Sirajganj IPP: How long can Bangladesh tenors go?

Sembcorp has reached full financial close on a $309 million DFI-backed loan to finance the 414MW Sirajganj IPP. The deal is the longest tenor power financing in Bangladesh to date and includes a spate of firsts by the IFC.

On 16 August Sembcorp Utilities (Sembcorp) met conditions precedent and reached full financial close on a 15-year $309 million DFI-backed limited recourse loan to finance its 414MW greenfield combined cycle dual independent power plant (IPP) in Sirajganj, Bangladesh – the country’s second largest IPP and longest tenor power financing to date.

The $412 million project was procured as a public-private partnership (PPP) on a build, own and operate (BOO) basis and is scheduled for operation in 2018. The project was awarded to Sembcorp by the government of Bangladesh in September 2015 and is the first PPP power concession to be won by a foreign investor. The dual fuel plant (414MW gas or 333MW fuel oil) is being developed by Sembcorp North-West Power Company, a joint venture between Sembcorp (71%) and Bangladesh's state-owned North-West Power Generation Company (29%).

Financed on a debt-to-equity ratio of 70:30, the $309 million debt facility comprises three tranches: A $165 million International Finance Corporation (IFC) tranche made up of a $103 million A-loan and an additional $62 million B-loan provided by Clifford Capital (the IFC also brought in Japanese agency JICA on the A-loan for a $30 million portion, which signed in March this year); a  $103 million tranche from the UK's CDC Group; and a $41 million-MIGA covered tranche from Clifford Capital. Shearman & Sterling is legal adviser to the lenders, while Baker & McKenzie provided borrower counsel. MIGA also provided a risk guarantee to Sembcorp to cover its $103 million equity investment in the project.

The transaction is IFC’s first investment with Sembcorp, its first co-financing with JICA, and its first joint engagement with MIGA in Bangladesh. It is also the first time Clifford Capital has financed a project in Bangladesh.

Sembcorp signed a 22.5-year power purchase agreement in August this year with state-owned offtaker Bangladesh Power Development Board (BPDB). Lenders can take comfort from the fact there is a seven-and-a-half-year tail on the 15-year debt, while BPDB’s offtake agreement is protected by a 100% sovereign guarantee.

Bangladesh developed its model for power PPP contracts through the Private Sector Power Generation Policy which it published in 1996 and revised in 2004. For example, the Bibiyana power projects I and II (335MW each), awarded to local sponsor Summit, were financed under the policy.

“The risk allocation under the PPP document is really good,” says a lawyer close to the deal. “It’s structured like an implementation agreement, which is like a concession, where the government provides certain political risk protection, helpful tax incentives, protections against changes in law, and termination payments clauses.”

As Bangladesh has limited domestic gas supply, to encourage the use of gas for power generation the government provided a guarantee to state-owned oil company Bangladesh Oil, Gas and Mineral Corporation (Petrobangla), backing the fuel supplier’s feedstock obligation to Sirajganj. “The project allows Bangladesh to use its remaining gas. But this is the country’s last project to use local gas, and as a result, there’s a backup fuel arrangement for the project to run off fuel oil,” adds the lawyer.

With Bangladeshi gas demand climbing against the backdrop of insufficient domestic supply, the country is now keen to move to LNG-to-power schemes. For example Reliance Power has recently mandated lead arrangers for around $1 billion of project debt to finance development of phase 1 of its 750MW Meghnaghat LNG-fed power project in Naraynganj district.

On the feedstock side, Petrobangla has also signed a financing agreement in June with Texas-based LNG player Excelerate Energy to develop Bangladesh’s first LNG terminal at Moheshkali Island in the Bay of Bengal, as well as signing a memorandum of understanding (MoU) in June to develop a $950 million LNG terminal at Kutubdia Island.

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