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Liquidity drives project finance appetite

27 October 2023

 

This report on project finance and PPP also includes: PPP activity rebounds in 2023

Activity in the Gulf region has triggered a boom in the project finance market, with Saudi Arabia leading the way on the back of schemes linked to its Vision 2030 strategy.

Deals are fanning out from power and water and infrastructure schemes into unexplored territory: hydrogen projects and ever-larger solar power plants have opened up opportunities for international and regional banks that are awash with liquidity and looking for long-term means to deploy it.

Deal advisers attest to the vibrancy of Saudi Arabia, the largest regional projects market with $1.2tn-worth of known work in the pipeline. The kingdom has seen the largest project financing this year, a facility worth at least $6bn arranged for the Neom green hydrogen project.

“Saudi Arabia is a market that really is firing on all cylinders,” says Rob Harker, a partner at law firm DLA Piper, which advised Neom Green Hydrogen Company in connection with its green hydrogen and ammonia project in Saudi Arabia.

“That demand is not limited to utility sector projects. In addition to the very large solar and wind projects – including a Saudi solar deal that is 1.1GW – we are also seeing a large volume of social infrastructure projects being procured across the GCC, including in education, healthcare, social accommodation and transport,” he adds. 

“Bank debt – both regional and international – is still the principal source of financing for these projects. However, robustly structured projects should also be attractive, particularly on a refinancing, to a capital markets issuance.”

Robust liquidity support

There is increased liquidity in the regional banking market, notes John Dewar, partner in international law firm Milbank’s global project, energy and infrastructure practice, which advised the export credit agencies (ECAs) and commercial banks in connection with Project Lightning, Abu Dhabi National Oil Company’s offshore power transmission project.

“With the bullish medium-term oil price outlook, there is significant liquidity in the Saudi and UAE bank markets, with these banks looking to on-lend their petrodollar deposits on a longer-term basis.”

This still poses some challenges. Analysts note that despite the bountiful credit availability, things can change.

“There is still a lot of liquidity in the system in the GCC, but some have voiced concerns that liquidity in the banking market could dry up in the future if they have to compete with projects that are much larger in scale,” says Christiane Kuti, a director at Fitch Ratings. 

“Overall liquidity in the market could get tight at some point, although we are not there at the moment.”

Even then, notes Kuti, a lower oil price could add impetus to the need to develop frameworks to make projects more bankable, and provide an opportunity for the capital market to play a bigger role.

Most of the larger deals are witnessing a heterodox mix of local and international banks participating. For example, a consortium of five local and international banks has agreed to provide $545m of financing for the Rabigh 4 independent water producer project in Saudi Arabia, with Standard Chartered Bank lining up alongside Bank of China and the local trio of Saudi National Bank, Riyad Bank and Saudi Investment Bank.

The Chinese bank presence is a pointer. “We have seen Chinese banks participating in project finance deals, and that is set to continue as they are not as constrained as some of the regional banks in terms of the tenor on which they can lend. Their ability to lend on a longer-term tenor is sometimes attractive for sponsors and developers,” a source tells MEED.

The flipside of this is that Chinese lenders are less knowledgeable about the market.

Global uncertainties

Despite the robust oil price climate, project financings across the Middle East and North Africa (Mena) region have had to cope with a choppy global interest rate environment, with inflationary pressures also impinging.

Higher interest rates have militated against the use of capital market instruments in some regional deals. For Abu Dhabi’s subsea transmission system deal, which reached financial close earlier this year, higher interest rates were responsible for adding $200m to the $3.8bn deal.

This has implications for other projects that are seeking refinancing on the capital market. In Saudi Arabia, BlackRock-led investors in Saudi Aramco’s gas pipeline network attempted early in 2023 to raise $4.5bn from a sale of bonds to refinance a multibillion-dollar loan. The 10-year mature sukuk (Islamic bond) tranche spread placed it about 120 basis points above where Aramco bonds maturing in October 2030 were trading, according to Reuters’ calculations.

Another consortium led by US-based energy infrastructure investment firm EIG Global Energy Partners had also looked to the bond markets to refinance.

“The EIG and BlackRock-led consortiums investing in Saudi Aramco’s oil and gas pipelines infrastructure have been looking to refinance more than $20bn of acquisition debt,” says Dewar. 

“Both have been active in the bond market, but the interest rate environment has moved against bonds, so there has been an increasing focus by borrowers on accessing other longer-term liquidity sources, particularly from the highly liquid regional banks.”

