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Project Finance Structuring: Case Study - Nam Theun 2
Session on Finance
Sidharth Sinha
Indian Institute of Management, Ahmedabad
The views expressed here are those of the presenter and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they
represent.
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itProject History
• 1970s - Mekong secretariat identified the hydropower potential of
the Nam Theun River
• 1989/91 - World Bank feasibility study undertaken by Snowy
Mountains Engineering Corp
• 1993 - Government of Lao PDR (GOL) and private sponsors
(leader: Transfield) sign an agreement to develop the project
• 1994 - GOL asks World Bank to participate to the project financing
• 1997 - A first series of environmental and social safeguard
documents is produced
• 1997/98 - Asian crisis: Laos and Thailand agree to delay the
project development
• 2000 - EGAT and NTPC (leader: EDF) agree on a proposed
electricity tariff (May 2000)
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itProject History (continued)
• 2001 - Shareholders agreement signed between EDFI, EDL, EGCO and ITD (September 2001)
• 2002 - NTPC is created as a Lao company (September 2002)
• Concession agreement signed (October 2002)
• Joint work between GOL, World Bank and NTPC to finalize safeguards documents
• 2003 - Power purchase agreement signed (November 2003)
• 2004 - Project financing activities
• Completion of safeguards documents with the participation of WB, ADB and AFD
• 2005 - Financial close (June 2005) and beginning of full construction activities
• 2009 - Beginning of commercial operation (December 2009)
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itSchematic Diagram
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itProject Details
• The development, construction, and operation of a 1,070 MW transbasin diversion power plant on the Nam Theun, a tributary of the Mekong.
• The project site is in the central provinces of Khammuane and Bolikhamxay, about 250 kilometers southeast of Vientiane, and stretches from the top of the annamite mountain chain along the Lao PDR-Viet Nam border, to the Nakai Plateau, and ultimately to the confluence of the lower Xe Bang Fai with the Mekong.
• It will capture the flow of water from the watershed of the Nam Theun and the Nakai Plateau by building a dam 39 meters (m) high at the northwestern end of the plateau.
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itProject Details (continued)
• The project will create a reservoir of 450 square kilometers (km2) on the Nakai Plateau.
• Water from the reservoir will drop about 350 meters to a powerhouse at the base of the Nakai escarpment near the town of Gnommalat.
• The water discharged from the powerhouse will then flow through a 27 km channel to the Xe Bang Fai, which drains into the Mekong approximately 150 km south of the Nam Theun confluence.
• A regulating pond will be constructed downstream of the powerhouse to ensure smooth release of water into the downstream water courses.
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itSponsors
• Franco-Lao-Thai partnership with multilateral support
• Nam Theun 2 Power Company Limited (NTPC) is a Lao company established in Sept 2002 with the following shareholders:
35% EDF International (EDFI) 25% Electricity Generating Public Company Limited
(ECGO) 25% Government of the Lao PDR (GOL) 15% Italian-Thai Development Public Company Limited
(ITD)
• EDF is also acting as head contractor, managing three civil work subcontracts and two electromechanical works subcontracts.
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itContractual Arrangements
• Concession agreement signed between GOL and NTPC on 3 October 2002 for a 25 year period following the beginning of commercial operation
• Power purchase agreements signed on 11 November 2003 for a 25 year operating period
between EGAT and NTPC (5,600 GWh per year), between EDL and NTPC (300 GWh per year).
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itContractual Arrangements (continued)
• Head construction contract between NTPC and EDF-CIH provides for a date certain, fixed-price turnkey contract and comprises five major sub-contracts
• NTPC will take full responsibility for O&M for the project
• All environment and social commitments described in the concession agreement:
Long term Binding E&S : ~ 10% of total project costs
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itSummary of Project Base Cost Estimates ($ million)
Item Foreign
Exchange Local
Currency Total
a. Construction cost 396.2 315.3 711.5 b. Environmental-social
mitigation 48.8 0.0 48.8
c. Development cost A 150.6 14.0 164.6 d. Financing cost B 173.0 106.3 279.3 e. Base contingencies 27.1 18.7 45.8 Total base cost 795.7 454.3 1,250.0 Total contingent costs 116.6 83.4 200.0 Total 912.3 537.7 1,450.0 63% 37% 100%
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itProject Capital Structure
US dollar THB Total %
($ million) ($ million
equivalent) ($ million)
Equity 345.2 4.8 350.0 28.0%
Debt 450.0 450.0 900.0 72.0%
Total 795.2 454.8 1,250.0 100.0%
% 63.6% 36.4% 100.0%
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itFinancing Plan
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itExchange Rate Risk
• Debt and equity are denominated in a mix of dollars (63%) and baht (37%) to match the composition of the two currencies in project base costs.
• The 50/50 mix of US dollar and baht debt is designed to match the tariff paid by EGAT and EdL.
• EGAT and EdL will carry exchange rate risk.
• To the extent the Lao PDR government will receive royalty and taxes in dollars some of the risk will be mitigated.
