Mesaieed A: The changeling

Despite a difficult birth, the $2.362 billion 2000MW Mesaieed A independent power project (IPP) in Qatar achieved some significant benchmarks – notably an innovative tariff structure that could not have been put in place but for the financial engineering, an unprecedented (for the region) 25-year debt tenor and a back-ended commercial tranche repayment profile equivalent to a 28 year maturity (on a sculpted 1.2x DSCR profile).

Sponsored by Marubeni Corporation (40%), Qatar Electricity and Water Company (40%) and Qatar Petroleum (20%), the project represents around 30% of Qatar's power capacity by 2010 and is the largest power financing in the country to date and the biggest greenfield plant in the Middle East.

Despite its importance to the Qatari power supply the project had a long 1.5 year-plus gestation during which it was rebid several times. During that time the water desalination part of the plant – initially requested by the Qatari authorities – was cancelled, necessitating major technical changes to the design, and the late involvement of JBIC (its first deal in Qatar) and the Qatari sponsors brought a range of different expectations to the negotiating table. Most significantly, EPC costs climbed 60%-plus between first bid and financial close

Calyon's willingness to underwrite at a very early stage enabled Marubeni to adapt quickly and the developer won preferred bidder status in October 2006, beating two rival bids from International Power (with Chubu Electric Power Company and Mitsui & Company) and Suez Tractebel.

To keep up with the aggressive construction timetable – 1,000MW was scheduled to come online one year after completion of the condition precedents for the debt financing – construction began only a few weeks after the award.
The project went forward with preliminary joint venture and preliminary power purchase agreements and did not have complete documentation in place until late March 2007. Proceeding on the basis of a 30-page memorandum of understanding exposed the sponsors to some risk because they were paying for start-up construction from equity.

However, sponsors' counsel, Norton Rose, insisted on a provision that capped funding until incremental milestones were reached by the Qatari government agencies. In addition a $40 million working capital facility was provided by the Commercial Bank of Qatar.

The project uses a standard Qatari contractual arrangement and will receive feedstock gas from Qatar Petroleum. The entire capacity of the plant is contracted to Qatar General Electricity and Water Corporation (KAHRAMAA) under a 25 year power purchase agreement. The construction contractor is Iberdrola and first power is set to come on line in July 2008.

The financing comprises a 25-year $1.256 billion commercial tranche (with 17% balloon repaid by cash sweep in last three years) and a 25-year $836 million JBIC tranche (with no balloon and no cash sweep). The commercial tranche priced at 90bp over Libor during construction, dropping to 80bp then climbing in increments to 170bp. The ADSCR is 1.23x.

The deal also features a $302 million equity bridge loan which is prepaid one year after start of commercial operation (four years door-to-door).

Integral to the sponsors' winning bid is an innovative tariff structure that features low tariffs in the early years of the project. This is reflected in the financing which features a one-year grace period after start of commercial operations during which interest is capitalized. Step-up swaps were also put in place to offset the impact of moving tariffs.

The deal closed prior to the onslaught of the global liquidity crunch and is impossible to measure against the higher margins in the current market. But Mesaieed compares well with the other regional benchmark closed around the same time – the Marafiq IWPP in Saudi. The $2.2 billion commercial and Islamic debt for Marafiq priced at 110bp during construction, dropping to 105bp post-construction and then rising in 15bp steps to 160bp over 23 years, with an ADSCR of 1.2x.

Calyon sent out invitations to banks to come in as mandated lead arrangers (MLA) on a take-and-hold basis on 13 July after waiting for the Qatalum deal to close and gain max liquidity. With indicative pricing laid out when Calyon submitted a commitment letter to Marubeni 16 months prior to launch and a strong sponsor group the deal signed in 31 banks and came in 50% oversubscribed.

Mesaieed Power Company Ltd
Status: Financial close 16 April 2007, CPs fulfilled 28 June 2007, syndication close July 2007
Description: $2.05 billion IPP financing
Location: Qatar
Sponsors: Marubeni Corporation, Qatar Electricity and Water Company, Qatar Petroleum
Financial adviser to QP & QEWC: Royal Bank of Scotland
Financial adviser to Marubeni: Advisorum
Initial mandated lead arranger/underwriter: Calyon
ECA debt: JBIC
Legal counsel to Calyon: Shearman & Sterling
Legal counsel to JBIC: Allen & Overy
Legal counsel to sponsors: Norton Rose
Technical advisory: Fichtner