InterGen rides at the vanguard
Sidi Krir is a land mark in Egyptian power generation and marks a
new era in the development of the country's energy sector. The
2x325MW plant is one of the largest in the Middle East and it is
one of the largest private infrastructure investments ever made in
Egypt. Equally importantly it is the country's first independent
power project and is the first build-own-operate-transfer project
to be developed in the country, using a structure which will be
mirrored by its successors.
The project is the first to take advantage of the Egyptian Electricity Authority's (EEA) introduction of law 100 in 1996, which allows the private sector to build, own, operate and transfer electricity generation and other infrastructure projects. It is perhaps testament to the smooth development of this groundbreaking project that the sister plants of East Port Said and Gulf of Suez, also in Egypt, will copy Sidi Krir's structure and contracts almost exactly. InterGen lost out in the bidding for these two plants which were recently clinched by Électricité de France with SG as adviser.
Despite InterGen's disappointment on this front, Sidi Krir will not be a project in isolation but will mark the beginning of a relationship between the two. Accordingly InterGen opened an office in Egypt in January which has a team dedicated to Sidi Krir and a team focusing on securing new business in the country. The Egyptian government has already announced plans to issue tenders for 4,400MW of private power projects by 2001 and for 6,400MW by 2005.
Some work has already begun on the construction of plant equipment off the site after the sponsors received an interim note to proceed in December 1998. This was necessary in order for the plant to be completed within the given 37-month time frame which expires in July 2002.
Negotiations between the banks, the sponsors and the government are considered to have gone well, although the discussions contained an element of education on the part of the sponsors and banks as to the contractual necessities of such a large privately financed and internationally developed deal.
The government demonstrated its willingness to cooperate with the private sector from the start of the project by contracting the help of Arthur Andersen, Coudert Brothers and Sergeant & Lundy to compile a workable request for proposals document.
The negotiation process contained a didactic element in as much as the Authority, which is experienced in developing its own power plants, was not familiar with the rigours of private project development. Says Dean Maitlan, Sidi Krir's project manager for InterGen: ?The EEA is highly respected in Egypt in the way they run their business. In our case the RFP was well put together and highly structured. But there were some issues which needed to be negotiated and things which they had not had to concede to before which they had to concede to with us. They are used to buying power plants but had to convert to the idea of buying power. They had to get used to the whole concept that it is a private project which has to depend on the performance of the project company, the equipment suppliers and the design. We had to get over the typical hurdles and explain that if they wanted keen pricing they could not expect to have a plant which replicated a utility approach. For example, our strategy for the plant included having about 100 people on the site which is many fewer than they would expect for a plant of that size. We have a good relationship with them though and they are very committed to changing the way that they operate; all new capacity additions will be under private contracts.?
Other issues which took time to negotiate revolved around the inherent difference between Egypt's civil code-based legal system which follows the French model of assuming an unwritten fairness in legislation. This contrasts with the UK and US's common practice system where the law is based on precedents and having every detail of every issue spelt out in writing. The EEA did not always see the need for inclusion of some of the contractual issues the sponsor and banks insisted upon. Cairo-based Shalakany Law Office liaised with Clifford Chance to iron out these differences. Says Maitlan: ?There has been a rash of legislation trying to make private investing easier.?
The financing includes a $180 million tranche which is being arranged by local Egyptian banks Commercial International, National Bank of Egypt and Mi Bank. These three which were mandated as lead arrangers have signed up with a further five Egyptian banks to form a club. Further syndication of this dollar-denominated debt is expected to take place at a later date, subject to certain approvals by InterGen as to what type of institutions are allowed to hold its debt.
This locally arranged tranche is larger than the $130 million tranche which is being lead-arranged by international banks ABN Amro, Dresdner Kleinwort Benson, Paribas and SG. Says Mark Henderson, assistant director of global project and export finance for Dresdner Kleinwort Benson in London: ?We spent a lot of time going round the individual banks in Egypt and talking to them, preparing them for what would be expected from them and what they wanted and finding out parameters so that no one would be too surprised. There are a lot of intelligent people out there and once they had established that we were not arguing needlessly for things and that we were not trying to pull a fast one on them they were happy to negotiate. They were cautious and perhaps a little suspicious but they are charming people and from a personal point of view I would love to do more business there. People do not give them credit for their talent and for how quickly they are climbing the learning curve.?
