The Project represents one of the independent and government owned power and water production projects on the Main Interconnected System (MIS). It benefits from a well-established contractual framework.
Oman has an outstanding track record of tendering of Independent Power Projects (IPPs) and Independent Water & Power Projects (IWPPs) in the private sector dating back more than 20 years. Oman is a pioneer of private power in the GCC and the proven contractual framework, enshrined in the Sector Law, is well established. The first IPP in Oman began generating electricity in 1996 and the track record of execution of a compliance with power (and water) purchase agreements since 1993/1994 makes Oman a preferred destination for IPP/IWPP developers. The procurement, ownership and contractual framework template being adopted for the Project is similar to those adopted with the other IPP/IWPPs in Oman predating the Project.
The entire power output from Al Batinah Power's installed capacity is contracted with OPWP, through a single long-term PPA which expires on 31 March 2028. Beyond the PPA period, Al Batinah Power shall either extend its PPA with OPWP or sell its output in a liberalized market in a power pool or to eligible customers. Its decision to do so will depend, amongst other factors, on the evolution of the market regulations set by the AER.
The PPA provides for various buyer risk and force majeure events which outline the relief that Al Batinah Power may be entitled to receive should the specified events occur that hinder Al Batinah Power from performing its obligations under the PPA, in accordance with and subject to the terms of the PPA.
Under the PPA, Al Batinah Power receives capacity charges from OPWP for the contracted power capacity of the Plant, which are periodically tested. Such capacity charge comprises approximately 97 per cent. of the total revenues of Al Batinah Power in FY 2013 (excluding fuel revenue, which is virtually a pass-through). These capacity charges are payable by OPWP regardless of whether the actual output of the Plant is dispatched by OPWP, and regardless of whether Al Batinah Power is instructed by OPWP to generate and deliver power.
This means that, subject to certain limited exceptions, OPWP is obliged to pay capacity charges to Al Batinah Power for 100 per cent. of the available power capacity of the Plant, irrespective of whether power is actually produced. Al Batinah Power's capacity charges are calculated so that they cover its debt service and other fixed costs, including fixed operating and maintenance costs, insurance costs, taxes and capital returns.
Fuel revenues and charges are calculated based on the consumption of natural gas calculated by the Plant model for electrical energy output delivered and therefore the gas price and volume is in effect a virtual pass-through cost, subject to achieving the guaranteed heat rate (or guaranteed gas consumption). In addition, for the power that is made available, OPWP also pays Al Batinah Power a variable output charge to cover variable operating costs. OPWP, a Government owned entity, as the off-taker and the contractual counterparty responsible to pay, is an entity with a high credit rating and an excellent track record of timely payments.
Accordingly, Al Batinah Power has strong predictability of stable (although seasonal) cash flows that are sheltered from volatility of demand for power, given that Al Batinah Power is paid on an availability basis.
The CCGT power plant combines a set of gas-fired turbines with a steam turbine to make twice the use of the fuel it consumes. The exhaust heat from the gas turbine is exploited to power the steam turbine, greatly improving overall power plant efficiency. This results in high flexibility and availability and overall low life-cycle costs. It also leads to lower fuel consumption thereby resulting in lower operating costs.
These CCGT plants are considered to be among the world's safest fossil-fired plants for the environment and climate. Another advantage of these power plants is that the natural gas they run on is less carbon dioxide-intense than other fossil fuels, which help in the battle against climate change.
Al Batinah Power has the backing of its founding shareholders with a proven track record of implementing large and complex independent power and water plants globally, in the GCC, and in Oman.
The Plant is completed and has been in full commercial operation, thereby eliminating any construction risk. The existing operational Plant has achieved excellent performance parameters in FY 2013, with a reliability of 99.99% which evidences efficient and top-class plant operation.
Al Batinah Power has entered into an O&M agreement with STOMO, the largest provider of operation and maintenance services in the sector in Oman, responsible for approximately 3,675 MW of electricity and a net capacity of 270,000m3 potable water per day. Since STOMO, which specializes in power plant operations and maintenance is indirectly owned at majority by the GDF SUEZ group, this creates an alignment of interest with Al Batinah Power. Through the O&M agreement with STOMO, Al Batinah Power has largely insulated itself from any risk in regular operating and maintenance costs. The maintenance of the gas turbines, which is a specialized activity, has been subcontracted on a long-term basis by STOMO to Siemens AG, whose capabilities in this area are among the best globally.
Al Batinah Power is also able to draw upon its Shareholders' experience which includes some of the most well-known names in the power industry. This has resulted in optimizing the operation of the power plant, managing the plant site to high standards of safety and operating performance, standardizing management reporting for all investments and investing in improved plant efficiency. Efficiency has been further enhanced by the integrated operations and engineering team ensuring sharing of information. Further, Al Batinah Power also benefits from wider relationships with its vendors and equipment suppliers.
As per the PPA and the EPC Contract, the COD was achieved on 3 April 2013. The achievement by Al Batinah Power of the COD around the Scheduled COD of 1 April 2013 is a milestone accomplishment.
Overall demand for electricity in Oman is expected to increase significantly according to OPWP, driven by economic development, population growth, increasing personal income, capital investment and housing, infrastructure and industrial spending and tourism developments. In 2013, peak and annual demand in the Main Interconnected System (MIS) for electricity were 4,816 MW and 23.8 TWh respectively.
Natural gas is the primary fuel used at the Plant. A long term Natural Gas Supply Agreement (NGSA) entered into by Al Batinah Power secures the supply over the contracted PPA period. Under the NGSA, the Ministry of Oil and Gas (MoG) is responsible for the procurement and delivery to the Plant of all of its natural gas requirements. All gas delivered to the Plant by the MoG must meet minimum quality standards.Any increase in the price of gas charged by MoG is directly passed through in the PPA entered by Al Batinah Power with OPWP. Also, Al Batinah Power is not responsible for and shielded against failures of MoG to deliver gas in accordance with the provisions set out in the NGSA. Therefore, the Plant's gas procurement risk is largely mitigated in terms of quality, quantity and price. In the event, among others, of the non-availability of natural gas or a disruption in the natural gas supply system, Al Batinah Power has an obligation under the PPA to maintain a backup fuel supply for five days of full load at the Site, which it complies with at all times. In the event that the PPA is extended, the NGSA automatically will be extended.
Al Batinah Power benefits from an experienced Management team in addition to the experienced personnel employed by STOMO. Collectively, the Plant benefits from extensive management expertise and operational knowledge accumulated through decades of collective experience. The presence of such experienced professionals, Management and Shareholders also contributes to the pursuit of good corporate governance and ensures that Al Batinah Power also benefits from the senior management expertise of the Project Founders' organizations.
The presence of such experienced professionals and Management is important for present and future success and achievement of business strategies.