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