India’s power sector sees mega signing
In April 2008, a consortium of banks, including BNP Paribas and a number of multilaterals, signed a multi-tranche limited-recourse project financing in support of a 4,000MW coal-fired power station in Mundra, in the Indian state of Gujarat. The funds were provided to the project sponsor Tata Power’s special purpose vehicle (SPV) Coastal Gujarat Power (CGPL).
The project consists of five units, with the first to be commissioned in September 2011, and the entire plant expected to be commissioned by the end of 2012. CGPL has signed power purchase agreements with seven procurers from the Gujarat, Maharastra, Haryana, Rajasthan and Punjab states.
The plant is set to be the largest power plant in India, and is the first Ultra Mega Power Project (UMPP) to secure financing. It is also one of the largest limited-recourse financings achieved by any project in India to date.
“The financing of Mundra project represents a landmark transaction as being the first UMPP raising debt successfully. Despite all the inherent challenges and complexity, this achievement has been possible thanks to the commitment from all parties. BNP Paribas acted as ECA coordinator and is agent of the Korean ECA tranches (KEIC and KEXIM), alongside, multilateral tranches (ADB and IFC) and a local currency tranche led by SBI,” comments Loïc Le Saché, BNP Paribas – structured export finance.
The UMPP plants are part of a government initiative launched by India’s ministry of power to achieve 100,000MW capacity by 2012. There are a number of additional 4,000MW UMPP plants in the pipeline.
The plant also marks the introduction of more environmentally-friendly super critical boiler technology into India.
The total project costs are US$4.25bn with a debt to equity ratio of 75:25. The project finance structure has senior debt facilities provided by Korea’s Kexim (US$500mn), the IFC (US$450mn), Asian Development Bank (US$450mn) and a KEIC-covered facility arranged and funded by sole arranger BNP Paribas (US$327mn).
Major contractors involved in the deal providing the required equipment are Korean firm Doosan Heavy Industries and Construction, as well as Toshiba and Indian engineering firm Larsen & Toubro.
The Korean Kexim and Keic-supported loans are financing eligible content under contracts with Doosan.
The financing package also includes a rupee tranche lead arranged by the State Bank of India (Rs1bn or the equivalent to US$1.377bn). Additional rupee lenders are India Infrastructure Finance; Housing and Urban Development Corporation; Oriental Bank of Commerce; Vijaya Bank; State Bank of Bikaner and Jaipur; State Bank of Hyderabad; State Bank of Travancore and State Bank of Indore.
The selection of project developer for the Mundra plant was carried out on a tariff-based competitive bidding process, which was in line with efforts by the Indian government to promote competition in the electricity sector following its electricity sector act of 2003.
In the case of the Mundra plant, the state entity, Power Finance Corporation (PFC), initially set up CGPL as a special purpose vehicle to run the plant. CGPL carried out preparatory work before the project was handed over to developers.
A bidding process for the plant opened in December 2006 and the Tata Power Company was selected as the favoured bidder. Following this decision, CGPL was transferred to Tata Power Company as a wholly-owned subsidiary in April 2007.
The UMPP programme is aimed at tackling India’s severe electricity shortage that threatens to hamper its industrial growth. To maintain recent high levels of growth, India needs to significantly boost its capacity for electricity production.
Sponsor: Tata Power Company
Amount: US$4.25bn (total project cost)
Mandated lead arrangers: BNP Paribas; The Export-Import Bank of Korea (Kexim); IFC; Asian Development Bank
Law firms: Chadbourne & Parke; Amarchand Mangaldas (lenders);
J Sagar Associates (borrower)
Tenor: 18 years
Date signed: April 2008