Sembcorp Salalah Power & Water Company to Develop Largest Water and Power Plant in Southern Oman

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Researched by Industrial Info Resources (Sugar Land, Texas)--The 40:60 joint venture company formed by private equity investment company Oman Investment Corporation (OIC) (Muscat, Oman) and Sembcorp Utilities Pte Limited (Singapore), a subsidiary of holding, utility and storage company Sembcorp Industries Limited (OTC:SMBDY) (Singapore), recently announced that it has signed a 15-year water and electricity supply contract with state-owned Oman Power and Water Procurement Company (Muscat). The joint venture company, Sembcorp Salalah Power & Water Company, will be making an investment of about $1 billion to build, own and operate the Salalah Independent Water and Power Plant (IWPP) in Oman. The contract was awarded to the company after a global competitive bidding process. The shareholders of OIC are BankMuscat SAOG (MSM:BKMB) (Ruwi, Oman) (5%), Gulf Investment Corporation (Safat, Kuwait) (50%), National Investment Funds Company SAOC (Muscat) (35%), and the State General Reserve Fund (Muscat) (10%).

The Salalah IWPP project will involve setting up a 445-MW gas-fired power plant and a seawater desalination plant that will implement reverse osmosis technology and produce 15 million imperial gallons per day of water. Sembcorp Salalah O&M Company (Muscat), the 70:30 joint venture company of Sembcorp and OIC, will operate and maintain the facility under a long-term operation and maintenance contract. The plant is scheduled to be operational from the first half of 2012. SEPCO III Electric Power Construction Corporation (Jinan, China) has been awarded the engineering, procurement, and construction contract under fixed-price, date-certain turnkey agreements. The subcontract for the seawater desalination plant has been awarded to industrial and manufacturing company Hydrochem Engineering (Shanghai) Company Limited (Shanghai, China), a wholly owned subsidiary of investment holding company Hyflux Limited (SIN:600) (Singapore).

When completed, the new facility will be the largest and most energy-efficient water and power plant in the Dhofar region of southern Oman. The plant will increase the power capacity of the region from the existing 321 megawatts (MW) to 766 MW. The complete water and power output will be sold under the 15-year purchase agreement. As the demand for both water and power are expected to increase continuously, the Salalah IWPP is expected to continue operating even after the initial 15-year agreement period is complete.

Of the $1 billion required for the project, 75% will be raised through 17-year non-recourse project finance loans, while the remaining 25% will be raised through shareholder loans. Standard Chartered Bank (LSE:STAN) (London, England) is the financial adviser of the project and one of the banks providing the non-recourse loans. The other banks are BankMuscat, Bank of China Limited (SHA:601988) (Beijing, China), Bank Sohar SAOG (MSM:BKSB) (Muscat), China Development Bank (Beijing), KfW Bankengruppe (Frankfurt, Germany), National Bank of Oman (MSM:NBOB) (Muscat), and Sumitomo Mitsui Banking Corporation (Tokyo, Japan). The Oman-based banks will extend the loans in the local currency of Omani Rials, while the other banks will extend the loans in U.S. dollars. Oman International Bank SAOG (MSM:OIBB) (Muscat) and Bank Dhofar (MSM:BKDB) (Ruwi) extended equity bridge finance to OIC.

The Salalah IWPP will be Sembcorp's second investment in the power and water sector of the Middle East. It currently owns, operates and maintains the world's largest hybrid desalination plant, the Fujairah 1 Independent Power and Water Plant in United Arab Emirates.

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