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FEATURES

AS-SAMRA SETS
EXPANSION TEMPLATE
A GROUNDBREAKING CEREMONY FOR THE AS-SAMRA WASTEWATER TREATMENT PLANT EXPANSION
PROJECT IN THE HASHEMITE KINGDOM OF JORDAN TOOK PLACE ON THURSDAY OCTOBER 11, MARKING
THE OFFICIAL COMMENCEMENT OF THE WORKS. BY RICHARD KEENAN, INTERNATIONAL PARTNER AT
CHADBOURNE & PARKES DUBAI OFFICE, AND MARC NORMAN, ASSOCIATE AT CHADBOURNE & PARKES
DUBAI OFFICE.
The groundbreaking ceremony for the As-Samra
expansion scheme took place three months after
a consortium of Suez Environnement SAS, Infilco
Degremont Inc and Morganti Group Inc
successfully closed the financing of the US$223m
project. Thomas Langford, group vice-president
for investment and financial risk management at
Consolidated Contractors Company, Morganti
Group Incs parent, said: We are delighted to
witness the commencement of the expansion
works, and are grateful to the Government of
Jordan, the Millennium Challenge Corporation,
Arab Bank and each and every one of our lenders
for their commitment and ongoing support.
Frederic Claux, the head of BOT projects at
Degrmont, said: The Millennium Challenge
Corporation contribution was key to develop a
sustainable project, boasting an affordable tariff
for the community and the country while offering
high performance wastewater treatment service.
The build, operate and transfer (BOT)
transaction is the first project financing of
2012 to have closed in Jordan. The participation
of the Millennium Challenge Corporation
(MCC), a US Government development
institution, was instrumental in bringing the
project to close. It is the first major project
financing in which MCC has ever taken part
anywhere in the world.
The template developed - namely, grant
financing coupled with private finance
from sponsors and debt finance raised on a
limited-recourse basis - offers significant potential
for the development of much-needed
infrastructure projects in developing countries in
the future.

Project background
The initial As-Samra Wastewater Treatment Plant
(Phase 1) was completed in 2008. With a capacity
to treat average daily flows of 267,000 cubic
metres, it was designed to treat the wastewater of
2.3m-equivalent inhabitants of Amman and the
surrounding areas. Phase 1 was a first-of-a-kind
project on several counts: it was the first to be
executed on a BOT basis in Jordan, the first publicprivate partnership (PPP) for a wastewater
treatment facility anywhere in the Middle East,
and the first BOT project supported by another of
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the US Governments development agencies,


the US Agency for International Development
(USAID).
By 2011 the Phase 1 plant had nearly reached
its design capacity, and without an expansion to
account for growing volumes of wastewater in
the region, the plant was likely to have become
overloaded, resulting in a deterioration in its
ability to treat wastewater to acceptable
discharge standards. This, in turn could have
affected downstream agricultural areas that rely
heavily on treated water for irrigation. Without a
source of adequately treated wastewater from the
As-Samra plant, this agricultural region would
have faced serious food safety risks together with
a loss of markets for its agricultural products.
To address these challenges, the Government
of Jordan, represented by the Ministry of Water
and Irrigation (MWI), procured an expansion of
the As-Samra plant. In 2010, MCC committed
US$275.1m for development projects in Jordan,
including substantial grant financing toward the
expansion of the As-Samra plant, among several
other projects in the water sector.
MCCs compact funding agreement with the
Government of Jordan aims to achieve the
following results by December 2016:
 Increase network water consumption per capita
from 65 to 96 cubic litres per day;
 Improve efficiency of network water delivery
through the reduction of water losses in Zarqa
Governorate system input from 47% to 35%;
 Increase coverage rates of the residential
population to the wastewater network from 72%
to 82%; and
 Improve allocation of scarce water resources
through increasing the substitution of freshwater for
treated wastewater in agriculture from 61% to 70%.
The US$223m expansion of the As-Samra
plant will increase the initial plants capacity
by 98,000m3 a day (cm/d), bringing the total
capacity to 365,000 cm/d, in order to serve
around 3.5m people. The project will be
constructed and maintained under a 25-year
BOT contract. Works on site began in September
2012, and are scheduled for completion in July
2015.
Payments from the project are based on
availability and treatment, to the exclusion of any

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AS-SAMRA

The expansion will significantly improve water


resources management in Jordan, one of the worlds
most water-deprived countries
volume risk. A minimum payment is guaranteed
by MWI for the availability of 160,000 cm/d for
the existing plant and 220,000 cm/d once the
expansion is operational. A treatment payment is
paid on top of this value. The payments are
guaranteed through a reserve account, the
replenishment of which is in turn backed by the
Ministry of Finance.
The expansion will significantly improve water
resources management in Jordan, one of the
worlds most water-deprived countries, by
providing increased supplies of high-quality
wastewater for agricultural use, while freeing up
fresh water for municipal uses. The expanded
plant is expected to meet the wastewater
treatment needs of the Amman and Zarqa areas
through to 2025.