Capital market instruments

For the moment, capital market instruments are largely confined to refinancing rather than greenfield projects. However, once some of these projects are financed, it could encourage others to lend on that basis.

“Once a project has been up and running, and it has got consistent revenue from the offtaker of the electricity or the water, and they are paying an index-linked revenue stream that is 100 per cent take or pay and insulated from the erosion of any inflationary pressures, that is very attractive for bondholders, pension funds and other institutions that want stable revenues,” says one industry insider.

Beyond the Gulf, Egypt has managed to attract project finance for its renewable energy schemes, with significant ECA support. In March 2023, a $690m non-recourse financing was arranged for the 500MW Gulf of Suez Wind 2 project in Egypt. 

The renewable energy push has continued after Cairo’s hosting of the 2022 Conference of the Parties of the UN Framework Convention on Climate Change (Cop27). The drive has included the Amunet wind and Abydos solar projects closed by Amea Power, as well as the Gulf of Suez Wind 2 project sponsored by Engie, TTC-Eurus and Orascom.

“They are both important deals in a global context because they mark the first occasions on which the Japanese ECAs have co-financed with the International Finance Corporation and the European Bank for Reconstruction & Development, respectively, opening up important new financing opportunities in emerging markets,” says Dewar.

Support from ECAs is particularly valued in Egypt, given the economic challenges the country is facing. 

A planned polypropylene complex due to be developed in Egypt’s Suez Canal Economic Zone has been put on hold, with the $1.7bn project developed by Red Sea Refining & Petrochemical Company having been affected by the depreciation of the Egyptian pound.

More regional financing

Another emerging theme will be for the larger Mena banks to play a bigger role in regional project financings.

The likes of First Abu Dhabi Bank have been active across GCC borders, including in Saudi Arabia. Given their healthy liquidity profiles, the biggest banks in the GCC are better positioned for longer-tenor project finance deals than ever before. 

Not that it will be plain sailing. Structural impediments will still have to be overcome.

For example, most Saudi banks still need to get consent from the Saudi Arabian Monetary Agency (Sama) to participate in dollar loans. “That can constrain their ability to operate outside the kingdom,” says Dewar. 

“There is a regulatory preference for them to make Saudi riyal loans rather than dollars. But because of the increase in dollar liquidity, there is much more availability in the Saudi market than there was a year ago.”

Project finance will remain a critical part of the funding mix in the Mena region. As Fitch Ratings notes, the significant growth needed to achieve the GCC’s investment requirements cannot be attained using traditional financing channels, such as on-balance-sheet funding by governments. Instead, there is a need to broaden the investor base, including through project financing.

The likelihood of a more benign global interest rate environment in 2024 should pave the way for a reassertion of capital market-based deals, making the next few months busy ones for banks and deal-makers across the Mena region.

 PPP activity rebounds in 2023 

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James Gavin

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    The project reflects Neom’s reprioritisation, which has seen the $500bn gigaproject shift from a speculative vision towards a delivery-focused industrial development.

    This shift was clearly signalled in April, when Public Investment Fund (PIF) governor Yasir Al-Rumayyan publicly backed Oxagon, Neom’s planned industrial and manufacturing hub on the Red Sea coast. Since then, there have been increasing signs that the development is taking precedence over the rest of the giga-portfolio.

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    Under the new strategy, Neom has effectively been reclassified as its own reporting line within PIF’s portfolio, separated from the fund’s other domestic holdings. That separation gives Oxagon room to be judged on its own commercial merits, while distancing it from the reputational weight still carried by more conceptual elements of the wider development.

    There have been increasing signs that Oxagon is taking precedence over the rest of the giga-portfolio

    Conflict acceleration

    The reprioritisation was already under way before the region’s latest conflict began. PIF has spent the past two years pushing Neom to identify which elements of the gigaproject were fundamental and which were aspirational, a process that has as much to do with capital discipline as geopolitics.

    With the fund committing to direct roughly 80% of its $925bn portfolio towards domestic investment, while simultaneously funding Expo 2030 and the 2034 World Cup, Riyadh needed its flagship projects to start showing commercial returns rather than absorbing capital indefinitely.

    Oxagon, with a port, an export-ready hydrogen plant and land that could be leased to industrial tenants, was always the part of Neom best placed to answer that requirement, and the regional conflict that began in late February only accelerated the shift. The closure of the Strait of Hormuz to a fraction of its normal commercial throughput has hit Saudi Arabia’s oil export capacity hard and pushed the kingdom into a sizeable quarterly fiscal deficit.

