Gama
Construction Ireland Limited
Summary
In
December 2003, Talanworth was hired to provide project finance advisory services
to Gama, an international construction
company headquartered in Ankara,
Turkey.
Talanworth
worked as an integral member of the project team to achieve preferred bidder
status and to finance the construction of a new 400MW combined cycle gas turbine
power generation project costing in excess of €250m.
In early 2004 the Talanworth mandate was extended to provide financial
modelling services to the project company on a sub-contracted basis.
Talanworth’s
role included also management advice in discussions with the lead arranging
banking group and managing tax, accounting and insurance advisers.
The
project is being developed under an Implementation Agreement entered into
between the Commission for Energy Regulation in the
Republic of Ireland (CER) and Tynagh Energy
Limited, majority owned by Gama
Construction Ireland.
To see the latest status use this link: Current
Status
Tynagh
Energy Limited achieved financial close on 27 August
2004. The
project is currently under construction at Derryfrench, Tynagh, County
Galway, Ireland.
Detail
Project Rationale and background
The
Commission for Energy Regulation (CER) is the
independent body responsible for regulating and overseeing the liberalisation of
Ireland
’s
energy sector. The CER’s powers are specified in the Electricity
Regulation Act, 1999 and the Gas
(Interim) (Regulation) Act, 2002. ESB National Grid, in its Generation
Adequacy Report (2003-2009), identified significant generation shortfalls from
2003 to 2009 as forecasted demand for electricity continues to grow
(approximately 3.5% p.a. for the period). ESB National Grid identified
electricity generation shortfalls of approximately 150MW in 2003, 300MW in both
2004 and 2005, growing to 360MW in 2006 with further increases in future years.
In
response to the Generation Adequacy Report and in light of its duty to promote
security of supply, the CER initiated a number of measures to increase
generation capacity in Ireland.
As construction of new generation plant requires a minimum of two years,
the CER established a project to address the projected shortfalls in the interim
period involving demand-side and generation-side initiatives. This three-pronged
approach consists of demand side management (DSM) measures, increased imports
from Northern
Ireland and the
installation of temporary generation.
In February 2003, the Commission announced its intention to hold a competition
to facilitate the entry of new independent generation plant in Ireland
to
address the projected shortfall in generation capacity in 2005 as identified by
ESB National Grid. In April 2003, Guidelines to the Competition were published,
requesting potential bidders to submit an expression of interest in the
competition. The CER received valid Expressions of Interest from seven
generators interested in bidding into the competition with a combined generating
capacity of 2,185 MW.
The
CER issued to the seven generators an Invitation to Tender dated
22 May 2003
was
amended
15 July 2003
and
revised and reissued on
28 August
2004
inviting
the seven generators to submit a tender by
20
October 2003
with a maximum contractual capacity up to 531MW.
Tynagh Joint Venture, including Gama Construction Ireland Limited, (Gama Ireland),
submitted such a tender. The ITT is
available online on the CER’s web site as CER/03/166 and the Implementation
Agreement as proposed in such ITT as CER/03/165.
On
4th December 2003, Gama
Ireland
appointed
Talanworth to support it in the preferred bidder negotiations with
CER. Tynagh Energy Limited was formed to enter into the project documents.
Preferred
Bidder
On
24
December 2003
the CER
announced: “that both Aughinish Alumina and Tynagh
Energy Ltd. have been successful in the competition it facilitated to promote
the entry of new generation plant(s) into
Ireland.
The combined installed generating capacity of these two new independent
generating plants is over 500 MW.
The
winners have each secured a contract with ESB and the combined potential value
of these contracts is over €1.5 billion.
Bidders
competed for the contracts on the basis of price, after having met a number of
outlined minimum qualification requirements, which included technical, financial
and regulatory criteria.
Both
successful bidders have signed Capacity Contracts with ESB for up to ten years
as well as grid connection agreements with ESB National Grid. Furthermore both
parties have signed Implementation Agreements with the CER and put commitment
bonds in place to ensure the speedy construction of the plants.”
Financing
The details of the finance structure are confidential but include both senior
and mezzanine debt supported by shareholder finance. Flexibility in the
repayment term is provided and the lenders and insurers active support has
enabled enhanced technology to be incorporated into the project.
Talanworth’s role for Tynagh Energy Limited included hiring a power project
financial modelling company to develop a financial model used to assist in the
finance structure and commercial development of the project. This
role included supporting the development of a streamlined financial model
developed by the lead arranging banks used for the banking base case and for
syndication of the debt facilities and since adopted as the Project Model.
For
Gama
Ireland,
Talanworth assisted in the review of the main project documents and participated
as required in the negotiation of the Equipment Procurement and Construction
Contract with General Electric and Gama affiliates, and the Operation and
Maintenance Contract and Gas Supply & Tolling Contracts with separate RWE
affiliates.
Financing
support included the detailed review and advice to Gama on each of the finance
and security documents, covering negotiations on the term sheets and loan
agreements with the lead arrangers for both senior and mezzanine debt.
Talanworth also negotiated the appointment of insurance and tax and accounting
advisers and managed such advisers. A
full Owner Controlled Insurance Programme was established to address supply,
shipping, erection and construction with also protection for environmental
liability.
Nigel
Hawke worked as an integral member of the Project Team, based in
Ireland, and
provided on -going financial management support. This extended to support to Gama
for complex sponsor support arranged for certain aspects of the financing.
The objective throughout was a balanced risk return relationship to
control the sponsor’s exposure to the project.
Financial
close was achieved on 27 August 2004.