Financing
A diverse mix of financing was required to
successfully finance the US$223m project cost.
The combination of the following commitments
paved the way to success:
 A US$8.6m equity injection from the project
sponsors;
 A US$17.9m contribution together with a
payment of US$1.9m for interim capex from the
Government of Jordan;
 A US$ 93m grant from MCC; and
 A JD105m (equivalent to circa US$148m) debt
package from a syndicate of local banks led by
Arab Bank. Approximately US$42m of the debt
package was used to refinance the outstanding
loan on Phase 1.

The debt-to-equity ratio is 80:20. Cashflows


from the operation of the existing Phase 1 plant
were securitised in order to support the project
sponsors equity contribution towards the
expansion. This unique source of funding is one
of the key features of this transaction. MWI, the
lenders and MCC accepted equity funding from
these revenues based on the existing plants
proven performance and credit support provided
by the project sponsors in the form of a corporate
guarantee.
The Government of Jordans contribution is
made through the payment of the Phase 1 tariff
and progress payments payable upon the
completion of defined milestones. MCCs grant is
disbursed each month in conjunction with debt
and equity.
The debt financing syndicate consists of
Arab Bank, Jordan Kuwait Bank, Capital
Bank, Societe Generale (local subsidiary),
Social Security Investment Fund, Bank of
Jordan, Investbank, Arab-Jordan Investment
Bank and Bank al Etihad. The tenor on the
debt is 13 years, extendible to 20 years. This
tenor marks the longest maturity that Jordanian
banks have offered to-date for a Jordanian
Dinar-denominated limited-recourse loan. The
interest rate during construction is fixed (7.25%
during year one; 7.75% during year two; and
8.25% during year three), but shifts to a floating
rate thereafter (a rate based on the average of
the prime lending rates announced by a
syndicate of four local banks, minus 50 basis
points).
Part of the debt financing raised in
connection with the expansion was applied to
refinance the outstanding obligations in
connection with Phase 1. The refinancing
component created a timing challenge insofar as
repayments under the Phase 1 facility had to
occur on an interest payment date so as to avoid
incurring breakage costs, although in the end,

AS-SAMRA WASTEWATER TREATMENT PLANT EXPANSION PPP


Status

The project reached financial close on 18 July 2012

Description

US$225m expansion of the As-Samra Wastewater Treatment Plant in Jordan, involving Millennium Challenge

Sponsors

Suez Environnement SAS, Infilco Degremont Inc and The Morganti Group Inc

Corporation, a US Government development institution.


Arranger

Arab Bank plc

Commercial Lenders

Arab Bank, Jordan Kuwait Bank, Capital Bank, Societe Generale (local subsidiary), Social Security Investment Fund,

Development Agency

Millennium Challenge Corporation

Bank of Jordan, Investbank, Arab-Jordan Investment Bank and Bank al Etihad


Sponsors' international legal adviser

Chadbourne & Parke

Sponsors' local legal adviser

Ali Sharif Zu'bi Advocates & Legal Consultants

Sponsors' financial adviser

Alan Cairns of the UKs Mapstone.

Lenders' local legal adviser

Obeidat & Freihat

Lenders' technical adviser

Mott McDonald

Government of Jordan's international legal adviser

Allen & Overy

Government of Jordan's local legal adviser

Khalifeh & Partners

Government of Jordan's technical adviser

Atkins Global

Insurance adviser

Lockton

Model auditor

Grant Thornton

EPC contractor

Degremont SAS and The Morganti Group Inc

Project Finance International October 17 2012

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Probably the most challenging aspects of the


expansion financing are the CPs that must be satisified
by the projectco in order to be entitled to MCC funding
financial close did not occur on an interest
payment date and some breakage costs were paid
to the existing lenders.

Challenges
Financing of the expansion faced a number of
challenges. The arrival of the Arab Spring in early
2011 had a profound effect on market confidence
in the region. While the events of the Arab
Spring did not directly impact Jordan, they
inevitably prolonged completion of the
transaction.
The impact of the Arab Spring along with the
contagion of the European debt problems and the
implementation of Basel III by international
banks always threatened to constrain liquidity for
the expansion and other projects. The Central
Bank of Jordan increased rates a number of times
earlier this year. Significantly, members of the
Jordanian bank syndicate held their pricing as per
their 2010 commitments, which meant the
project sponsors avoided having to re-open
discussions with MWI on the tariff in the lead-up
to financial close.
The As-Samra expansion would not have
happened without the MCC grant. However, the
development of a finance structure to
accommodate the MCC funding conditions,
policies and other requirements presented the
project sponsors and lenders with a significant
number of challenges.
MCC was created as an independent
government corporation by the US Congress in
January 2004 to provide grants to developing
countries whose governments are committed to
good governance, economic freedom and
investment in their citizens. Unlike an export
credit agency or a multilateral donor, it is not
established for the purposes of making a return
on its grant investments. However, many of the
regulations and polices applied by MCC as
conditions of the provision of its grants are not
dissimilar to those typically applied by export
credit agencies and multilaterals. MCC requires
strict adherence to its policies and regulations
and many of these had a direct impact on the
structuring of the project and finance
documentation.
Environmental compliance is critical to MCCs
participation in the expansion and this is
reinforced by the terms of the compact (grant)
documents and the terms of the concession
agreement. One of the byproducts of any
wastewater treatment plant is sludge. A
significant amount of time was spent by the
project sponsors, MWI and MCC and their
advisers during the negotiations documenting the
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responsibilities of the parties with respect to the


