Herbert Smith, Ashurst, White & Case and Trowers & Hamlins have all played a role in advising on the world’s largest power project financing thus far this year – Abu Dhabi’s US$1.5bn Shuweihat 3 independent power plant (IPP) project. According the Herbert Smith’s lead partner on the deal, Andrew Newberry, the project is a landmark partnership between Japanese and Korean investors in a Middle East energy financing project. The project reached its financial close on 19 May 2011. The 1.6 GW power plant is expected to be operational by Spring 2014.
“Japanese investments have been important in the Gulf power sector since the first involvement of The Japan Bank for International Cooperation (JBIC) in Taweelah B (an IWPP transaction in Abu Dhabi five years ago). The importance of this project is that it marks the first occasion where the Korean agency Export-Import Bank of Korea (KEXIM) has worked alongside JBIC in a power project of this sort. This experience will be a template for future deals,” Newberry said. Herbert Smith advised Sumitomo Corporation and Korea Electric Power Corporation (KEPCO) as sponsors of the Shuweihat 3 – which reached financial close on 19 May 2011.
White & Case advised the procuring authority ADWEA with a team led by New York project finance partner Sandy Kritzalis and London project finance partners Jason Kerr and Ellis Baker.
An Ashurst team led by Abu Dhabi managing partner David Wadham and energy partner John Inglis advised the lenders – credit agencies JBIC, KEXIM, commercial banks BNP Paribas, Mizuho “The Shuweihat S3 IPP is Abu Dhabi Water and Electricity Authority‘s (ADWEA) first power only IPP and has been undertaken in a still fragile market and at a time of significant change in Abu Dhabi’s power generation sector,” Wadham said. “The transaction is important not only because it demonstrated Abu Dhabi and ADWEA’s continuing attractiveness to financial institutions but also because it emphasizes JBIC’s continuing commitment to the UAE and represents KEXIM and KEPCO’s first power project in Abu Dhabi, which is important given KEPCO’s Abu Dhabi’s nuclear program.”
In late 2009, a KEPCO-led consortium was successful in its bid to deliver 4 units of 1400MW reactors to the Emirates Nuclear Energy Corporation by 2020. Korean law firm Lee & Ko was sole counsel to KEPCO on the transaction, while US player Pillsbury was retained by the ENEC.
According to Newberry, the opportunity to bid arose out of the firm’s long-standing relationship with Sumitomo through Herbert Smith Dubai-based partner David Laurence and through the firm’s Tokyo office. “There was a competition between law firms and we won on the experience of the team that was presented to them. There have been 10 IWPPs/IPPs/IWPs tendered in Abu Dhabi since 1998. There are always multiple bidding consortia – each with different legal representation – but on four occasions out of 10 I have been the legal advisor either to the winning consortium or to its lending group.”
The firm foresees a pipeline of nuclear work as the UAE kicks off a US$20bn nuclear program – a project where KEPCO is also the mandated supplier.
Some of the particularly complex aspects of working this deal include foreign exchange pre-hedging; interest-rate pre-hedging and the related multiple novations drafted by the borrower’s counsel (Herbert Smith). There were 104 hedging-related documents in total.
Newberry predicts strong developments in the renewable energy sector in the UAE. Upcoming projects include an Abu Dhabi power project – the MIRFA IPP – expected to be tendered out in fall 2011. Newberry also predicts LNG to be considered as an alternative feedstock for MIRFA. In addition, he also expects an IPP-model solar project to be developed in Abu Dhabi.ALB
Other related stories:
