Transcript NT 2 - PPIAF

Cross-Border Infrastructure: A Toolkit
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.
Cross-Border Infrastructure: A Toolkit
Project 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)
Cross-Border Infrastructure: A Toolkit
Project 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)
Cross-Border Infrastructure: A Toolkit
Schematic Diagram
Cross-Border Infrastructure: A Toolkit
Project 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.
Cross-Border Infrastructure: A Toolkit
Project 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.
Cross-Border Infrastructure: A Toolkit
Sponsors
• 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.
Cross-Border Infrastructure: A Toolkit
Contractual 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).
Cross-Border Infrastructure: A Toolkit
Contractual Arrangements (continued)
• Head construction contract between NTPC and EDFCIH 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
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
Summary of Project Base Cost Estimates ($ million)
Foreign
Exchange
Local
Currency
a. Construction cost
b. Environmental-social
mitigation
c. Development cost A
d. Financing cost B
e. Base contingencies
396.2
315.3
711.5
48.8
0.0
48.8
150.6
173.0
27.1
14.0
106.3
18.7
164.6
279.3
45.8
Total base cost
Total contingent costs
795.7
116.6
454.3
83.4
1,250.0
200.0
Total
912.3
63%
537.7
37%
1,450.0
100%
Item
Total
Cross-Border Infrastructure: A Toolkit
Project Capital Structure
US dollar
($ million)
THB
($ million
equivalent)
Total
($ 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%
Cross-Border Infrastructure: A Toolkit
Financing Plan
Cross-Border Infrastructure: A Toolkit
Exchange 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.
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Total Flow
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
million cubic meters
Cross-Border Infrastructure: A Toolkit
Hydrology Risk
Historic Flow Records
capacity
14000
12000
10000
8000
6000
4000
2000
0
Cross-Border Infrastructure: A Toolkit
Hydrology 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.
Cross-Border Infrastructure: A Toolkit
Hydrology 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
Cross-Border Infrastructure: A Toolkit
• 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.
Cross-Border Infrastructure: A Toolkit
Energy
Component
Primary
Energy (PE)
Secondary
Energy 1 (SE1)
Secondary
Energy 2 (SE2)
Total
EGAT
Obligation to
Purchase
Applicable
Tariff
Payment
100%
50% in USD,
50% in THB
(2)
USD and
THB
respectively
100%
50% in USD,
50% in THB
(2)
100 % THB
(3)
282
0%
100 % THB
Fixed over
the Term
100 % THB
5,636
95%
Quantity
GWh/year
(1)
4,406
948
Cross-Border Infrastructure: A Toolkit
Declarations
• 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
Cross-Border Infrastructure: A Toolkit
Dispatch
• 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
Cross-Border Infrastructure: A Toolkit
Excess 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.
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
Offtake 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.
Cross-Border Infrastructure: A Toolkit
Offtake Risk
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
Cross-Border Infrastructure: A Toolkit
• 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.
Cross-Border Infrastructure: A Toolkit
Liquidity 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.
Cross-Border Infrastructure: A Toolkit
Liquidity 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.
Cross-Border Infrastructure: A Toolkit
Country Risk
• Loans are guaranteed by
 World
Bank, ADB
 Export
Credit Agencies
• Development agencies loans
• Only THB loan not guaranteed