cote d'ivoire
6. Nouakchott Water Supply 16 Mauritania

Islamic Development Bank ١٤


IDB’ss Future Strategic Direction
IDB Future Strategic Direction
Sectoral Focus in Infrastructure

• Four Core Sectors
• 80% Financing Allocation Focus on Four Core  Re‐Balancing Regional 
g g
Sectors Allocation

Scaling Up
g p
Enablers

• Mobilize Private Sector and PPP Financing

• Introduce New Financing Instruments (Guarantees and 
I t d N Fi i I t t (G t d
Syndications)

• Sponsorship and Promotion of Infrastructure Funds

• Internal and External Collaboration
I t l dE t l C ll b ti

• Support Regional Integration

Islamic Development Bank ١٥


THANK YOU
THANK YOU

Islamic Development Bank ١٦


2. CASE STUDY
.C S S U
IDB’S FINANCING OF 
SOUTH KLANG VALLEY EXPRESSWAY
SOUTH KLANG VALLEY EXPRESSWAY
(SKVE), MALAYSIA

M. Hasan Mahmud
Senior Investment Officer
PPP Division
Infrastructure Department

Islamic Development Bank ١٧


SKVE: Introduction
SKVE: Introduction
Background
• The project was the result of GoM’s efforts to privatize key economic sectors including 
transportation
• The Build, Operate and Transfer’ (‘BOT’) Concession Agreement was signed between SKVE 
Holdings & the GoM in August 2006

Project Concept
• The SKVE is planned as a 51.2km three‐lane dual carriageway
• It will include nine (9) interchanges and six (6) toll plazas
• It is divided into 4 main sections:
– Section 1A was successfully completed in Year 2001 by Gadek‐Perspec
– Sections 1B, 2 & 3 part of the new construction; however, project company will also 
toll section 1A
• The Expressway is destined to be part of the regional road network for Klang Valley which is 
located in the suburbs of KL; Will provide an alternative east‐west movement and an 
essential link between Putrajaya‐ Cyberjaya to the East, and the Port Klang area to the West
• Sponsored by SKVE Holdings, a SPV set up by Hunterton Sdn Bhd and Virtual Peaks Bhd of 
Mala sia
Malaysia.
• Total cost estimated at RM 1,582 million (Approx. US$ 440 million)

Islamic Development Bank ١٨


Construction & Design
Construction & Design

7.8km 11.9km 12.6km


12 6km 18.9km
18 9k

Section 1A Section 1B Section 2 Section 3

Completed To Complete To Complete To Complete


Yr2001 Nov 2009 Dec 2009 Dec 2010

Air Itam Toll

Uniten
Interchange
B15/LDP Pulau Indah Interchange
Interchange
Pulau Carey Interchange
WCE Interchange & Toll & Toll

Telok Panglima Garang


Wetland Interchange & Toll
Interchange
Tanjung Segan Toll
NSECL Interchange &
Putra Toll
Interchange

Islamic Development Bank ١٩


Project Cost
Project Cost

• The total project cost is estimated at RM1,582 Million (USD440 Million)
• The land cost valued at about RM 500 Million (USD139 Million) comprising 32% of total cost
• Pre‐operating expenses includes project preparation expenses such as engineers’ reports, 
traffic surveys, legal fees for the concession negotiation etc
• Capital expenditures (Capex) include road, bridges and toll plazas construction and 
supervision

Islamic Development Bank ٢٠


Financing Plan
Financing Plan

• The proposed project financing include equity (5%), quasi‐equity (49%) and debt (46%)
• Local senior lenders will finance the project over a 17 years‐period
• Subordinated debt provided by Bank Pembangunan having a tenure of 23 years, and is 
subrogated in right and payment of principal and interest to the project’s senior 
indebtedness including IDB
indebtedness, including IDB

