Oman solar

FINANCING PV
SOLAR IN OMAN

FINANCING PV S
Conscious of the finite life of its natural energy resources and its increasing demand
for energy, Oman has recently announced two major Solar PV projects to the
market. Through the projects, Oman is seeking to leverage it strong track record in
the IPP market and attract third party capital to meet its long term energy needs.
However, in light of the challenges currently facing the Omani market, private
sector participants will have to carefully consider how this substantial level of
investments ($600 million+) can be raised.
The following general Oman economic risks are likely to impact the availability and pricing of finance to support
the Project
Downgrade to Omani
Credit Rating
Stability of the Omani
banking sector
Reduced
funding
appetite
Shorter
tenors
Increased
pricing
Increase in Omani
public sector debt
Lower hold
levels
Additional
guarantees
Reliance on
local market
Oman political risk
Downgrade to the Omani Credit Rating
Although historically investment grade, Oman’s credit
rating has been subject to a series of downgrades since
2015. The currently rating of BB (S&P) and Baa3 (Moody’s)
creates a challenging funding environment—particularly
for international funders.
Stability of the Omani banking sector
Oman’s banking sector is traditionally heavily reliant on
government deposits. After a period of sustained
pressure, during which the government successfully
raised $5 billion of much needed funds through a March
2017 bond issuance, liquidity pressures on the banks look
likely to ease. In addition, the improvement in the oil price,
the fiscal reforms and a relatively well capitalized financial
sector have all led to a fairly stable banking sector.
Increase in Omani public sector debt
Oman’s public debt has risen from 5% of GDP in 2014 to a
projected 50% by 2020. This level of increasing debt is
unsustainable in the long term and makes the economy
particularly vulnerable to any further interest rate rises. A
$5 billion bond issuance was required last year to restore
liquidity to the domestic market and the need for external
financing may continue and potentially lead to a downward
debt spiral if unfavorable economic conditions persist.
Oman political risk
Although within the in the region Oman is viewed as a
relatively stable political regime with relatively low political
risk, international investment still view with caution the
overall stability of the Middle East

OLAR IN OMAN
MEETING THE FUNDING CHALLENGE
In light of the challenges poised, developers seeking to raise capital will need to blend together a final funding
package from a range of sources:
Export
Credit
Agencies
International
funders
Regional
funders
Relationship
funders
Equipment
suppliers
Blended funding package
ECA solution
Projects of this nature lend themselves to an ECA-backed funding
solution. Most Oman IPP projects have some form of ECA support
within their funding structures. However, in light of the credit downgrade,
the use of an ECA may be a pre-requisite.
Likely credit appetite:
✓ ✓ ✓ ✓
International funders
The credit downgrade is likely to limit international funders’ appetite
to support the Projects – particularly if the potential implications of
the move to the BOOT structure are not supported by a suitable
Government/credit guarantee.
Likely credit appetite:
✓ ✓
Regional funders
Local funders have been active in the funding of previous IPP structures
and can therefore be viewed as potentially a key source of
finance. However, prior to such an inclusion, shareholders will need
to understand:
• The ability to act within a funding club which potentially does
not include an international funder
• The speed at which a local funder can operate
• Local appetite for solar technology (noting although technology
risk is likely to be low, these are the first significant
PV solar projects in Oman
Likely credit appetite:
✓ ✓ ✓ ✓
Relationship funders
The Consortium Sponsor’s primary funders (either at a corporate or
project level). These funders may be either international or local.
Likely credit appetite:
✓ ✓ ✓ ✓
Equipment suppliers
The supplier of the PV Solar panels may look to provide a form of
asset-based lease finance.
Likely credit appetite:
✓ ✓ ✓ ✓
The implications of a Build-Own-
Operate—Transfer contracting model
It appears the Projects are to be procured under a BOOT
commercial structure, as opposed to the historically typically
Omani BOO structure. This change in risk allocation
is likely to impact the commercial structure in a number
of ways:
• Requirement for Government guarantees -
specifically in relation to the repayment of senior
debt in the event of default or termination
• Ability to IPO - the finite life of the projects under
a BOOT structure means an IPO is unlike to be attractive
to the market
• No post PPA value - The transfer of the asset at
the end of the PPA effectively prevents shareholders
from realising any post-PPA value.

OUR TEAM
HKA continues Hill International’s legacy, built up over 40 years working across
the Middle East and Africa. With the same staff, technical skills and experience,
HKA continues to provide the highest level of client satisfaction and excellence.
Stephen Watson is a project finance and infrastructure specialist with 22 years’ experience of advising governments
and private sector developers within the Infrastructure & PPP markets across the UK, Europe,
1976
Irvin E. Richter launches Hill International, Inc. from his home in
Willingboro, New Jersey, USA.
2006
2007
2010
2013
2014
2017
2017