Corporate
Support
Talanworth
also provided regular reports to the senior management of Gama detailing the
development of the project and how the risk allocation amongst the parties was
being managed. This included
devising solutions to issues as they arose, a role with which Nigel Hawke is
very familiar in other comparable roles.
By
involving Talanworth at such a level senior management obtain additional
experienced resource with their best interests in mind and timely advice on the
issues that need to be addressed without having to commit long-term or to incur
direct employment expense.
Nigel
Hawke also assisted the Project Company to recruit for the role of de-facto
Finance Director and drew up the job specification, interviewed and briefed
candidates and coached the successful candidate both before and once formally
appointed to the role of Senior Finance Manager.
Prior to such person being appointed the Project Company Management
Accountant was also guided and supported by Nigel.
The
project company’s Management Plan was developed by Talanworth from principles
laid down by Gama about how the project company should managed and the Board of
Directors organised.
Construction
Construction
commenced early in 2004 and the power generation facility will come into
operation within less than two years. The
construction consortium comprises General Electric affiliates and Gama Power
Systems Inc. an affiliate of Gama, acting jointly and
severally. General Electric is one of the world leading companies in power
generation and Gama is very experienced with such construction having been a
contractor for the 343 MW CCGT Huntsdown Power Station in Ireland, the 4 x 360
MW Afsin-Elbistan B Thermal Power Plant, Turkey, the 2 x 660 MW Iskenderun
Soguzu Thermal Power Plant, Turkey, the 5 x 367 MW Shoaiba Thermal Power Plant,
Saudi Arabia, and the 6 x 112 MW hydro-electric plant at Birecik, Turkey which
are selected recent power plant construction projects.
Operation
The
facility will be operated for Tynagh Energy by an affiliate of RWE and fuel will
be supplied by another affiliate of RWE. The State Electricity Supply Board is
providing an capacity and differences agreement which provides the facility with
a guaranteed income, subject to meeting availability standards and other
obligations, as more particularly described in the ITT and in other documents on
the CER’s own web site. Tynagh
Energy also contracted the remaining available capacity.
General Electric affiliates will support the heavy maintenance of the gas and
steam turbines and the generators
for an initial period.
Bord
Gais will construct a 16km gas pipeline and ESB via its contracting arm will
construct a 2 km overhead line. Water will be supplied from a neighbouring site.
Sponsors
Gama
Holdings AS, headquartered in
Ankara, Turkey, is the
top company of the Gama group established in 2003 following a restructuring of
the group into five core functions: Industry, Power Systems, International,
Energy and Trade & Tourism.
The
origins of the group date back to 1959 when the civil construction business was
inaugurated, which was expanded
during the 1980’s into the Middle East, Russia, the CIS countries, Southeast
Asia, North Africa and Europe. Activities
encompass turnkey construction of industrial plants, power generation plants and
pipelines, office towers, dams, commercial centres and housing complexes,
highways and bridges.
Group
turnover was USD 437 million in 2003, with on-going construction contracts of
USD 1.2 billion, of which
Ireland
accounts
for 38%, Turkey
28% and
Saudi
Arabia 18%. Order backlog amounted to USD 611 million. All figures as at
31
December 2003
.
Gama
Industry specialises in the construction of industrial facilities, including
thermal power plants, refineries, petrochemical plants, hydroelectric power
plants, water and waste water treatment plants, cement factories and pipelines,
office towers, business and shopping complexes, residential and hotel buildings,
social and cultural facilities, health facilities, dams, underground
transportation systems and utilities and the installation of mechanical &
electrical equipment and instrumentation. This part of the group also owns a
steel construction and boiler manufacturing plant and has investments in real
estate and cement production.
Gama
Power Systems is the leader in the group for engineering, supply and turnkey
construction of power plants both in its domestic markets and overseas.
This grew out of a highly successful design, supply, fabrication,
installation, operation and maintenance of steam boilers since 1963.
Gama
International provides an umbrella organisation for the groups leading overseas
operations with subsidiaries in Ireland,
Bulgaria
and
Saudi
Arabia.
Gama
Construction Ireland has increased its volume of business in excess of USD 350 million,
with projects including the 100 MW Lough Ree Power Plant, Lanesborough, Balgaddy
A-8 and B-Phase Housing Projects (149 residences), Ballymun
Coultry-3 Housing (87 units), Blanchardstown 72 residences, and Ballincollig
Bypass motorway project – second largest Irish motorway construction. Projects
in course in Ireland include 150 MW West Ofally, Shammonbridge – power plant
site arrangement and building construction works, Project C, D & E Balgaddy
(314 homes/residences plus commercial and community buildings), 164 Balcurris
residences, Ballymun, 220kv Corduff Transformer Station, 3,800 m2
Northwood Office Building, Santry, Dublin and the Tynagh Energy power plant in
Galway.
Gama Energy has investments in the Izmit Domestic and Industrial Water Supply
Project, Turkey, the Trakya Power 478 MW CCGT Marmara Ereglisi power plant,
Turkey, the TGT Power 153 MW Kirikkale Power Plant, Turkey and the 672MW Birecik
Dam hydro-electric power plant, Turkey.
Gama Trade and Tourism has marketing and commercial activities in medical
products (internal orthopaedic prosthetics and orthopaedic products), domestic
and overseas trade (industrial flow metres, ductile pipes, & fittings,
marketing of cables, building chemicals, insulation materials, fuel and mineral
oil), office equipment sales and after-sales services, maintenance and repair
services, and also insurance. This
sector also operates the Renaissance Antalya Beach Resort & Spa Hotel,
Turkey owned by the Marriott Group.
Mountside
Properties Limited, a minority owner of Tynagh Energy Limited is a property
development company formed specifically to obtain the site for the Tynagh
project and to assist in project development.
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