Islamic Development Bank ٢١


Salient Features of Concession Agreement
Salient Features of Concession Agreement
Parties The Government of Malaysia [GOM] & SKVE Holdings Sdn Bhd
The Concession
The Concession Privatization of the design, construction, management, operation and 
Privatization of the design construction management operation and
maintenance of an expressway with the total length of approximately 51 
kilometers

Conditions Precedent a. Submission of a Public Opinion Survey result within 6 months from 
execution of the CA 
b. Submission of a duly executed Shareholders Agreement to the EPU 
within 12 months from execution of the CA
h h f f h
c. Submission of Financial Term Sheet within 12 months from 
execution of the CA
Concession Period 40 years from the Effective Date
Performance Bonds 5% of the contract value of each section
Maintenance a
a. In respect of Section 1A, from the first date of tolling until the 
In respect of Section 1A from the first date of tolling until the
termination or expiry of the Concession; and  
b. In respect of the other Section of the Expressway, from the 
completion of the construction works in relation thereto until 
termination or expiry of the Concession

Islamic Development Bank ٢٢


Salient Features of Concession Agreement
Salient Features of Concession Agreement
Rights and Authority  a. To design and construct the Expressway, except  Section 1A
granted by the GOM
granted by the GOM b.
b To takeover  the maintenance of Section 1A
To takeover the maintenance of Section 1A
c. To supply and install tolling and other equipment (including 
Telecommunication equipment) at the toll plazas and to manage, 
operate and maintain the same
operate and maintain the same
d. To demand, collect and retain toll for its own benefit from all 
vehicles using the Expressway
e. To maintain the Expressway
p y
f. To manage and operate the Expressway, except Section 1A
g. To design, construct, manage, operate and maintain the 
Administrative Offices
Land GoM shall grant to the Company throughout the Concession Period the 
right and licence to enter upon and to occupy all land required by the 
Company
Government’s  Failure by the GoM to gazette the Agreed Toll on the agreed dates shall 
Compensation require the GoM to compensate the Company

Islamic Development Bank ٢٣


Salient Features of Concession Agreement
Salient Features of Concession Agreement
Finance The Company shall be responsible for obtaining all the finance, both debt 
and equity, necessary to carry out and fulfill its obligations in respect of the 
and equity necessary to carry out and fulfill its obligations in respect of the
Concession
Assignment of Rights The Company may assign to and create security in favour of its lenders in 
respect of the following:
respect of the following:
a. All its rights, interest and title in respect of demanding, collecting  and 
retaining toll
b. All its rights, interest and title in respect of designing, constructing, 
g , p g g, g,
managing, operating, managing ancillary facilities and retaining the 
income arising therefrom; and
c. All its rights, interest and title in respect of the compensation payable 
to the Company
Termination by  If the Government, without reasonable cause, fails to perform any of its 
Company  obligations which adversely affects the right and authority of the Company 
to demand, collect and retain toll, then the Company may give the 
d d ll d i ll h h C i h
Government 6 months’ notice to terminate the Concession

In the event of termination, the Government shall pay appropriate  
, p y pp p
compensation, as agreed in the CA, to the Company not later than 6 
months after the termination
Islamic Development Bank ٢٤
Salient Features of Concession Agreement
Salient Features of Concession Agreement
Termination by  The Government reserves the right to terminate the CA with three months 
Government 
Government notice, if the Company:
notice, if the Company:

a. Without reasonable cause, fails to commence construction or fails to 
perform its obligations under the CA; or
b. Without reasonable cause, suspends or abandons the whole of the 
construction works for a continuous period of sixty (60) days or fails to 
complete construction works or breach any of the terms under the CA; 
or
c. Breaches the terms of the CA or goes into liquidation
Step‐in Rights of  In the event of default by the Company, the Government shall have the right 
the Government to assume the operational responsibility of the Company under the CA. The 
the Government  to assume the operational responsibility of the Company under the CA The
Government shall ensure that the moneys collected shall be utilized in the 
following manner:

a. Firstly, towards the operational cost of operating and maintaining the 
Concession including the Government's costs
b. Secondly, towards the discharge of the payment obligations of the 
C
Company to its lenders
t it l d

