Jordan issued a third round of requests for proposals from renewable energy developers in February while it continues to collect proposals from the second round and negotiate with developers whose projects were accepted in the first round. The deadline to submit proposals in the second round is May 15. Most of the focus is on wind and solar projects, but a new law also encourages independently-owned geothermal, wasteto-energy and bio-gas projects. The 117-megawatt Tafila wind farm, on which the financing closed recently, will serve as a template for risk allocation and
financing other renewable energy projects in Jordan.
At least for the near term, agency lenders are likely to be the
main source of financing.
Overview of Energy Sector
Unlike its neighbors, Jordan is not blessed with significant oil
and gas resources. Until recently Jordan was heavily dependent
on the Arab gas pipeline from Egypt for natural gas, importing
as much as 80% of the gas it uses from Egypt. Egyptian gas supplies have proven unreliable due to political unrest in Egypt
and attacks on the pipeline. This has forced Jordan to switch to
heavy fuel oil and diesel to generate power, increasing the
financial burden on the country.
Jordan is looking at medium and long-term initiatives across
a wide range of energy sectors to diversify its energy sources.
These include importing LNG, exploring for oil and gas, implementing an energy efficiency program, importing electricity
from neighboring countries and diversifying the types of fuel it
uses for power generation.
Jordan has gas reserves, but little oil. Its oil reserves were
estimated in 2012 to be around one million barrels. It has
around 200 billion cubic feet in gas reserves. The country is
divided into a number of exploration blocks, and additional
discoveries may be made along the border with Iraq and in the
Dead Sea as oil and gas exploration continues. In the meantime, it remains a net importer of hydrocarbons; up to 20% of
its gross domestic product goes towards payment for
imported energy. Jordan imports 97% of its energy needs.
Installed electric generating capacity is approximately
3,100 megawatts with peak demand of around 2,900 megawatts. Electricity demand is growing at a rate of approximately 8% a year.
The country also has significant deposits of oil shale, but it is
not in a position currently to recover the oil.
Jordan’s main exports are non-metallic natural resources,
mainly potash and phosphates. It also has a pharmaceutical
industry that is geared toward the export market; 75% of the
pharmaceutical output is sold abroad.
The World Bank rates Jordan at 119 of 189 countries in
terms of ease of doing business.
Jordan has been slower than neighboring countries like
Oman and Abu Dhabi to embrace private sector participation
in electricity generation. The others embraced it starting in the
late 1990s. Jordan did not see an independent power project
signed until February 2007 when a power purchase agreement
with a 25-year term was signed with a project company established by AES Corporation and Mitsui & Co. for a 370-megawatt project known as Amman East.
This was followed in short order with PPAs for three more
large independent power projects: Qatrana, IPP3 and IPP4.
These were all successful projects. Projects in the renewables
sector were not progressing so well.
Jordan’s first attempt to enter the renewable energy sector
was the launch of the 30 to 40-megawatt Al Kamsha wind farm. However, no project
agreements have been signed with the developers. The 90 to
250-megawatt Fujeij wind farm was next out of the gate. No
project agreements have been signed with the developers.
Notwithstanding this, recent legal developments are
making renewable energy developers optimistic.
New Renewable Energy Law
The country enacted a renewable energy and efficiency law in
2012 — Law No. 13 of 2012 – that goes some way toward providing a framework for renewable energy. It should be read in
conjunction with the General Electricity Law of 2003.
The Ministry of Energy and Mineral Resources is charged
under the 2012 statute with identifying areas within Jordan
that have a high potential for solar, wind, bio-energy, geothermal and hydropower. The Ministry is supposed to create a priority list for developing these resources in the areas identified
as part of an energy sector master plan. The Ministry has
authority to issue tenders to attract proposals on a competitive basis for the development of one or more sites and for
projects exceeding 500 megawatts. The utility, NEPCO, may
also issue such tenders. Apart from large projects that must be bid by competitive
tender, any person now has the right to submit a proposal to
the Ministry directly to develop any site for renewable energy.
A direct proposal must satisfy certain conditions. A development plan must be submitted with the preliminary design,
initial financing plan and contribution of local content to the
facility, supplies, construction and operation. The applicant
must be experienced with the type of project. A fixed price
tariff must be proposed, and it must fall within a set of guidelines, called the “reference price list,” that has been established
by the Electricity Regulatory Commission.
