Milbank Tweed Hadley & McCloy LLP and Rajah & Tann have represented the lenders on the first project financing to be completed for a green-field power plant in Singapore's recently established national electricity market.
Singapore-based senior project finance attorney Ken Hawkes led the Milbank team - which included managing partner David Zemans [pictured receiving an award at ALB's recent Deals of the Year Awards SE Asia in Singapore] and senior attorney Ashley Wright - on the 31 March financial closing of Keppel Energy's 500MW Keppel Merlimau cogeneration project. Partners Soon Choo Hock, Soh Lip San and Lee Lay See led the Rajah & Tann team acting as lenders' Singapore counsel.
The S$525m (US$316m) financing for Keppel Merlimau is underwritten by four commercial banks, HSBC, SMBC, ING and Calyon, with syndication of the Singapore Dollar construction and term loan facilities targeted for release to a wider bank group within the next few weeks. The EPC contractor for the combined cycle natural gas fired plant is Alstom, with major maintenance support also provided by Alstom during the operational phase.
Hawkes said: "The unique and dynamic electricity and gas market conditions in Singapore meant that undertaking a green-field financing was a challenging task. Although the Keppel Merlimau financing is based on solid fundamentals, a clear understanding of the legal framework and the project finance market was essential to ensure a successful transaction."
Located on Singapore's Jurong Island industrial zone, the 500MW Keppel Merlimau cogeneration power plant is scheduled to begin delivering electricity onto the Singapore grid in early 2007.
Keppel Energy is a subsidiary of Keppel Corporation, one of Singapore's largest companies. Singapore recently implemented an energy market with existing and new generation facilities supplying electricity into a system that determines spot market prices on a marginal unit basis. Electricity prices in Singapore are set half-hourly by reference to the least cost generation unit filling demand to clear the market load.
The transaction presented unique challenges with Singapore's 5,200MW electricity market characterised by the use of vesting contracts, designed to remove market power from incumbent generation companies. The vesting contracts cover 65% of Singapore's electricity demand, with vesting coverage declining as increased competition on the national grid from merchant power generators, such as Keppel Merlimau, diversify the generation mix and reduce the ability of existing generators to control spot market prices. Vesting contracts are bilateral contracts for differences with a strike price applicable to all licensed generators set by reference to long run marginal cost of production for a theoretical efficient generator in Singapore.