Bahraini officials look for new ways to fund energy development

In recent years the Bahraini authorities have taken steps to raise financing for the development of the kingdom’s energy sector, including the launch by nogaholding, the investment and development arm of the National Oil and Gas Authority (NOGA), of its first international bond programme and the announcement of a new national energy investment fund. The sector is also seeking to raise financing for the development of a major new oil find in the Khaleej Al Bahrain basin from international oil companies (IOCs) and financial institutions, and plans are in the works for a pilot scheme that would see oil field services companies contribute to the capital expenditure required to support production at the Bahrain Field in return for fees based on output.

Bond Launch

In October 2017 nogaholding sold $1bn of 10-year bonds to international investors. The sale was the first step in a planned $3bn debt-issuance programme by the institution, intended to help it fund ongoing and future projects in Bahrain’s energy sector. The sale, which was nearly four times over-subscribed, marked the first time the entity had tapped international debt markets. In April 2018 the media reported that nogaholding had appointed banks to arrange meetings with bond investors, as part of plans for another issue, this time with a tenure of seven years, thought to be worth at least $500m.

Energy Fund

Less traditional methods of financing are also being considered. In May 2018 the government announced plans for a $1bn government-backed oil and gas investment vehicle, called the Bahrain Energy Fund. Targeted at local and international private investors, funds raised through the venture will go into the development of the Khaleej Al Bahrain find as well as other upstream and downstream operations.

Industry authorities are also seeking to attract investment into the new oil and gas find – which is estimated to contain 81bn barrels of oil and 14trn standard cu feet of associated gas – from both IOCs and finance houses. To achieve this, a data room for the discovery has been established. “We are ready to receive partners from yesterday,” Yahya Mohammed Al Ansari, general manager of exploration and development at Tatweer Petroleum, Bahrain’s oil and gas operator, told OBG in July 2018, adding that meetings were already under way with a number of banks and IOCs.

New Funding Model

As of July 2018 Tatweer was also carrying out negotiations with an oilfield services firm for a long-term, joint-venture contract for work at the Bahrain Field. Under the new model, the partner will provide some of the capital expenditure for the project in return for receiving payments based on output. “Such a model could add a lot of value in terms of enhancing recovery from existing reservoirs and also increasing production rates, as it would give the service company skin in the game,” Al Ansari told OBG. “Normally service companies push services, but if they are involved in capital expenditure, their incentive is to boost production rather than increase costs.”

Renewables 

Attracting financing is an important precondition for the kingdom to get its renewable energy plans off the ground, particularly efforts to encourage private firms to produce their own renewable electricity, following the implementation of a new net-metering policy in early 2018. “The primary hurdle to companies developing their own generation capacity is the capital investment required to set up a solar plant large enough to have a significant impact on electricity bills,” Arshad Abdullah, managing director of Intergreen Technologies, told OBG. “The government is working on regulations and incentives to facilitate bank lending for solar installations, which would be a great boost to the market.” The main alternative of third-party investors building plants and charging companies for use is difficult in terms of finding the ideal tariff where the end user has reasonable savings and the third party investor is making acceptable returns. However, Abdullah expects this to change in the near future, as tariffs rise and the cost of solar panels fall.