Estonia and China shake hands

Photo: Mihkel Maripuu / Postimees

Oil shale mine and power station in Jordan, a desert state, will cost a fortune; size of Estonian investment not known.

«China is able to offer the strongest financing package into a state like Jordan. China is a state that no state can ignore,» said Eesti Energia chief Sandor Liive while in Amman, Jordan, yesterday, explaining preliminary agreements with two major Chinese banks to finance construction of the power station.

Mr Liive stressed that so far investments into oil shale technology have been made out of the company’s own capital; now, for the first time, they have succeeded in securing a project-based financing deal. The utterances by Mr Liive are undergirded by the fact that, as a rule, it is extremely difficult to get banks or investment companies to lend money for oil shale technology – for bankers, the unknown technology is hard to trust.

While Eesti Energia has been emphasising they are not planning to invest any more money into Jordan, the issue was left open yesterday. Eesti Energia’s share in the oil shale power station is 65 per cent and the company has so far been saying it would sell the holding and invest the money obtained into the project. Originally, Eesti Energia’s holding was supposed to remain at 10 per cent. In any case, a core investor will have to be found, the project requiring self-financing to the tune of 25 percent.

«After electricity sales contract, we will be reviewing the own capital of the project. At the moment, our share is 65 per cent, we want to decrease that. With this we will be dealing next year, as the tariff has been agreed. While the tariff is not in place, it is harder to pull in a new investor. The later we find the investor, the higher the price we will get. We will deal with that next year. Before the final financing agreement, the investor base has to be in place,» Mr Liive told Postimees.

In all likelihood, the new core investor will also be a Chinese enterprise. As noted by Mr Liive, the construction company chosen – Guangdong Power Engineering Corporation (GPEC) – is part of a group that also deals with investments.

With six companies desiring to build the power station, eventually the lot fell on a Chinese one – representing the state where the finances are coming from. Jordan lacking an investment grade rating, agreement by traditional loan providers was not enough – confirmation was needed from Chinese state export-crediting agency.

Initially, the Chinese banks Bank of China and Industrial Commercial Bank of China will lend $1.4bn.

According to Mr Liive, the Jordanian oil shale station will cost about two billion dollars, the mine included. As notified by the company to London stock exchange, the power station ought to be completed in 2017. The oil shale mine will be complemented by a 540 MW station – almost twice as powerful as the new oil shale power station under construction in Auvere.

Yesterday, Eesti Energia’s management presented the financing plan to Jordanian energy minister and the local transmission network operator Nep­co. In Jordan, the state buys up all electricity produced, then selling it on to customers at subsidised prices.

Jordan did just fine with electricity supply till unrest broke out in Egypt; after governmental changes in Egypt, cheap gas supplies were cut off and now the country finds itself in trouble, seeking for cheaper production options. Currently, Jordan is producing bulk of electricity from diesel fuel and fuel oil, resulting in electricity costing €180 per Mwh.

In addition to producing electricity from oil shale, the state has also been offered wind-farms and nuclear power stations. A possible nuclear station constructor would be Rosatom, from Russia.

The success of Eesti Energia’s project hangs on a favourable electricity tariff offered by The Jordanian state. In the event of various developers offering the state their projects, it cannot be excluded that a cheaper Russian nuclear station, for instance, will force the Estonians’ oil shale out of the competition.

«Oil shale is a local resource. In Estonia also, there have been the discussions about nuclear and renewable energy, but we still end up using oil shale. Jordanian electricity consumption grows six per cent a year, there is room here for all projects,» thinks Mr Liive.

Even so, Laura Raus – a journalist at the Egyptian  newspaper Egypt Oil and Gas – said she recently interviewed Jordanian scientists who think the government of Jordan prefers nuclear energy rather that oil shale. Why so, the scientist had difficulty in explaining.

Ms Raus added that an argument against nuclear energy would be the need for big investments. Jordan would have to invest large money into building the station, yet the means for this are lacking. Also, USA and Israel are against enrichment of uranium in Jordan.

As noted by foreign policy expert Hannes Hanso, China is actively investing across the globe, as supported by state funds and its world leading foreign currency reserves.  

«China has a foreign investments policy directed at state level. Korean companies are also quite active in the Gulf region. China is not operating in Jordan alone, but is hyper-actively investing into Iraq, Iran and the mineral-rich countries of Africa. This is part of the big Chinese policy,» said Mr Hanso.

Should cooperation with the Chinese prove a success, added Mr Hanso, this would open new opportunities for using Eesti Energia’s technology. «We will have to get used to having to cooperate with the Chinese,» summarised Mr Hanso.

Originally, Eesti Energia went to Jordan to develop oil industry; as the Enefit technology proved unfit, the company took up the power station option.