The State of Israel has been preoccupied in recent months by the urgent need to construct new power plants to boost electricity production capacity. But what happens when a country finds itself with a power plant that it just doesn’t want, and probably doesn’t need? This is what has happened to Israel’s eastern neighbor Jordan, which is trying to repudiate an agreement it signed with China for the construction and operation of a polluting power plant, at an extortionate price in its view, about 100 kilometers from the country’s capital Amman.
The Attarat power plant, fueled by shale oil, an especially polluting fossil fuel, was inaugurated a month ago at full capacity (470 megawatts), and represents part of China’s ambitions of deepening its influence in the Middle East.
The plant is owned by Attarat Power Company (APCO), which in turn is 45% owned by Chinese company Guangdong Energy Group, 45% by Malaysian company YTL Power International, and 10% by Estonian company Eesti Energia, which was the original developer of the plan.
The holdings in the company may be reasonably well distributed, but the financing model of the $2.1 billion project is far from that. The shareholders invested $528 million, and took a $1.6 billion loan from the Bank of China and the Industrial and Commercial Bank of China, with a guarantee from the China Export and Credit Insurance Corporation.
The 30-year power supply agreement was signed in 2014 for the exceptionally high sum of $8.4 billion, and financial closing took place in 2017. According to estimates by the Jordanian Ministry of Finance, the price in the agreement means an annual loss over the thirty years of $280 million. Energy experts estimate that electricity prices in Jordan will have to rise 17% to meet the bill.
To understand why the Jordanians were so hasty in reaching this problematic agreement with China, it is necessary to look back a decade or more. While the Gulf states were gaining greater income from their oil, and Israel was expanding its known reserves of natural gas and thus strengthening its geopolitical standing, Jordan was left behind. And so, having the fourth largest shale oil reserves in the world, Jordan sought to source 15% of its power consumption from the Attarat plant. Producing the shale oil turned out, however, to be expensive and technologically complicated.
These technological difficulties led Jordan to turn its gaze to Israel’s natural gas reserves, and in 2016 it signed an agreement for the supply of gas from the Leviathan reservoir for fifteen years for $10 billion. According to a report from 2019 on the Jordanian website Jo 24, the price in the agreement is $5.65 per MMBtu (million British thermal units), linked to the price of Brent crude oil. According to that report, if the price of Brent crude rises above $80 a barrel, the price of the gas rises to $6.50 per MMBtu. The current price per barrel of Brent crude is $78.
The Leviathan reservoir is linked to Jordan via a pipeline operated jointly with Jordanian electricity company NEPCO (National Electric Power Company). This pipeline joins up in Jordan with the AGP (Arab Gas Pipeline), built to carry Egyptian gas to Jordan, Syria, and Lebanon.
It is estimated that, today, more than 80% of Jordan’s power consumption is based on gas from Leviathan, at a price that is certainly economic. The agreement was signed when it was known that gas from Leviathan was being sold to Israel Electric Corporation at $6.3 per MMBtu. Jordan therefore sought to get out of the Attarat agreement in legal proceedings in the arbitration tribunal of the International Chamber of Commerce in Paris.
For their part, the Chinese boast that the supply of electricity from Attarat’s two units will reach 3.7 billion kilowatt hours, equivalent to 20% of Jordan’s power consumption.
China’s debt trap diplomacy
In the end, or course, debts have to be paid, even if Jordan doesn’t really need the product and even if its economic position is bad. On the face of it, in a country with an unemployment rate of 22.9%, a venture that provides 3,500 jobs in the construction phase and 1,000 jobs in the operational phase ought to be good news, but it is hard to keep track of how many of these workers are actually Chinese.
In general, Jordan is a country that has become accustomed to being dependent on international aid, which in 2021 rose to a record $3.44 billion. The country’s debt:GDP ratio then reached 88.4% in September 2022. King Abdullah II’s answer to the problem was unchanged, and fiscal management continued to be based on imposing taxes.
Such a country is a classic target for China, which in 2022 kept up its annual investment in the Belt and Road program that began in 2014, spending $67.8 billion that year, only very slightly down from $68.7 billion in 2021. Of all China’s investments in energy ventures in other countries in 2022, 63% were in projects using fossil fuels.
Unfortunately for Jordan, no light at the end of the tunnel is shining from the proceedings in Paris, and given China’s financial clout, King Abdullah and his government have few reasons to be optimistic.
Published by Globes, Israel business news - en.globes.co.il - on July 13, 2023.
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