Na
m
Th
eu
n
Nakai Dam
ek
on
g
Nam Theun
Power
Station
Xe
Nam Theun 2
Ba
ng
Fa
i
M
The World Bank Group
1
Ensuring sponsors’ and lenders’
involvement

A double objective:
Satisfy sponsors’ requirements in order to secure equity
financing under a limited recourse scheme
 Meet lenders’ requirements to attract in excess of USD
1 billion of debt financing


The response primarily rests with the
alignment of interests of parties as a risk
mitigant under a well developed contractual
framework


Strong project rationale
Adequate risk allocation and sharing
2
A classical project finance structure,
but …
 The Nam Theun 2 project has a standard
emerging market power project finance
structure …
A SPC (NTPC) to implement the Project on a BOOT
basis under a limited recourse finance scheme
 A turnkey construction contract
 A Concession Agreement with the Govt of Laos
 A main PPA with EGAT as offtaker and a PPA with
EdL

…but some challenges to overcome

… but combines a few specific and
innovative features in response to various
3
challenges
A classical project finance structure …

Nam Theun 2
Power
Company
Limited
(“NTPC”) is a
Lao company
established
in Aug. 2002
by :




E
EG
GA
ATT
EED
DFFII
35%
G
GO
OLL
25%
S
H
A
R
E
H
O
L
D
E
R
S
95% of
electricity
production
E
EddLL
5% of
electricity
production
G
GO
OLL
Concession
Agreement
LL
E
E
N
N
D
D
E
E
R
R
S
S
II
FF
II
N
Naam
m TThheeuunn 22 P
Poow
weerr
35% EDF
EEG
GC
CO
O
C
International
Coom
mppaannyy ((N
NTTP
PC
C))
Finance
25%
(EDFI)
Documents
Head Construction
25%
IITTD
D
Contract
Electricity
“turnkey
contract”
15%
Generating
Public
Company
Head
Limited
Contractor
(EGCO)
E
ED
DFF
25%
Government  EDF is acting as Head Contractor, managing three Civil Work
subcontracts and two Electromechanical Works subcontracts.
of the Lao
PDR (GOL)
 EDF & EGCO are also providing personnel & technical assistance
15% ItalianThai
experienced sponsors have brought their
Development
Public
development expertise
Company
4
Limited (ITD)
Meeting lenders’ requirements under an acceptable
project framework, risk allocation & timeframe

2004-05 prevailing financial market conditions
were attractive



high liquidity in bank market, relatively low interest rate
environment & few good power projects in the region to
attract investments
but Lao risk assessment led to full political risk
cover requirement from Lenders & standard
emerging market contractual risk allocation
Sponsors require effective financing phase
management and timely completion of financing
plan
the project financing plan was clear and adequately
structured from the outset, project agreements were detailed
and based on international standards
Timely project development is possible with appropriate expertise
these conditions, under proper management, contributed to
a smooth and relatively brief financing phase (15 months)5
Designing a
financeable
contractual
framework
6
The response: documentation & risk
allocation consistent with international
practice

All standard risk allocation requirements are
addressed in the Concession Agreement and the
PPA

Obligations of host government conformed to standard practice

Force Majeure and compensation protection

Termination and associated compensation
Allocation of land and associated rights
Tax incentives and dividend repatriation



The Concession Agreement also addresses specific
issues to enhance the existing regulatory framework
List and agreed forms of Governmental approvals
 Granting of security rights and direct agreement
 Applicable laws and exemptions to laws
International practice to be followed to meet sponsors’ and
lenders’ expectations

7
The response: detailed E&S plans
allocating responsibilities

The E&S dimension of the project had to be
properly addressed to enable project financing: costs,
contingencies, liabilities to be clearly expressed to avoid
uncertainties or direct recourse to shareholders

A satisfactory E&S structure underpinned
by:
Founder E&S documents





Concession Agreement (CA)
SESIA, EAMP, SDP (incl. RAP), SEMFOP, CIA
Wrap up of E&S obligations, breaches, remedies &
defaults in the finance documents
On-going monitoring and progressive and adaptive
joint implementation carried out by the Govt of Laos
and NTPC through coordination with the IFIs.
8
Emphasis on specific issues of lenders’
due diligence in an hydro project
Power house
Lenders’ due diligence has departed
from usual issues scrutinised in
conventional thermal IPP projects.

