Power, Water, and Gas Mix in Abu Dhabi Privatization Projects

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Abu Dhabi's policy of power privatization has been moving at a healthy pace with the fifth IWPP (independent water and power project) being put out to tender at the end of July by the Abu Dhabi water and electricity authority (Adwea).

The project is for a new 600 to 700 MW power facility to be located at Al Mirfa on the Arabian Gulf coast in the western area of Abu Dhabi. The current installation has a capacity of 192 MW and 38.7 million gallons of water per day.

August 31, 2003 is the deadline for expressions of interest from developers. The winning firm or consortium will take a 40 percent interest in an SPV (special purpose vehicle that will own the plant. Adwea will retain the 60 percent balance for the government. As with previous IWPPs, the existing assets will be transferred to the SPV to run until the new expanded facilities are up and running. The SPV will enter into a long-term power and water agreement with Adwea, which will be structured as an energy conversion agreement under which Adwea will supply gas to the plant in return for power and water.

International Power (LSE, NYSE:IPR) (London, UK), Total (NYSE:TOT) (Paris, France), Mitsubishi (Tokyo, Japan) and CMS (NYSE:CMS) (Dearborn, Michigan) are thought to be among the potential tenderers.

Earlier in July, the first $855 million drawdown from the $2.1 billion Umm Al-Nar IWPP project loan was made.

The 2,200 MW Umm Al-Nar project is the largest power project in the Middle East to date. The Arabian Power Company will use the loan to acquire the existing 850 MW plant and the 162 million gallons/day power and water desalination station. The company will add 1,550 MW of new power capacity and 25 million gallons/day desalinated water output capacity. Most of the existing capacity will be decommissioned by 2008. Construction of the new facilities will begin immediately.

Arabian Power's shareholders include affiliates of Adwea, International Power, Tepco (Tokyo, Japan) and Mitsui (Tokyo, Japan). The $1.8 million debt, with six different tranches, includes one of the largest Sharia compliant Islamic (nominal interest free) financing components ever incorporated in project financing at $540 million.

It is a first venture in Abu Dhabi for Tepco and Mitsui and the second for International Power. As one of the first major deals to reach financial close in the region since the end of the Iraq war it demonstrates the confidence of the sponsors and the financial markets in the secure growth potential of the region.

Milbank, Tweed, Hadley & Mcloy, the international law firm with New York headquarters, represented the commercial lenders, including a range of major international industrial banking interests, in the project financing. Milbank have represented sponsors in the Baymina power project in Oman in 2001, the Taweelah Al power and water project in Abu Dhabi in 2000, the Al Manah power project in Oman in 1999 and the loan to Jorf Lasar power project in Morocco in 1996.

For more information on Energy and Industrial Projects in the Middle East see Industrialinfo.com's Middle East Coverage