Canada's Export Development Corporation (EDC) joined the financing as an arranger in its capacity as a commercial lender, being one of the few export credit agencies which offers this service. EDC was originally approached to provide export credit financing as a portion of the equipment for the plant will be sourced from Canada. Says Henderson: ?Their enthusiasm remained even once we decided not to go for an export credit facility they said ?treat us as a bank'.?
Financing of the project is expected to sign in the early days of May in Egypt and syndication agent SG is already actively talking to banks about syndication of the international tranche and is said to be receiving a good response.
The weighting between locally and internationally raised debt has been chosen as it offers protection to the project in a number of ways. It allows the project to secure $180 million of Egyptian bank money which gives those institutions a vested interest in the success of the deal which in turn encourages the government not to change its mind about its support for the project. A further incentive for the government to support the project is the fact that it is the largest shareholder in Gasco which is the project's fuel supplier. Gas will come mainly from about 30km away at the mouth of the Nile.
A gas pipeline and interconnector to the Sidi Krir site have already been constructed by the EEA. InterGen's section of the Sidi Krir project only constitutes units three and four of a government-owned power station which is being constructed on the same site and is, in fact, nearing completion. This means that InterGen's Sidi Krir is not, in the purest sense of the word, a greenfield project. The site was originally allocated for the development of a nuclear plant, the plan for which was scrapped in favour of the gas-fired project which is underway.
Sidi Krir is a benchmark both for the Egyptian power market and for the the development of the infrastructure sector as a whole. The Egyptian government and in particular the EEA as well as the Egyptian banks have laid the foundations for further private investment which is sure to follow, and is likely to follow in the form of classic project finance. JW
The project is the first to take advantage of the Egyptian Electricity Authority's (EEA) introduction of law 100 in 1996, which allows the private sector to build, own, operate and transfer electricity generation and other infrastructure projects. It is perhaps testament to the smooth development of this groundbreaking project that the sister plants of East Port Said and Gulf of Suez, also in Egypt, will copy Sidi Krir's structure and contracts almost exactly. InterGen lost out in the bidding for these two plants which were recently clinched by Électricité de France with SG as adviser.
Despite InterGen's disappointment on this front, Sidi Krir will not be a project in isolation but will mark the beginning of a relationship between the two. Accordingly InterGen opened an office in Egypt in January which has a team dedicated to Sidi Krir and a team focusing on securing new business in the country. The Egyptian government has already announced plans to issue tenders for 4,400MW of private power projects by 2001 and for 6,400MW by 2005.
Some work has already begun on the construction of plant equipment off the site after the sponsors received an interim note to proceed in December 1998. This was necessary in order for the plant to be completed within the given 37-month time frame which expires in July 2002.
Negotiations between the banks, the sponsors and the government are considered to have gone well, although the discussions contained an element of education on the part of the sponsors and banks as to the contractual necessities of such a large privately financed and internationally developed deal.
The government demonstrated its willingness to cooperate with the private sector from the start of the project by contracting the help of Arthur Andersen, Coudert Brothers and Sergeant & Lundy to compile a workable request for proposals document.
The negotiation process contained a didactic element in as much as the Authority, which is experienced in developing its own power plants, was not familiar with the rigours of private project development. Says Dean Maitlan, Sidi Krir's project manager for InterGen: ?The EEA is highly respected in Egypt in the way they run their business. In our case the RFP was well put together and highly structured. But there were some issues which needed to be negotiated and things which they had not had to concede to before which they had to concede to with us. They are used to buying power plants but had to convert to the idea of buying power. They had to get used to the whole concept that it is a private project which has to depend on the performance of the project company, the equipment suppliers and the design. We had to get over the typical hurdles and explain that if they wanted keen pricing they could not expect to have a plant which replicated a utility approach. For example, our strategy for the plant included having about 100 people on the site which is many fewer than they would expect for a plant of that size. We have a good relationship with them though and they are very committed to changing the way that they operate; all new capacity additions will be under private contracts.?
