ACWA Power Company (2082) Earnings Call Transcript & Summary

Good morning, and good afternoon, everyone, who is joining us today in the earnings call. That's the call for the purposes of going through the financial results of ACWA POWER for fiscal year ended 31st December 2022. But those who will [indiscernible] us bear with me for very quick introductions, [indiscernible] as the Head of Investor relations at ACWA POWER. To my left is sitting Paddy, Mr. Suntharesan Padmanathan and who's the President and the CEO of ACWA POWER; and to Paddy's left is sitting Abdulhameed Al Muhaidib, and he is the Group CFO of ACWA POWER. We have some prepared remarks as usual for you, which Paddy and Abdulhameed are going to mostly cover and then we will open the forum for questions and answers. In the meantime, the presentation, we will be sharing with you already on the website, you might have already seen it. And in addition to that one, we have a very detailed management discussion and analysis, which is also available on the website for detailed analysis for financial business. So with that, I'm passing the word to Paddy. Paddy?

Thank you. Good day to all of you. And once again, thank you very much for taking the time to participate in this call. It's my privilege and pleasure to be sharing with you our performance for year 2022. World over, it has been a very tumultuous, very challenging environment, a very difficult year. At some levels, no different and we are in the world interconnected very much relying on all the supply chains, all the partners right across the world. But very, very, very privileged and blessed to be able to announce that we have been able to deliver a very robust financial result. I think I'd like to claim all the credit. But in fact, the honest truth is, yes, there's a very large team of people who are responsible for delivering the services that we provide, who develop the services, we then take it through delivery and present these financial results. But underneath it all, it's our very robust develop, invest, optimize -- sorry, operate and optimize business model that we have always talked about that has in my -- as you will see, as I kind of present the results, has put us in this excellent position. Every metric, operating profit, adjusted net profit, reporting net profit, everything is well above our sort of performance of the previous year. So we're very, very happy. Some are excellent performance, earnings per share doubled. But this is all, as I said, sort of underpinned of it by a record volume of capacity that we have brought online during the course of 2022, which is starting to kick into supplying earnings and a record amount of power purchase and water purchase agreements that we have signed in terms of volume and in terms of capacity, which also has contributed to the developed segment of our value creation. And you've got the numbers in front of you. What I'd like to point out is that in the 5.4 gigawatts of new PPAs that we have signed, 2.1 or 2.06 is from the PIF pipeline, the [indiscernible] contract that we have to deliver 75% of the capacity that the Kingdom of Saudi Arabia will be procuring renewable into between now and 2030. Many of you who follow us are familiar with. So 2.06 megawatts is sort of additional in that pipeline that we have signed. And in terms of -- the other thing I want to -- I mean, I'll touch on it just now. That the 5.4 gigawatts represents a 12% capacity addition to our portfolio. Interesting news. The entire amount of that 5.4 gigawatts is in renewable energy. So we have added 12% to our portfolio, all of it in renewable energy. And the 600,000 cubic meter a day water [indiscernible] agreement we signed is adding 10% to our [indiscernible] capacity. So these are all very large plants. There may be 1 or 2 or 3, but they tend to be of significant volume. We've achieved the financial flows, that's kind of over SAR 8 billion. And we've also happily brought 7 plants into the different stages of production. Adding 1.8 gigawatts and 1.1 million cubic meters of [indiscernible] , which is contributing to our revenues. For me, I'm sure for the world, one of the most exciting things is that everybody is watching is this at scale green hydrogen plants that we've been developing, which had already gone into construction during the course of 2022. Just in the last few days, I think on the first of March yesterday, we announced financial close we call it dry because, okay, it's all go be signed off finance documents. We're just completing some CPs to grow down of $6.3 billion nonrecourse project finance debt into this project. So this project is effectively fully funded now. And as I said, construction is earnestly underway, so we are truly, truly, truly excited about this. More than anything else because, okay, first of all, we have sort of seized the first mover advantage on what the world recognizes as potentially a significant game changer for decarbonization by 2050, possibly giving as much as 20% of the energy of the world, green hydrogen, but also this allows us in order to now rush forward and replicate this plant with the confidence and the knowledge that we have gained through this first project. But everybody is focused on the hydrogen piece. But I think we shouldn't forget behind that, what is fueling that 600 tonnes per day of carbon-free hydrogen is 4.6 gigawatts of solar and wind energy. So it's the largest by far, green hydrogen plant being fed by the largest single-site wind farm and the largest single site [indiscernible] farm. Exciting project. Very much looking forward to getting this completed into production, but also now starting to replicate this elsewhere. And all of this adds to the decarbonization focus that we have as a company. Well, as I've already pointed out, all the renewable -- all the power generation capacity was renewable energy that we added in 2022. And then on top of that, we managed to convert a couple of carbon emitting assets. The more significant in my view is the Hassyan IPP, which was being built as a coal-fired power plant, which we have now worked with the offtaker to convert to a gas-fired power plant, thereby ending up this savings of 13 million tonnes carbon dioxide by 2050. And Shuaibah IWP, independent water and power project in Saudi Arabia, which utilized that -- which has been utilizing 22 million barrels of heavy fuel oil if we were to carry on operating until 2025, coming to an agreement with the government to shut it down and decommission it by 2025, saving 9.5 million tonnes of carbon dioxide per year, back from 2025 onwards and replacing that with a desalination plant, a reverse osmosis desalination plant. All done very much in accordance with the PPA and with a close collaboration between Kingdom of Saudi Arabia, Ministry of Energy. Again, very much reinforcing the kingdom's commitment to decarbonizing the power generation fleet as fast as possible, shutting down oil out of our generation by 2030. As I said to you, I think the real value is showing through the develop, invest, operate and optimize pillars of our business model. So I already have covered the significance of actions in develop and invest in and operate part. And on the optimize part also, we had a very, very satisfactory year. We were able to raise new debt very competitively. In fact, it was -- the pricing was or [indiscernible] at the top end, but at the 2-digit range. And it was very heavily oversubscribed just showing the demand that we have and the confidence of the marketplace is in us. We were able to recycle capital by partly divesting some of our assets, and we were also able to refinance a fairly significant refinancing of RAWEC and Barka and restructure and refinance Shuaibah 3. And in terms of managing liquidity in order to -- having raised money -- in order to then optimally utilize that money, we have prepaid a convertible loan that we have taken from so-called fund and we also repaid some of our EBLs and partially paid down ACWA 39 bond, even though that bond, quite frankly, at that time when we place it, was a very competitive landmark transaction. Given the pricing at which we are going to raise debt now, and given the size of our portfolio, it makes sense all start doing that. Moving on now to the sort of operational side of the business. Here, we've got to be the first to acknowledge that we could have and should have done better. Some