Sembcorp signs contract for $1 billion Salalah IWPP in Oman, its second major venture in the Middle East

Sembcorp Industries (Sembcorp) has announced that a joint venture formed between its fully-owned subsidiary Sembcorp Utilities and the Oman Investment Corporation has executed a 15-year contract to supply power and water to the government-owned Oman Power & Water Procurement Company. The joint venture company, Sembcorp Salalah Power & Water Company, will be investing approximately $1 billion to develop, build, own and operate the Salalah Independent Water and Power Plant (Salalah IWPP) in Oman. x.

Targeted to begin full commercial operations in the first half of 2012, the Salalah IWPP will consist of a 445MW gas-fired power plant and 68,000 m3/day RO-based desalination plant. Set to be the largest power and water plant in the Governorate of Dhofar in Southern Oman, the entire electricity and water output from the facility will be sold under the 15-year power and water purchase agreement.  Sembcorp Salalah Power & Water Company is 60% owned by Sembcorp Utilities and 40% owned by the Oman Investment Corporation, whose shareholders are the Gulf Investment Corporation, the National Investment Funds Company, State General Reserve Fund of the Sultanate of Oman and BankMuscat.

In addition, the facility will be operated and maintained by a joint venture company, Sembcorp Salalah O&M Company, which is 70% owned by Sembcorp Utilities, under a long-term operation and maintenance (O&M) contract for the entire term of the power and water purchase agreement. The remaining 30% of the O&M company is owned by the Oman Investment Corporation. SEPCO III Electric Power Construction Corporation (SEPCO III) of China is the engineering, procurement and construction contractor under a fixed-price, date-certain turnkey contract and Hydrochem (S), a wholly-owned subsidiary of Hyflux, is the sub-contractor for the seawater desalination plant. The contract marks the first desalination project in Oman for Hyflux and its first IWPP project as well. The desalination facility is expected to be completed within 22 months from receiving the notice to proceed. The Salalah IWPP will be Sembcorp’s second power and water investment in the Middle East, where it has been operating since 2006. Sembcorp owns, operates and maintains the Fujairah 1 Independent Power and Water Plant, the world’s largest operating hybrid desalination plant, in the UAE. 

The project cost of approximately $1 billion will be 75% funded through 17-year non-recourse project finance loans, and 25% by shareholder loans. The non-recourse project finance loans will be provided by Standard Chartered Bank (also the Financial Advisor), Bank of China, China Development Bank, BankMuscat, KfW-IPEX Bank and Sumitomo Mitsui Banking Corporation as Mandated Lead Arrangers, and National Bank of Oman and Bank Sohar as Arrangers. The loans will be in US dollars, except for those from BankMuscat, National Bank of Oman and Bank Sohar, which will be in Omani Rials. Financial closure of the project is expected to be within one to two months.