Tina River Hydro PPP, Solomon Islands

Solomon Islands' 15MW Tina River Hydro high dam project was around 12 years in development, a saga not atypical for this technology.

The financing changed course after global oil prices tanked in 2014-2015. A new concessional finance structure emerged, where government on-lends a single blended facility to the project company, complementing private sector equity. Something akin to this financed a thermal solar PPP in Morocco in 2013, but Tina River Hydro represents real global financial innovation and is the island nations' first PPP.

Recovery era initiative

Solomon Islands Government, when it first engaged the World Bank to consider new energy generation solutions, was still emerging from a civil war that had devastated both lives and the physical state of the capital Honiara.

In 2003 the Governor-General issued a request for international assistance against the insurgents, and the subsequent gathering of troops from Australia, New Zealand, Fiji and Papua New Guinea quelled the violence. But rebellion erupted again in 2006, finally ceasing after a five-party Grand Coalition for Change took office that year.

The World Bank carried out an in-house renewable energy assessment study in 2006, a time when the primary renewable generation technology was hydropower.

In 2007, a pre-feasibility study identified the Tina River site as the most suitable to power Honiara. “Then in 2008 government requested help from the World Bank as it was preparing feasibility studies, environmental & social impact assessments and a land acquisition and livelihood restoration plan," World Bank senior energy specialist Takafumi Kadono, based in Singapore, says. "World Bank assisted government to obtain funding from the European Investment Bank and Australian Government."

These studies and plans took from 2010 to 2017. The studies were protracted, given the consultants were contending with complex geological conditions with seismic activity. Site access shifted several times, and there was no existing hydrological and flora and fauna data.

Land acquisition in the Pacific islands is also remarkably demanding, as land is customarily owned by tribes but without land registers. Identifying the five tribes that own the project land, via extensive consultation, took around five years, with the land then registered by 2015. Acknowledging the important relationship between the tribes and the land, the government has established Tina Core Land Co (TCLC), 50/50 owned by government and the tribes via cooperatives. TCLC leases land to the project company Tina River Hydropower Limited (THL).

"We advised that the landowning tribes set up cooperatives for all members of the tribe, so women, children and the entire community have an equal share in compensation and royalties," says Kadono. The cooperatives should benefit more than 4,000 people.

Seeking private partners

The IFC was engaged as transaction adviser to government during the long period of studies.

They launched a call for expressions of interest in 2014, tendering a 34.75-year PPP concession as a build, own, operate, transfer (BOOT) contract. A PPP was appropriate given Solomon Islands' moratorium then on state borrowing. 

Hong Kong-based Shobana Venkataraman, chief investment officer at the IFC, says: "We felt it was more important to set a high standard to get a sponsor that can actually implement the project's construction and operations, rather than try to prequalify the maximum number. This is a complex, high dam hydro facility, not a run-of-river, so the Government adopted stringent criteria. Subsequently, only two parties prequalified."

These were Australian utility Origin Energy and a Korean consortium of government entity Korea Water Resources Corporation (K-water) and private enterprise Hyundai Engineering Co (HEC).

Origin Energy later exited the procurement, due to changing company policy, so procurement switched to follow the negotiated format in 2015.

"Therefore the bidding criteria, which were initially the EPC cost and rate of return etc., ended up being negotiated. The PPA put forward was also negotiated, but … there were not drastic changes to the structure. The main time-consuming aspect, why it took two years, was the price negotiation and putting together the concessional finance package", says Venkataraman.

A government guarantee covers the offtaker payment obligations, as is typical for most IPPs. The PPA is a capacity payment based take-or-pay contract.

The target price for the 30-year PPA was bobbing around, depending on the price of imported diesel. The advisers and parties decided a single target price would be beneficial, for example as potential debt and grant financiers needed to conduct due diligence on the project. The aim became to beat a price of $0.22 per kWh by around 2016/17 (below the 2016 diesel generation tariff of $0.238/kWh).

