The Nam Theun II hydropower project in Laos is remarkable for the number of precedents the deal set: it is the largest private-sector hydropower project to date; the largest ever cross-border power project in Asia; the largest internationally financed power project in Asia since the Asian crisis; the longest tenor ever raised for a Lao-domiciled borrower (17 years); and the largest amount ever raised in the Thai bank market for a non-Thai domiciled borrower.
The deal’s size accounts for over a third of the size of Laos’ $2.5 billion GDP. The 1,070 megawatt power plant, which will come on stream in 2009, will cost $1.45 billion in total. The sponsors – EDF International, Electricity Generating Authority of Thailand (EGAT), Electricite du Laos, Italian-Thai Development – have a 25-year contract to build, own, operate and, eventually, sell the plant.
The deal was as complex as it was large. It splits into 12 tranches comprising a $126 million, three-tranche political risk guarantee (PRG) loan and a $200 million, three-tranche export credit agency loan from nine offshore commercial lenders; a $174 million, five-tranche direct loan from five development banks; and a Bt20 billion loan from seven Thai banks.
According to Conor McCoole, head of project finance Asia at Standard Chartered: “This was a huge and complex hydroelectric project, and it was developed and structured over a tumultuous decade from 1995 to 2005”. In that time, he says, EGAT faced “everything from high growth to declining power demand, reserve margin constraints to generating capacity excesses, impending privatization and the prospect of an eventual competitive power pool”.
“Nam Theun II had to weather all this and much more,” he says. The project faced “heightened scrutiny” on environmental and social concerns, and “provides an example of how the private sector can help set the standard for complex projects of this type”.
The support and commitment of the governments of Laos and Thailand was also critical, says McCoole. The deal was a landmark for both countries both for its complexity, and as an example of a cross-border energy cooperation.
Standard Chartered’s team worked on the deal for 17 months in total. It was one of the bank’s highest-profile lead arranger mandates since establishing its project finance business in 2003.