Islamic Development Bank ٢٥


Salient Features of Concession Agreement
Salient Features of Concession Agreement
Expropriation  The Government may expropriate the Concession by giving not less than 3 months 
notice to that effect to the Company if it considers that such expropriation is in the 
ti t th t ff t t th C if it id th t h i ti i i th
national interest or national security
Upon expropriation, the Government shall pay appropriate  compensation, as agreed 
in the CA to the Company not later than 6 months after the date of expropriation
in the CA, to the Company not later than 6 months  after the date of expropriation
Expiry of  Upon expiry of the Concession Period, the Company shall:‐
Concession a. Forthwith cease to operate and maintain the Expressway 
b
b. H d
Hand over the Concession Area to the Government in a well‐maintained 
th C i A t th G ti ll i t i d
condition; and

Islamic Development Bank ٢٦


Project Justification
Project Justification

Economic Benefits 
Economic Benefits
• Easement of traffic from and to the Port Klang area
• Reduced travel time to Putrajaya/Ciberjaya
• Increased productivity through reduction in trip time and transportation cost
I d d ti it th h d ti i t i ti dt t ti t
• Boost economic development along the route
• Potential improvement in financial viability of land development projects by facilitating access
• Estimated EIRR of 14%.
d f

IDB’s Involvement 
• Signature experience for IDB in many ways;
– First toll road project on PPP basis 
– IDB financed its share in the project by raising local RM 270 million Sukuk (IDB’s first LCY 
Sukuk) 
– Dual impact: project finance and capital market development
– Proved instrumental in promoting Islamic finance in the region by boosting confidence of 
investors in sukuk transactions
k k

Islamic Development Bank ٢٧


Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Land Acquisition  Acquisition of Land is the responsibility of   Most of the land has been acquired except for a 
(Cost‐overrun  GoM, but it has only allocated a budget of  small portion for Section 1.b. Based on the land 
Risk) RM306 million for this purpose; and any  consultant’s report, the land cost, including the 
land acquisition cost above this ceiling is to  non‐acquired portion, will total RM245 million, 
be borne by the project company. yielding savings of RM60 Million over the
GoM’s budget.

Construction  Increase in the construction costs. Most of the construction risks, including delay or 


Risk cost overruns are borne by the EPC contractors, 
Any material cost overrun will have a which have agreed to cap contract costs and 
guarantee their performance with their balance 
negative impact on the feasibility of the  sheet. 
project and its repayment ability
project and its repayment ability. 

Other risks are covered with insurance. 
Furthermore, cost overrun requires
additional funding that may not be easily
The sponsors have also agreed to sign a project 
Th h l dt i j t
available. funds agreement, which will provide that
any cost overruns for the project will be covered 
by the shareholders. 

Appropriate independent audit mechanism used 
to ensure design compliance
Islamic Development Bank ٢٨
Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Traffic Risk
Traffic Risk Actual Traffic on the tolled road 
Actual Traffic on the tolled road Experienced Traffic Consultant & highly reliable base year 
Experienced Traffic Consultant & highly reliable base year
differs significantly and adversely  data of 1998 & 2001
from the figures projected in the  The project was deemed viable as early as 1998 by JICA
Traffic Study. Rigorous  vetting & calibration of the assumptions used in 
the projection model
Lead to the problem of Market risk 
with major implications on revenue  A debt service reserve account, to be partially funded by 
collection and debt servicing  the sponsors, is also set up to partially offset the risk.
Regulatory Risk Termination of the Concession  GoM will be entitled to complete the construction works 
Agreement by either party and call on the performance bond during the 
construction period, or indemnify SKVE for the value of 
completed works if termination occurs in the course of
completed works if termination occurs in the course of 
operations.

Senior lenders are therefore well protected, as the value 
of construction works will at all times be higher than
of construction works will at all times be higher than 
outstanding senior debt.

