foreign investment in the saudi power sector structures for project financing
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Foreign Investment in the Saudi Power Sector: Structures for Project Financing. Osman Shahenshah Managing Director Middle East, Africa and Europe. Jubail Industrial City, KSA November 15, 2000. Outline. Profile of Taylor-DeJongh KSA Physical Challenges for Power Development

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foreign investment in the saudi power sector structures for project financing
Foreign Investment in the Saudi Power Sector: Structures for Project Financing

Osman Shahenshah

Managing Director

Middle East, Africa and Europe

Jubail Industrial City, KSA

November 15, 2000


  • Profile of Taylor-DeJongh
  • KSA Physical Challenges for Power Development
  • Power Capacity Growth Needs
  • Power Sector Organization
  • Tariff Structure Elements
  • KSA Power Financing Models
  • Structuring a Successful Power Project Financing
  • Future Developments


who is taylor dejongh
Who is Taylor-DeJongh?
  • Leading independent financial advisory, structuring and investment management firm.
  • Over 20 years’ experience in major international projects.
  • Developed, structured, negotiated and financed US$30 billion of international capital projects in 75 countries. Active assignments in 25 countries.
  • Ranked #1 Financial Advisor by Privatisation International in:
      • Middle East and Africa (1996-2000).
      • Power Projects (overall period since 1994).


taylor dejongh s clients
Taylor-DeJongh’s Clients
  • We advise Sponsors in petroleum, petrochemical, power, telecommunications, water, industrial and infrastructure projects.
  • We advise Governments on privatizations, e.g.:
    • Mozambique, Namibia, Senegal, Egypt, India, Poland, Kazakhstan, Philippines, Moldova, Colombia, Madagascar.
  • We advise major Lenders, e.g.:
    • U.S. Export-Import Bank, ECGD (UK), SACE(Italy).
    • OPIC, MIGA, World Bank.
  • Co-Manager $350 million New Africa Infrastructure Private Equity Fund.
  • Developing Islamic Equity/Mezzanine Fund


physical challenges
Physical Challenges
  • Large country (2.2m sq km), and major load centers are widely separated:
    • Jeddah
    • Makkah/Medinah
    • Al-Khobar/Dammam/Dhahran
    • Riyadh
  • Over 200,000 km of power transmission lines built over rough geography to reach small population/load centers.
  • Limited interconnection between regions.


physical challenges cont
Physical Challenges (cont.)
  • Harsh climate
  • A/C demand in hot summers (4-5 month period) means summer peak demand often double rest of year
  • Plants often forced to run well below rated capacity due to high temperatures
  • Lack of water limits use of large, cost-efficient steam plants to coastal areas.


  • Estimated investment needed through 2020 around $117 billion


sector organization
Sector Organization
  • Originally 4 SCECOs (Saudi Consolidated Electricity Companies) covered west, central, east, and south, plus three “special producers”.
  • All SCECOs and EC merged into Saudi Electric Company (SEC) in December 1999.
  • Special Producers:
    • General Electricity Corporation (EC) – was responsible along with six smaller companies for the north.
    • Royal Commission for Jubail and Yanbu: responsible for providing electricity to the two industrial cities. Until recently did not handle Jubail, but new Utility Company (UCO) will be in charge of all infrastructure in both cities.
    • Saline Water Conversion Corporation (SWCC): Government’s desalination company also generates significant electricity of around 4,000 MW.


tariff structure
Tariff Structure
  • 1975: Government consolidated electricity system and set tariffs well below cost.
  • Tariffs revised three times through ‘92; still were below cost.
  • April 2000: Tariffs raised following establishment of SEC.
  • Previous rate structure was actually “temporary” increase made permanent. Excess funds went to “Halala Fund” for infrastructure projects.
  • Now mixed signals on tariff levels. Recent decreases.
  • Independent regulatory body will be established to periodically review rates.


tariff structure cont
Tariff Structure (cont.)
  • Latest Developments:
    • Users over 5000 kWh/month receive 30-50% reductions from end October 2000.
    • SEC faces consumer resistance to higher tariffs, particularly since new structure began during peak-use summer months.
    • Government to address cashflow deficit to avoid derailing private investor interest in sector; question is how?


ksa power financing models 1
KSA Power Financing Models (1)
  • Ghazlan II
    • $1.7b 2400MW plant with four steam turbine units.
    • Owner: SEC, originally SCECO East.
    • Completion expected in February 2002.
    • Security package of receivables from Aramco, supported by receivables from 3 SABIC companies.
    • Attractive receivables package brought in international banks.
    • Also attractive because facility governed by English law.
    • $500m 10-year internationally syndicated commercial loan (first such loan in Saudi history).
      • Reportedly less than 100bp pricing.


ksa power financing models 2
KSA Power Financing Models (2)
  • Riyadh PP-9
    • Continuation of Riyadh PP expansion by SCECO Central, now SEC.
    • Expansion of SCECO-Central’s Riyadh PP-9 plant by building 1200MW oil-fired combined-cycle plant.
    • First block commissioned 1997, completion by 2001.
    • Financing covered by definitively allocated funds from Halala Fund – Halala fund buildup behind schedule, project time frame extended to 6 years from 3.5.
    • Payments security structure allowed local banks to fund the contractors.
    • US Ex-Im providing political risk insurance for $595m of equipment imports.


ksa power financing models 3
KSA Power Financing Models (3)
  • Qassim Expansion
    • 1998 upgrade of power station for SCECO-Central by adding 300MW of capacity.
    • Locally financed using consumer receivables as security.
      • virtually all electricity payments made through banks (few industrial customers).
      • If payment through a particular bank is relatively stable, trapping the cash creates a pool of receivables against which financing can be assured.
      • Local ANB and Al-Rajhi arranged a SR750m ($200m) Islamic structure.


ksa power financing models 4
KSA Power Financing Models (4)
  • MoF “support”:
    • Some financing facilities in early ‘90s received Ministry of Finance acknowledgement that provision would be made in budget to meet debt service.
    • Payments have been delayed due to conflicting demands on MoF, though always ultimately met.
    • Banks involved have all been local.


structuring a successful limited recourse power project financing
Structuring a Successful Limited Recourse Power Project Financing

Turkey “BO” Model:

  • InterGen/ Enka 3500 MW gas-fired IPPs just closed: almost $2 BN.
  • Competitively bid on basis of lowest tariff.
  • Power sold to National Electric Company (TEAS), at a $-denominated tariff. TEAS chooses the tariff it charges ultimate consumer. Capacity payments firm, and sufficient for all debt service.
  • Fuel supply risk passed through to TEAS. (Capacity payments still made, even if no fuel for generation).


structuring a successful limited recourse power project financing16
Structuring a Successful Limited Recourse Power Project Financing
  • Payment obligations of TEAS guaranteed by Treasury – only in event of default.
  • Ample completion support from EPC and Sponsors.
  • Ample equity and liquidity from Sponsors.
  • General Considerations:
    • Regulatory regime is critical
    • Tariff levels and structure are cornerstone of successful limited recourse power project financings


future developments
Future Developments?
  • Long term commitment to private power clear
  • Short term financial viability of sector less certain, particularly given recent tariff uncertainties.
  • Numerous innovative financing models available
  • Interest of international and local banks in financing Saudi projects is significant; continued interest depends on good structuring and reliable regulatory scheme.


Thank you.