treatment, storage, management and disposal of
sludge. A viable market for sludge produced by
the plant is yet to be found, due in part to the
restrictions that apply in Jordan and the Middle
East with respect to the use of sludge produced
by human waste. Until this happens the parties
will continue to store and dispose of sludge in
accordance with the terms of the concession
agreement.
Where PPP projects are partly paid for or
funded by government and partly from project
finance, government authorities typically view
the availability of debt finance as a sponsor risk
and funding shortfalls do not usually trigger any
form of breach or ability on the part of the
government to exercise any rights under the
concession agreement unless they lead to an
acceleration of the debt by the lenders or to
the insolvency of the project company. However,
the approach to the financing of the expansion
taken by MCC was more akin to that of a project
lender.
Probably the most challenging aspects of the
expansion financing are the conditions precedent
that must be satisfied by the project company in
order to be entitled to MCC funding. These are
quite strict, even in comparison with some export
credit agency or multilateral disbursement
conditions. From a lender perspective they would
be exposed to a very significant funding shortfall in
the event any of these conditions are not satisfied
and MCC funding is not forthcoming. This
necessitated structuring the project and finance
documentation in such a way as to mitigate this
risk to the lenders as much as possible.
Both MCC and the lenders were reluctant to
fund ahead of each other - the initial
disbursement of MCC funding being dependent
on the initial disbursement of funding by the
lenders and vice versa. As a result, financial close
and satisfaction of the initial conditions to the
MCC disbursement had to occur at the same time.
This led to the devising of a creative solution
whereby notices, certificates and drawdown
requests were simultaneously exchanged on the
day of financial close so as to achieve satisfaction
of the conditions precedent to initial
disbursement of MCC funds contemporaneously
with first drawdown of the debt.
Similarly, the ongoing obligation on the part of
MCC to provide the MCC funded contribution is

The As-Samra treatment plant

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AS-SAMRA

dependent on the funding commitment of the


banks. This resulted in the project sponsors
having to accept MCC and lender drawdown tests
designed to ensure that neither MCC nor the
lenders are ever in a position where they have
funded in excess of threshold ratios of debt to
MCC funding and other threshold ratios involving
equity investment and cash from operations.
The financing was further complicated by
MCCs inability to enter into any direct
contractual relationships with the project
sponsors or the lenders. This presented a number
of challenges including:
 The inability of the lenders to enter into any
form of intercreditor agreement with MCC;
 Structuring the project agreement such that the
project company has appropriate remedies in the
event of non-payment by the Government of
Jordan of amounts contemplated to be received by
it from MCC;
 Processing and administration of payments in
accordance with MCCs requirements; and
 The absence of any form of MCC credit support
in the form a letter of commitment or any other
form of security.
The impossibility to implement an
intercreditor agreement between MCC and the
lenders proved to be significant. Without an
intercreditor agreement there is no mechanism
for MCC and the lenders to consult, share
information and collectively make decisions. The
consequence of this is that the project company
is required to pursue two separate approval paths
in connection with disbursements of MCC
funding and debt and in respect of any matters
requiring MCC and lender consent, such as
waivers or amendments to transaction
documents.

USAID provided a letter of commitment in


connection with the financing of Phase 1, which,
as far as the Phase 1 lenders were concerned,
significantly enhanced the bankability of the
USAID grant/funding structure.
The absence of a letter of commitment or some
other form of security from MCC required some
restructuring of the project agreement to ensure
the project company has sufficient remedies in
the event of non-payment by the Government of
Jordan of amounts contemplated to be received
by it from MCC.

A template for viability gap financing


The participation of MCC together with the
innovative nature of certain aspects of the
financing contributed to making the
expansion affordable for the Government
of Jordan - a key requirement for all
stakeholders.
By bringing down the capital costs, the grant
funding enabled the project to be financially
viable, thus benefiting the government and local
rate-payers, without subsidising the private
sector.
Closing the financing of the expansion proved
the feasibility and demonstrated the significant
benefits of combining private sector financing
with viability-gap grant funding.
MCC expects to adapt the contractual
structure developed for the As-Samra
expansion for use in upcoming infrastructure
projects elsewhere in the world, thereby allowing
projects that are economically and
environmentally beneficial to be implemented
and operated by the private sector where such
projects would otherwise be unaffordable to the
public sector.

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