levels we have, but the most challenging for me and for the people concerned, of course, was the unfortunate losses we had in life even though we are struggling to implement and really drive home a zero-harm environment. We did have accidents, and we have loss of life during the course of 2022. Tragic, it focuses our attention on placing a high priority on this subject in our views that we should be placing a higher priority on this subject than on any other subject as we go forward. And from right through 2022, we've already started to take some very specific actions to enhance workplace safety. We have worked during the year, 80 million man hours. The company -- look, this is -- I don't really want to even get into this, but I am going to just make a passing comment. We've got a rapidly growing fleet. We've got a rapidly growing construction portfolio. As I said, in 2022, we worked 80 million man hours, but we did lose lives. We did injure people. So that's not acceptable. So I think we need to continue to work hard at that. And also on the operating platform, we have had outages. If we look at on the water plants, our availability is very robust, 97% luckily, even higher than that. We'll continue to strive towards it. But this is okay. This is something that we can live with. On the power side, it's not been so pretty. Availability as a number is stock 87%, which is for sure a way below the standards and below where we would like to be. Our balance portfolio and this sort of 4-pillar model allows us to continue to deliver the excellent results that we have delivered. But I think on a long-term basis, we need to focus very much our attention on the things that we are poor at where even within this balanced portfolio within all these sort of wonderful other things that we do, I think we want to strive to be doing everything as best as we can and definitely enhancing power availability is something that we will focus at. But if you look at it a little bit more detail, you'll find that we actually have a few problems [indiscernible] in our fleet. We've got for 38, 42 -- I'm going to get in trouble by inventing numbers operating assets of which we've got 2 very difficult tour, Noor 3 and Al Mourjan, we're very aware of the issues. We've been working through the issues. Noor 3 actually is now back online, okay, the early days of being back online after a very long outage. So we're still sort of having a bit of keeping the issues. But okay, hopefully, we are on the right track. Al Mourjan, we know exactly what the issues are. So we're working through that. If we take those 2 out, then the availability sort of bumps up to around about 90% level, still not good enough. So we will continue to -- so we've got a very specific reliability of supply program that we are working through plant by plant, looking at single points of failures, looking at increasing monitoring, increasing automation and trying to do more and more preventative maintenance and adding a hell of a lot more digital capability into these plants in order to continue to improve their performance. So that's a concession, and we are working on it. But otherwise, we're doing fine. I want to touch on the green hydrogen project, as I say, because there's an enormous amount of global attention at it. We ourselves. It's a huge project for us. It's one of our largest sort of single investment. And I think it's worth spending a couple of minutes on this, as I said. We've achieved dry financial growth on the first of March, USD 5.9 billion of senior limited recourse project finance debt and USD 0.5 billion of mezzanine debt. Bearing in mind that this is the first project of this scale albeit fairly well tried and tested, a robust technology having limited recourse project finance and bringing on 26 banks and 3 financial institutions and our partners in this -- I think it's a remarkable feat, and we are very, very, very satisfied with the outcome. The plant has been developed. We started developing the plant 3 years ago. So it's a kind of pretty fast development phase, to be quite honest, given that it was kind of not the conventional one where we respond to an RFP. Here, we created this project, we convinced partners. So 3 years is pretty rapid. Two years into the development, we were confident enough going to full contraction. So in fact, the project is willing to contraction now. But because of the way in which -- I mean -- and were during this sort of 3-year period completely turned upside down coming -- well, COVID -- sort of soon after we started developing, COVID crashlanded on earth. And then we had -- coming out of COVID. Then we had -- okay, I don't want to go through all the message, the tragic war and all the rest of it. So we've had inflation impact, no question. And we have also had base rate increments. So project financing costs have gone up. And so all in all, the project costs have gone up. But what we have been able to maintain the development phase, and we're able -- we've been able to structure a project that was viable enough for it to be funded on a limited recourse basis, having all these other additional partners and for us to be satisfied to invest and go forward with. We are truly excited about the opportunity this project has provided us. Within the project, we can get into any details if anybody's interested in it. There are opportunities for us to continue to improve performance as we bring the project online. The plant's capacity is actually higher for a variety of reasons than the contracted values. So there's -- as one example, so there's a lot of opportunity. And I think exactly like what we have done in all our other plants as we get into operations, we are confident that we'll continue to be able to optimize operation and maintenance. And we have embarked on the third leg to our business if you like, renewable energy, desalination and -- energy and desalination and now green hydrogen. So as we develop more plants, we will again be able to take advantage of those new developments even to filter back into this development. Quickly looking forward before I hand over to Abdulhameed of the 2023. Priority, safety for us. We really, really need to focus on, and we are focusing on creating and maintaining a zero-harm environment. And the second priority, as I said to you, I think we need to be honest and accept things that we are weak at, continue to do the things we are good at, very good, but at the same time, start -- put the focus on the things that we are not so good at. Reliability of supply. That generates a steady stream of cash income that's for the long term and during sort of year-by-year cash flow. So we're putting a lot of effort into a lot of [indiscernible]. And then it's the routine business. We will complete all the projects that we'll be lining up to financially close. And then, of course, some of the projects that are in construction will come into the initial commercial operational -- project commercial operation, the full commercial operation. So we need to kind of remain on track and not allow anything to [indiscernible] . And we're very busy adding new capacity in terms of bids. So just taking the PIF pipeline, and I think that's one of those things that everybody is tracking very carefully. I think in the IPO -- not I think, I know, in the IPO perspective, we had forecasted that by 2025, we should be contracting 11 gigawatts in that pipeline. Well, I'm happy to say we are ahead of schedule. We've got 1.5 [indiscernible] project in construction, as you know. I just now told you that we signed PPAs for 2.1 gigawatts in 2022. Just in the last -- in the first 2 months of this year, we have submitted over 4 gigawatts, a couple of projects of new offers within this pipeline, which, obviously, we'll be working very hard to convert to PPAs during the course of this year. So that's about 8 gigawatts already of our ambition to be at 11 gigawatts of contracted capacity by 2025. So we are in 2023, so I am very confident that well, first of all, we're clearly on track. We are clearly ahead of track. And all of this gives us confidence and we will remain focused on decarbonizing our portfolio. And we will continue to lead the energy transition on a global basis, particularly as the Kingdom of Saudi Arabia and some of the markets that we work in offers us stunning opportunities. Thank you. Abdulhameed, sorry for taking longer than I should have.

