Consortium builds framework for competitive bids on Shanghai projects

Price Waterhouse Hong Kong has announced an assignment from the Asian Development Bank to introduce international project finance techniques for a new power project in Shanghai. Using competitive bidding, the project could lead to a breakthrough in the way China`s power industry is financed.

A consortium led by Price Waterhouse will prepare the bidding process for private-sector participation in the 2×900-MW Waigaoqiao II coal-fired power station. The consortium also includes Morrison & Foerster, a US international law firm, and PowerGen, the second-largest generating company in the United Kingdom.

The team will provide advice on the plant`s technical specifications, the legal structure of the entity that will build and operate the station, and the financing method. Team members will work with Shanghai authorities to develop a regulatory framework allowing for overseas participation in China power projects.

“This is a great opportunity to help shape the future direction of the Chinese power industry,” said Nigel Ayton, Price Waterhouse team leader. “Greater competition in the bidding process will take discussions away from rate of return and bring benefits for all involved–the authorities, government, international investors and Chinese electricity consumers.”

PowerGen will carry out much of the technical work in preparing the project for competitive bidding.

“We have already seen the benefits competition has brought to the UK power industry, and we will be seeking to ensure that this project brings some of those benefits to China to encourage a range of potential plant designs that conform to high technical and environmental standards,” said Peter Martin of PowerGen.

Morrison & Foerster will provide legal expertise in developing the financeable risk allocation structure and documentation. The firm will also review the existing regulatory framework and recommend changes needed for project financing.

“We will be addressing several complex regulatory issues. In particular, we will need to consider how to provide the assurances that financial institutions typically require for projects of this kind,” said Richard Lawrence, of Morrison & Foerster`s Hong Kong office. “Our team members will also need to address foreign exchange issues, limitations on returns, and the enforcement of contracts and liens. We have to combine this with a more open bidding system and greater flexibility in the structure of Chinese power projects.”

Price Waterhouse has managed similar projects in Thailand, the Philippines and the Republic of Ireland.

“Waigaoqiao II will be a blueprint for future power projects in China. China has had good reasons for hesitating on finance of this kind, but we are confident that the authorities and foreign investors are now willing to overcome the difficulties to the benefit of all parties,” Ayton said