Other issues which took time to negotiate revolved around the inherent difference between Egypt's civil code-based legal system which follows the French model of assuming an unwritten fairness in legislation. This contrasts with the UK and US's common practice system where the law is based on precedents and having every detail of every issue spelt out in writing. The EEA did not always see the need for inclusion of some of the contractual issues the sponsor and banks insisted upon. Cairo-based Shalakany Law Office liaised with Clifford Chance to iron out these differences. Says Maitlan: ?There has been a rash of legislation trying to make private investing easier.?
The financing includes a $180 million tranche which is being arranged by local Egyptian banks Commercial International, National Bank of Egypt and Mi Bank. These three which were mandated as lead arrangers have signed up with a further five Egyptian banks to form a club. Further syndication of this dollar-denominated debt is expected to take place at a later date, subject to certain approvals by InterGen as to what type of institutions are allowed to hold its debt.
This locally arranged tranche is larger than the $130 million tranche which is being lead-arranged by international banks ABN Amro, Dresdner Kleinwort Benson, Paribas and SG. Says Mark Henderson, assistant director of global project and export finance for Dresdner Kleinwort Benson in London: ?We spent a lot of time going round the individual banks in Egypt and talking to them, preparing them for what would be expected from them and what they wanted and finding out parameters so that no one would be too surprised. There are a lot of intelligent people out there and once they had established that we were not arguing needlessly for things and that we were not trying to pull a fast one on them they were happy to negotiate. They were cautious and perhaps a little suspicious but they are charming people and from a personal point of view I would love to do more business there. People do not give them credit for their talent and for how quickly they are climbing the learning curve.?
Canada's Export Development Corporation (EDC) joined the financing as an arranger in its capacity as a commercial lender, being one of the few export credit agencies which offers this service. EDC was originally approached to provide export credit financing as a portion of the equipment for the plant will be sourced from Canada. Says Henderson: ?Their enthusiasm remained even once we decided not to go for an export credit facility they said ?treat us as a bank'.?
Financing of the project is expected to sign in the early days of May in Egypt and syndication agent SG is already actively talking to banks about syndication of the international tranche and is said to be receiving a good response.
The weighting between locally and internationally raised debt has been chosen as it offers protection to the project in a number of ways. It allows the project to secure $180 million of Egyptian bank money which gives those institutions a vested interest in the success of the deal which in turn encourages the government not to change its mind about its support for the project. A further incentive for the government to support the project is the fact that it is the largest shareholder in Gasco which is the project's fuel supplier. Gas will come mainly from about 30km away at the mouth of the Nile.
A gas pipeline and interconnector to the Sidi Krir site have already been constructed by the EEA. InterGen's section of the Sidi Krir project only constitutes units three and four of a government-owned power station which is being constructed on the same site and is, in fact, nearing completion. This means that InterGen's Sidi Krir is not, in the purest sense of the word, a greenfield project. The site was originally allocated for the development of a nuclear plant, the plan for which was scrapped in favour of the gas-fired project which is underway.
Sidi Krir is a benchmark both for the Egyptian power market and for the the development of the infrastructure sector as a whole. The Egyptian government and in particular the EEA as well as the Egyptian banks have laid the foundations for further private investment which is sure to follow, and is likely to follow in the form of classic project finance. JW
Sidi Krir
Description:2x325MW gas-fired combined-cycle power plant at Sidi Krir west of Alexandria, EgyptSponsors:Egyptian project company, InterGen Sidi Krir Generating Company comprising InterGen with local partners First Arabian Development &Investment and Kato InvestmentsPower-purchase agreement:signed with EEA with a Central Bank of Egypt guaranteeFinancing:Lead arrangers:ABN Amro, DKB, Paribas and SGArranger:Export Development Corporation of CanadaTranche one:$130 million, 15-year term loan arranged by ABN Amro, DKB, Paribas and SGPricing: 175 basis points over Libor for year one 200bp from years two to five 230bp form years six to 15Tranche two:$180 million, 18-year term loan arranged by CIB, National Bank of Egypt and Mi BankPricing:same as for tranche oneTranche three:$35 million equity bridge loan arranged by ABN Amro, DKB, Export Development Corporation, Paribas and SGTranche four:$6 million, one-year revolver. See tranche three for arrangersTranche five:$19.5 million. See tranches three and four for arrangersRequest a Demo
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