TFR Deal of the Year 2004: Kerman Water Tunnel Project, Iran

Feature

posted 23 Feb 2005 in Volume 8 Issue 4

Kerman Water Tunnel Project, Iran: Financing technical excellence

Arranger, underwriter & lender: Bank Austria Creditanstalt (BA-CA)

Borrower: Bank Tejarat, Iran

Deal size: €134.6m (total) – 25.2% provided by Kerman regional water authority; 74.8% plus guarantee charges financed under an export credit facility for €108.3m

ECAs: OeKB (lead insurer); with reinsurances from Euler Hermes & Sace

Tenor and payment schedules: 5-year availability period with 8.5-year repayment

Signing: August 2004

This export-credit facility finances the design and construction of a 63.5km water-supply tunnel in the region of Kerman, Iran. It is of huge importance to the country’s infrastructure and is one of the biggest transactions ever recorded for Austrian companies in Iran.

The tunnel, which will connect the arid south of the province with the north, where water is abundant, will facilitate the use of a fertile agricultural area, which would otherwise lie idle. It will also contribute to the drinking water supply for the city of Kerman and to sustainable development of the whole region.

“The construction of such a tunnel is extremely challenging technically and the closing of the financial package has proven to be a very complex and challenging task for both the ECAs and Bank Austria Creditanstalt,”

says Angelo Rizzuti, executive director and head of international trade finance and financial institutions at BA-CA in Vienna.

Financial negotiations involving the exporters, ECAs, the borrower and BA-CA took five years and were complicated by a change in the supplier consortium. The memorandum between the construction consortium, Kerman regional water authority, BA-CA and OeKB was finally signed in January 2004 and resulted in a substantial step towards financial closing which took place in August 2004.

A consortium of companies that includes Jäger Bau, Östu Stettin Hoch-und Tiefbau (both Austria), Seli (Italy), Wirth Maschinen und Bohrgeräte (Germany) and Iran Arvin (the local partner) will design and construct the tunnel and will take five years to complete.

Oesterreichische Kontrollbank (OeKB) is lead insurer on the deal, with Sace and Hermes covering the Italian and German portions.

“The main reason we consider the deal to be so exceptional is because it involves exporters from different countries and, as a result, also several ECAs,” says Ferdinand Schipfer, senior director and head of OeKB’s export guarantees, project-underwriting department in Vienna. “Furthermore, this is a good example, if risks are shared adequately, of how medium-sized companies can run for substantial project volumes.”

With a total length of 63.5km, the Kerman water tunnel exceeds the length of the Eurotunnel crossing by more than 10km, making it one of the longest tunnels ever built. Due to the comparatively small tunnel diameter of 3.5m, the technological challenges lie not only in the excavation work itself but also in the material transport and its logistic solutions during construction.

On its way to Kerman, the water passes under a mountainous region with peaks of up to 1,200m. Substantial effort was therefore put into the careful investigation of environmental, geological and social issues of constructing the project.