Korea Electric Power Corporation (KEP) and Abu Dhabi Electricity & Water Authority (ADWEA) along with Japan-based Sumitomo Corporation (SSUMY) have awarded a follow-up order for the construction of a turnkey combined cycle power plant to Siemens AG (SI).
Together with its partner Daewoo Engineering & Construction Co, Siemens will build the 1600MW Shuweihat 3 (S3) combined cycle plant. The plant will be located 260 kilometers west of Abu Dhabi.
Under the terms of the deal, Siemens will supply four gas turbines, two steam turbines, six generators and electricity systems, while Daewoo will be responsible for ancillary and auxiliary systems and civil works. The S3 Plant will be a highly efficient combined cycle power plant offering high efficiency, with low gas consumption and CO2 emissions.
In February 2011, Sumitomo Corporation together with Korea Electric Power Corporation, popularly known as KEPCO, had signed a $1.5 billion deal to build the S3 combined cycle plant.
Approximately $300.0 million of the cost will be covered by capital investment, 60.0% of which will be contributed by ADWEA, 20.4% by Sumitomo and 19.6% by KEPCO. The remaining 1.2 billion dollars will be covered by project financing, mostly through co-financing from the Japan Bank for International Cooperation and the Export-Import Bank of Korea, along with syndicates of international commercial banks. Financial close is expected to take place in April 2011.
Construction of the new power plant will start in March 2011 and commercial operations are scheduled from March 2014. All generated electricity will be purchased by ADWEA under a 25-year, long-term power purchase agreement. Some of the electricity from the power station will be used to power an oil refinery in Ruwais, which is expected to benefit from a 417,000 bpd capacity upgrade soon.
KEPCO is the dominant player in Korea’s electricity sector. It continues to be well-positioned to capitalize on growth opportunities in this market and to benefit from the industry restructuring initiatives of the Korean government.
However, we are taking a conservative and cautious view on the stock given the scenario of foreign currency valuation loss, fluctuating fuel costs, and uncertainty surrounding pending regulatory cases. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.
Korea Electric Power Corporation is an integrated electric utility engaged in the generation, transmission, and distribution of electricity in South Korea.
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