The tremendous economic growth in China had resulted in an immense demand for basic infrastructure like roads, ports and power generation facilities in 1990s. The World Bank estimated that investment in infrastructure in China would rank top among all East Asian countries and account for US$750 billion over the period of 1995 to 2004 (Lianhe Zaobao, 1996). Road and power projects commanded top priority. To meet the development needs, the Chinese government had been enthusiastic in granting favorable concessions to attract foreign investment. Some regulations for foreign investment were promulgated one after the other. Meanwhile, several state-approved pilot build-operate-transfer (BOT) projects have been awarded since late 1996 in order to introduce BOT on a larger scale, such as the Laibin B power project, Dachang water project and Changsha power project.
In fact, several power plants and roads have already been built on a BOT basis in China before Laibin B (Tiong 1990; Tam 1995). They were not however recognized by the central government as official BOT projects though many companies outside China have regarded them as model projects. In addition, although there are three major modes of investments, i.e. sole proprietorship, joint venture, and construction cooperation, which can be practiced in China, most of the BOT projects implemented in China before Laibin B were based on joint venture path (Shen et al. 1996).
As the first state-approved BOT project, Laibin B is the second phase project for Laibin Power Plant. It involves the investment, financing, design, construction, procurement, operation and maintenance and transfer of a 2×360 MW coal-fired power plant with an estimated cost of US$600 million to be located at Laibin County in the Guangxi Zhuang Autonomous Region, a Chinese backwater southern province where most foreign investors might not venture willingly.
The concession terms require a very tight completion schedule and appear to offer a relatively low rate of return. But the prospect of joining the first consortium to test the new BOT framework was incentive enough for a number of developers to submit tenders. The Electricite de France (EDF) and GEC Alstom consortium, which tendered under the name of the Consortium, finally won the concession from five other short-listed competitive tenderers with a very aggressive tender and the backing of France’s export-credit agency, COFACE.
Central Government : The central government has provided its strong support to Laibin B given its status as the first official pilot BOT project which will set the benchmark, not least in terms of risk allocations, for other future BOT infrastructure projects. The project has been approved at the State Council level, and State Planning Commission (SPC) and Ministry of Power Industry (MOP) have directly participated throughout the project development, tendering, bid evaluation and award process. They together with State Administration for Exchange Control (SAEC) have each issued a support letter in relation to the project. The three support letters effectively support and underpin Guangxi Government’s ability to perform and demonstrate the central government’s commitment to ensure the success of the project.
Provincial Government : For Laibin B, many of the uncertainties were thus cleared because Guangxi Government made some guarantees and incentives. Laibin B is underpinned by three main contracts namely, the Concession Agreement (CA), Power Purchase Agreement (PPA) and Fuel Supply & Transportation Agreement (FSTA) with CA as the overriding contract which summarizes all the major rights and obligations of the project company (the Consortium) and Guangxi Government in relation to the concession given for the investment, financing, design, construction, procurement, operation and maintenance of the project. The Guangxi Government is the counterparty to the Consortium under the CA, and provides some guarantees of PPA, FSTA and Dispatch Agreements.
Sponsor : In Laibin B project, Electricite de France International (EDFI) and GEC Alstom are the sponsors. EDFI is a wholly owned subsidiary of EDF which is 100% owned by the French government and much experienced in international investment and power plant operation. GEC Alstom is a wholly owned subsidiary of GEC Alstom N.V. which is jointly owned by The General Electric Company, PLC of the United Kingdom and Alcatel Alstom of France.
Project Company : French Investment Guangxi Power Company LTD., the project company of Laibin B, under the shareholder agreement of 60% held by EDFI while the other 40% owned by GEC Alstom, is a wholly foreign-owned enterprise incorporated in China. As the project company, it was responsible for the financing, design, construction, operation and maintenance over the concession period; at the end of concession, the power plant returns to Guangxi Government without charge.
Lender : The debt/equity ratio of Laibin B is about 3, and the project company has limited-recourse debt of US$0.462 billion and shareholder’s equity of US$0.154 billion. The bank consortium headed by Credit Agricole Indosuez (French), HSBC Investment Bank (UK) and Barclays Capital (UK) is the lender of the project. In addition, France’s export-credit agency COFACE provides export credit insurance for about US$0.312 billion of the debt.
Customer : In accordance with the PPA Guangxi Government’s subsidiary department Guangxi Power Industry Bureau (GPIB) is required to purchase the minimum net electrical output of 3,500 million kWh (approximately 63% of plant load factor) each operating year from Laibin B.
Supplier : The government’s subsidiary Guangxi Construction and Fuel Corp. Ltd. (GCFC) is liable to supply the fuel (coal and/or oil) required and paid for by the Consortium. The Consortium has the right to reject fuel that is not in conformity with the fuel specifications described in the FSTA.
Contractor : The Construction Services Contractor is a special purpose joint venture comprising Alstom Export and Compagnie Financiere de Valorisation pour L’Ingenierie (COFIVA). The Equipment Supplier/ Contractor is a consortium comprising GEC Alstom Centrales Energetiques SA and EDF, acting through its division CNET.
Operator : Guangxi Laibin Synergie Operating Maintenance for Generation Co. Ltd. is a joint venture, which is owned by EDFI with 85% of share, GPIB and Guangxi Development and Investment Co. Ltd. (GIDC) for another 7.5% of share each.
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Tagged: business, China, coal fired power plant, Concession Agreement, Cwiil Group, CWIIL Group Companies, east asian countries, economic growth in china, guangxi zhuang autonomous region, Lianhe Zaobao, power generation facilities, Power Purchase Agreement, Public–private partnership, World Bank