x Abu Dhabi, UAESunday 23 July 2017

Dewa seeks $1.5 billion abroad for private power plant

Dubai Electricity & Water Authority, the state utility, is seeking to drum up interest from international banks in financing its first private power plant.

Power lines feed into Dubai. Ryan Carter / The National
Power lines feed into Dubai. Ryan Carter / The National

Dubai's state utility has begun an international campaign to finance its first private power and water plant.

Officials from the Dubai Electricity and Water Authority (Dewa) plan to visit Japan and Europe next month to pitch a US$1.5 billion (Dh5.5bn) power and water desalination project to banks, said Waleed Salman, Dewa's vice president of strategy and business development.

The company selected potential bidders this week for the project. HSBC is advising.

"Today we're testing the market," said Mr Salman, who is also a member of Dubai's Supreme Council of Energy, the body tasked with formulating the emirate's long-term energy strategy. "HSBC has begun the soft discussions, and by June we'll start very seriously assessing all these banks … We feel there is very strong interest in this project."

If the government-owned utility can persuade investors to back the project, it would justify a strategy shift announced last month to recruit more private-sector investment in power and water projects.

That approach mirrors a privatisation model Abu Dhabi pioneered in 1998, in which foreign investors operate plants and the emirate buys power at a certain price.

Abu Dhabi has launched nine power plants under the independent power project model.

Dubai's first venture using that model is a proposed 1,500-megawatt power station and desalination plant in Hassyan, near the Abu Dhabi border. Plans for it have been delayed since 2008.

Dewa revived those plans in March, when it asked companies to apply to bid for the project. The company plans to award a contract by the end of this year to a consortium of some of the 18 pre-qualified companies. That list includes a subsidiary of France's GDFSuez, Japan's Mitsui, Korea Electric Power Corporation and Abu Dhabi National Energy, known as Taqa, which Abu Dhabi created in 2005 when it privatised some of its power plants.

"There is very strong participation, which gives me some confidence that we are going in the right direction," said Mr Salman.

In a departure from the traditional public-private model, Dewa may seek international banks to help with financing so that the winning contractor does not have to structure the entire $1.5bn package alone, said Marc Fevre, a lawyer at Freshfields Bruckhaus Deringer in Abu Dhabi who advises on infrastructure projects.

"Obviously banks will have to assess the credit risk of Dewa itself, and perhaps that's their selling mission," he said. "They have to go and convince the banking community that Dewa is a good credit risk."

That could be a challenge for the utility. Fitch Ratings withdrew its coverage of Dewa last month, citing "the lack of information to assess the Emirate of Dubai".

Standard & Poor's estimates the company's credit rating at "B plus", without taking potential government support into account.

"It's really an issue of what is the appetite for project finance and what is the appetite for Dubai project finance," said Karim Nassif, a credit analyst with S&P in Dubai. "But generally the power projects that we're seeing in the rest of the Gulf tend to be proceeding because there's a need. The governments are stepping in and providing the necessary off-take arrangements because the demand is so high."