First drawdown on the US$1.3 billion Al Hidd project took place recently, showing the alacrity with which the Bahrainis are able to move projects forward.

Hidd had such a tight timetable - with a PWPA being signed only in January this year and extra desal capacity due to come online by November next year - that some might have wondered whether it was possible.

However, those involved have consistently highlighted the way in which the timetable has been respected, generating the same kind of confidence in the government that was felt with the Ras Abu Fontas B2 deal in Bahrain's neighbour Qatar (see IJ Case Studies Ras Abu Fontas B2 ) .

And Bahrain's ministry of electricity of water - that tendered the project and is acting as offtaker - has good reason to do so. Serious depletion of groundwater stocks have increased the urgency with which new desalination capacity needs to come online.

The project

This is the first privatisation of a Bahraini power asset and sees the project company - Hidd Power Company - acquire the existing power and water facilities and also upgrade the water capacity.

The project company is made up of:

• Sumitomo  (40 per cent)
• International Power (30 per cent)
• and Suez Tractebel (30 per cent)

Al Hidd, which is located 20km east of the capital, Manama, currently produces 965MW of power and 2,273 cubic metres of water per hour. The latter will be upgraded to 11,365 cubic metres per hour.

When work is completed by Sidem in November 2007, it will provide around 20 per cent of the nation's power and 65 per cent of its desalinated water.

A 20-year PWPA is set up with the ministry of electricity and water and a 20-year GSA with BAPCO.

Financing

The US$1.3 billion project has brought on board ECA, international and regional commercial financing.

Sumitomo's presence means that this includes US$600 million direct loan from JBIC. Six MLAs provided a further US$390 million in senior debt facilities, equally split:

• RBS
• Mizuho
• KfW
• SMBC
• Gulf International Bank
• Standard Chartered

Senior debt has a 20-year maturity and is priced at 90bp over LIBOR, rising to 150bp over time.

RBS, SMBC and Standard Chartered are bookrunners, the latter is also acting as onshore account agent. Mizuho is offshore account and global facility agent and KfW technical insurance agent.

This complex, multitranche transaction has a mezzanine facility of US$35 million. Equity includes a bridge loan of US$175 million and US102 million in cashflow from existing facilities. The minimum DSCR is 1.2.

Conclusion

This transaction has kick-started the privatisation of Bahrain's electricity sector and marks a growing tendency in the gulf region to roll back the state from management of power and water.

Qatar has already sold off the Qatar Water and Electricity Company (QWEC), Abu Dhabi is in a long-term process of privatising the water and electricity sector and Saudi is also doing the same, with the government currently engaged with consultants as to the best way to proceed for the SWCC spin-off (IJ News, 17 January 2006 ).

The next Bahraini project will also be an IWPP - all future power and water deals will be developed by the private sector - but the power capacity between 900 and 1,500MW has yet to be decided, according to one banker, who says that 'a couple of studies still need to be done.'

The setting out and following of a clear timetable by the actors involved in HIdd has been one of the key factors in the project's success that augured well for this project and will do so for future projects when they come to market.

The project at a glance