    Riyadh has also had to contend with direct disruption to its own energy infrastructure, including the temporary closure of the East-West oil pipeline following drone strikes. Against that backdrop, an industrial city with its own deep-water port on the Red Sea, outside the Strait of Hormuz chokepoint, has taken on added strategic weight.

    Oxagon offers the kingdom a second maritime gateway, one that is not exposed to the same geopolitical risks as the Gulf coast terminals that have historically carried Saudi trade. For a government having to defend every riyal of committed capital spending, a project that can plausibly generate port fees, hydrogen export revenue and data-centre hosting income within the current decade is a far easier sell than a 170-kilometre linear city that is still taking shape.

    Construction ramps up

    The clearest evidence of that pivot is what has actually broken ground at Oxagon recently. At a time when Neom’s recent news flow has been about contract terminations, Oxagon’s has been about starts.

    The most visible of these is the artificial intelligence (AI) data-centre campus being developed by Humain, the PIF-owned AI company, in partnership with digital infrastructure developer DataVolt.

    Construction on the first 100MW of a planned 360MW first phase began this year, as part of a wider 1.5GW campus that builds on the companies’ original 2025 agreement, backed by roughly $5bn of investment. The facility is designed to draw on Oxagon’s pre-zoned industrial land, renewable power and subsea cable links to Europe and Africa, with the first 100MW targeted for service in 2028.

    For Neom, the project answers a question that has dogged the gigaproject for years: namely, what, beyond real estate and tourism, Oxagon actually sells.

    Connectivity is following the same pattern. Neom issued an expression of interest in September for consultancy services to plan a freight rail line of more than 400km linking the Port of Neom at Oxagon to Saudi Arabia Railways’ North-South Railway at the Al-Baseeta junction.

    The North-South network currently serves the kingdom’s phosphate and bauxite mining sector, running from Al-Jalamid and Baitha to the Gulf coast industrial cluster around Ras Al-Khair, Jubail and Dammam, with branches to Riyadh and the Jordanian border.

    A connection to Oxagon would give that network a second maritime outlet on the Red Sea and would finally give the Port of Neom a direct rail link into the kingdom’s interior, something it has lacked since operations began in 2022.

    Cargo currently depends on road transport or an additional sea leg, a constraint that has limited the port’s usefulness beyond a regional hub.

    Utilities work is quietly keeping pace with the more visible projects. Neom has tendered an industrial wastewater treatment plant at Oxagon, with proposals due in early October. The scheme has an initial capacity of 35,000 cubic metres a day, (cm/d) expandable to a maximum of 45,000 cm/d as demand grows.

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    The direction of travel this year has been positive. With the green hydrogen plant entering commissioning, a hyperscale AI campus breaking ground, a new rail corridor being planned and a port moving towards its next phase, Oxagon is reinforcing its position as one of the kingdom’s flagship projects for the future. 

     

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    Jafurah gas development phases

    As Aramco prepares to issue the main EPC tender for the Jafurah sixth expansion phase, it is also at an advanced bid evaluation stage for the programme’s fifth phase.

    MEED reported in August that China Petroleum Engineering & Construction Company (CPECC) had emerged as a frontrunner to win the main contract for the Jafurah fifth expansion phase, based on Aramco’s initial evaluation of proposals.

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    Aramco had set 19 July as the final deadline for proposals, and contractors submitted their bids by that date, MEED previously reported.

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    Along with evaluating bids for EPC works on the fifth expansion phase project at Jafurah, Aramco has also recently kicked off EPC works on the fourth expansion phase.

    MEED reported in April that Aramco had selected Indian contractor Larsen & Toubro Energy Hydrocarbon (L&TEH) as the main contractor for the fourth phase, which sources estimate could be valued at about $1.5bn.

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    EPC work on the third phase of the Jafurah unconventional gas development programme is also advancing.

    In July 2024, Aramco issued a non-binding letter of intent to a consortium of Tecnicas Reunidas and Sinopec Group for the EPC contract for phase three. The value of the contract is estimated at $2.24bn.

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    The third phase scope of work also includes building a 230kV substation to power the new gas compression plants, and installing other utility units, piping systems and safety equipment.

    The selection of contractors for the third expansion phase came within weeks of Aramco officially awarding EPC contracts for the second phase, which aims to raise the field’s processing potential to up to 2 billion cf/d of raw gas.

    Aramco awarded 16 contracts, worth a combined total of about $12.4bn, for the second expansion phase on 30 June 2024.

    The EPC scope of work on that project involves the construction of gas compression facilities and associated pipelines, and the expansion of the Jafurah gas plant, including the construction of gas processing trains, utilities, sulphur and export facilities, Aramco said in a statement.

