The $3.9 billion Ras Laffan C IWPP project in Qatar, which was about to sign as Project Finance went to press, sets a new pricing benchmark for power projects in the GCC. In these uncertain times, it also helps restore some market confidence when there are several large independent water and power (IWPP) projects currently in the market.

Ras Laffan C is also interesting because it is the first time that the Qatari oil and gas model has been extended to the power market; the deal was structured by financial advisor Royal Bank of Scotland and presented to the market with a fully formed term sheet, where normally the bidding consortia would attract the financing themselves. The absence of underwriting risk for banks on the club deal helped secure margins in the 100-160bp range, quite a bit higher than the 70-115bp sought by the sponsor, but still competitive in the current debt market.

From a sponsor's perspective, this pricing will not be an easy one for other projects to match. Market rumour says that Shuweihat 2, the most advanced of the other IWPP deals currently in the market, will start at least 20bp above Ras Laffan, with a 40bp or 50bp flex on top of that.

Ras Laffan C is 40% owned by Qatar Electricity and Water Company (QEWC), 20% by Qatar Petroleum (QP), and 20% each by Suez Energy and Mitsui via a special purpose company – Ras Girtas Power Company.

Nineteen banks joined RBS as mandated lead arrangers on the commercial and ECA debt, bringing the total bank group to 20. The total amount of debt raised is $3.3 billion, split into a $1.5 billion commercial tranche, a $1.5 billion direct loan from JBIC and a $300 million covered Sace facility. There was also an in place for a KEIC-covered facility of up to $600 million, but this wasn't taken up due to lack of interest from the banks.

Pricing on the commercial debt, which has a 25-year tenor and a 20% balloon, begins at 105bp over Libor, dropping down to 100bp post-completion until year 10. It then steps up to 115bp until year 15, followed by 135bp until year 20 and finally 160bp for the remaining five years. The debt has a 20% balloon. Commitment fees are 40bp.

The banks joining RBS in the deal are: Arab Bank, Apicorp, Banco Santander, Bank of Tokyo-Mitsubishi (BTMU), BNP Paribas, BBVA, CIC, Depfa, Dexia, EDC, Fortis, HSBC, KBC, KfW, Qatar National Bank, Societe Generale, Standard Chartered, Sumitomo Mitsui and Sumitomo Trust.

They were asked to bid for $75 million tickets, which is the level most banks are in at. The exceptions are EDC, which bought $150 million of debt, BTMU, which is on $100 million and three banks with $50 million each. BBVA, BTMU, Depfa, HSBC and KfW are the banks taking part in the Sace tranche.

The strategically important project involves the construction of an IWPP with a generating capacity of 2,730MW, and the project will also provide 63 million gallons of drinking water a day. Ras Laffan C will meet around a third of Qatar's energy needs. The plant has a 28-year power and water purchase agreement with QEWC.

Mitsui is the main EPC contractor; the Japanese company's 'A' rating was another factor helping to ease the deal through the financing process. Mitsubishi Heavy Industries will be constructing the power plant, France's Sidem the desalination plant, while Hyundai will do any remaining construction work. Operation is scheduled to begin in April 2011.

The Suez/Mitsui consortium won the tender against competition from two other consortiums, led by IP and Marubeni. With the financing structure taken out of the bidders' hands, the winner was selected on project cost alone. Ras Laffan C is expected to $22.7 billion over 27 years.

RBS had also acted as financial advisor to QP and QEWC on the $2.36 billion Mesaieed IPP financing last year, which had pricing ranging from 80bp to 170bp. This was thought to be too high to reflect Qatari risk, so the decision was taken to bring in the financing model that RBS pioneered on Quatargas 2 and 4. By inviting commitments on a take-and-hold basis, thus avoiding the whole syndication stage, it was hoped a better pricing than Mesaieed's could be achieved, though the credit crunch put paid to that.

There are several more GCC IWPPs in the market – Shuweihat 2 in Abu Dhabi, Ras Al-Zour in Saudi Arabia, Ad Dur in Bahrain and Salalah in Oman, all of which require underwritten bids. Only when some of these have been closed – starting with Shuweihat, which looks like it will be done by the Suez-led consortium and underwritten by Bayerische Landesbank, Calyon and Natixis – will it become how much of a benchmark the Qatari model poses. Club deals like Ras Laffan will require concession awarders that are prepared to take on the financing risk like QEWC and QP have done, and for that to happen the tangible pricing benefits will need to be demonstrated.

But it would be premature to say that Ras Laffan looks like setting a trend for large club financings for future GCC power projects. The pool of banks that are currently able to get credit approval for such large deals is very limited. If underwriting risk is not an issue, then ticket size is, and while Ras Laffan passed the return requirements of the banks joining, few deals benefit from such a strong sponsor. As one syndications banker put it: "Deals that can be done as clubs will be, but not all can be."

Ras Laffan C IWPP
Status: Documentation phase, signing in June
Description: 2,730MW independent water and power plant
Debt: $3.3 billion
Sponsor: Qatar Electricity and Water Company (40%), Qatar Petroleum (20%), Suez Energy (20%) and Mitsui (20%)
Financial advisor: RBS
Mandated Lead Arrangers: Arab Bank, Apicorp, Banco Santander, Bank of Tokyo-Mitsubishi (BTMU), BNP Paribas, BBVA, CIC, Depfa, Dexia, EDC, Fortis, HSBC, KBC, KfW, Qatar National Bank, RBS, Société Générale, Standard Chartered, Sumitomo Mitsui and Sumitomo Trust.
Technical advisor: Kema
Sponsor legal counsel: Latham & Watkins
Lender legal counsel: Skadden Arps
JBIC legal counsel: Ashurst