Excerpts of Sep 2009 ADB review: The project is a 'Loan and Complementary Financing Scheme' -- On 12 November 2003, the Board of Directors of the Asian Development Bank (ADB) approved (i) a loan of up to $40 million from ADB's ordinary capital resources, (ii) a proposed loan under the ADB's complementary financing scheme (CFS) of up to $100 million in favor of commercial lenders, and (iii) a political risk guarantee (PRG) in favor of commercial lenders to BLCP Power Limited (BLCP) for the BLCP Power Project (Project).
The Project entailed the construction of a 1,434-megawatt coal-fired power plant on the Map Ta Phut Industrial Estate, approximately 200 kilometers southeast of Bangkok , Thailand . Subsequently, the project sponsors decided to include Japan Bank for International Cooperation in the financing plan, making the CFS facility redundant. On 27 July 2006, the financing structure was amended at the request of the borrower, given the improvement in Thailand 's market conditions. This extended annual review evaluates ADB’s assistance to help develop the Project. It is based on the findings of the Extended Annual Review Mission, fielded from on 17–19 March 2009, and on information gathered from project processing files, ADB Board documents, audited financial statements, and related operational and technical reports.
At the time of project processing in 2002, BLCP was the first ADB assisted private sector infrastructure project in Thailand in 10 years. The Project was constructed over 42 months, and was operational 2.5 months earlier than scheduled. BLCP entered into a 25-year power purchase agreement with the Electricity Generating Authority of Thailand (EGAT) as off-taker of electricity and a 25-year coal supply agreement with a subsidiary of Rio Tinto Limited. The evaluation criteria used are based on Project Administration Instructions 6.07b on Extended Annual Review Reports for Nonsovereign Operations issued on July 2008. Thus the Project was evaluated along the following dimensions: (i) development impacts and outcomes, (ii) ADB investment profitability, (iii) ADB work quality, and (iv) ADB additionality.
The development impact was evaluated using four criteria: (i) private sector development; (ii) business success; (iii) contribution to economic development; and (iv) environment, social, health, and safety performance. The contribution to private sector development is rated excellent. The Project was the largest private sector project in Thailand since the Asian financial crisis, and was the only coal-fired independent power producer (IPP) project that closed successfully and operated as originally intended. BLCP succeeded in providing additional reliable base load capacity to mitigate the projected power supply shortfall, with one of the lowest marginal costs in the system. Without BLCP's entry into commercial operations in 2006, the reserve margin would have been lower than the required minimum.
In addition, fuel diversification and security for power generation was a high priority of the Government's energy policy, because Thailand 's excessive reliance on gas made it vulnerable to political risks in neighboring countries. EGAT promoted fuel diversification with more renewable energy, hydro power from neighboring countries and coal-fired power on a selective basis. As of January 2009, the contribution of gas as an energy source had declined from 71% to 64%, and when there was a gas supply disruption in Myanmar in April 2008, BLCP was able to increase its production and cover the shortfall. EGAT has used BLCP as a benchmark for improving its own lignite-fired power plant, which has had a severe environmental impact because of pollution. EGAT is implementing coal-fired power generation selectively, and considers BLCP an ideal reference to follow. EGAT is using BLCP's experience as best practice for developing coal supply agreements, emission control systems, community relations and public acceptance issues for its own future power plants. EGAT also regularly sends its staff to BLCP for training.
Since the start of commercial operations, financial performance at the operating and net profit level has been significantly better than in both the budget and the projections in the Report and Recommendation of the President to the Board of Directors (RRP). BLCP’s economic sustainability is rated excellent, while its environment, social, health, and safety performance is rated satisfactory.
BLCP was in compliance with the ADB Environment Policy. The Project also encouraged community participation in its environmental management and implemented a number of social projects for the benefit of local communities, such as an energy center to disseminate knowledge on energy conservation, the small-scale production of cement blocks using fly ash, sea mussel farming, and the rehabilitation of a mangrove forest. BLCP has received various awards for its efforts relating to the environment. It was most recently awarded the Prime Minister Award for Environmental Management in July 2009. Its other awards include the Corporate Governance for Environment Award for Year 2007 from Ministry of Industry and the Environmental Excellence Award in 2008 from the Australian-Thai Chamber of Commerce.
The investment outcome of BLCP is rated satisfactory, as interest payments were made on time. The criteria for ADB’s work quality, consisting of screening, appraisal, and structuring, and ADB’s role and contribution, are rated excellent. ADB played a crucial role as provider of a direct loan and a PRG to catalyze commercial financing, in enabling the Project to achieve financial closure. ADB also took the lead in mobilizing a PRG from other providers. The Project which involved the largest project financing in Thailand since the Asian financial crisis was financed equally in foreign and local currency financing to minimize currency risks. In consideration of its innovative features, BLCP was awarded Best Project Finance Deal 2003 by Asia Money Awards and Deals of the Year 2003 by Project Finance.
Overall, BLCP is considered a highly successful project being one of the least cost IPPs and playing an important role in the fuel diversification and security of Thailand 's power sector. ADB's involvement was crucial for the achievement of financial closure in the aftermath of the financial crisis, and BLCP serves today as a benchmark and model for EGAT as an ideal coalfired power plant in Thailand , in relation to its operations as well as its community relations and environmental management.
The main variation from the RRP are (i) the Project was completed ahead of schedule, (ii) the project cost was lower than the RRP estimate, (iii) the dispatch factors were higher than the RRP estimate, and (iv) the dependable capacity was higher than the contracted dependable capacity estimate in the RRP. The main lessons and recommendations ADB can draw from the project are that ADB should (i) increase the usage of guarantees to catalyze financing, (ii) continue to be responsive to borrowers' needs in light of changing market circumstances, (iii) pursue favorable counter-party agreements, and (iv) ADB should ensure effective communication with local communities for successful project operation.
[Source: ADB Extended Annual Review Report (Sep 2009)
http://www.adb.org/Documents/XARRs/THA/37904-THA-XARR.pdf ]