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    Aramco kickstarted EPC works on the first phase of the programme in November 2021 by awarding $10bn-worth of subsurface and EPC contracts.

    The Jafurah programme is central to Aramco’s goal of increasing gas production capacity. The target has recently been raised to 80%, with 2021 as the baseline, up from 60%, to meet rising domestic and global demand. The company expects life-cycle investment in Jafurah to exceed $100bn.

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    After 20 years, JMGC will lease the assets back to Aramco. JMGC will collect a tariff payable by Aramco in exchange for granting Aramco the exclusive right to receive, process and treat raw gas from the Jafurah resource base.

    Aramco will hold a 51% majority stake in JMGC, while the GIP-led consortium will hold the remaining 49%. Investors participating in the GIP-led consortium include Hassana Investment Company, the Arab Energy Fund and Aberdeen Investcorp Infrastructure Partners, as well as other institutional investors from North and Southeast Asia and the Middle East.

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    Indrajit Sen
  • Delivery unlocks gigaproject investment

    29 September 2026

     

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    Completed infrastructure and open assets are making it easier to attract private developers and foreign investors to Saudi Arabia’s gigaprojects, said speakers at MEED’s Shaping Mega Projects conference in Riyadh on 28 September.

    Dale Chadwick, acting CEO of King Salman Park Foundation, said investor appetite had grown as construction advanced. The foundation has received 23 expressions of interest from private developers, and Chadwick said that number was increasing.

    “What the private sector is looking for in terms of investment is surety of what we’re doing,” he said. “As soon as a private developer comes in and sees what we’re doing, they’re blown away. The closer we get to completion, the greater the appetite.”

    He said interest from foreign direct investors was also rising, and that a deal the foundation expects to award soon involves foreign investment.

    The foundation times its private asset awards to follow infrastructure and landscaping works. “They don’t have to take the leap of faith that we are going to execute on our side of the equation,” said Chadwick. “They can see it.”

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    He said Diriyah had prioritised delivery over publicity. “People want to see to believe,” said Saad. “We are delivering on the ground, and when people come and visit, they’re pleasantly surprised.”

    Chadwick said developers also wanted flexibility, with some seeking more height or a different mix of uses. “We ourselves have a plan, but in order to make that more attractive, we have to be prepared to make adjustments as well,” he said.

    Ben Edwards, group head of cost, commercial and procurement at Red Sea Global, said the operating track record of The Red Sea and Amaala was now its strongest pitch to investors.

    "We’ve gone past the field of dreams approach of ‘if you build it, they will come',” he said. "We’ve built it now. The tourists are coming.”

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    "I’m sure the PPP market will continue to expand into the different infrastructure sectors here, and then lead into other sectors, from schools to hospitals,” he said.

    He added that Red Sea Global’s environmental credentials were a selling point for investors.

    Don’t miss MEED’s SMP 2026.
    Secure your place as an attendee by clicking here, or email us at meedevents@meed.com

     

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    Colin Foreman
  • KBR seeks renewable energy contracts in Libya

    29 September 2026

     

    The US-headquartered technology and engineering company KBR is seeking renewable energy project contracts in Libya.

    Representatives from KBR met with Abdussalam Elansari, chairman of the Renewable Energy Authority of Libya, earlier this month to discuss project opportunities, sources said.

    The meeting with Elansari followed KBR’s opening of a new branch in Libya and its securing of several contract awards in the oil and gas sector.

    In March, KBR announced that it had been awarded a contract by Zallaf Exploration, Production & Refining of Oil & Gas Company to provide project management and technical services for the South Refinery Project in Libya’s southern city of Ubari.

    Under the terms of the contract, KBR will provide contract management, project management and supporting technical services throughout the engineering, procurement and construction (EPC) phases of the project, according to a company statement.

    The EPC work is expected to be executed over a 50-month period.

    KBR is also carrying out work to re-evaluate the front-end engineering and design (feed) for the project to develop Libya’s J6 North Gialo field.

    In January, KBR signed a memorandum of understanding (MoU) with the state-owned Libyan Post, Telecommunications & Information Technology Company.

    Under the MoU, KBR agreed to support efforts to develop and improve Libya’s communications infrastructure and enhance fifth-generation (5G) mobile networks in the country.

    KBR has previously provided engineering services for major national projects in Libya, but was forced to shut down its office in the country several times amid political instability and security issues.

    When the company was known as Brown & Root, it worked on the Great Man-Made River Project in Libya, which is widely recognised as the largest irrigation project in the world.

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