Government may not allow the toll  This risk is mitigated by the provisions in the CA, which 
rates as stated in the CA to be 
t t t d i th CA t b allow SKVE to seek compensation from the Government 
ll SKVE t k ti f th G t
charged to consumers in the event that the toll rates as stated in the CA are not 
approved
Islamic Development Bank ٢٩
THANK YOU
THANK YOU

Islamic Development Bank ٣٠


2. CASE STUDY
.C S S U
IDB’S FINANCING OF 
Al Qatrana Power Project, Jordan
Al Qatrana Power Project Jordan

M. Hasan Mahmud
Senior Investment Officer
PPP Division
Infrastructure Department

Islamic Development Bank ٣١


Al Qatrana Power Project: Introduction
Al Qatrana Power Project: Introduction
Project Background 9 2nd IPP in Jordan
9 In 2008,
In 2008, power sector had installed capacity of 2,500 MW
power sector had installed capacity of 2,500 MW
9 373 MW combined cycle gas turbine power plant; fuel: natural gas

Project Company  9 Korean Electric Power Company (KEPCO), South Korea(65%)
Sh
Shareholding
h ldi 9 Xenel
X l Industries Limited (XENEL), Saudi Arabia
I d i Li i d (XENEL) S di A bi

Commercial 9 Offtaker:  National Electric Power Company (NEPCO)
pp ;g p p g
9 Gas Supplier: NEPCO; gas price is a pass through under the PPA

Government  9 Gov’t Guarantee covering commercial risk (TAVANIR’s Obligations)


Guarantee
Financial 9 Project Cost: US$ 457 million
9 Debt : Equity: 68:32

Debt Arrangement 9 Debt
Debt Requirement: US$ 310 million
Requirement: US$ 310 million
¾ IDB Financing: US$ 80 million; mode of financing: Leasing
¾ KEXIM direct loan: US$ 118 million
¾ KEXIM covered loan: US$ 96 million
covered loan: US$ 96 million
¾ PROPARCO: US$ 50 million

Islamic Development Bank ٣٢


Sponsors Selection
Sponsors Selection
• The Sponsors were selected via International Competitive Bidding by the Government 
of Jordan

• MEMR used two‐envelope evaluation process to select the successful bidder

• Envelope I contained technical aspects of the proposal.  Envelope II contained the 
bidder’s final tariff proposal.

• MEMR received four qualified proposals.
Bidding Consortium Countries
International Power, Saudi Oger United Kingdom, Saudi Arabia
AES, Mitsui, Tohoku United States, Japan, Japan
KEPCO, XENEL Korea, Saudi Arabia
Mitsubishi, GAMA, Enara Japan, Turkey, Indonesia/Jordan/Greece

• MEMR conducted technical evaluation first then opened Envelope II proposals


MEMR conducted technical evaluation first then opened Envelope II proposals

• The KEPCO XENEL Consortium proposed the lowest tariff

• MEMR recommended to award the project to KEPCO XENEL consortium.

Islamic Development Bank ٣٣


Project Sponsors
Project Sponsors

• KEPCO, South Korea
CO S h
– Shareholders: Korean Government (51%) , foreigners and others (49%)
– Represents 94% of the total power generation in Korea
– Installed capacity of 60 GW
– Rated A (S&P), A2 (Moody’s), A+ (Fitch)

• XENEL, Saudi Arabia
– Founded in 1973, a private company incorporated in Saudi Arabia and completely 
owned by members of Ali Reza family.
– Has diversified experience in Energy, Industries, Construction, Healthcare, real estate 
and global investing. Total workforce of 7,000 staff. 

Islamic Development Bank ٣٤


Implementation

• Capacity and technology
C i d h l
– The project consists of a gas fired CCGT power plant with a net capacity of 373 MW.
– The project will use two Siemens Gas Turbines and one Steam Turbine from Skoda.