State power utility Solomon Islands Electricity Authority (Solomon Power) was initially less motivated to offtake from Tina River, being able to pass on price volatility to customers from its diesel generation portfolio. But by 2014 global oil prices were well above $100 per barrel and Tina River Hydro was looking more attractive to the utility.

However, amidst the PPA tariff negotiations with the Korean consortium, global oil market prices came thundering down. From a peak of $115 per barrel in June 2014 for Brent crude, the price crashed down to a 2015 low of $36.05 per barrel.

Minimising the levellised project cost was crucial.

IFIs rush in

Government transaction adviser IFC set out in 2014 to procure a project featuring private equity and traditional commercial financing. To raise project finance, the sponsor was talking to private sector windows of the IFC, Asian Development Bank and some export-import banks. The World Bank sovereign operation would issue a partial credit guarantee.

"In 2015 with the oil price shock, we re-looked at the strategy to make it more competitive. We looked at a blend of commercial and concessional finance. Interestingly we found there was a lot of support from DFIs, mobilised by the World Bank, to provide concessional finance. Government had the luxury of many options for concessional finance and therefore commercial finance took a smaller and smaller role," Venkataraman says.

"Eventually it was decided that by having any meaningful amount of commercial finance, we would not get significantly lower price than the lowest price of diesel generation."  

The financing went fully concessional.

As part of Tina River Hydro's successful solution, the PPA tariff is roughly one-third lower than the cost of diesel at financial close, to the benefit of Solomon Power and its customers. It is well below the $0.22 per kWh target.

Honiara's reliance on diesel should drop from 97% to around 30%. Fred Conning, project manager in the project office in the Ministry of Mines, points also to the major climate benefits: "Net greenhouse gas emission reduction potential for the project is 49,500 tonnes of CO2 equivalent per year and a total of 2.48 million over the 50-year life of the project."

The World Bank applied to its International Development Association (IDA) window for concessional finance, and channeled other sources of concessional finance including from the Australian Government and Green Climate Fund.

Concessional outruns commercial

The financing package sees concessional finance loans and grants totalling $208.93 million provided to the Solomon Islands Government directly and ring-fenced.

Government on-lent a $156 million senior, secured, amortising, 30-year loan to THL for the financing of the hydroelectric dam plant and its access road. THL also received a $45 million subsidy from government.

The senior loan has a fixed-interest coupon (calculated by a weighted average of all the concessional loans plus an administrative margin), and a custom repayment profile passing on some of the concessional loan grace periods. IJGlobal understands that the minimum debt service coverage ratio is 1.2x.

The government will spend leftover capital from the $208.93 million on transmission infrastructure costs.

This was the simplest solution, as each IFI tends to have their own standard terms for concessional finance. For example some standard tenors exceed 30 years, but this is useful in reducing the levellised cost over Tina River's longer useful life.

Each DFI has various requirements of the project, for example on content requirements, environmental & social and anti-bribery & corruption. All of those were stripped out and put into the project on-lending agreement, so THL has to comply.

THL has a notably high leverage: the debt-to-equity ratio is 95:5.

K-water and HEC invested $10.8 million equity, with full political risk insurance from World Bank Group's Multilateral Insurance Guarantee Agency (MIGA).

The total value of the concessional loans provided to government is $157.975 million. The lenders and the details of their concessional amortising loans are:


 $18 million

32-year tenor

1% interest for eight-year amortisation grace period, 1.5% thereafter

Korea Export Import Bank's Economic Development Cooperation Fund

 $31.6 million

40-year tenor

0.025% fixed interest, with a 15-year amortisation grace period

Green Climate Fund

 $35 million

40-year tenor

0.25% fixed interest, with a 10-year amortisation grace period

Green Climate Fund

 $35 million

20-year tenor

1.25% fixed interest, with a five-year amortisation grace period

IDA Credit

 $23.375 million

40-year tenor

1.39% fixed interest with a 10-year amortisation grace period

Abu Dhabi Fund for Development

 $15 million

20-year tenor

1% fixed interest, with a five-year amortisation grace period

The total value of grants provided to Solomon Islands Government is $50.955 million. The grant providers and quantums are:


 $12 million

Australia Pacific Islands Partnership Grant

 $12.7 million

Green Climate Fund

 $16 million


 $10.255 million

The overall project cost is up to $240 million over 4.75 years of construction, with commissioning due August 2024.

