China’s power play pins down Jordan

In recent months, the State of Israel has been preoccupied with the urgent need to build new power plants to enhance the capacity to produce electricity. But what happens when a country finds itself with a power plant it doesn’t want, and probably doesn’t need? This is what happened to Israel’s eastern neighbor, Jordan, which is trying to evade an agreement it signed with China to build and operate a polluting power plant, at an exorbitant price in its eyes, about 100 kilometers from the country’s capital, Amman.

The Attarat power plant, fueled by shale oil, a particularly polluting fossil fuel, opened a month ago at full capacity (470 megawatts), and represents part of China’s ambitions to deepen its influence in the Middle East.

The plant is owned by Attarat Power Company (APCO), which in turn is 45% owned by China’s Guangdong Energy Group, 45% by Malaysia’s YTL Power International, and 10% by Estonian company Eesti Energia, which was the original developer of the plan.

Holdings in the company may be reasonably well-spread, but the funding model for the $2.1 billion project is a far cry from that. Shareholders invested $528 million, and secured a $1.6 billion loan from the Bank of China and the Industrial and Commercial Bank of China, guaranteed by the China Export and Credit Insurance Corporation.

The 30-year energy supply agreement was signed in 2014 for an exceptionally high sum of $8.4 billion, and the financial closure took place in 2017. According to estimates by the Jordanian Ministry of Finance, the price in the agreement would mean an annual loss of more than thirty. $280 million. Energy experts estimate that electricity prices in Jordan would have to rise by 17% to meet the bill.

To understand why the Jordanians were so quick to reach this problematic agreement with China, it is necessary to look back a decade or more. While the Gulf states were gaining more income from their oil, and Israel was expanding its known reserves of natural gas, thus strengthening its geopolitical position, Jordan was falling behind. Thus, with Jordan having the fourth largest reserves of shale oil in the world, it has sought to obtain 15% of its energy consumption from the Attarat terminal. However, shale oil production turned out to be expensive and technically complex.

These technological difficulties prompted Jordan to turn its sights on Israel’s natural gas reserves, and in 2016 it signed an agreement to supply gas from the Leviathan reservoir for fifteen years for $10 million. According to a report from 2019 on the Jordanian website Jo 24, the price in the agreement is $5.65 per million British thermal units (MMBtu), tied to the price of Brent crude oil. According to that report, if the price of Brent crude rises above $80 per barrel, the price of gas will rise to $6.50 per million British thermal units. The current price of a barrel of Brent crude is $78.

The Leviathan reservoir is linked to Jordan through a pipeline jointly operated by the Jordan Electric Power Company (NEPCO) (National Electricity Company). This pipeline joins Jordan with the AGP (Arab Gas Pipeline), which was built to transport Egyptian gas to Jordan, Syria and Lebanon.

It is estimated, today, that more than 80% of energy consumption in Jordan depends on gas from Leviathan, at an economical price for sure. The agreement was signed when it became known that gas from Leviathan was being sold to the Israel Electric Corporation at a price of $6.3 per million British thermal units. Therefore, Jordan sought to get out of the Attarat agreement in legal proceedings at the Arbitration Tribunal of the International Chamber of Commerce in Paris.

For their part, the Chinese boast that the electricity supply from the two Attarat units will reach 3.7 billion kilowatt-hours, which is equivalent to 20% of Jordan’s energy consumption.

Chinese debt trap diplomacy

In the end, or of course, the debt must be paid, even if Jordan has no actual need for the product and even if its economic situation is bad. On the face of it, in a country with an unemployment rate of 22.9%, a project that creates 3,500 jobs in the construction phase and 1,000 jobs in the commissioning phase should be good news, but the number of jobs is hard to keep track of. Of these workers are actually Chinese.

In general, Jordan is a country used to relying on international aid, which rose in 2021 to a record $3.44 billion. State debt: The GDP ratio reached 88.4% in September 2022. King Abdullah II’s response to the problem has not changed, and fiscal management continues to rely on taxation.

Such a country is a classic target for China, which in 2022 maintained its annual investment in the Belt and Road program that began in 2014, spending $67.8 billion that year, down very slightly from $68.7 billion in 2021. Of all the investments China’s energy projects in other countries in 2022, 63% were in projects using fossil fuels.

Unfortunately for Jordan, there is no light at the end of the tunnel shining from the proceedings in Paris, and given China’s financial clout, King Abdullah and his government have few reasons for optimism.

Published by Globes, Israel business news – en.globes.co.il – on July 13, 2023.

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