Saudi Arabia's Water and Electricity Company has closed on the financing for the US$1.88 billion Shuqaiq integrated power plant and desalination project

The IWPP will generate 850MW of electricity that will supply Saudi Arabia's southern electricity grid and it will produce 212,000 cubic metres of water per day to the Abha and Jazan regions.

The project

Incorporation of the project was put together within three weeks of the Council of Ministers resolution - record time for a Saudi power and desalination project. This made necessary by a delay by the ministers in passing the resolution.

The Shuqaiq complex will be developed by a consortium consisting of ACWA Power, Mitsubishi and Gulf Investment Corporation on a build, own and operate basis.

Breakdown of the ownership of the project company Shuqaiq Water and Electricity Company (SqWEC) is as follows:

• ACWA Power - 34 per cent
• GIC - 20 per cent
• Mitsubishi - 6 per cent
• Public Investment Fund (PIF) - 32 per cent
• SEC - 8 per cent

There were three bidders for the project with SqWEC beating off competition from a Marubeni and NPC consortium and a consortium consisting of Pendekar Power and Al Jomaih Holding Company.

SWEC won the concession after bidding about 20 per cent lower for the project than its next closest rival due mainly to its selection of EPC contractor.

A source close to the deal said that selected contractor Mitsubishi Heavy Industries 'seems almost immune to the global price hikes affecting the rest of the industry.'

 The deal is backed by a 20-year power and water purchase agreement (PWPA) with the WEC.

Technology

Technology also separated the three bidders with each consortium proposing a different means of desalinating the seawater.

Multi Stage Flash (MSF) distillation was also proposed for the project which is where intake water is heated before being discharged into a chamber that is slightly below the saturation vapour pressure of the incoming water. This results in a fraction of the water content 'flashing' into steam which then condenses on the exterior suface of heat transfer tubing and transforms into product water.

The unflashed water enters another chamber with a lower pressure and the process continues with each evaporation and condensation chamber being a stage.

Multiple Effect Distillation (MED) was the other form of distillation proposed for the Shuqaiq project. In this method, evaporators are arranged in a series with vapour from one effect being used to evaporate water in the next lower pressure effect.

Reverse Osmosis (RO) was selected for the Marifiq project, though, which is becoming increasingly popular in desalination facilities, however, it cannot be used everywhere due to different water temperatures and salinity. In the RO process, pressure is applied to the feedwater forcing it through a semipermeable membrane.

The resulting water is the product water as most of the dissolved impurities are discharged via a waste stream.

Financing

Debt financing for the US$1.88 billion project was underwritten by BLB, Samba, Woori, GIB and Riyadh. It featured a debt to equity ratio of 75:25 with US$1.39 billion of debt.

The loan was split between a US$230 million short-term loan with a 10-year tenor and a US$1.16 billion loan that will be repaid over 22 years. There was also an Islamic tranche that mirrored the long-term loan and was led by Riyadh Bank.

Pricing on the debt was set at 95bp above LIBOR for the short term loan and between 115bp and 165bp for the senior debt. The financing was expected to close at the end of May but all the parties were able to get the loan arranged well ahead of schedule.

This is the second SEC project that has closed ahead of the 2,750MW and 800,000 cubic metres per day Marafiq IWPP. The parties working on Marafiq signed a PWPA in December and the financing for that project was originally scheduled to close by the end of January.

Maturing market

Saudi Arabia has one of the fastest growing populations in the world and is pushing its power and water infrastructure programme to meet the growing demand.

Although the country's IWPP programme is still in its infancy, the Shuqaiq deal shows that investors are treating it as a mature market.

These projects are going to continue to require billions of dollars of investment and, with bankers lining up to fund the relatively safe deals, expect pricing to get more competitive with each closed deal.

The project at a glance