Innovative financing fuels power plant renovation
The complex funding package hinges on government guarantees for a foreign loan package covering the final third of the modernization. That plan, already approved by the Economic Council of Ministers (KERM), could be signed this week.
The Polish consortium, put together on the initiative of Bank Handlowy w Warszawie (BH), provided the only effective way of raising domestic capital for a project of this magnitude.
While the Turow agreement could provide a model for projects to finance upgrades of the country's other obsolete, coal-fired power plants, such patchwork agreements do not get around basic inadequacies of the Polish banking system, said Andrzej W. Urbanczyk, deputy director of Elektrim SA, which helped negotiate the conditions of the agreement.
Fourteen banks had to pool their resources to raise the capital for the loan, as current banking laws prevent any bank from committing more than 10% of its equity to a single borrower, he explained.
"We will try to make a similar model for the other power plant projects," he said. "But it could be difficult for the next stages of the Turow project, because the same banks can't be approached for any more loans to Turow."
The loan package is backed by ground-breaking, long-term contracts to purchase the power and supply fuel at a guaranteed price for the life of the project.
The Polish Power Grid Company (PPGC) signed a long-term contract to purchase electricity from Turow at a guaranteed price for the life of the funding agreement. The contract is the first of its kind to be signed by the state-owned distributor. The Turow Lignite Mine (TWT) also signed a long-term contract to supply fuel for the facility at a guaranteed price.
Turow is located at the mouth of the mine, but the agreement could set a precedent for other long-term power-plant projects.
Domestic and foreign funding
The Turow modernization project started moving last December, when the Swiss-Swedish power systems company ABB Asea Brown Boveri Ltd. and Ahlstrom Pyropower Corporation, based in San Diego, California, agreed to join forces to provide the latest in turbines (from ABB) and clean-burning fluidized bed combustion systems (from Ahlstrom).
The prime contractor, called ABB-Ahlstrom, put together a foreign funding package using private banks and export-finance guarantees from their home countries for roughly one-third of the project ($104 million).
This agreement, expected to be signed Monday (June 5), depends on a guarantee from the Polish government. Funding comes from a $40 million loan from the Nordic Investment Bank, a $53.7 million loan from a consortium of banks organized by Citibank and guaranteed by the United States ExIm Bank, and $14 million (16 million Swiss Francs) from the Swiss Bank Corporation, backed by a guarantee from Switzerland's export finance agency.
Domestic support for the project got off the ground on April 28, when Poland's National Fund for Environmental Protection and Water Management (NFOAGW) and Bank Ochrony Arodowiska (Enviromental Protection Bank) put up loans equivalent to $54.6 million.
That loan was based on the environmental importance of the project, which will bring Turow's discharges of nitrous oxides, particulate matter and waste water into line with European Union standards. The plant's location at Bogatynia, in the notorious "Black Triangle" region of eastern Germany, Poland and the Czech Republic, gives the cleanup considerable political leverage, said Jerzy *askawiec, Turow's director.
Phase One
The Polish banking consortium provides the largest portion of the funding for the project's first phase, which will result in modernization of generating units One and Two. The replacement should take 35 months and the new turbines and combustion systems will boost those units' productivity from 200 megawatts to 239 megawatts, while bringing them into compliance with all environmental standards.
Total modernization of the huge plant, which supplies roughly 10% of Poland's electric power, ultimately calls for replacement of six of Turow's ten existing turbines. The other four will be phased out.
Based on the price of Phase One, *askawiec estimates the total cost of the project at $1.2 billion. The project should be completed by the year 2003. The whole Turow complex is scheduled to shut down in 2035, when the area's brown coal reserves will be exhausted.
The Polish consortium, put together on the initiative of Bank Handlowy w Warszawie (BH), provided the only effective way of raising domestic capital for a project of this magnitude.
While the Turow agreement could provide a model for projects to finance upgrades of the country's other obsolete, coal-fired power plants, such patchwork agreements do not get around basic inadequacies of the Polish banking system, said Andrzej W. Urbanczyk, deputy director of Elektrim SA, which helped negotiate the conditions of the agreement.
Fourteen banks had to pool their resources to raise the capital for the loan, as current banking laws prevent any bank from committing more than 10% of its equity to a single borrower, he explained.
"We will try to make a similar model for the other power plant projects," he said. "But it could be difficult for the next stages of the Turow project, because the same banks can't be approached for any more loans to Turow."
The loan package is backed by ground-breaking, long-term contracts to purchase the power and supply fuel at a guaranteed price for the life of the project.
The Polish Power Grid Company (PPGC) signed a long-term contract to purchase electricity from Turow at a guaranteed price for the life of the funding agreement. The contract is the first of its kind to be signed by the state-owned distributor. The Turow Lignite Mine (TWT) also signed a long-term contract to supply fuel for the facility at a guaranteed price.
Turow is located at the mouth of the mine, but the agreement could set a precedent for other long-term power-plant projects.
Domestic and foreign funding
The Turow modernization project started moving last December, when the Swiss-Swedish power systems company ABB Asea Brown Boveri Ltd. and Ahlstrom Pyropower Corporation, based in San Diego, California, agreed to join forces to provide the latest in turbines (from ABB) and clean-burning fluidized bed combustion systems (from Ahlstrom).
The prime contractor, called ABB-Ahlstrom, put together a foreign funding package using private banks and export-finance guarantees from their home countries for roughly one-third of the project ($104 million).
This agreement, expected to be signed Monday (June 5), depends on a guarantee from the Polish government. Funding comes from a $40 million loan from the Nordic Investment Bank, a $53.7 million loan from a consortium of banks organized by Citibank and guaranteed by the United States ExIm Bank, and $14 million (16 million Swiss Francs) from the Swiss Bank Corporation, backed by a guarantee from Switzerland's export finance agency.
Domestic support for the project got off the ground on April 28, when Poland's National Fund for Environmental Protection and Water Management (NFOAGW) and Bank Ochrony Arodowiska (Enviromental Protection Bank) put up loans equivalent to $54.6 million.
That loan was based on the environmental importance of the project, which will bring Turow's discharges of nitrous oxides, particulate matter and waste water into line with European Union standards. The plant's location at Bogatynia, in the notorious "Black Triangle" region of eastern Germany, Poland and the Czech Republic, gives the cleanup considerable political leverage, said Jerzy *askawiec, Turow's director.
Phase One
The Polish banking consortium provides the largest portion of the funding for the project's first phase, which will result in modernization of generating units One and Two. The replacement should take 35 months and the new turbines and combustion systems will boost those units' productivity from 200 megawatts to 239 megawatts, while bringing them into compliance with all environmental standards.
Total modernization of the huge plant, which supplies roughly 10% of Poland's electric power, ultimately calls for replacement of six of Turow's ten existing turbines. The other four will be phased out.
Based on the price of Phase One, *askawiec estimates the total cost of the project at $1.2 billion. The project should be completed by the year 2003. The whole Turow complex is scheduled to shut down in 2035, when the area's brown coal reserves will be exhausted.