High cost geography

THL is the operations and maintenance contractor, while HEC signed a turnkey EPC contract worth $165 million, for a 54-month construction period. HEC's tender to select the equipment suppliers has yet to start.

The design features a 72-metre high roller-compacted concrete dam, three 5MW turbines in the powerhouse, a 3.3km headrace tunnel, a dam-created reservoir with total storage volume of about 4.7 million cubic metres.

The power capacity of the hydroelectric dam project is only 15MW, with a remarkably high levelised cost given developers must import virtually everything.

One might compare the cost with the 216MW Upper Trishuli 1 Hydro project in Nepal, though that is run-of-river, financed in 2019 with a debt and equity package of $647 million. Or, the 670MW Nam Theun 1 dam hydropower project in Laos financed in 2018 with around $1 billion debt.

Further downstream

The advisers had looked to precedents around the world in devising their concessional loans and on-lending structure.

On available precedents, Venkataraman says, "I think the most common is the blended finance, where a financier - not really commercial banks but a DFI (such as IFC) - blends their concessional and private finance and lends it. For the 1GW Nam Theun 2 hydro in Laos the government borrowed a concessional loan from the World Bank and some other DFIs, and injected funds into the project as government equity."

But really none of those seemed to fit what the government was trying to achieve on Tina River.

"The best model was Noor 1 in Morocco… Its structure may almost be identical, although there was an additional ingredient of the government also being a project company shareholder through the funds borrowed from the DFIs," Venkataraman explains.

For the Noor Ouarzazate 1 thermal solar PPP project, the Moroccan government established an entity called MASEN to borrow concessional loans from IFIs and on-lend to the project company and take equity. MASEN received grants from the European Commission and KfW, while the lenders were the EIB, AFD, KfW and Clean Technology Fund. MASEN is also the landowner.

While we might not expect further large IPPs in Solomon Islands, where the grids are too small, the hydro project has improved the flexibility of the Honiara grid for future potential solar and the nation has managed to sign off on its first PPP.

"I think there are possibilities of replication well beyond Solomon Islands or the Pacific, in places where there is good access to concessional finance, which usually means a climate friendly project displacing fossil fuels, where a project may not be commercially viable on a fully private basis," Venkataraman says. "This is a structure that can be used where it still makes sense to get the private sector in, both for upgrading expertise and private equity. There is no reason a financing couldn't also blend public and private debt."

She added that the structure could well be repeated in sectors other than power, in the Pacific and globally.


IFC's work was funded by multi-donor trust fund DevCo and the Australian and New Zealand governments' Pacific Partnership.

The Energy Sector Management Assistance Program and the Global Infrastructure Facility supported the World Bank.

Key advisers are:


  • PwC Korea – model adviser 
  • Norton Rose Fulbright – legal adviser
  • Stantec – technical adviser


  • IFC - lead transaction adviser 
  • Ashurst - legal adviser on financing agreements
  • Tonkin + Taylor – technical adviser
  • Gide Loyrette Nouel – legal adviser on certain project agreements
  • INDECS - insurance adviser

Solomon Power:

  • Entura – technical adviser 
  • Chapman Tripp – legal adviser
  • Deloitte – model audit 
  • Cepa - financial, model advisory

Asset SnapshotTina River Hydropower Plant (15MW)

USD 233.40m
Full Details

Transaction SnapshotTina River Hydropower Plant (15MW)

Financial Close:
Tina Hydropower (THL)
$219.73m USD
Debt/Equity Ratio:
Concession Period:
37.52 years
Full Details