• Fuel
– The
The Project uses natural gas as a main fuel and distillate heavy fuel as back up.
Project uses natural gas as a main fuel and distillate heavy fuel as back up.
– Fuel is procured by NEPCO, which is responsible for all costs associated with the 
procurement and transportation of the fuel
– Gas price is a pass‐through under the PPA
p p g

• Implementation schedule
– 18 months for the first 254 MW (Phase 1); 9 months for the next 119 MW (Phase 2)
18 months for the first 254 MW (Phase 1); 9 months for the next 119 MW (Phase 2)

Islamic Development Bank ٣٥


Project Financing Plan
Project Financing Plan
Source US$ Million %

Cash Equity 60 13%


• The proposed project financing includes
Shareholder Loan 63 14%
equity
q y ((13%), ), q
quasi‐equity
q y ((14%),
), earlyy
Net Early Generation Revenues 22 5% generation revenues (5%), and senior debt
(68%)

Total Equity 146 32%


• Senior debt & shareholder loan tenor: 18
years door to door including 2‐year
KEXIM Direct Loan 118 26%
gestation period
KEXIM Covered Loan 96 21%
IDB 80 18% • Loans under the KEXIM facility will be
PROPARCO 50 11%
funded by commercial banks benefiting
from a 100% political and commercial risk
Total Debt 310 68% guarantee

Total 457 100%

Islamic Development Bank ٣٦


Project Contractual Structure
Project Contractual Structure
KEPCO (65%) XENEL (35%)

Implementation 
MEMR Shareholding
Agreement KEXIM

Political & 
Power Purchase  commercial cover
NEPCO
Agreement Commercial 
Al Qatrana
Financing
Financing   Lenders
Electric Power  Agreements
GoJ Guarantee

Water Supply  Company
WAJ
Agreement
IDB
O&M 
MoF/Dept. of  Land Lease  EPC
Agreement
Land & Survey Agreement

Lotte E&C KOSPO PROPARCO


Government 
GoJ
Agreement

SNC Lavalin, 
Fichtner India

Islamic Development Bank ٣٧


Salient Features of Project Agreements
Salient Features of Project Agreements
Implementation  ƒ Under the IA, the Government grants the Project Company the right to
Agreement  (IA): construct and operate the power station on the site.
ƒ It assures the Project Company of all fiscal incentives and other benefits
provided in the Investment Promotion Law and the Income Tax Law and
the free convertibility and transferability of foreign exchange through
the
h Central
C l Bankk off Jordan
d to meet the h company's ' foreign
f i currency
remittances.
ƒ The IA specifies the compensation to be paid in the event of early
termination of the project.
project
Power Purchase  ƒ Project Company is responsible for designing, engineering, construction,
Agreement (PPA): management, operation and maintenance of a 373 MW combined cycle
power plant.
ƒ NEPCO will purchase the electricity output of the Plant on the basis of
two‐part tariff consisting of: (i) a capacity payment, and (ii) an energy
payment
ƒ The Project Company will guarantee the heat rates (efficiencies) of the
plant for each of natural gas and distillate oil.
ƒ All of the distillate oil and natural gas requirements of the project will be
supplied by NEPCO under the PPA.

Islamic Development Bank ٣٨


Salient Features of Project Agreements
Salient Features of Project Agreements
Government Guarantee ƒ The Government Guarantee guarantees the payment obligations of
NEPCO under the PPA and the Connection Agreement,
Agreement and of all of the
Water Authority of Jordan obligations under the Water Supply
Agreement.
Land Lease Agreement  
Land Lease Agreement ƒ The Government leases the land to the Project Company under the LLA.
(LLA)
Water Supply Agreement   ƒ Water for the power station will be purchased from WAJ under the WSA.
((WSA)) The Project
j Company
p y will construct a seven‐dayy water storage
g facilityy at
the site.
EPC Contract ƒ EPC Contract is a fixed‐price date certain contract .
ƒ The EPC Contractor has an established track record in turnkey
construction work, although lacking in comparable projects outside of
Korea. To compensate for its limited experience in the Middle East, Lotte
E&C and its parent company (Honam Petrochemical) has proposed to
provide a full completion guarantee,
guarantee in addition to standard performance
guarantee.