The law requires that applicants be notified of a decision on
their projects within six months. If a project is accepted, then
negotiations of the project agreements follow. The Electricity
Regulatory Commission issue a generating licence after the
project agreements have been signed. Electricity generated
can be sold to the national utility, NEPCO, or to holders of retail
supply licences (for example, Irbid District Electricity Company).
Practically speaking, NEPCO has greater experience with PPAs
and related project agreements, although that does not preclude the possibility of doing a deal with the holder of a retail
Equipment for renewable energy projects is exempted from
all customs duties and sales taxes.
The Tafila wind farm was the first of the round 1 projects
accepted by the government under the unsolicited proposals
The project agreements were signed in November 2013. The
sponsors are Cyprus-based renewable energy developer EP
Global Energy, Masdar and
InfraMed Investments. The government received proposals
from developers indicating the
maximum tariffs that the government would pay. In the first
round, only facilities with a
capacity greater than 10 megawatts were accepted.
EP Global Energy signed a
memorandum of understanding with the Ministry of Energy
& Mineral Resources in June
2011, giving the developer
exclusive rights for 24 months.
Projects such as Amman East, Qatrana, IPP3 and IPP4 produced a set of bankable project agreements. The Tafila developers used the same risk allocation as a starting point for
negotiations. The project was undertaken on a build-ownoperate basis. The final risk allocation for Tafila is broadly consistent with
precedent projects in Jordan. The Ministry and NEPCO revisited issues at the margin. For example, the developer is
responsible for procuring the site and, as a result, must accept
some of the site risk associated with the parcels of land that
form part of the site. There is an increased burden of investigation of title. Lenders will insist on mechanisms to ensure
that leases with multiple owners of land are managed effectively to avoid defaults.
Conventional thermal projects in Jordan have benefited
from the government entering into an implementation agreement. Such an agreement provides a form of government
guarantee and offers “soft” but direct government support to
the project company on a number of matters. Tafila has the
benefit of sovereign support for payment obligations of
NEPCO, but the other, softer support from the government is
The Middle East has one of the most long-established templates for financing independent power projects among
emerging markets. However, the record varies from one
country to the next within the Middle East.
Jordan has a more recent and less developed track record of
financing such projects. The first IPP project in Jordan was the
370-megawatt gas-fired Amman East power project in 2007.
The first independent power project in the Persian Gulf region
closed in 1994. Jordan is regarded as a more difficult market
from a risk perspective than others, like Abu Dhabi, within the
The debt for Tafila is being provided by the International
Finance Corporation, European Investment Bank and the OPEC
Fund for International Development. Part of the IFC loan is
being indirectly provided by FMO and the Europe Arab Bank.
Repayment of the loan by the European Investment Bank has
been guaranteed by Eksport Kredit Fonden, the Danish export
The reliance on these sources of financing for Tafila is a
reflection of the more challenging nature of financing projects
in Jordan. For the time being, the main sources of financing for
Jordanian renewable energy projects will probably be multilaterals, export credit agencies and other agency lenders.
Financings led by international commercial lenders without
any form of government credit support would seem challenging, and capacity constraints on long-term debt financings
restrict reliance on local commercial lenders.
These other lenders may still participate in such financings. Any commercial lenders will want their loan participations
covered by a guarantee, insurance or otherwise from an agency
lender (a structure that is commonly adopted by export credit
agencies) or else there must be “A/B facilities” or an analogous
structure. In A/B facilities, the agency lender is the lender of
record, but part of the loan is indirectly provided by a third
party lender. Tafila used an A/B structure for the IFC loan.
Special Issues in Agency Financings
The heavy reliance on agency lenders has other implications.
International commercial banks lending to finance projects
in the Middle East usually also undertake the hedging for their
proportion (and sometimes more) of the debt financing.
Although such a bank might provide the hedging in concept
for a project even if it is not also lending, for commercial
reasons it is unlikely to do so. Hedging banks have limited
rights. International commercial banks acting as hedging
banks accept the limited rights on the basis that they have
much more substantial rights in their separate capacities as
lenders. Therefore, if a financing is dominated by agency
lenders, a key issue will be who will provide the hedging:
certain agency lenders, such as IFC and the European Bank for
Reconstruction and Development, have the ability to provide
It is also typical in a commercial bank financing for one or
more of the lead commercial lenders to undertake the agent
and account bank roles. These roles are generally regarded by these commercial lenders as ancillary services to their participation in the lending and hedging. Although, in theory, the relevant parts of a commercial lender could undertake such roles
even if they are not lending and providing hedging, they may
for commercial reasons be reluctant to do so. Thus, to the
extent the agency lenders are not able to undertake one or
more of these roles (IFC has an administrative agent unit),
these will have to be undertaken by independent agents. The
number of such independent agents and account banks is
limited, but certain of those independents have developed
considerable experience in the area (for instance, Law
Debenture acting as an English law security trustee). These
independents generally have more requirements than agents
and account banks that form part of the lender syndicate. This
means that the agents and account banks should be identified
and negotiations with them commenced at an early stage: the
negotiations can be time consuming.
