In an effort to address the severe shortage of fresh water due to increasing demand, drought, and pollution, the Government of Algeria decided to embark on an ambitious plan to construct up to 28 large-scale desalination plants along the 1,300 km coastline of Algeria before year 2020. The Skikda Desalination Plant, one of the projects under the plan, is located in the northern part of Algeria (Mediter-ranean Sea) about 2 km east of the city of Skikda (about 500 km east of the city of Algiers). The project consists of a seawater desalination plant producing 100,000 cubic meters of water a day using reverse osmosis (RO), provide potable water needs of 700,000 equivalent inhabitants and petrochemical industries nearby.
The total cost of the project was estimated at US$ 110.6 million (80% debt, 20% equity). The project was financed by a local government-financed bank, the Banque Nationale d'Algerie (BNA) which provided the Spanish consortium with a 17-year term loan in local currency at a very favorable fixed rate. The terms of the nonrecourse long-term funding by the BNA, allowed the project to eliminate foreign exchange rate risk and permitted it to achieve a ratio of debt to equity of 80:20. The Algerian Energy Company (AEC) participated 40% in the equity.
The Algerian Energy Company (AEC) awarded the project in April 2004 to Spanish GEIDA Consortium16 for a 25-year contract. The water produced is to be sold on a fixed plus variable tariff scheme as stipulated under a water purchase agreement with Sonatrach and Algérienne des Eaux (Algerian government-owned companies for exploitation and management of hydrocarbon and water management respectively).
BUSINESS | CONSTRUCTION OBLIGATIONS | PRIVATE FUNDING | SERVICE DELIVERY | SOURCE OF REVENUE |
BUSINESS - New: The project involves the construction of a new desalination plant on green field basis. There are no previous data, employees, or undertakings requiring due diligence by investors.
CONSTRUCTION OBLIGATION - Build: The transaction implies significant construction risks for Aguas de Skikda, including cost overruns and completion delays which may affect the project's profitability. These risks are however, well mitigated considering the experience and reputation of the company and sponsors in project of this nature.
PRIVATE FUNDING - Finance: The project is financed through a combination of equity from sponsors and financing from BNA, a local government-owned bank in Algeria.
SERVICE DELIVERY - Bulk: The project company is required to deliver services directly to project off takers ADE and Sonatrach.
SOURCE OF REVENUES - Fee: The source of the revenue stream originates directly from a fee under the Water Purchase Agreement.
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16 The Geida Consortium is constituted by Abengoa's Befesa and Codesa (50%); Actividades de Construcción y Servicios (25%) through Cobra-Tedagua; Sacyr (25%) through Sacyr.