Thank you very much, Paddy, and [indiscernible]. Good afternoon, everyone. And I would like to build this up from the great detailed intro that has been presented by our CEO and President, Mr. Paddy. What I will do, I will actually take you through the key KPIs on the hyper view and then we'll go through the details of each and the main drivers for these changes. So starting with operating income before impairment and other expenses. We have seen a great growth this year to reach a level of SAR 2.6 billion. You have seen gradual, continuous, consistent growth over the last 3 years. Similarly in adjusted net profit attributed to the equity or of the parent, we have reached SAR 1.5 billion, this new record also for 2022. This is around 32% increase from last year. Looking at the cash -- current operating cash flow, we have a remarkable year, mainly driven from refinancing specific assets. However, there's that number gets a significant increase on POCF. We're going to take you through that detail as well in the next few slides. That number for 2022 has increased by around 160%. If you look at specifically as a driver for them, we'll go through the detail but now taking through the main business reasons behind these changes. So the first one was highlighted also by Paddy, we did actually brought a great number of assets into operation. And these assets have been different restrictions, different technologies, starting with Shuaa Energy 3, which is the face [indiscernible]. We were able during 2022 to bring online at 300 megawatts in different timing. We have also not fully Al Dur Power and Water and Wind. This is 1,500 megawatts together with almost 1/4 of it [indiscernible] water. [indiscernible] another big water project that we have bought partially online during 2022. So this is around 450,000 meter cubic per day. That's what online. Finally, there, we have also got the largest water desalination unit that we have ever built and also the world have witnessed, which is Taweelah IWP in Abu Dhabi. This is -- so far we have bought around 455,000 meter cube per day online and the remaining 450,000 meter cube per day is coming throughout [indiscernible] this year. So a great number of projects came online during this 2022. Subsequent to that, post 2022, we have announced also in January and February, another 300 megawatts of new energy in Dubai coming online as well. This is from the operations side. And if you move into the projects that have successfully achieved financial close during the year 2022, we had 3. One of them is a very, very interesting project we have touched upon it so [indiscernible] about it a bit is Shuaibah 3 IWP. So this is actually a legacy project that we had in ACWA POWER, which is the first-ever IWPP that is now going to be phased out or decommissioned. And in its place, we are building a great IWP, which is a water desalination unit using a part of the -- part of the power coming from NEOM. This is SAR 2.9 billion investment, which will bring 600,000 meter cube per day once it comes online. We have also 2 other wind projects that we are building. Total capacity is 1,000 megawatts in all [indiscernible] . These are 2 projects we have successfully achieved the financial close during December 2022. Overall total fee of them is around SAR 8 billion of financial close. Also subsequent to that, just highlighted by Paddy, we have successfully achieved NEOM Green Hydrogen about $8.5 billion of total investment. This is a huge asset that is now we are closing. We're working closely to actually to bring it to the wide financial close in the next 2 months. Now I would like to take you on a deep dive on specific KPIs. So let's start with the operating -- net operating income before impairments and other expenses. So this is where we have showed you that it went up 15% on 2022. Looking at the details. So the main drivers for that specific growth of SAR 458 million is coming from bringing capacity online, which we just highlighted in the previous slide. Also, there has been together with that, the O&M income for the specific assets that are coming online. Second big factor also that the development and construction management fees has been increased in 2022 compared to the previous year, along with a specific reduction in the project development costs on the provisioning advantage that we have compared to 2021. We have also costed around SAR 157 million, mainly on recoveries, I would say, recovering insurance or recovering with the damages that has been related to accidents that has been during the year or during the previous years. This was offset in a big time SAR 600 million mainly from unexpected outages, which was also highlighted by Paddy, and he mentioned about the viability of supply target. So this is mainly from the outages of Morocco and KSA. Together with, I would say, having Barka PPA being expired. We are discussing also with our take for protection opportunities as well for the future. Together with that, there is also a factor of high maintenance cost during some outages, which took longer than what was expected. So this brought us to around SAR 2.6 billion of operating income. Moving to the adjusted net income. So here, we have recorded -- if you look at it, we're going to build it up from where we have actually reached our profit. So the profit of the year doubled compared to 2021. And this is what has been highlighted earlier in that we are doing that just from the beginning of our ideal prospectives. And as we are maturing, we are expecting less and less, let's say, the difference between the adjusted net income and the net income. So clearly, this year, we have only adjusted for [indiscernible] which is SAR 55 million compared to the previous year. We are delivering on that. And we expect, as we also involve less than less adjustments to the [indiscernible] that will happen. So looking at the adjustment of this year, it is a very, very small adjustment. One is around SAR 54 million, which is mainly related to impairment on one of Barka assets. And also, there is another SAR 14 million. That is basically an investment of -- an investment we had in Vietnam, where we have built up actually a higher development cost that was actually paid. So that brought us to around SAR 1.5 billion in terms of adjusted net profit, around 32% increase from last