The largest power project in Qatar and the largest greenfield power project in the region, the 25-year tenor on the $2.05 billion debt backing the Mesaieed A IPP is also the longest of any project financing in the Middle East to date.

The project sponsors are Marubeni Corporation (40%), Qatar Electricity and Water Company (40%) and Qatar Petroleum (20%). The Qatari government agencies were attracted to the long tenor attached to Marubeni's bid and the willingness of its supporting bank Calyon to commit to underwriting the project almost a year-and-a-half before financial close.

The project uses a standard Qatari contractual arrangement – as used in other deals such as the Ras Laffan B IWPP – 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 long-term power purchase agreement. The construction contractor is Iberdrola and first power is set to come on line in July 2008.

In the summer of 2006 the original request for proposals (RFP) was modified and the project changed to take out the water element and convert Mesaieed A from an IWPP into an IPP. In August 2006 prospective bidders bid again on the basis of the revised RFP and Marubeni was named preferred bidder at the end of October.

To keep up with the aggressive construction timetable – 1,000MW is 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 of the preferred bidder.

The project proceeded on preliminary joint venture and preliminary power purchase agreements, which were signed in December 2006, with complete documentation in place by late March 2007. Proceeding on the basis of a 30-page memorandum of understanding setting out the cornerstones of the project exposed the sponsors to some risk because they are paying to mobilise construction from equity. However, much of this risk was mitigated by sponsors' counsel, Norton Rose, which insisted on a provision that capped funding until incremental milestones were reached by the Qatari government agencies.

Nevertheless, proceeding on a multi-billion dollar scheme without fleshing out the full risk allocation involved a large element of good faith between the parties – though this route has precedents in the Marafiq IWPP and Rabigh, which were banked in a similar way.

The financing comprises a 25-year $1.25 billion commercial tranche and an $800 million JBIC direct loan tranche. The commercial tranche is priced at 90bp during construction, dropping to 80bp then climbing in increments to 170bp. There is a 20% balloon and the ADSCR is 1.23x.

Calyon sent out invitations to banks to come in as mandated lead arrangers (MLA) on a take-and-hold basis on 13 July, with commitments likely to come in three weeks later. Calyon could have gone out earlier with invitations but decided to wait for the Qatalum project (also part-QP sponsored) to go through the senior market to ensure as much liquidity as possible. The need for a general syndication will depend on the appetite at MLA-level.

Since indicative pricing was laid out when Calyon submitted a commitment letter to Marubeni 16 months ago, and the sponsor group is strong, the debt is reasonably priced and therefore should be sold down without fuss.

The pricing of Mesaieed compares well with regional benchmarks. The $2.2 billion commercial and Islamic debt for Saudi's Marafiq IWPP, signed only recently, was 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.

However, Marafiq and Mesaieed look expensive against the Taweelah A1 refinancing/expansion, which priced at 75bp, stepping up incrementally post-completion from 110bp to 145bp over 22.5 years, and more particularly Barka 2, a $603.5 million 17.5-year term loan priced at 75bp to 125bp.

But the comparison is not like-for-like, since Taweelah and Barka are effectively project extensions and come with existing cashflows, and Marafiq and Mesaieed are greenfield projects that push the size and tenor benchmarks for project financings in the region.

Nevertheless, both Marafiq and Mesaieed clearly demonstrate that sponsors are willing to pay a little more margin to get Gulf deals done quickly. Although both projects were re-scoped and retendered, the winning bidders on both also had banks committed at an early stage and both projects went to construction early on the back of preliminary agreements.

Where speed to get projects online is of the essence for Middle Eastern governments and sponsors – and it appears this will be the case for the next few years given the frantic pace at which EPC costs in the region are rising – the margin on those deals are likely to be higher than if a funding competition is held at a later stage. It is a template that seems certain to be followed for the Ras Laffan C IWPP.

Mesaieed Power Company Limited
Status: Financial close 16 April 2007, CPs fulfilled 28 June 2007, in syndication
Description: $2.05 billion financing for Qatar's largest power plant
Sponsors: Marubeni Corporation (40%), Qatar Electricity and Water Company (40%), Qatar Petroleum (20%)
Financial adviser to QP & QEWC: Royal Bank of Scotland
Financial adviser to Marubeni: Advisorum
Initial mandated lead arranger: Calyon
ECA: JBIC
Legal counsel for Calyon: Shearman and Sterling
Legal counsel for JBIC: Allen & Overy
Legal counsel for project co: Norton Rose