Islamic Development Bank ٣٩


Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Political Risk
Political Risk • Political stability
Political stability 9 GoJ provide guarantees covering all government
• Force Majeure Risk agencies obligations
• Expropriation of Land &  9 Compensation by the GoJ in case of termination
assets as a result of Local or Foreign Political Force
• Transfer and convertibility  Majeure which should cover the outstanding debt
risk plus initial equity and any consequential costs.
9 Project Company and its contractors have the
right to open and retain local and foreign
currency bank accounts in Jordan and to purchase
foreign exchange for use in connection with the
Project.
9 GoJ warrants under the IA that the Project
Company shall be allowed to transfer out of
Jordan, in foreign currency, all and any amounts
required to meet its financial obligations.

Islamic Development Bank ٤٠


Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Construction 
Construction • Technical noncompliance
Technical noncompliance 9 EPC Contractor’s financial obligations shall be
Risk • Escalation of construction  supported by adequate performance bond
cost 9 Construction will be undertaken under a fixed
• Construction delay
Construction delay price turnkey EPC contract
• Shortfall in early  9 Contingencies included in the financing plan
generation revenue 9 The EPC contract will include a guaranteed
completion date with delayed liquidated damages
to cover additional financing costs and penalties
payable under the Project Agreements
9 The EPC contractor shall provide a completion
guarantee through its parent company, for an
amount covering the entire debt and equity
9 Early generation revenue allocated towards equity
is guaranteed by the sponsors.
9 Lender Engineer has opined positively on the EPC
contractor ability to deliver the EPC requirements

Islamic Development Bank ٤١


Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Operation and 
Operation and • Operation of the plant 9 Natural gas and back‐up
back up fuel are procured by
Maintenance  might be interrupted by NEPCO which will be responsible for all tariffs,
Risk non‐supply of fuel costs, fees, charges and penalties associated with
• Operation
p of the p plant the procurement and transportation of the Fuel.
Fuel
might be affected by lack
9 In case fuel is not supplied, Project Company still
of proper maintenance
receives capacity payment that covers debt
repayments and fixed O&M cost.
cost
9 A six‐year term Long Term Maintenance and
Service Agreement to cover maintenance of the
entire Facility.
Facility
9 A performance guarantee to be submitted by the
Operator.

Islamic Development Bank ٤٢


Key Risks & Mitigants
Key Risks & Mitigants
Key Risks Risk Description Risk Mitigant
Insurance Risk
Insurance Risk • Incomprehensive 9 Al‐Qatrana
Al Qatrana Project will benefit from a comprehensive
coverage insurance package.
9 Insurance program includes covering construction
risk, operating risk, sabotage & terrorism insurance,
workers compensation & employers liability
insurance, etc.
9 95% of the insurance cover will be reinsured into the
international insurance market.
market
9 The Lenders’ insurance advisor reviewed the Project
Company’s insurance package

Islamic Development Bank ٤٣


Project Justification
Project Justification

Economic Benefit
ƒ Adding power to the national grid to meet increasing power demand
ƒ Attracting FDI
Attracting FDI to the Country
to the Country
ƒ Creating local jobs 

Investment Rationale
ƒ Strong Sponsor Support:  Highly committed qualified sponsor
ƒ Attractive sector fundamentals
Attractive sector fundamentals
ƒ Guaranteed offtake: 25 year concession term & no market risk
ƒ The contractual structure of the project documents allocates risk properly and is similar to the 
structures generally underpinning IPP/IWPP
g y p g / projects in the Region.
p j g
ƒ Sovereign guarantee: GoJ guarantees the payment obligations of NEPCO
ƒ Sound project financial projections

Islamic Development Bank ٤٤


THANK YOU
THANK YOU

Islamic Development Bank ٤٥

You might also like