Kahrama SpA

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Kahrama SpA was awarded a 25 year build-own-operate (BOO) contract by the Government of Algeria in 1999, to develop an independent water desalination and power project (IWPP) in the city of Arzew, 400 km to the west of Algiers. The new plant, with a capacity of 314 MW of electricity and 88,000 cubic meters per day of potable water, was expected to increase power supply in the Arzew district as well as resolve some of the water shortages in the nearby Oran. The project comprised of three units, each producing 105 MW of power and about 29,000 cubic meters per day of desalinated water. The 25 year BOO contract was the result of Government of Algeria’s effort to reform the utilities sector and to gradually open it to competition. State-owned power company Sonelgaz planned to add 7100 MW of new capacity with private partnership by 2010. A new law on electricity and gas distribution, enacted in February 2002, paved the way for independent power plants. Further, the Ministry of Water Resources planned to develop 28 desalination plants (combined capacity of 1,950,000 cubic meters per day) with private sector participation. Kahrama SpA was a joint venture between US based Black and Veatch Corporation (B&V) (5%) and state owned Algerian Energy Company (AEC) (95%). AEC increased its equity interest in Kahrama SpA from the original 20% to 95% when B&V failed to secure funding for the project. The total cost of the Kahrama IWPP was estimated at US$400 million. Although the sponsors originally planned a debt equity ratio of 70:30 by investing US$120 million as equity, they were unable to secure finance for the construction phase. During construction, the project was fully financed by equity contribution and a bridge loan from AEC. Construction of all three units was completed in the second half of 2005. The sponsors were expected to refinance their investment after the project became operational. Kahrama awarded the EPC (engineering, procurement and construction) contract worth US$ 260 million to Japanese consortium of Itochu Corporation and Ishikawajima-Harima Heavy Industries in January 2002. Oman’s Sogex was awarded a 10 year renewable operations and management contract worth US$ 120 million. Kahrama IWPP signed 25 year take or pay off take agreements for an estimated total of US$ 1,500 million (over the entire contract term) with state owned energy company, Sonatrach, for the water element and with the state power company, Sonelgaz, for power. The agreements were guaranteed by Sonatrach. The project became fully operational in the second half of 2005.