year. Moving to the consolidated net profit. So this is where we have shown you the double compared to 2021 numbers. So if you would like to understand the big difference, which is mainly we have adjusted for last year, you can see that the main one was SAR 280 million, it was the onetime share-based IPO grant that has been in 2021. This was a big impact that has been also adjusted for last year. There has been also a higher operating income too around SAR 311 million, around SAR 280 million. It's a net gain on a sale or lever that we have in [indiscernible]. So this is something that we have used to own 100% when we have 49% [indiscernible], and we are now having a 51%. Finally, around SAR 350 million difference is mainly because of the high income [indiscernible]. I would say, financial optimization, I would say also related to liquidity management. So we have done great exercise of ACWA 39 bond divestment, divestment we have recognized SAR 75 million, again, on the principal separate from the interest. And also, we have managed to do some, I would say, liquidity management where we have retired a couple of years. We have also created a higher income from deposits that we have. That was countered by a few other elements, maybe SAR 175 million related to higher finance charges as we brought online now and we have consolidated these -- so we have this cost coming to our P&L as well as around SAR 150 million or higher, I would say, the cash maybe -- sorry, the tax I mean the cash was only SAR 10 million increase. However, the cut is because of the deferred tax that we have in Morocco. And then we have also added cost of around SAR 170 million. So that brought us to around SAR 1.5 billion. Moving to the building blocks of the adjusted net profit, and I don't want to repeat also the details of what we have mentioned earlier, but I think just thinking what the story also has been produced by Paddy earlier and also our for I would say, value, which is developed pockets of investment develop, invest and optimize. Here, again, we are showing the diversity of our cash flow, where we are being able to successfully get income from every single pocket that we have from the foreign drivers. So I hand it is coming from the development and structure [indiscernible] We have shown the details earlier. Income from owning our shares on these specific assets, around SAR 667 million. No marker has contributed to SAR 0.5 billion. And finally, on the optimization and divestments and refinancing, we were able to bring in around SAR 680 million. So overall, the breakdown and the different buckets has contributed positively to the adjusted net income of our company. Looking into details of the current operating cash flow. If you look at comparison, you will see around 10% increase on the distribution from the assets. And then if you also add the management fees is around, I would say, equal to what has been done in 2021. However, the big component of change has happened here is mainly from the capital recycling. This is around SAR 2.4 billion. Of that total cash flow increase, we have done a couple of refinancing which was a significant contributor to this capital recycling route was the big one that we had done earlier this year in 2022. Also, we have done some capital reduction, including also some divestments of Shuquaiq and other assets. So that is the main driver for the big change. And taking you to a total current cash operating cash flow of around SAR 4.1 billion. If you take out the total cash used, you will end up actually a year with around SAR 4.2 billion. It's almost equivalent to the cash position that we had at the end of last year. Also, we have introduced this new supply based on also some investors' feedback. So this is presenting on a simple way, whether wanted to use the cash during the 2022. So around SAR 1.9 billion has been going through investments. So these are investments either in the Saudi, UAE, South Africa, Morocco and including some repositioning of our some project, which is mainly retiring of equity projects. Then we have also around SAR 2.4 billion that has been in debt servicing, and this is while our debt servicing was much, much lesser than that, but this is through the, I would say, liquidity management program that we have launched which is down SAR 2.4 billion, we have been able to pay back 50% of ACWA 39, and we have prepaid also asset called fund convertible loan fully during the 2022 creating a great saving in the principal and then just overall at 2022. We have also distributed the cash dividend last year, which is around SAR 562 together with almost SAR 200 million positive impact from a collection of LNTP payments that have been paid earlier. So net-net, we end up -- the use of cash flow is around SAR 4.7 billion. Finally, the slide I have before we open it up for the Q&A and deliberate. So if you look at our total liability on our balance sheet is around SAR 24 billion. If you exclude an non-recourse part of it, which is our SAR 17 billion, you would end up with SAR 6.6 billion, which is on our balance sheet with recourse to [indiscernible]. And this is mainly -- we have the open facilities, we have the Sukuk, and we have the PIF note. This as the mean, I will say, reports on our balance sheet. Rent, we will add also all the off-balance sheet recourse debt to SAR 6.5 billion. This is including all our equity bridge loans. The guarantees provide for the artificial launch for the equity stand biases and other funding guarantees. So we will end up with around SAR 15 billion of parent leverage. And then if you discount the cash that we have just presented, which is around SAR 4.2 billion, you will end up in a position of total and current net leverage of around SAR 8.8 billion. So considering the current net debt of [indiscernible] , you get to a number of SAR 2.22 billion for the year 2022. Obviously, this is a number that is very, very healthy. However, we have a guideline over the years, that is expected between, let's say, 5% to 6% multiple. So this is let's say, a reflection of where we want to end up. I think with the upcoming growth momentum with the pipeline that we have, we will be comfortably sitting at around 5x to 6x over the next few years. This is all from my side, and I will now take you through the Q&A. Thank you very much for your time.

