Chengdu No. 6 Water Plant B

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In July of 1998, Chengdu Generale des Eaux-Marubeni Waterworks Company was awarded, through a competitive bid process, an 18-year build-operate-transfer (BOT) contract by the Chengdu Municipal Government for the financing, design, construction, and operation of Chengdu Water Plant B and laying a 27-km pipe to deliver the water. The plant was to have a total capacity of 460,000 cubic meters/day and serve the city’s population of over 3 million. Chengdu Generale des Eaux-Marubeni Waterworks Company was a joint venture between Vivendi (known as Veolia Environnement as of May 2003) (60%) and Marubeni Corporation of Japan (40%). The project had an 18 year off-take agreement (take or pay guarantee) with the municipal government owned Chengdu Waterworks General Company for 400,000 cubic meters/day of water a day along with a separate pricing mechanism for the remaining 60,000 cubic meters/day of capacity. The water tariff was structured into two parts: a continuous fixed portion relating to the RMB denominated costs of the project and a flexible portion featuring a RMB/US$ indexation mechanism. The Chengdu No. 6 water-treatment project benefited from the direct sponsorship of the central-level State Development and Planning Commission (SDPC) and also from the Chengdu Municipal Government's effective "guarantee" of the raw water-supply and the local utility's offtake responsibility. Since Chinese law prohibited a government agency from guaranteeing the performance of another Chinese party without approval, the parties structured the guarantee as a direct undertaking by the municipal government as "primary obligor," to perform raw water-supply and offtake obligations. The project reached financial closure in August of 1999 at a total cost of US$107.6 million. US$32 million was provided by the project's sponsors and a total of US$74.5 million of debt was provided by the Asian Development Bank (ADB), European Investment Bank (EIB), and a club of 7 banks led by Credit Lyonnaise. Tranche A was a 15-year, US$26.5 million ADB private sector loan. Tranche B was a 12-year, US$21.5 million ADB complementary financing scheme loan. Tranche C was a 12-year, US$26.5 million EIB direct loan. Tranche D was a 12-year, US$29.15 million EIB guarantee facility, syndicated to the club of 7 banks for commercial risk up of to 110% of the EIB loan. The project had a 30-month construction period, which was completed in December of 2001. None None