KEC Jordan

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26760
Company name	Kingdom Electricity Company PSC
Country	Jordan
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Active

Date SPI disclosed	April 10, 2008
Projected board date	May 15, 2008
Previous Events	Invested: April 17, 2009 Signed: March 26, 2009 Approved: March 13, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Following a transparent bid process, Kingdom Electricity Company (KEC), a consortium of investors from the Arabian Gulf countries and Jordan, was selected as the preferred bidder for the acquisition of the Government of Jordan’s (GoJ) stake in the Electricity Distribution Company (EDCO), covering the East and South of Jordan and the Jordan Valley area, and the Irbid District Electricity Company (IDECO), covering the North of Jordan. KEC’s bid valued the acquisition of both companies (100% of EDCO and 55.4% of IDECO) at about $104 million. While there were bids by local and regional investors to acquire IDECO, KEC was the only bidder for EDCO and offered the most attractive proposal overall. KEC is finalizing the transaction and has approached IFC for funding a portion of the acquisition cost, CAPEX and Working Capital with long term debt.

Anticipated development impact of the project

The project will facilitate the complete privatization of the electricity distribution sub-sector in Jordan by selling the government stake in two Jordanian power distribution companies, thereby significantly contributing to the sector’s liberalization and efficient management. One of the main development impacts of the project is the expected positive demonstration effect as the project will demonstrate the feasibility of electricity distribution sector privatization and increase the attractiveness to foreign investment in the MENA region. The Jordanian electricity sector may set an example for other countries in the region that are considering embarking on the liberalization and privatization of their own power sectors. Another major positive impact for the Jordanian Government will be the privatization proceeds and the permanent transfer of the burden of investment in power distribution to the private sector. This will enhance fiscal sustainability and enable GoJ to focus its scarce resources to other priority sectors. Additional investments into better and more modern equipment as well the management of the distribution sub-sector by specialized private sector companies should also improve the quality of service to the end users in terms of availability, power quality as well as customer service. Moreover, it is also expected that the private sector management will reduce losses and thus cascade the impact of this reduction in minimizing the consumption of fossil fuels and reduce tariff implication of losses on the Jordanian economy.

IFC's expected development contribution

IFC will support and partially fund EDCO’s capital expenditure plan to upgrade its distribution network and improve services which is critical for the success of privatization and sector reform process. IFC would help to promote an investment in a sub-sector (electricity distribution) that has traditionally not attracted a lot of foreign direct investment. As the distribution companies were traditionally funded with equity and customer contribution funds they have no real history with local banks. IFC’s investment is expected to raise the local banks’ comfort levels.

KEC has requested IFC to provide long term funding, which will play an important role in ensuring a proper match of debt service with the long term nature of the underlying assets. Apart from the long tenor and the resulting improved repayment profile, KEC is interested in IFC’s global regulatory expertise in the power distribution sector. In addition, the company believes that IFC’s involvement will send an important signal to other lenders and help attract the additional ongoing financing required for the financing of future capital expenditure and working capital needs.

Environmental and social issues - Category B

This is a category B project because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The technical due diligence reports by SKM and other documents provided by KEC show that the current environmental, health and safety and social performance of the two distribution companies are reasonably good. The CAPEX to be supported by the project is expected to help upgrade the existing electricity distribution network. Furthermore, KEC has presented plans to implement recommendations made by SKM and to strengthen the social and environmental management systems of the two companies. Upon implementation of specific agreed measures as summarized in the Environmental and Social Action Plan (ESAP), the two companies (EDCO and IDECO) will comply with IFC Performance Standards on Social and Environmental Sustainability.

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