[Operator Instructions] Our first question comes from Anna Antonova from JPMorgan.

Yes. Good afternoon, gentlemen. Thank you very much for the presentation and the very comprehensive comments that you have provided. Anna Antonova here from JPMorgan. I have 3 questions from our side. I would like to ask them just one by one, if I may. So first, rather technical question, but still, your parent operating cash flows were supported by SAR 2.4 billion of capital gains last year. Can you please comment what can we reasonably expect to see this year? To put it other way, is there a way you think you can further optimize your portfolio or the asset perimeter looks satisfactory post all the recent deals that you made? So that's my first question.

Anna, good to hear from you. So we'd like to ask the question to go ahead and answer the first one. So definitely, we have marked this as a one-off. [indiscernible], we are always opening our eyes for opportunities for divestments, capital recycling, refinance opportunities that would be offered to us. We are actually looking at various options and opportunities during the year of 2023. I definitely see what we have achieved in 2022 is remarkable, and it is better effect for us going forward. However, we will be growing. If you take the commentary cycling out, I believe we are confident that we can go from the level of 2022 as we are continuously going up. So definitely, but our model is optimized again, and we will continue to optimize. We will never say no to any optimization opportunity. There is the tremendous opportunity that we are looking at. So we'll see where we end up at the end.

That's all clear. My second question is maybe a bit more technical in nature, but still, if I could pick your brain on the parent leverage. So I noticed in your MD&A report, that you have restated the parent leverage lower by roughly SAR 2 billion, which looks like that you now do not include off-balance sheet guarantees of ACWA to the subsidiaries and associates. May I ask why have you changed your previously more prudent approach to leverage calculation to the one that you are presenting now?

No. Thank you, Anna. We did not change anything in terms of our structure. So to reemphasize what we are doing. If you look at our balance sheet, so we presented around SAR 24 billion of total balance sheet exposure, right? So any exposure that is related to project finance, not because it gets consolidated to our assets just for the simple reason because we have or we own more than 50% of the company. This is not a recourse to us. So it was never in our calculation in the last decade that it has been part of our [indiscernible] . So it is always down. However, we are also fairly added back any cost debt, even if it's fancy. So for example, and in the cold let's say, a standby simulated to let's say, a financial obligation or not a call for the is an equity bridge or is it a standby or even for a funding, it would be added back. And this is where we have about SAR 6.5 billion. With that, we have to [indiscernible] . That's one is always the same. We never changed it since the last decade as far as recourse.

