35897 Project Finance andGuarantees April2002 ProjectFinance&GuaranteesDepartment PrivateSectorandInfrastructureVicePresidency IDA Guarantee catalyses private finance for Haripur Power Project in Bangladesh IDA provided its second Partial Risk Guarantee a state-owned enterprise and a subsidiary of (PRG) for the US$180 million Haripur Power Petrobangla (the national oil and gas company) Project (the Project) in Bangladesh under its Pilot through a 1.3 km natural gas pipeline which will Program approved in August 1997. The Project, connect the Project to the gas distribution system. the first land-based Independent Power Producer (IPP) plant in Bangladesh, comprises of a 360 The Financing Structure MW gas-fired combined cycle power plant which is built, owned, and operated by AES Haripur The total financing cost of the Project was Global Structured Finance Asia (Private) Limited (AESH), a wholly-owned sub- US$180 million, which was financed through a Pacific Awards (2001/2002) sidiary of the US-based AES Corporation (AES). combination of equity, subordinated sponsor The Project started simple cycle operations in loan, and senior debt. The debt equity ratio of the June 2001 and combined cycle operations in Project was about 54:46. The equity component Project Finance December 2001 at an electricity tariff below US consists of 20% of base equity, almost 5% of "Asia Pacific Power Deal of $.03/kWh which is among the lowest offered to simple cycle revenues guaranteed by AES and the Year" date by an IPP internationally. the balance as subordinated sponsor loan. The senior debt consists of a commercial loan of The introduction of the Haripur plant into the US$60.9 million supported by the IDA PRG and power generation system has helped alleviate the a US$37 million Senior Sponsor Facility country's critical energy shortfall which has provided by AES Corporation. The IDA Global Finance become a major bottleneck to economic growth. guaranteed commercial debt of US$60.9 million The Project is located approximately 22 km "Notable Emerging Asia Power has been underwritten by ANZ Investment Bank south-east of Dhaka, the capital city and main Deal of the Year" for a term of 14 years and is expected to be load center of Bangladesh. Only 18% of the syndicated shortly to a group of international urban population has access to electricity and in banks. rural areas, only 10%. The additional power will generate savings by displacing less efficient plants running on imported liquid fuels. The Financing Plan Project will attract substantial private investment Amount % flows for infrastructure development in Bangladesh. (US$ million) The Project Equity $73.70 40.90% Simple Cycle $8.40 4.70% Under the Government's Private Sector Power Revenues Generation Policy initiated in 1996, AES was IDA Guaranteed $60.90 33.80% selected to implement the Haripur IPP following Commercial Loan an international tendering process. AESH was set Senior Sponsor $37.00 20.60% up by AES as a locally incorporated special Facility purpose company to undertake the construction Total $180.00 100% and operation of the Project. The Bangladesh Power Development Board (BPDB) will purchase the entire output of the build-own- Contractual Framework operate (BOO) plant under a 22-year Power Purchase Agreement (PPA). Gas will be supplied The security structure for the Project consists of a to the Project under a Gas Supply Agreement set of contractual agreements which define the (GSA) for the term of the PPA by the Titas Gas rights and obligations of the major participants in Transmission and Distribution Company (Titas), the Project. The Project-related risks such as ProjectFinance andGuarantees construction, operation, and certain natural force of the expiration or termination of the PPA, majeure risks will be borne by the sponsor and whichever is longer. April 2002 the lenders. Sovereign or political risks are assumed by the Government of Bangladesh · The Engineering, Procurement, and (GOB) and its agencies and are backstopped by Construction (EPC) Contract dated April the IDA Guarantee. These risks are identified and 1999, between AESH and Hyundai Engin- allocated through the Project's contractual eering and Construction (HHI) and Hyundai framework, which comprises of the following Heavy Industries (HEC) is a fixed price main agreements: turnkey contract under which the EPC contractor will procure all work and services · The Implementation Agreement (IA) signed necessary in connection with the design, between AESH and GOB in September engineering, procurement, site clearance, 1998, defines the rights and obligations of construction, start-up and testing of the the parties and is for a period of 22 years plant. Under the Guarantee and Coor- from commercial operations of the Project. dination Agreement HEC and HHI, jointly Under this Agreement, the Government and severally, guarantee each other's obli- "The successful financial closure grants the project company the right to gation to construct the Project on a fixed- of Haripur will serve as an construct and operate the Project on the price, date-certain turnkey basis. important milestone in plant site. It guarantees the payment obligations of BPDB under the PPA, the establishing a track record for · An Operations and Maintenance Service obligations of Titas under the Gas Supply Contract (O&M) dated April 1999 was facilitating private flows to the Agreement, and of the Ministry of Industries entered between AESH and AES Bangla- country" under the Land Lease Agreement. It assures desh Operations (AESBO), an offshore AESH of all fiscal incentives and other wholly-owned subsidiary of AES Corpora- The Independent, benefits, provided in the Private Sector