The Government has approved a €515 million investment by the ESB in a new power station in the Basque region of northern Spain.
The development follows agreement with the Government last week on a dividend policy, and the selection last November of the ESB as a preferred bidder to operate an electricity network covering 10 per cent of the US.
It comes almost two years after the Government refused permission for the State electricity company to invest in a much larger project in Poland.
While the capital cost of the power station at Amorbieta, near Bilbao, will be in the region of €515 million, the company finalised a financing arrangement in London yesterday for €690 million. This provides the long-term capital cost of the project and various short-term financing requirements for a project whose annual revenues to the ESB are projected to be in the region of €100 million.
It is thought the Minister for Finance, Mr McCreevy, signed off on the deal earlier this week after the ESB received approval in principle before Christmas from the Minister for Communications, Marine and Natural Resources, Mr Ahern. Mr Ahern said: "I have been supportive of this project and I was pleased to offer my backing based on the strong business case presented to me."
A consortium of nine banks led by Royal Bank of Scotland is financing the initiative. The other banks in the group are: AIB, Bank of Ireland, BBVA, Banesto, Bayeriche Landesbank, KBC, Fortis and Halifax Bank of Scotland.
The borrowings will include about €80 million provided to the ESB to fund its 15 per cent equity stake in the power station. This recourse debt will be repaid over four years, it is understood.
The remaining debt will be provided long-term to the ESB on a non-recourse basis, meaning that the servicing of the debt will be dependent on cash flows from the ESB's Spanish subsidiary, Bizkaia Energia SL.
Such debt includes a long-term facility worth about €435 million to fund the remaining 85 per cent of the project. Non-recourse short-term debt is understood to include a standby credit line of €40 million in case of cost over-runs and a €60 million VAT facility. The remaining facilities are understood to include a €25 million letter of credit for other supplies, a €25 million debt service reserve and €5 million in working capital.
The ESB chief executive, Mr Pádraig McManus, said the group's international business was core, adding that the power station would be the first internationally owned independent power plant in Spain. He added: "This confidence in ESB among financiers, particularly at this difficult time for power stations, augurs well for the future success of ESB's international investment strategy."
The combined cycle gas-fired generation station will produce 755 megawatts (MW) of power. As such, it will be almost twice as large as the ESB's newest gas-fired power station at Ringsend in Dublin, which produces about 400MW and is the biggest single generation unit in the Irish electricity network.
Expected to be commissioned for commercial operations starting on November 15th, 2005, the development has already received all the principal permits required from the Spanish authorities. The turbine for the plant will be supplied by General Electric, with engineering group ASC carrying out civil works. Shell will supply gas to the plant on a 15-year contract. It will also purchase the entire output for the same period.
