The recent completion of the UAE’s first waste-to-energy plant in Sharjah is a seminal step in the country’s drive to achieve net-zero carbon emissions by 2050. It is also central to Sharjah’s vision of becoming the first zero-waste city in the Middle East, and setting the bar higher in the region that ranks high on per capita solid waste generation per year.
The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the insurance arm of the Islamic Development Bank (IsDB) Group, has provided cover for the project’s construction financing of around $220 million.
“In the Sharjah WtE Project, ICIEC is supporting the UAE by providing cover to facilitate financing from an international bank for construction work to be executed by a foreign contractor related to the project in Sharjah.
In addition, we are contributing to the development agenda (in the UAE), contributing to mitigating climate change; engaging with local, regional, and international financial institutions, including Islamic financial institutions in facilitating green financing; and assisting entities in member states to access long-term project finance,” said Oussama Kaissi, CEO, ICIEC, in an interview with local media.
The project is promoted by Abu Dhabi Future Energy Company (Masdar) and Bee'ah, Sharjah’s environmental management company. Started in 2018, the construction of the first phase of the Sharjah WtE facility was completed in May this year. The project is now in the testing phase, and is managed by Emirates Waste to Energy Company (EWEC), a 50:50 joint venture established by Bee’ah and Masdar in 2017.
The total cost of this turnkey project is Dh4 billion ($1.1 billion). “The Sharjah WtE Project construction structured financing, with a tenor of 20 years totals $220 million and is provided by a consortium of five banks, namely Sumitomo Mitsui Banking Corporation Europe (SMBCE) UK, Siemens Bank, Abu Dhabi Commercial Bank, Abu Dhabi Fund for Development, and Standard Chartered. The deal was the first of its kind in the region, bringing together a consortium of five banks to finance the project on a non-recourse basis,” added Kaissi.
ICIEC has provided a 17-year $32.5-million Non-Honouring of Sovereign Financial Obligations (NHFSO) cover for SMBCE UK’s participation in the loan syndication for this project, which on completion will result in an estimated net reduction of 460,000 carbon dioxide emissions per year and reduce waste disposed to landfills.
ICIEC’s role in the UAE projects
ICIEC has a growing relationship with Masdar and inked a wide-ranging pact, which could provide a major boost to the UAE’s efforts in moving towards renewable and clean energy.
This is important considering the Gulf Cooperation Council (GCC) members are responsible for generating an estimated 150 million tonnes of urban waste annually. In the wider region, the Middle East and North Africa are expected to double waste generation in the next three decades.
For a start, the Sharjah WtE plant will divert around 300,000 tonnes of solid waste from landfills each year and contribute to the emirate’s efforts to reach its zero-waste-to-landfill targets. Once operational, the plant turns unrecyclable waste into clean energy, and increases the current landfill diversion rate of the UAE from 76 per cent to 100 per cent.
“The UAE is a priority market for ICIEC. After all, the UAE’s net-zero strategy involves a Dh600 billion ($163 billion) investment in clean and renewable energy sources in the next three decades across the country. In April, Abu Dhabi also announced its zero-waste proposal under which it aims to ensure that no waste is sent to landfill after 2071. Waste management is a major problem for many cities in the GCC, as it is elsewhere globally,” said Kaissi, adding, “Sharjah W2E Project will attract much attention at COP28, which coincidentally is hosted by the Government of the UAE in 2023.”
Insurers are enablers of the green economy
Insurers, including multilateral ones such as ICIEC, national ones such as the UAE’s Etihad Credit Insurance (ECI) and its Islamic entity, are green economy enablers. “They absorb the risks. As institutions with a long-term investment focus, insurers are well placed to channel investment into infrastructure projects, notably in renewable energy. Insurance solutions can reduce risks inherent in infrastructure projects and increase their appeal to investors. The ability to help channel investment into sustainable projects is a sizeable growth opportunity for the sector, especially in the Mena region,” said Kaissi.
ICIEC is unique, for it is the only Shariah-compliant multilateral insurer in the world. “The global Islamic finance industry, with its estimated $3.2 trillion of assets under management, has a wonderful opportunity in the green finance and Sukuk space, especially in sustainable development projects and infrastructure, given that there is much overlapping in the ethos between faith-based Islamic finance and the ethical finance movement, including green, SRI, sustainable and ESG finance,” said the CEO.
For now, the market gap between conventional green finance and Islamic green finance is huge. Total green and sustainable Sukuk, for instance, according to Fitch Ratings, reached $15 billion in 2021, led by sovereign and corporate issuers in Indonesia, Malaysia, Turkey and the GCC states.
“So the latent demand for green Sukuk is huge because the base is low. Green Sukuk is also the preferred format for ESG-linked debt in core Islamic finance markets, which includes the UAE, the home of the world’s first commercial Islamic bank, Dubai Islamic Bank,” said Kaissi.
ICIEC has also proposed the establishment of a Climate Action Finance Trust Fund, with institutional partners, peer multilaterals, and ECAs in the member states and beyond, which would offer a discount on the insurance premiums needed for the financing of climate action projects.
The success of initiatives such as this can bring change to the region and power a collective sustainable future.