During construction

Specific civil works, e.g.
tunnelling
Specific construction critical
path

 To assess appropriate
level of contractor’s
liabilities
Water intake

During operation

Reliability of hydrology regime
Relationship between
hydrology, operating regime and
revenues

Access tunnel
Proper risk allocation and contractual
documentation allows financeability
 To assess certainty of
take or pay structure
9
Structuring a
bankable
financing
plan
evolving around
MLAs and local
funding
10
A suitable response to allow a smooth
financing phase



The finance plan is built on a limited recourse
project finance scheme
Substantial financing amount required:
raising USD 1,581 million eq. in a country
without access to commercial funding
The Project finance plan revolves primarily
around MLAs, BLAs and ECAs to allow the
Project bankability given




the quantum of financing required
the perceived sovereign risks
Laos unproven track record re. private investments
Strong involvement of Thai commercial banks
to allow local currency funding and mitigate
forex risk
detailed finance plan and documentation proposed to
11
the Lenders enabled a smooth due diligence phase
A financing structure to match the Project
economics
Equity
Commitment
US$ 450 million
450
450
Contingent Financing and
350
Bonding Facilities
=
USD Debt
USD equiv. 331.5 million
USD 131.5 m.
million
= USD equiv. 1,250
Bonding Debt
Facilities
Total Base Financing
50
Contingent Debt
THB
Bonding Debt
Facilities
Contingent Debt
USD
THB Debt
USD Debt
50
Equity
(USD 500 m.
equiv)
Contingent debt &
equity
funding can
cope with a
12-month
delay
scenario
131.5
THB Debt
THB 20,000 m.
100
THB - ½
USD)
Contingent Equity
US$ 500 m.
 The
funding
structure
matches the
cost and
revenue
profiles (½
a natural hedge is provided against foreign exchange risk
12
A requirement for MLA support



Early market sounding has shown
expectations from ECAs and commercial
banks for a strong IFI / World Bank
involvement in the Project
to ensure compliance with highest E&S
standards
to share or cover political risk


Involvement of the World Group from 1995
substitution of MIGA for IFC due to lack of
attractiveness of “B” loans post Asian crisis
Involvement of the ADB from 2002
ADB and MIGA provide pioneering dual-country PRI
to accommodate the cross-border nature of the deal

13
Diverse ECA, MLA and BLA & Thai
commercial banks participation

World Bank Group and ADB were joined by ECAs
upon selection of the electro-mechanical
equipment suppliers



Coface (France)  EKN (Sweden)  GIEK
(Norway)
Coface is fronting the
for EKN &
and a MLA,  Nordic Investment Bankinsurance
GIEK under a
reinsurance scheme
and by other institutions to complete the finance
plan



AFD (French Agency for Development)
Proparco (subsidiary of AFD)
Thai Exim

 All these institutions act as either PRI providers (PRI and
commercial risk cover from ECAs) or direct lenders.

Commercial facilities were allocated to 7 Thai
banks and 9 international banks on a club-deal
basis.

7 Thai commercial banks provide in THB half of the long term
loan facilities, and together with Thai Exim, all of the US$131
m. long term L/Cs
14
A resulting complex financing structure
…
The finance
plan
comprises
27 financial
institutions:
 5 MLAs;
 4 ECAs;
 2 BLAs;
16 Thai &
international
commercial
banks.
 d. to d. tenor: USD 16.5 yrs
THB 15 yrs
i.e. up to 12 year repayment
… but detailed preparation enabled timely financial close
15
The Project….





US$ 1.45 billion,1070 MW project in Lao PDR, the
largest ever foreign investment in the country.
The project is being implemented by Nam Theun 2
Power Company limited (NTPC), which was
established as a limited liability company.
As part of the Concession Agreement (CA), NTPC will
develop, finance, construct and operate the plant
system.
After a period of 25 years, the plant will revert back to
the Government of Laos (GOL).
NT2 will primarily export electricity to EGAT of
Thailand. About 5% would be for domestic use.
16
Background….








Project identified in the 1980s.
Concession awarded in 1993.
Project subject to a long anti-dam campaign.
Project preparation discontinued following Asian
financial crisis (1997).
Preparation resumed successfully in 2001 when the
parties agreed on a mutually binding set of actions
to reach financial close.
Since 2001, extensive due diligence has been
undertaken by project participants.
Took about 4 years of preparation (2001-2005)
Financial Close - June 15, 2005.
17
Challenges faced in Financing
NT2….





Largest private financing in the region at the time.
Non-availability of US$ debt (about 500m) w/out cover.
– Export Credits
– Political Risk Guarantees
– Direct US$ loans
– EGAT credit risk
– Tenors and pricing
Availability of THB debt (about US$ 500m equivalent).
– Non availability of long-term fixed-rate debt
– Project location outside Thailand
Cross Border Risk.
Funding for GOL Equity (about US$ 90m); HIPC.
18
Bank Group Support….

IDA Grant
–



To finance E&S expenditures (as GOL Equity in
NTPC)
IDA Guarantee
–
To mobilize private capital by mitigating Lao PDR
political risks
–
Covered GOL obligations under project documents
IDA Credit to GOL for associated impacts – LeNs
MIGA guarantee
–
Covered key Thai & Lao political risks
19
World Bank key Due Diligence
comprised…







Safeguards – Environment Management, Social
Development & Resettlement Plans
Economic/Financial – Financing and Economic
viability, Power Sector Analysis – Laos and
Thailand, Regional Economic Least-Cost Analysis
Procurement Review
Study of Alternatives
Economic Impact Study
Technical – DSRP Reports, Feasibility Studies
Commercial Due Diligence – PPA, CA, SHA, other
Financing Docs
20
Key Lessons Learnt...for large
Hydros

