Wednesday, 19 December 2018

The power of two

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At the end of May 2010, GDF Suez was awarded the mandate for the construction and operation of Barka 3 and Sohar 2, Oman’s next two IPPs. By the GSEI financing team: Karel Breda, Sandrine Vandeloise and Markus Fischer.

The financing for Barka 3 and Sohar 2 was completed over 15 weeks, a remarkable achievement for a transaction entailing two separate projects. Key to this success was the sponsors’ approach in creating a “power of two” by leveraging all similarities and parallels between the two projects to build a generic financing solution while holding the specific intricacies of each project until the very end.

The other key success factor was the presence of two export credit agencies, Euler-Hermes and Kexim, that were instrumental in bringing together the necessary liquidity for the transaction.


The Sultanate of Oman has an outstanding track record of tendering IPPs and independent water and power projects (IWPP) in the private sector going back more than 15 years. The contractual framework, enshrined in comprehensive legislation called the Sector Law, has changed little over this period. Therefore, it is well established and represents a sound foundation for the development and financing of the projects. There is a similarly long and established track record of successful operation of Omani IPPs and IWPPs.

The two projects are greenfield natural gas-fired power plants with a capacity of 744MW each. Together they will add almost 1,500MW to the Sultanate’s current capacity of about 3,600MW. The power output will be sold under two separate 15-year power purchase contracts to Oman Power & Water Procurement Company (OPWP), which will be the single off-taker.

Project background

At the end of May 2010, GDF Suez was awarded the mandate for the construction and operation of Barka 3 and Sohar 2 following an international competitive tendering process. After the launch of the tender process in August 2009, it had been decided to put an export credit agency-driven financing solution in place to circumvent the continued restraints in respect of liquidity in the international financial markets.

Each of Barka 3 and Sohar 2 will deliver electricity to the OPWP under a 15-year power purchase agreement. Early power for both projects is expected to be commissioned by May 2012 and full completion of the plants by April 2013. Each project will have a capacity of 744MW of power. They are the eighth and ninth IPP/IWPP being developed in the Sultanate of Oman.

The EPC contractor for both projects is Siemens of Germany and GS Engineering & Construction Company of South Korea (GS) acting as a consortium on a joint and several basis. Siemens will provide the majority of the power island equipment, including gas turbines, steam turbines and generators, and GS will provide heat recovery steam generators, civil works and the balance of plant. Both have considerable EPC experience in the GCC region and in Oman.

Financing background

The power of two – The US$1.3bn financing backing the two projects adding up to US$1.7bn of total investment cost is further evidence of the expertise and creativity of the GDF Suez teams, who have just completed the financing of Riyadh IPP in Saudi Arabia. From the award date at the end of May 2010 to financial close in mid-September 2010, only 15 weeks were needed to complete and finalise the financing. The key contributing factor to such momentum was the ability to draw on the numerous similarities of both projects.

The sponsors negotiated the financing structure on the basis of a single generic project that was combining all the similarities of both projects. This approach was maintained until the very last moment when duplication of financing documents was undertaken. It is also worth noting that the closing was completed in a period during which two essential holiday periods were taking place in Oman, ie Ramadan and Eid, and this added a further challenge to the project team.

The second key success factor is also linked with the number two: two export credit agencies, namely Euler-Hermes and Kexim, representing circa 75% of the senior debt. This allowed the bringing together of the necessary liquidity to close the transaction in a context that remains challenging.

It is important to note that the Barka 3 and Sohar 2 transaction marks the first collaboration across the world between the GDF Suez group and Kexim. Having two export credit agencies could have been challenging since each of them has specific requirements and a specific timeline in terms of board approval, but the export credit agencies proved extremely flexible and co-ordinated their efforts to the maximum extent possible.

Eight initial mandated lead arrangers are participating in this deal and they are all participating in both projects: KfW-IPEX, Credit Agricole, Natixis, Bayerische Landesbank, Standard Chartered, HSBC, Credit Industriel et Commercial - CIC, and Europe Arab Bank. 

The financing structure

The involvement of the export credit agencies was a key success factor for this transaction. The agencies’ tranches represent 75% of the total senior debt, with the Hermes guaranteed tranche at circa 50% for an amount of US$315m for Barka 3 and US$308m for Sohar 2.  

The Kexim tranches are split into a US$139m direct tranche and a US$73m guaranteed tranche for Barka 3 and a US$117m direct tranche and a US$55m guarantee tranche for Sohar 2.

All export credit agency facilities are structured as amortising 14-year debt. The uncovered international tranche benefits from a cash sweep through years 10 to 15, which effectively shortens the tenor to 14 years as well.


The uncovered international tranche margin starts at 220bp pre-completion, stepping up to 340bp towards the end of the tenor. The US$315m and US$308m Euler-Hermes-covered tranche has a margin starting at 140bp pre-completion, and stepping up to 180bp towards the end of the tenor. Interest-rate swaps were bid out among the bank club on a competitive basis.


Despite the attractiveness and proven success of the Omani IPP programme, the financing of the Barka 3 and Sohar 2 was launched in a context where prevailing liquidity conditions remained challenging. Instrumental, therefore, to complete the transaction was the coming on board of two prominent export credit agencies, Euler-Hermes and Kexim, representing 75% of the senior debt.

Another key success factor was the sponsors’ effort to draw on all similarities between both projects and this enabled the sponsors to close the transaction in a record time of 15 weeks taking into account the exceptional impact of the essential holiday periods and the first collaboration between GDF Suez Group and Kexim.

Barka 3 and Sohar 2 IPPs

Status: Financial close September 16 2010

Description: US$1.3bn senior debt financing involving export credit agencies Euler-Hermes and Kexim for two IPPs in the Sultanate of Oman with a total investment cost of US$1.7bn

Sponsors: GDF Suez 46%; Bahwan Engineering Group 22%; Shikoku Electric Power Company (Yonden) 11%; Sojitz Corporation 11%; Public Authority for Social Insurance (PASI) 10%

Original mandated lead arrangers: KfW-IPEX, Credit Agricole, Natixis, Bayerische Landesbank, Standard Chartered, HSBC, Credit Industriel et Commercial - CIC, Europe Arab Bank

ECAs: Euler-Hermes, Kexim

Sponsors’ legal adviser: Chadbourne & Parke

Lenders’ legal adviser: Milbank Tweed

Technical adviser: Mott McDonald

Insurance: JLT

Model audit: PKF

EPC: Consortium of GS Engineering and Siemens AG

Equipment suppliers: Siemens AG

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