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itHydrology Risk
Historic Flow Records
0
2000
4000
6000
8000
10000
12000
14000
19
50
19
52
19
54
19
56
19
58
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
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19
90
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92
19
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19
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19
98
20
00
20
02
millio
n c
ub
ic m
ete
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Total Flow capacity
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itHydrology Risk
• The annual inflows have varied historically, on average,
by approximately 20 percent from the long-term average
of 7,526 million m3. This is almost double the capacity of
the reservoir, so that in an average year, the reservoir
should be fully replenished even after operating the plant
at full capacity during the dry season.
• The minimum water flow recorded was 3,776 million m3
in 1998. This was the result of El Nino that brought
droughts over much of Southeast Asia.
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itHydrology Risk (continued)
• The reservoir’s probable maximum capacity is 3,910 million m3 amounting to an annual mean energy of 5,700 GWh.
• 1998 would have been the only year since 1950 when the flow would not have been sufficient to fill the reservoir from empty.
• However, as the reservoir will not be fully emptied during operations but will always retain a minimum water level, even in 1998 the reservoir’s probable maximum active storage of 3,530 million m3 could have been filled by the water inflows
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• At full supply level (FSL) at an elevation of 538.0 m, the reservoir would have an area of 450 sq km and would hold 3,910 million cubic meters of water.
• The powerhouse would have an installed capacity of 1,070 MW.
• Annual energy generation of 5,462 GWh.
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Energy Component
Quantity GWh/year
(1)
EGAT Obligation to
Purchase
Applicable Tariff
Payment
Primary Energy (PE)
4,406 100% 50% in USD, 50% in THB
(2)
USD and THB
respectively
Secondary Energy 1 (SE1)
948 100% 50% in USD, 50% in THB
(2)
100 % THB (3)
Secondary Energy 2 (SE2)
282 0% 100 % THB Fixed over the Term
100 % THB
Total 5,636 95%
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itDeclarations
• NTPC makes periodic declarations to EGAT. Declarations contain information as to the energy availability which may be provided by NTPC. Declarations serve two main functions:
to determine the amount of NTPC’s revenues payable by EGAT; and
to determine the amount of liquidated damages payable by NTPC to EGAT.
• Any unavailability reduces the revenues payable by EGAT, whilst any outage results in liquidated damages payable by NTPC
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itDispatch
• EGAT has the flexibility to dispatch NTPC on a unit by unit basis as it requires, subject only to certain operational constraints.
• As EGAT is not required to dispatch all of NTPC’s declaration, if it dispatches less, dispatch shortfall occurs.
• As EGAT would have paid NTPC based on all of that declaration, it has the right to “make-up” subsequently, i.e. the right to dispatch for electrical energy without incurring any additional payment obligation.
• Dispatch excess: EGAT may dispatch more than all of NTPC’s declaration, subject to the limitations to be observed by EGAT in NTPC’s declarations
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itExcess Dispatch
• An excess energy month is: any month in which there is spillage of water from the
reservoir; August or September and the water level is above 537.5 m
ASL on the last day of the preceding month; or as elected by NTPC.
• Increased risk of spillage during an excess energy month.
• All the dispatch excess energy as determined at the end of an excess energy month shall be accounted as SE2, provided, however, that the outstanding amount of accumulated dispatch shortfall energy is below 200 GWh.
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itOfftake Risk
• Thailand now has surplus generating capacity, because of the economic downturn in the late 1990s and the large amount of capacity that was then under development and could not be stopped on reasonable terms.
• On the basis of demand forecast, excluding new plant from end-2003, the capacity surplus will be consumed by 2006.
• By the time of NT2 COD, the project will supply about one-half year of energy demand growth. NT2 would provide about 6 percent of the incremental energy requirement over 2009 to 2016.
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itOfftake Risk
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it • Graph shows comparative economic costs for the most prominent large-scale generation options available to Thailand.
• A screening curve shows the cost per kWh of a generation plant at a range of capacity utilization rates (or CU rates).
• While CCGT has a lower investment cost per kW of capacity than does NT2, it has variable operating and fuels costs that NT2 does not have.
• At CU rates above 30 percent, NT2 is the least-cost alternative for Thailand.
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itLiquidity Risk
• The debt has to be repaid within 15 years - much less than the life of the project.
• The royalty and tax rates to be applied in each year have been designed specifically for the project on the basis of NTPC’s debt repayment schedule.
NTPC is exempt from income tax over the 2009–2014
period and then pays the following the rates over the
remainder of the concession; 5.0% between 2015 and
2021, 15.0% between 2022 and 2027, and 30.0%
between 2028 and 2034.
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itLiquidity Risk
• The royalty and tax rates...(continued) The increase in the income tax rate from 5.0% to 15.0%
is not implemented until immediately after all NTPC debt
is repaid at the end of 2021.
The royalty is applied at 5.2% between 2009 and 2024,
15.0% between 2025 and 2029, and 30.0% over the
remainder of the concession.
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itCountry Risk
• Loans are guaranteed by
World Bank, ADB
Export Credit Agencies
• Development agencies loans
• Only THB loan not guaranteed
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