In September 2003, the non recourse financing of the US$1.37 billion 2 x 717 MW coal fired thermal power plant, BLCP Power Limited project, at Rayong Province, Thailand reached closure.

Upon completion of the development, BLCP will be the largest greenfield power plant in the region.

The project represents a breakthrough for the Asian non recourse project finance market being the only Thailand based coal fired IPP to achieve financial close since the Asian crisis.

Project Description

The project is being developed on a build-own-operate ("BOO") basis under Thailand's Independent Power Programme and will sell power to the Electricity Generating Authority of Thailand ("EGAT") pursuant to a 25 year power purchase agreement executed on 19 November 1997 (the project having been delayed due to the Asian financial crisis which arose in 1997).

The plant will consist of two subcritical pressure boilers and two 717 MW steam turbines, all to be manufactured by MHI. With a total generation capacity of 1,434 MW, the plant will be constructed in the Map Ta Phut Industrial Estate in Rayong Province, approximately 200 kilometres south of Bangkok. The No.1 unit is planned to start operation in October 2006, and the No.2 unit in February 2007. Background

In Thailand demand for electric power has been increasing rapidly in line with its economic growth, and the plant is planned to respond to the base demand.

Thailand, a natural gas producing country, is heavily depending on it as fuel. About 80 per cent of the electricity is produced by firing natural gas.

Construction of the new coal-fired power plant particularly corresponds with the Thai government's initiative to diversify fuel sources for power generation, and will be one of the largest modern coal-fired power generation facilities in Thailand when completed.

Project Sponsors

The two sponsors are CLP Holdings Ltd and Banpu Public Company Limited (acting through various subsidiaries).

Banpu - Banpu PCL was founded in 1983 in Thailand and is majority owned by the Vongkusolkit and Auapinyakul families. The principal business of the company is energy-related industries - mainly coal mining and power generation. In the recent past Banpu has decided to divest itself of non-core businesses and has the goal of becoming an Asian player in the coal business and consolidating its position as a major power developer. In addition to BLCP, Banpu was the original developer of the "COCO" SPP (although it no longer holds any equity interest in that plant). It does however have minority interests in Tri-Energy and Ratchaburi (both being holders of major power generating assets in Thailand).

CLP - CLP Holdings Limited is listed on the HK Stock Exchange and has one of the largest investor owned power businesses in Asia with over 10,521 MW of operating generating capacity. Its power businesses can be classified as:

Scheme of Control activities - which relate to power generation and sales in HK, where the HK Government regulates the market;

Non SOC activities - which include all power related activities outside of HK (in China, Taiwan, Australia and, now, Thailand).

Financing

The total project cost was approximately US$1.3 billion, with a 75/25 split between debt and equity. There were a number of novel elements to the financing plan:

- the sponsors were permitted to "back-end" their equity contributions (i.e. inject their equity commitments into the project after all the debt had been drawn down);

- the sponsors were not required to provide any completion guarantees or cost overrun support - the banks accepting that there were sufficient contingencies built into the financing plan;

- the financing used a combination of local baht debt, US$ debt having the benefit of political risk cover and uncovered US$ debt, while the providers of the financing included a substantial group of Thai banks, offshore banks, private PRI providers and (it is intended) 2 mulitilaterals;

- the closing of the debt financing was broken down into a number of stages - to meet the timing of approvals coming from the various participants. Initially, documentation was signed only with the Thai banks (providing for the majority of the financing to be in baht), then, almost immediately thereafter, a limited number of foreign banks were brought into the financing (retiring some of the baht commitments and increasing the US$ element of the overall facilities). It is intended, shortly, to bring in (probably with 2 additional closings) 2 multilaterals together with further additional foreign banks to finalise the agreed financing structure (the baht commitments being reduced further and replaced by US dollar commitments and the private PRI cover being replaced by cover emanating from the facilities provided by the mulitilaterals).

Commenting on the financing, Paul Elliot of Baker & McKenzie who represented BLCP said: "the speed with which the financing was concluded - approximately 6 months - and, together with the pricing and the ratio of clean debt to PRI covered debt, demonstrates the willingness of banks (both local and international) to back well structured projects in Thailand".

Legal Structure

Major features of the contract include:

Power Purchase Agreement

BLCP has entered into a Power Purchase Agreement ("PPA") with EGAT for 25 years. The entire output of the power plant will be sold to EGAT. EGAT will make (i) availability payments for declared availability of the units by BLCP (ii) energy payments for energy actually dispatched and (iii) added facility charge to cover the cost of construction of the NTF.

EPC Contract

The project will be implemented pursuant to a lump sum, fixed price, date certain turnkey PC Contract between BLCP and Mitsubishi. The guaranteed time for completion of the first and second unit will be 39 months and 43 months respectively.

O&M Contract

The company will be entering into an O&M Contract with CLP Power International ("CLP-PI"), a subsidiary of China Light and Power or other sponsors’ affiliate. The operator will be responsible for providing services during the mobilization period and the operation period.

Coal Supply Agreement

Australian Coal Holding ("ACH"), a subsidiary of Rio Tinto will supply coal to BLCP under a 25 year Coal Supply Agreement ("CSA"). ACH will supply a minimum quantity of 2.56 mtpa and a maximum quantity of 3.63 mtpa. Coal for the project will be primarily sourced from Rio Tinto mines located in Australia and Indonesia.

Risks and how they were mitigated

The project is the only Thailand based coal-fired IPP to achieve financial close since the Asian crisis. The project employed a variety of safety nets that provided the project with several layers of potential PRI protection such as:

• having a fully developed project structure and defined project documentation prior to entering the financing stage
• full and open engagement of potential lenders
• The other risks which arise from the project are relatively standard:
• the construction and completion risks are mitigated by the use of a strong contractor in the form of Mitsubishi and a strong fixed price turnkey EPC contract;
• the currency risk is mitigated by the matching of the Baht/dollar debt ratio to the currency indexation contained in the PPA;
• political risk is mitigated by partial PRI cover throughout the life of the financing;
• market risk is mitigated by the existence of a long term (25 year) power purchasing contract with EGAT in the IPP format;
• the environmental risks (which were particularly sensitive with the plant being coal fired) were met by the plant being designed and constructed to satisfy the most stringent emission standards specified by the ADB and JBIC;
• the operating risks were met by having the project company enter into an operating agreement with an experienced plant operator.

Conclusion

The absence of reliance for financial close on the complex multi-agency US$ funding structures typical of pre-crisis Asian power projects and its replacement by long tenor, foundation domestic debt is the clearest evidence of the arrival of the Asian domestic debt markets at a new level of maturity and sophistication in their capacity to absorb complex, large scale non recourse project finance projects of BLCP Power’s scope.

Post BLCP, Thailand now two additional IPP's in train - the Union Power deal and the Gulf transaction and early indications are that their financings will be similarly successful - hopefully providing an indication of future growth in the PF market both in Thailand and the region generally.