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Orchid Group advises EGCO in Paju Energy acquisition

Thailand’s Electricity Generating Public Company Limited (“EGCO”) has closed the acquisition of a 49% stake in Paju Energy Service Co. (“Paju”), a power generation subsidiary of South Korea’s SK E&S – consisting of 1800 MW of combined cycle gas-fired power – for an estimated KRW 900 billion. EGCO was previously announced as the preferred bidder in November 2018.

The acquisition is the culmination of a competitive bidding process that began early in 2018 when an invitation to bid was issued to various domestic Korean and foreign bidders. In April 2018, EGCO appointed Orchid Group as part of the bid advisory team.

Orchid’s role focused on the Korean electricity market as well as the LNG supply arrangements given Paju’s position as one of the few LNG direct importing power producers in South Korea. Given its long history in the Korean market and in-depth knowledge of both the domestic gas and power sector as well as the global LNG industry, Orchid was particularly well positioned to advise on this transaction.

As part of its work, Orchid initially provided EGCO with an in-depth review of how the Korean power market works as well as a competitive analysis of Paju’s position within the market. We also reviewed the LNG value chain agreements and other elements of the project to identify any potential red flags in the transaction.

Thereafter, Orchid developed a power pool model in order to run a simulation and multiple market scenarios to forecast long-term revenue streams for Paju. This included forecasting Korean LNG prices as well as Paju’s prices under its LNG contract. As a part of that, Orchid ran a rigorous assessment of the cost competitiveness currently and in the future of the Paju LNG direct import contract.

Finally, Orchid provided a commercial review of the various LNG value chain contracts that Paju is a party to and provided input with regards to any amendments to agreements or undertakings by SK E&S that EGCO should pursue.

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