As the Jordanian government is developing the renewable
projects in different rounds and some of the projects may be
relatively small, the same agency lenders may end up financing
a number of projects. Therefore as each project basically needs
the same set of financing agreements, there may be a chance
for cost and time savings by using a common set of
The internal approval processes for agency lenders can vary
considerably. For instance, larger Sinosure transactions require
the approval of the State Council, which is the executive arm
of the Chinese government: this can take months.
Agency lenders may also impose conditions on the financing. It is important to find out what they are early in the process. For instance, the European Investment Bank imposes
certain obligations on projects it finances outside the
European Union for how the projects procure their equipment.
The ability of commercial lenders to finance any project is
primarily determined by commercial considerations. Agency
lenders are equally subject to policy considerations. It is good
always to check early whether the particular agencies on
which the project will rely are open for the proposed financing.
Each agency lender has its own criteria that determine the
basis on which it would be able to lend. The ability of export
credit agencies to finance projects is linked to the sale of
goods, services and supplies from their home countries.
Multilateral or bilateral agencies focus on development issues.
For instance, the EBRD’s funding criteria include that the
project should benefit the local economy, develop the private
sector and be located in an EBRD country of operations.
Even if agency lenders are available, there may be limitations. For instance, export credit agencies have different rules
as to their ability to finance any local content: whereas the US
Export-Import Bank is able to finance a certain level of local
content (as well as US content), the Chinese export credit
agency is restricted to financing content from China. The
various restrictions mean that the project may have to be
financed by a syndicate of agency lenders to cover the gaps.
The use of agency lenders will affect other terms of the
Agency lenders will be particularly focused on environmental, social and other policy issues in their due diligence. It
would be a good idea to agree the parameters early in the
International commercial banks use financing agreements
developed by the Loan Market Association in London (to the
extent the financing will be governed by English law). In contrast, some agency lenders have their own templates for
certain financing agreements that will need to be followed: for
instance, the EIB has its own well-developed loan agreement.
The IFC has been developing a series of template financing
agreements with a view to saving time and cost on agency
financings and has been seeking the agreement of other
agency lenders to use them on projects where the IFC co-lends.
Different agency lenders have their own requirements as to
particular terms. For instance, export credit agencies commonly require that certain terms be included to reflect the justification for their involvement in the financing. The EBRD has
certain requirements as to dispute resolution clauses to reflect its multilateral status.
Intercreditor arrangements can be complicated. Certain
agency lenders will require specific rights to reflect their policy
considerations or to preserve separate rights they may have. If
an agency lender is providing a guarantee or insurance for
certain lenders, then these will be excluded from the general
Rounds Two and Three
Jordan launched a second procurement round in August 2013.
The deadline to submit an expression of interest has been
extended to May 15, 2014.
This round is restricted to solar photovoltaic and wind projects. The project size for solar photovoltaic projects is 50 megawatts. A range of 50 to 100 megawatts applies for wind farms.
Twenty-three companies have made the cut as qualified
companies and another 24 have been found conditionally
qualified for the photovoltaic portion. A list of four qualified
companies and two conditionally qualified companies has
been released for wind.
Jordan launched a third procurement round in February
2014. This round is restricted to solar photovoltaic projects.
The project size is 100 megawatts.
The launch of the second and third round prior to the completion of the first round has surprised the market, but it shows the
sense of urgency Jordan feels to reduce energy imports.
All qualified applicants must enter into a memorandum of
understanding with the Ministry of Energy & Mineral
Resources agreeing on the electricity tariff for any project the
applicant builds. The electricity tariff included in the proposal
must be a fixed tariff expressed as an amount per kilowatt
hour and be within an acceptable range consistent with reference price list. The Electricity Regulatory Commission issued a
new reference price list in January 2014. The old and new
prices in Jordanian dinars and US dollars are on page 24. The
figures are caps on what may be charged.
The old reference price list continues to apply to all first
round projects, subject to a production cap. The tariff caps in
the new reference price list will apply to both second and third