In scale terms alone, the Taweelah B IWPP transaction which closed in April is impressive enough, writes Simon Ellis. The project is the emirate’s most ambitious yet. The sale and expansion of a 1,000MW combined cycle gas turbine (CCGT) power plant and 65m gallons per day (MIGD) by a further 1,000MW and an extra 45MIGD capacity by the year 2008.

It is impressive in financing terms too as it became the largest utility project finance transaction in the history of the United Arab Emirates with US$2.6bn total financing and the involvement of 15 banks pre-syndication.

But the project – which lies in the coastal industrial site of Taweelah near Abu Dhabi – is not just significant for its size. The deal is also the culmination of the first phase of the emirate of Abu Dhabi’s ambitious plan to cope with a booming population and thriving economy through privatisation of public utilities.

Taweelah B marks the fifth and largest asset sale in Abu Dhabi’s eight-year water and power liberalisation policy.

The project is also the first to be supported by a sovereign agency of the Japanese government, the Japan Bank for International Cooperation (JBIC), which made up nearly half the total finance for the deal.

Background

Abu Dhabi's rationale for expanding power and water capability is clear enough. The population of the UAE has been the fastest growing in the middle east since independence in 1971 and is currently expanding by six per cent per annum.

The population of Abu Dhabi has also rocketed, largely boosted by the immigration of foreign nationals drawn by the region's oil, gas and real estate boom.

The combination of an increasingly affluent population expected to reach five million this year and the high average daily water consumption - an average of 135 gallons per person per day compared to 80 gallons per person per day in the US - is pushing the existing infrastructure to breaking point.

In 1998, when it was already facing water shortages and electricity blackouts, the Emir Shaikh Zayed passed a decree creating the independent regulator Abu Dhabi Water and Electricity Authority (ADWEA) with a remit for privatising Abu Dhabi's water and energy assets to stimulate private international investment in new infrastructure. 

Since 1998, ADWEA has awarded four projects:

Al Taweela A2  an existing site with a capacity of 710MW and 50MIGD at an investment cost of US$735m was awarded to CMS Generation Al Taweela A1  where capacity would be expanded to 1,350MW and 84MIGD at an investment cost of US$1.5bn was awarded to a consortium of Total and Tractebel Al Shuwaihat where capacity would be expanded to 1550MW and 100MIGD at an investment cost of US$1.6 billion was awarded to a consortium CMS Generation and International Power Umm Al Nar where capacity would be expanded to 1550MW and 95MIGD with a total financing cost of over US$2.1bn was awarded to a consortium of TEPCO, Independent Power and Mitsui in 2003 

Despite the expansions to capacity under the previous four privatisations, analysts still predicted a vast electricity and water shortfall by the end of the decade, in early 2004, ADWEA tendered the largest and most state of the art CCGT and desalination asset, Taweelah B.

Japan in the UAE

The last of the four previous privatisations, Umm Al Nar, set an important precedent for the privatisation policy, through the involvement of Japanese firms Tepco and Mitsui.

Japan is the single biggest export market for the Emirates’ oil and gas industry and is also one of the UAE’s top three importers – largely of machinery and hi-tech products.

The close fit between the two countries combined with the interest of Marubeni Group in the Taweelah B tender drew the attention of JBIC, which offered to support the deal with a billion-dollar plus investment.

Marubeni formed a consortium of Japanese engineering company JGC, US energy firms BTU and Powertek.

Despite JBIC's backing, the Marubeni-led consortium still faced strict competition to win the tender from Total and a consortium of Tractebel and International Power; all of whom had won previous tenders from ADWEA.

The three consortia submitted tenders to purchase the existing Taweelah B facility on 11 July 2004 and the purchase price offers for the existing Taweelah B assets were publicly announced. 

The Marubeni consortium had bid US$1.69bn closely beating Tractebel and International Power's offer of US$1.59bn and Total's offer of US$1.336bn.

