Financing for the $1.7 billion Barka 3/ Sohar 2 IPPs closed via a club of eight commercial banks and two ECAs just three-and-a-half months after the appointment of the preferred bidder. But the tender for the projects was less straightforward. The projects spawned strident competition pulling in a record eight bidding groups initially, and ending in a tussle between two of the regions main sponsors for a regulator ruling.

The three shortlisted bidders were teams led by eventual winner GDF Suez, ACWA and Marubeni. GDF Suez was shortlisted for both projects; ACWA was shortlisted for Sohar 2 and Marubeni was shortlisted for Barka 3. After evaluating the bids, at the beginning of February, OPWP asked all bidders to resubmit for both projects on a best and final offer (BAFO) basis to see if they could improve their tariffs on a combined basis using cost savings from two similar EPC contracts.

Because clarifications were ongoing, the ACWA-led group sent letters to OPWP and the regulator AER, asking them to revisit GDF Suez’s eligibility for participating in the tender, arguing that within the spirit of the law GDF Suez was over the 25% generator concentration rule and should therefore be barred from entering.

The issue for ACWA was that AER did not count the UPC Manah IPP as a GDF Suez asset. GDF Suez sold its 32.81% equity stake in the project to MENA Infrastructure Fund in June 2009 – as a condition of winning Barka 2 in 2006 – however it still operates the asset through an O&M contract. In GDF Suez’s defence, it had asked AER at the beginning of the Barka 3/Sohar 2 tender whether it was eligible and had been told it was. Consequently ACWA’s protest failed.

GDF Suez became aware of ACWA’s complaint and the competitive rancour between the two intensified when it emerged that although GDF Suez initially posted lower tariffs for both projects, at the BAFO stage ACWA marginally undercut the GDF Suez bid. OPWP decided to opt for GDF Suez as its bid was deemed more financially certain given the extensive cover from ECAs, whereas ACWA’s bid was partially committed without ECAs.

The total $1.3 billion debt package for the projects is split between two fully separate non-cross collateralized deals servicing each plant: $680 million debt for Barka 3 and around $620 million for Sohar 2. The capex on Sohar 2 is lower because it shares seawater inlet architecture with Sohar 1.

The overall debt-to-equity ratio is 74:26, with 75% ($975 million) covered or provided by ECAs Hermes and Kexim, and 25% ($325 million) uncovered. The tenor on the ECA facilities is 14 years post construction and 15 years post-construction on the commercial tranche. The construction period is 2 years and 9 months long.

The starting margins are 220bp over Libor rising every five years to 340bp for the uncovered facilities, 180bp for the Kexim tranches and 160bp for the Hermes tranches. Both agencies are providing 100% political and commercial risk cover. Commercial bank fees are around 200bp. The average debt service coverage ratio is 1.2x and the minimum DSCR is 1.05x.

Banks are also providing two equity bridge loans, one for each plant, of around $200 million each. Early power for the projects is expected by May 2012 and full completion of the plants is due on the same date in April 2013. Because of the bridge loans and early generation revenues there is no equity upfront.

The commercial bank group comprises Credit Agricole, Europe Arab Bank, Natixis, KfW, BayernLB, HSBC, CIC and Standard Chartered. Natixis is documentation bank and Credit Agricole and KfW are ECA coordinators. There is a large German participation in the deals given Siemens role as a joint EPC contractor and Hermes covering 50% of the senior debt. KfW IPEX-Bank also contributed more than any other bank with around a $380 million commitment to the senior loans and bridge facilities as well as a part of the interest rate hedging.

The project marks the first time since Saudi’s first IWPP – the $2.45 billion Shuaibah project closed in December 2005 – that Hermes has had a role in a power financing in the region. Hermes is covering half the senior debt – $650 million. Kexim is covering facilities worth around $162.5 million, and providing a similar-sized direct loan across both projects.

The two projects are greenfield natural gas-fired power plants with a capacity of 744MW each. Together they will add almost 1,500 MW to Oman’s rent existing capacity of some 3,600MW. The Sohar 2 power plant is located next to the expanding industrial park at Sohar, 240km north-west of the Oman capital Muscat, while the nearly identical Barka 3 power plant is situated only 85km away from Muscat.

The power output will be sold under two separate 15-year power purchase contracts to the Oman Power and Water Procurement Company, which will be the single off-taker. It is the first time that an IPP or IWPP in Oman has not featured a direct government guarantee behind OPWP’s offtake.

Barka 3/Sohar 2 IPPs
Status: Financial close 16 September 2010
Description: $1.3 billion senior debt and $400 million equity bridge financing for two 744MW IPPs in Oman
Sponsors: GDF Suez (46%), Shikoku Electric Power Company (Yonden) (11%), Sojitz Corporation (11%), Bahwan Engineering Group (22%), Public Authority for Social Insurance (PASI) (10%)
Mandated lead arrangers: Credit Agricole (ECA coordinator), Europe Arab Bank, Natixis (documentation), KfW-IPEX (ECA coordinator), BayernLB, HSBC, CIC, Standard Chartered
Export credit agencies: Hermes and Kexim
Advisers to OPWP: BankMuscat with PFS, Berwin Leighton Paisner and Electrowatt Engineering Oman
Sponsor legal counsel: Chadbourne & Parke
Lender legal counsel: Milbank
Insurance adviser: JLT
Lender technical: Mott MacDonald
EPC contractors: Siemens and GS Engineering