Long arduous negotiations on the Concession.
Concession deemed “fair” by all parties.
–

Due Diligence should be of high quality.
–

Inclusion of detailed E&S obligations in concessions could
be replicated in future large infrastructure projects.
Fine balance between requirements and cost implications.
Common E&S regime acceptance by all lenders
and guarantors facilitates project implementation.
–
Harmonization of IFI safeguards requirements is a replicable
innovation.
21
Thank You
Suman Babbar
Finance & Guarantees
The World Bank Group
www.worldbank.org/guarantees
22
Contractual Structure
Shareholders’ Agreement
LHSE
EDFI
GOL Equity Funding
EGCO
ADB
ITD
MIGA
PRG / PRI
Shareholders Agreement & Equity
Technical Services and
Management Services
Agreements
ESCO
World Bank
THB
Banks
US$
Banks
Coverage
Loans
Multilateral
& Bilateral
Agencies
ECAs
EDF
EIB
Nam Theun 2 Power Company
Head Construction
Contract
Concession
Agreement
AFD
Construction
Sub-Contracts
EM1 & EM2
CW1, CW2, &
CW3
EDL
PPA
EGAT
PPA
GOL
Undertaking
EDL
EGAT
GOL
23
Global Financial Stake in NT2







WB (US$ 62 million); MIGA (US$ 42 million); ADB
(US$ 110 million)
EIB and NIB (about US$ 85 million)
European ECA’s (US$ 200 million)
French Development Agencies (US$ 60 million)
Nine International Dollar Banks (US$ 500 million)
Seven Thai Commercial Banks (US$ 500 million
equivalent)
Thai Exim (US$ 30 million)
Excluding Private Equity
24
Nam Theun 2: Financing Plan
Uses of Funds
Development Costs
Environmental/Social Costs
Head Construction Contract
Financing Costs
NTPC General and Administrative, incl. Working Capital
Pre-operating and Other Costs
Total Base Costs
Contingencies
Total Project Cost
THB Millions
80
0
12,847
4,271
414
568
18,180
0
18,180
USD Millions
Total USD Million Equivalent
72
74
49
49
401
722
144
250
36
46
94
109
795
1,250
200
200
995
1,450
Sources of Funds
THB Millions
USD Millions
Equity
EDFI
ITD
EGCO
GOL
Contingent Equity
Total Base Equity
Total Project Equity
Debt
Thai Commercial Lenders
Commercial Loans covered
Commercial Loans covered
Commercial Loans covered
Commercial Loans covered
Thai Exim Bank
Nordic Investment Bank
ADB OCR Loan
AFD
Proparco
Total Debt
Total Project Financing
Total USD Million Equivalent
121
52
86
86
100
345
445
122
52
87
87
100
350
450
20,000
200
42
42
42
30
34
50
30
30
500
500
200
42
42
42
30
34
50
30
30
1,000
20,192
945
1,450
67
29
48
48
0
192
192
20,000
by ECA's - Coface, GIEK and EKN
by ADB PRG
by IDA PRG
by MIGA Guarantees
25
Using IDA PRG to mobilize private
debt financing……..
EGAT
(primary offtaker)
Government of Laos
(as concessionaire)
PPA
CA
Private
Equity
SHA
NTPC (SPV)
GOL
Equity
CTA
THB & non-WB
Guaranteed
US$ Commercial Debt
IDA
Indemnity
Agreement
IDA
Project
Agreement
Limited GOL Performance
Obligations
IDA
• Permits, Consents
Guarantee
• Change in Law
• Political FM
Agreement
• Termination of the CA
WB Guaranteed
US$ Debt
26
Using IDA Grant to finance E&S
expenditures (as GOL Equity)……..
Tripartite
Agreement
(disbursement
arrangements)
LHSE
Loan and
Shareholders
Agreement
MOF
Development
Grant
Agreement
IDA
Shareholders
Agreement
NTSEP
Project
Agreement
GOL Special
Account
NTPC
Equity
Contribution
Agreement
Key
Finance Documents/Agreements
Lenders
Drawdown Request / Withdrawal Application
Flow of Funds
27
Key Lessons Learnt...for large
Hydros

PRG Lenders were made accountable for Prohibited
Activities undertaken by Company and/or Head
Contractor.

PRGs provide appropriate risk mitigation for large
private hydropower schemes.
–
–

Political risks
Cross border risks
Optimization of the Financing Package is essential.
– Over-commitment by lenders/guarantors
– Over 25 project participants
– Number of overlapping institutional requirements
– Inter-guarantor and lender coordination
28
Rationale for Bank involvement



The project generates revenues (US$ 80 million on
average), through socially and environmentally
sustainable development of NT2’s hydropower
potential.
NT2 revenues finance Lao PDR's poverty reduction
and development strategy, key elements of Lao
PDR's NGPES and the GOL’s MDG targets in 2015
(about 3% to 5% of gross revenues).
The use of NT2 revenues for these purposes was
envisioned in the Decision Framework agreed
between the GOL and the Bank in 2001 and
reiterated in the Government's Letter of
Implementation Policy (GLIP) in 2005.
29