Peace | Crowell was a sponsor of last week’s TXF MENA 2017: ECA, Project & Trade Finance conference in Dubai. Jason Crowell, the firm’s managing partner, participated in a panel with the Export-Import Bank of Korea and the Emirates Nuclear Energy Corporation (ENEC) discussing debt and equity financing arrangements for new build nuclear projects and lessons learned from the Barakah nuclear power project in Abu Dhabi: TXF subscribers can access our presentations here.
The United Arab Emirates’ first-ever nuclear power plant is a vast 5.6GW endeavor, underpinned by a landmark $24.4 billion financing. Peace | Crowell’s role advising on that transaction helped propel the firm to place 13th worldwide in the infrastructure finance league tables published by IJGlobal in 2016. It also earned the firm recognition with a trio of Middle East deal of the year awards: Project Finance Deal of the Year at the 2017 International Financial Law Review Middle East Awards, Public Sector Financing Deal of the Year at the IJGlobal Awards 2016 and Global Finance Deal of the Year: Projects (Middle East) by The American Lawyer.
All of this is great news for both Peace | Crowell and the project sponsors – but what does the Barakah deal mean for future nuclear power projects?
Nuclear transactions are highly bespoke. The complex, international, high-stakes interplay between nuclear stakeholders – from governments to lenders to citizens to global NGOs – makes a one size-fits-all approach to development and financing impossible. The first-of-a-kind technology deployed in new nuclear also means there is no cookie-cutter solution to getting these enterprizes off the ground.
Future projects can, however, stand on the shoulders of the learnings we have gleaned from Barakah. One commonality across nuclear development, for example, is the paramount need for state support, given the uniquely governmental nature of nuclear projects – even when privately developed. Not only are there critical national security interests at play, as well as intensive governmental scrutiny around nuclear safety, security and reliability, but the sheer magnitude of nuclear transactions means few developers have the balance sheet to support the multi-billion-dollar capital needed to build a plant.
This necessary government financial support must be handled carefully: international experience demonstrates that important stakeholder groups are likely to balk if state financial support looks like it is being used to unfairly subsidize or bail out an uneconomic project.
Finding an effective financing structure which met both political and commercial demands was essential for Barakah, which had not one but multiple governments as stakeholders. This required a thorough examination and assessment of another thing all nuclear projects share – a wide, varied and evolving risk profile. Correctly capturing these risks and developing viable solutions to managing them is what sets apart a successful project and one which flounders in cost overruns and litigation.
For Barakah, sensitive, constant collaboration from the outset between governments and commercial enterprizes was key to structuring and allocating risk correctly. The confidence and understanding this built between the parties then allowed the developers to meet the financing challenge by employing innovative financing structures.
To plan, pay for and construct a civil nuclear project is no mean feat in a post-Fukushima, mid-Westinghouse Chapter 11 world. Citizens, sponsors, governments and lenders are more cognizant than ever of electricity prices, national security, volatile politics, climate change and nuclear safety: upcoming projects will have to be highly sensitive to these topical issues, and also to evergreen questions of cost and risk bearing.
Despite these challenges, Barakah has shown it can be done. As we continue to advise ENEC, our firm is also engaged in additional new build projects around the world. We look for continued opportunities to adapt certain concepts and structures from the project finance paradigm to help structure palatable government support constructs to facilitate these transactions. While we do not believe that pure non-recourse project finance is viable for nuclear, we do believe there are many clues to the financing puzzle for new build projects that can be unlocked by careful examination and adaptation of project finance principles.