Understood. And my final question is on the NEOM project, which is very big and very exciting. As you correctly mentioned, it's your single largest investment project. However, it's not the typical project for ACWA POWER. So my question is, can you please shed some light on the expected project economics and the base case returns and perhaps elaborate more on how we plan to increase those over and above those that you currently budget? That would be very helpful.

Yes. Okay. Look, first of all, just a point of record, it is not our biggest, Jazan is bigger, but okay, that's neither here nor there, but it is very large compared to many of the others that we've got. However, as energy transition takes hold, I'm very confident that energy projects will all move towards these kind of sizes. Otherwise, we're never going to spend the $3 trillion that we're going to have to spend as a world to transition. But anyway, that's philosophical. Coming back to you the specific question. Look, I'm not going to get into specific sort of numbers on any project by project. That's not what we have done, and I don't think that's what we should be starting to do. But what I should do is immediately point out to you that this is not any different. So we'll be very clear about it to what we are doing with all the other projects. So it is being funded with a significant amount, 75% of limited recourse project finance. We have an offtake. So we have a creditworthy long-term offtake. So it's exactly like structured. It is executed. We are executing. We are implementing very large base projects and getting them built on time and then going forward and operating them. So the only difference and a big part of this front, which is the power generation side. And then there is a conversion of their power generation to molecules. And then we are shipping molecules as opposed to electrons. That's the only difference. And we have got a very strong and capable partner who has a track record, not in bio-generation, that's what we bring, but in molecule management, molecule generation and molecule management, who also is the offtake air products. So it's very much business as usual for us. Except it is exciting, the first of its kind in the world. And this sort of sets the world on the path towards a solution for about 20% of the energy needs of the world by 2050.

And going back to your Slide 6 of the presentation. So maybe if you could comment more on the last bullet about the opportunities for higher base case returns. So the higher amount output, for example, do you expect so there could be some capacity added in terms of production after it is constructed or at some earlier stages? Just could you just shed some light on this?

Yes. So let me first -- okay. So we are trying our level best to not overcome the base. So that comment relates to the fact that we are actually building a plant that would deliver -- that has the capacity to deliver more than 1.15 million tonnes per year of liquid ammonia. So that's a path -- that's what we are building. And we will -- so therefore -- but our contracted capacity is ongoing 1.15 million. So we have built ourselves quite a bit of safety margins and operating gaps, which we are very confident that we will be able to utilize. And I think -- I think I don't know, we all have a different view perhaps. But my view by 2026, the world will take any molecule that we deliver, any last molecule that is available to do us. So we are -- we are looking forward to being able to operate the plant efficiently and generate more molecules than we have contracted, which in turn will then go to the market and direct. So that's one opportunity we have ahead of us. And the second opportunity we have ahead of us is, again, we have not accounted into the best case, but it is there. We have a very long lease on the land, well beyond the PPA -- sorry, the offtake agreement. And the fact of the matter is the plant is not going to vanish or evaporate once we finish the contract. So there will be opportunity for us to continue to keep operating the plant, albeit with certain modernization service refurbishment at that time, but we have not sort of factored that in at this point. That's a bonus for the future. But more immediate, our expectation is that as we start operating this plant, we should be able to continuously improve performance. Our own performance in operation and maintenance of the plant, the efficiency gains that we will be able to achieve. Definitely not in the first few years as we get the plant. But certainly, after a few years, particularly as we expect by then to have other plants of this exactly the same configuration. We've already publicly announced, for example, that we are developing the same block in Oman and we're looking at the same block in other places. So we should be able to then leverage on that multisite operations as we get into the details of operations. So all of these will be nice add-ons. But we have not finished ourselves on this investment on the basis of all these nice add-ons. It's just that we're very mindful of it. We want to put pressure on ourselves by telling all of you so that you can come back and pressurize us to say, hey, what are you doing in 2028 or 2029? But no, but seriously, these are real value propositions, and we want to be out there [indiscernible].

Thank you, Paddy. I won't like to start one specific contract to, I think the second question you asked. So once the definition was kept the same. During the 2021 also, we had specific of say, performance obligation that is related to the mark and those other subsidiaries, which is not financed -- non-financing obligations. That was already included in the formula, which was actually emitted. This is something very reasonable what the definition is. Because for us, anything that is nonfinancial, should that be part of that [indiscernible] and also we have been looking at this obligation for the last 10 years and the likelihood of any of them happening is almost none, which actually was excluded from that calculation. Or the definition by itself was always looking at it from a financial point of view. So this is what we have done on [indiscernible] . Does this also answered your question?

Yes, that's very helpful. And just to be perfectly clear, so if I heard you correctly, you said you're building the plant -- going back to NEOM projects -- that you're building the plant for 1.5 million tons of liquid ammonia capacity. We've contracted 1.15 million, which means 0.3 million tonnes is the merchant exposure or is that correct?

