PROJECT FINANCE A CHALLENGE FOR ABU DHABI DEVELOPMENT

C O N F I D E N T I A L ABU DHABI 001385 SIPDIS DEPARTMENT FOR NEA/FO, NEA/ARP (BMASILKO) AND EEB STATE PLEASE PASS USTR (BUNTIN) E.O. 12958: DECL: 11/29/2018 TAGS: EFIN ECON EINV ENRG PGOV AE SUBJECT: PROJECT FINANCE A CHALLENGE FOR ABU DHABI DEVELOPMENT REFS: A. ABU DHABI 1285 B. ABU DHABI 1062 Classified by Ambassador Richard G. Olson for reasons 1.4 (b,d). ¶1. (C) Summary. The global economic downturn and related liquidity crisis is beginning to impact Abu Dhabi-based companies' ability to obtain reasonably-priced project finance. The Abu Dhabi National Oil Company (ADNOC) says its monthly cash flow will easily meet its development plans, despite falling oil prices. However, other state-owned and private sector entities are reporting financing is a challenge. Bridge financing is a short-term solution, but most are hoping credit markets loosen in 2009. Otherwise, the Emirate may have to consider scaling back planned infrastructure development or using government cash to finance these plans. End Summary. ¶2. (C) Despite falling oil prices and tight international liquidity, Abu Dhabi National Oil Company (ADNOC) Deputy CEO and Supreme Petroleum Council member Abdallah Nasser al-Sowaidi told EconOff on November 17 that ADNOC's monthly cash flow would easily finance its planned $45 billion investment in oil and gas production by 2015. Al-Sowaidi said that ADNOC does not anticipate seeking project finance for any of its upcoming plans, including expanding oil production from 2.7 million barrels/day to 3.5 mbpd in the next five years. ¶3. (SBU) However, ADNOC's rosy forecast does not mean that all of Abu Dhabi's state and quasi-state owned entities are escaping the credit crunch. Speaking at a November 9 conference, Abu Dhabi Water and Electricity Authority (ADWEA) Director of Privatization Abdulla Saif Al Nuaimi said that ADWEA was reviewing its financing options given the world liquidity problem. ADWEA is reportedly considering 10-month USD 1 billion equity bridge financing for its USD 2-3 billion Shuweihat 2 independent water (100 million gallons/day) and power (1500 MW) project. Al Nuaimi said ADWEA plans to seek better terms in the coming year, when he expected liquidity to improve. ¶4. (C) State-owned entities with longer time horizons are also betting project finance terms will improve. If not, some are confident that the Government of Abu Dhabi will find the cash to fund existing development plans. An advisor to Abu Dhabi's multi-billion dollar nuclear power project told EconOff that the government has made clear it would finance the project if needed. Similarly, officials from the planed zero-carbon Masdar City told EconOff on November 16 that Abu Dhabi officials who provided initial seed money for the project remained committed to seeing its completion. ¶5. (C) Comment. With local banks tightening lending practices, and major developments exceeding local financing options, it was obvious even the largest local firms would be feeling the credit pinch. Although it is still too early to predict with certainty, most officials remain optimistic liquidity will improve in 2009. While others are confident the government has the cash to continue its development plans, Abu Dhabi is historically cautious about spending. Continued declines in oil prices are likely to bring about some unexpected belt tightening. End Comment. OLSON