tion. AESBO will be responsible for the Bangladesh Power Generation Policy of Bangladesh, and administration, operation, repair, and main- the free convertibility and transferability of tenance of the Project to international foreign exchange, through Bangladesh standards. The company will have a back-to- Bank, required to meet the company's back Agreement with AES Corporation to foreign currency remittances. provide personnel and management services to assist AESBO in the performance of their · The Power Purchase Agreement signed obligations under the Agreement. between AESH and BPDB, provides for the sale of electricity to BPDB for the term of · Loan Documentation consists of the the IA on the basis of a two-part tariff Common Terms and Intercreditor Agree- consisting of: (i) a capacity payment, with ment, the Share Retention and Project Funds non-escalable component to cover debt Agreement, the Accounts and Security Trust service, and an escalable component to Agreement and the respective loan cover return on equity, fixed operation and Agreements. maintenance costs, insurance, and other fixed costs; and (ii) an energy payment Structure of the IDA Partial Risk Guarantee composed of a variable operation and "The Haripur deal has become maintenance payment and fuel payment. The IDA PRG will provide coverage to a precursor for other power commercial lenders for loan default by AESH on deals in the country" · A Gas Supply Agreement signed between scheduled debt service payments, resulting from AESH and Titas on the same date and for the Government's failure to meet its payment the same term as the IA and the PPA, obligations under the IA and the Government Project Finance provides for the supply of gas by Titas to the Guarantee in support of the PPA, GSA, and LLA. International plant at a price to be determined from time Obligations covered include both periodic to time by the Ministry of Energy and payments and termination amounts. The Mineral Resources. Guarantee structure would be non-accelerable in the event that the Project is terminated as a result · The Land Lease Agreement (LLA) signed of a Government default. IDA would make between the project company and the payments under its Guarantee in accordance with Ministry of Industries, grants a lease to the the amortization schedule pre-agreed with com- company for a term that is equal to (i) the mercial lenders or prepay the loan, at its option. 25th anniversary of the commercial The commercial risks, such as completion and operations date; or (ii) the third anniversary operations risks, and natural force majeure risks ProjectFinance andGuarantees relating to the Project, which will be borne by the IDA's Guarantee support is documented in a sponsors and commercial lenders, will be Guarantee Agreement with the lenders, which April 2002 mitigated by the EPC and the O&M contracts and outlines the scope of IDA's risk coverage and various commercial insurance arrangements. The defines the trigger mechanisms of the IDA principal categories of risks which will be Guarantee. IDA will charge a Guarantee Fee of backstopped by the IDA PRG are the following: 75 bp per annum on outstanding principal am- ounts of the guaranteed loan. In parallel, IDA has 1. Breach of Contract by the Government with an Indemnity Agreement with GOB, under which respect to its payment obligations under the GOB has counter-guaranteed IDA for any IA and the Government Guarantee relating payments made under the Guarantee Agreement. to the purchase of power and supply of gas. Benefits of the Guarantee 2. Currency convertibility or transferability relating to the Government's undertaking to The IDA PRG was crucial in mobilizing private make sufficient foreign exchange available sector financing from the international debt for local currency conversion and repatria- market for Haripur. This was the first time that tion of debt service payments. such long term international financing was made 3. Changes in laws in Bangladesh which would available for Bangladesh. The successful finan- have the effect of making Project Agree- cial closure of Haripur through the deployment of ments unenforceable or void or having a the IDA Guarantee will serve as an important material adverse effect on the ability of the milestone in establishing a track record for company to make debt service payments facilitating financial capital flows to the country. (including judicial decisions not in suspense as a result of an appeal). 4. Political Force Majeure events within Bangladesh, including nationalization and expropriation. For more information on the Haripur Power Project, please contact: 5. Natural Force Majeure events limited to Farida Mazhar BPDB's interconnection system and Titas' Fmazhar@worldbank.org gas pipeline to the plant. Tel: (202) 473-1235 6. Frustration of Arbitration relating to any Fax: (202) 477-0218 action by GOB or third parties to frustrate the dispute resolution process. ProjectFinance andGuarantees April 2002 Project Contractual Structure Government of Bangladesh Implementation Agreement Ministry of Industries Bangladesh Power Titas Gas Transmission Development Board & Distribution Co Land Lease Power Purchase Gas Supply Agreement Agreement Agreement AES Haripur (Private) Limited EPC Contracts Financing Agreements O & M Contracts Hyundai AES / Mitsubishi Equity (46%) Debt (54%) AES (100%) PRG Facility Sponsor Facility Partial Risk Guarantee Guarantee of Payment Obligations of Government of Bangladesh IDA To obtain a copy of the brochure, The World Bank Guarantee: Catalyst for Private Capital Flows, please contact Jyoti Azad at (202) 473-1771, or by email at jazad@worldbank.org or visit our website: www.worldbank.org/guarantees.