No, no. Sorry. Sorry. Sorry. No, I'm not quite sure where some of it on the way we lost it. 1.5 million. No, there is no 1.5 million. We have -- the contracted capacity is 1.15 million tonnes per annum. We are building a plant that will deliver more than 1.15, okay? We're not, at this point, declaring how much more. But definitely, there is more that is worth considering. We have not factored that in into our investment case or the base case. But we recognize that we can achieve more. And for sure, we will achieve more and we will then approach the market at that time with that additional capacity as it comes online as to what -- how we contract that whether we take it through into a spot market and depending on how the market has evolved by then. My personal view is my personal view. But even by then, I think the world will still be procuring hydrogen on a capacity basis, on a long-term uptake basis. So once we become confident and comfortable, particularly during the first year of the operations or the first 18 months of operation, we should then be able to get into discussions about how to contract that additional extra capacity that we have. So that's pretty much a bonus. It's cherry on the cake.

And our next question comes from telephone lines and comes from the line of Oliver Connor from Citigroup.

Thank you for the presentation and congratulations on the strong set of results despite obviously operational challenges that you described in the year. Two questions, if I can. First one on the sort of operational side of the business. I know Ozgur, you mentioned around trying to improve the availability of sort of 90% plus and get back to your targeted levels higher than that. But how should we think about this year in terms of sort of overall revenue growth in JV income? Because clearly, you've got plants ramping up from the end of last year, but do you see that sort of reversal in availability coming through this year to give you that boost? Or are we still going to be slightly negative on that from where we are this year? And then the second question, just on NEOM. I know you can't speak specifically in terms of returns number, but how do you think about the returns of that asset now versus in 2020? Because I understand it from product is that the ammonia price hasn't changed. But clearly, the investment has changed significantly since 2020 and the financing costs. So how is the returns on that project shifted in your mind since inception? And then if I can, just a follow-up on that. I mean, obviously, the announcement on the Shareek investment coming through from the Saudi government. That's clearly going to have a role here. So just wondering how that dynamic feeds into your returns analysis?

Yes. Okay. So let me sort of start off and if you want to add anything? On the first question -- on the first question, look, let me be very straight about it. We are operating -- okay, the renewables actually, by and large, some of the more straightforward stuff, but we still have a gas fleet, and we've got a couple of residue coal-fired power plants. These are plants that operated at crazy speeds, operated amazing sort of pressures put together by a bunch of people always fascinated as to why we think they should work, but they do fortunately for us, but indeed will take, okay? So I can't -- I'm going to sit here and say it's going to be perfect. We've overcome our light charges. What I can tell you is that there are sort of significant challenges that we have been plagued with over the last few years as we have brought more of those kind of plants online. We are working through them and a very targeted exercise that we have been undertaking. We see already the benefit of that with the outage pattern, unplanned outages. So I'm confident that barred any surprises, and I'm not going to sit here and predict any surprises, under operating fleet, our performance -- and this is going to be my worst back me now, but I'm going to say but really, really I'm expecting our operating fleet to be performing better than it did in 2022. As I say, definitely Noor 3 contributed significantly to the deficit in 2022. It's back online. Mourjan, we are sorting out the issues, okay? I daresay, with the number of assets we have got, some of the surprises pop up. But at the same time, I think we are getting better at surprise management. So I'm confident. Is there anything you want to add to that?

Yes. Thank you, Paddy. Number to number, the comparison also includes some recovery. So we have already did some recoveries from the insurance companies, some recoveries from the EPC contractor. So while the outages that have been cut by that is significant, but with that recovery, the difference is only SAR 87 million from last year. So operating wise, it could be better. Financially we have recovered some part of the loss. And this is actually part of our business model where we are fully protected to some extent or substantially protected to be protected from -- with the insurance company, some completed LCs and standby LCs from the EPC contractor committed to delays or during the wait period any outages. So that is also an important point to that.

