The E1.15 billion investment to develop the Maritza East 1 power plant is the largest private financing for Bulgaria to date and marks a step forward in the country’s readiness for EU accession. It is also the largest ever greenfield investment in south-east Europe.
Bulgaria’s looming EU accession provided the rationale for the deal – more specifically, the need for emissions standards in power generation.
The final loan was for E829 million, with lead arrangers BNP Paribas, Calyon and ING, and BNP Paribas together with the EBRD signing the terms. The lead arrangers underwrote a third each of E715 million, and the remaining E114 million came directly from the EBRD.
The loans each have a tenor of 16 years with a four-year grace period to allow for construction of the plant. Pricing varies according to the tranche, but is in the region of 200 basis points.
The financing backs the construction of a 600MW lignite-fired unit located 270km south-east of Sofia. It is one of three units, and is owned by American energy firm AES. Of the other two, Italian firm Enel and Bulgarian state firm Natsionalna Elektricheska Kompania (NEK) run one, and the other is owned by NEK outright.
Restructuring of Bulgaria’s energy sector meant that the project had to enter into separate power purchase (PPA) and coal supply agreements, with NEK and Mini Maritza Iztok respectively.
“The PPA was crucial,” says Vahram Yerikian, part of BNP Paribas’ project finance team. The government also provided a letter of support that, while not a guarantee, increased sponsor and lender confidence, he says.
Another challenge, saysYerikian, was: “To understand the dynamics of the local energy market to make sure the project was useful ... and was built looking to all the environmental aspects”. The EBRD’s involvement helped in this respect. “We made sure that the technology used is all state of the art and the emissions do not disturb the local community.” AES must dispose of by-products ash and gypsum in an environmentally friendly way.
The prospects for this particular type of financing in Bulgaria are limited, according to Yerikian, since the country is liberalizing its energy sector and there are unlikely to be more opportunities for PPAs with the state. It remains to be seen whether banks feel comfortable financing the privatized energy sector on a project finance basis.
Borrower: Maritza East 1
Sponsor: AES
Date: December 2005
Amount: E1.15 billion
Tenor: 16 years
Mandated lead arrangers: BNP Paribas, Calyon, ING
Export credit agencies: Coface, Hermes, MIGA
Multilateral lenders: EBRD, Black Sea Trade &
Development Bank