The financing

Capitalising on the head-start provided by the US$1.2bn JBIC loan, the financing proposals for the deal was ready by 2005.

ADWEA would supply the same 60 per cent equity stake as for the previous four privatisations. The US$316m was raised in the form of an equity bridge underwritten by the National Bank of Abu Dhabi and the Abu Dhabi Commerce Bank.

The consortium itself raised the remaining  40 per cent of project equity. The consortium's US$211m stake was split between  Marubeni (35 per cent), Powertek (25 per cent), BTU 25 (per cent) and JGC (15 per cent).

To complete the debt financing, lead arrangers Standard Chartered, BNP Paribas and KFW were tasked with raising a US$940 million commercial loan.

The banks drafted a further 12 banks including UAE banks the National Bank of Abu Dhabi and the Abu Dhabi Commercial Bank.

Overall the three structuring banks Standard Chartered, BNP Paribas and KFW each underwrote US$75 million. The remaining 12 banks each underwrote US$59.8 million.

In addition to the financing, the consortium will use a working capital facility of US$30 million supplied by the National Bank of Abu Dhabi.

Future privatisation policy

The extra US$316m equity in the deal provided the final tranche of the emirate's plan to to create a new private public joint stock company - Al Taweelah United Power - from ADWEA's 60 per cent stakes in the five projects.    

Al Taweelah United Power was launched this year with a capital of US$620m to be divided into 130 million shares each with a nominal value of US$2.7. A parallel private company, the Taweelah Asia Power Company, will also float the shars from the consortia's equity stakes.

As an important concession towards to economic liberalistion, ten per cent shares of the total IWPP shares will be sold to the UAE nationals through IPOs, while the government retains 50 per cent of the total shares.

The policy completed by Taweelah B has certainly been effective. ADWEA claims the privatisation policy has now brought US$9bn of total infrastructure investment into the Abu Dhabi since it embarked on the privatisation programme in 1998.

Despite the apparent success in Abu Dhabi, utility privatisation is still not universal in the UAE. The state-owned Dubai Water and Electricity Authority (DEWA) remains staunchly committed to balance sheet transactions for its Jebel Ali sites.

However with real estate developments in the emirate of Dubai accelerating at a faster rate than even Abu Dhabi, this position may not be set in stone.

Project name	Taweelah B independent water and power project
Location	Taweelah, United Arab Emirates
Description	Acquisition finance of existing water and power facility and project finance of extension
Sponsors	ADWEA, Marubeni, Powertec
EPC Contractor	Siemens (power), Fisia (desalination)
Total project value	US$2.638bn
Total Debt	US$2.11bn
Equity	US$528m equity bridge
Equity Breakdown	ADWEA US$316m (60 per cent), Marubeni BTU US$73.8m (14 per cent), Powertek US$52.7m (10 per cent), US$52.7m (10 per cent), JGC US$31.6m (6 per cent)
Debt : Equity Ratio	80:20
Debt Financing	JBIC gave a term loan of US$1.2bn.BNP, Standard Chartered and KfW will each underwrite US$75m. The 12 participant banks will each underwrite US$59.8 million
Tenor	20 years
Commitment Period	20 years
Mandated lead arranger	JBIC, BNPP, Standard Chartered, KFW
Participants	Abu Dhabi Commercial BankBayerische LandesbankCalyonFirst Gulf BankHSBCKBCMizuhoNational Bank of Abu DhabiQatar National BankSumitomo Mitsui Banking CorporationBank of Tokyo MitsubishiRoyal bank of Scotland
Financial advisor to the Sponsor	Narva Energy
Legal Advisor to the Sponsor	Norton Rose
Technical Advisor to the Sponsor	PB Power
Insurance Advisor to the Sponsor	Marsh
Legal Advisor to the Banks	Allen & Overy
Technical Advisor to the Banks	Mott MacDonald
Insurance Advisor to the Banks	Miller
Legal Advisor to the Government	White & Case
Financial Advisor to the Government	HSBC
Technical Advisor to the Government	FichterTech