Thank you. So good point. So that's that. Moving on to the second question on NEOM. So the way you presented it, let me just stick to that for a minute. So capital cost has gone up from the time we started developing the project. The selling price of ammonia is declared by Air Products has remained the same. Okay. Simple [indiscernible]. Of course, we're not going to make as much profit as we thought we would. But the bottom line is when we start to develop the project, we had budget estimates, and we were -- we might have extra celebrated the wonderful returns, and as we then absorbed all the challenges -- and by the way, that additional increase in costs is not entirely on an overall, yes, there's been an increase in costs, but there has been performance increments as well embedded within it. And as I said to you, we are ending up building a plant that is scienced to deliver more than the contracted volume. Just for rigor, we have done the financial close, the entire inventory course financing, our base case on the basis of that contracted capacity. And we've kind of kept that as a cherry on the cake. But the capital cost is in there. So overall, what I -- again, I'm not going to get to the details. I'm not going to give you the details of any project on a project by project basis. But at the same time, we are comfortable with the investment case. My Board Investment Committee was comfortable and we have invested on that basis. In the case of Shareek's contribution, first and foremost, everybody sort of jumping into the Shareek contribution as a kind of financial investment or a financial contribution. Actually, I want to point out that, okay, it's early days. I think for all of you to understand what Shareek is. We have worked with Shareek on this first wave of projects. And so we are seeing it in action. It's very -- Shareek is very much as I see it now at an operational level, a one-stop shop that helps us with the regulatory support. Look, we are operating in many, many countries. What I can tell you is that in the Kingdom of Saudi Arabia, all the government agencies, particularly today, are extremely welcoming. They just want to solve problems and allow you to get on other projects. So we do get a good reception, but it's very good to have a popular agency like Shareek standing alongside us as we then get into regulatory issues and to find solutions. So they bring a lot of value beyond the co-financing that they provide. But definitely, the growth financing they provide, the value of it is not just necessarily in reducing overall financing cost, it's much more -- it is in terms of giving more confidence to the limited co-financing provider. So I have no doubt, okay, I'm not sitting there doing the Red Rock calculations for the banks. But I have no doubt that the pricing that the banks have given us will be different with Shareek than without Shareek for example. It's always good to have. I mean we know that from all the project financing that we do to have sovereign lenders, multinational financing agencies, they definitely bring overall costs down regardless of what their cost of capital or what they are offering into the project. So all in all, this is all part of that package that has allowed us to become comfortable. Well, first of all, allow the ministry cost project finance to participant in the project. 75% of money is coming from them. And then for us, 25% equity providers to invest in that project. And I am definitely not asking your question on to the numbers, sorry. So please -- forgive me for that, you can delve into the details.

[Operator Instructions] Our next question comes from [indiscernible] from HSBC.

My question is about your estimate on -- your guidance on capital expenditure in 2023. And also if you could give some guidance on investments in equity associates in 2023.

Yes. Good question. Yes. Thank you very much. So I think what we have demonstrated in upcoming pipeline is actually a rich and busy pipeline. Actually, this is safe from the any time. So not only with New York, but we have a very, very strong outcome pipeline of projects to be built. So Paddy already highlighted our investments in new, our investment costs are in the upcoming 4 plus gigawatts in the [indiscernible] is favorable. We are also bidding into a couple of projects. So I can highlight a few. So today, for example, in Dubai, we are bidding for the upcoming Water design in Asia and BP and also have a thing for Phase 6 on, I would say, in Dubai. One PV project number also is in the pipeline, a few other wind projects also in Uzbekistan. There is market to close out one new project in Azerbaijan has been in the pipeline for a while. But on also this year to achieve something there. New countries, we are looking at it also from a green hydrogen perspective. So this will take a bit longer time compared to the PV and wind projects that we are looking at. There is 4 CCGT project in Saudi, the same paper that also we are bidding for them. Overall, we are expecting to invest higher than what we have invested in that us other in the 2022, in fact, our target is to invest more, depending on, of course, our winning ratio, depending on how successfully we closed a couple of these projects 3-month agreement into our financial cost. And we are -- with that, we are expecting to be higher. Of course, we don't usually give a guideline on number specific number that we want to achieve by 2026. But [Foreign Language], our objective and target is to go more.

Okay. One more question, if I may. This is about the amount of electricity that you generate. Pardon me if I have missed it somewhere, but do you report that? Or could you just provide that information, amount of electricity generated? I know you disclosed availability.

Yes. About 44.4 gigawatts.

Our contracted capacity is 24-point gigawatts of contracts to best.

And this is what Paddy has mentioned during 2022, we have increased with this 12%, which is 5.4 gigawatt. So with the 5.4 gigawatts, we are 44.4 gigawatt, which is a 12% growth point of our capacity, contracted capacity. Just to put that into perspective, this is a capacity equivalent to URA capacity was in. But you use 46 gigawatts in the country. If you [indiscernible] .

Sorry. So is it a good assumption that you produce all that you contract?

Yes.

Yes. yes, because we are all on PPA capacity contracts. Yes. So of course, some of these are actually during the, I would say, a phase between award under financial close or [indiscernible] financial or at construction. So a couple of COD, commercial, but they had some of them on the upgrade?

If you're asking specific the electricity that we are dispatching, in a few weeks' time, we will announce the numbers in our annual report. So if that was your question. .

Your question was terawatt hours. My apologies. That will come through in the annual report.

It will come in the annual report as part of sustainability.

[Operator Instructions] And there are no further questions. I'll have ask the management team for any closing remarks.

Well, thank you very much for your time. I'm glad you have been able to share the time with us. Look, I'm sure Ozgur is now going to tell you that he's available day and night. I'll leave him to do that. But in the meantime, thank you for the opportunity for us to be able to share our 2022 with you, and a brief look into what is exciting and what we look forward to into 2023. Thank you very much on my part. Ozgur?

Thank you, Paddy. And thank you, everyone, for joining us today. As usual, if you have any questions, we see now how we will reach us, and I don't need that even any time of the week or by the time of the day. Thank you so much, and have a wonderful day or evening wherever you are. Thank you.

Thank you.