Sustainable water infrastructure development

The initial As-Samra Wastewater Treatment Plant (Phase 1) was completed in 2008. With a capacity to treat average daily flows of 267,000 m3. It was designed to treat the wastewater of 2.3m equivalent inhabitants of Amman and the surrounding areas.

In 2009, facing increasing growth in population, the Government of Jordan, represented by the Ministry of Water and Irrigation (MWI), decided to procure an expansion of the As-Samra plant.

In 2010, the Millennium Challenge Corporation (MCC), a US Government development institution, committed USD275.1m for development projects in Jordan, including grant financing (USD93.4m) toward the expansion of the As-Samra plant.

The 25-year build, operate and transfer (BOT) contract for the expansion of the As-Samra WWTP entered into force on 18 July 2012 after a long negotiation.

 

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 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.

 

This BOT transaction is the first project financing of 2012 to have closed in Jordan. It is also the first major project financing in which MCC has ever taken part anywhere in the world. MCC clearly intends to implement this model in other countries.

 

Description of the innovation

A diverse mix of financing was required to successfully finance the USD270m project cost. The combination of the following commitments paved the way to success:

- A total of USD27.4m generated by the Project Company out of the cash flows of the Phase 1 is reinjected into the Expansion
- A USD93m grant from MCC; and a JD105m (USD148m) debt package from a syndicate of local banks led by Arab Bank (including USD42m for the refinancing of the outstanding Phase 1 loan.)

 
The Sponsors managed to mobilize USD175m of debt and equity in spite of challenging conditions due to the profound political and social changes taking place in the region and the adverse financial impact these have had on the Government of Jordan, and also the lack of BOT experience from MCC.

 

  • The tenor on the commercial loan is 20 years.

This tenor marks the longest maturity that Jordanian banks have ever offered to-date for a Jordanian Dinar-denominated limited-recourse loan. This loan denominated in local currency offers the client a natural and efficient hedge against potential devaluation.

 

  • The interest rate

The interest rate during operation is a floating rate based on the average of the prime lending rates announced by a syndicate of four local banks, minus 50 basis points, which is again extremely competitive and exceptional.

 

  • The debt-to-equity

The debt-to-equity ratio is 80:20. Cashflows from the Phase 1 operation 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 plant's proven performance and Degrémont technical knowhow.

 

 

Results:

MCC, Jordan and the Sponsors joined efforts to set up this innovative financing; this was critical to develop a sustainable project boasting an affordable tariff for the community and the country while offering high performance service. With this successful negotiation, the Sponsors managed to create additional economical, financial, environmental and social value.

The expansion will significantly improve water resources management in Jordan, one of the world's most water-deprived countries. The expanded plant is expected to meet the wastewater treatment needs of the Amman and Zarqa areas through to 2025.

Jordan is the fourth water poorest country in the world and agricultural areas located downstream the As-Samra WWTP rely heavily on treated water for irrigation.

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 subsidizing the private sector, through a affordable tariff in JOD (Jordanian Dina)

Closing the financing of the expansion has proved the feasibility of combining private sector financing with viability gap grant funding from MCC. The As-Samra template - 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.

The signing of this Expansion agreement is a testimony to the success of the longstanding partnership between the Government of Jordan and the Project Company. MWI and MCC’s trust in the Sponsors’ ability to develop the expansion was a key element to the negotiation thus making As-Samra one of the largest and most modern wastewater treatment plants in the Middle East.

 

 

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Water and Energy Exchange

WEX global awards 2013

 

This innovative financing partnership won a WEX global Awards for innovation in 2013!

 

More on WEX Global Awards

 

 

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