The recent financing for AES Sonel's 216MW Eu263 million ($350 million) independent gas power project in Cameroon is most noteworthy for a ground-breaking World Bank guarantee that ensured a pool of local banks could provide long-term local currency financing.

The guarantee is a template that could be rolled out for other infrastructure projects in the region that want to draw on liquid local funding sources, at a time when international project lender appetite is again under pressure. The lengthy journey of the project to financial close involved a series of hurdles that would have tripped up a less determined group, and as the second independent power project to close in Cameroon, after the Eu66 million Dibamba power plant in May 2011, it builds on a track record of successful projects in the region.

Kribi is most remarkable in that a cohort of local lenders, led by Standard Chartereds Cameroonian operation and including Afriland First Bank, provided Eu60 million of the deals Eu198 million in debt. Under a structure the World Bank hopes to repeat in the wider Central African Franc (CFA) region, and beyond, it provided a partial credit guarantee that made long-term local currency financing to the project a possibility and enabled developers AES and the Cameroon government to unlock local bank liquidity.

The financial regulator for the CFA region, the Commission Bancaire de lAfrique Centrale, stipulates that local banks can't lend beyond seven years, putting Kribis 14-year tenor out of reach of local lenders. However a bullet structure in the deal allows these commercial banks to opt out after seven years or roll over for another seven; if they opt out the Cameroon government, backed by the World Bank, comes in with support.

In addition to the local bank tranche, the debt breaks down into a Eu30 million loan from the AfDB, a Eu10.50 million loan from Cameroons own development bank BDEAC, an Eu18million loan from the FMO a Eu40 million loan from the IFC; Eu10 million from Proparco, and a Eu29.5 million commitment from the European Investment Bank. Pricing was around 9% all-in. The EIB debt closed after signing, reducing the IFC take by Eu20 million to its current commitment, and the AfDB by Eu9.5 million.

Other enhancements included the introduction of new government regulations to ensure safe operation of IPPs as well as government guarantees that backstop the project. Lenders also sought mitigation of other risks, including ensuring sufficient access to gas from the offshore Sanga field for the lifetime of the project. AES has made it possible for the plant to run on diesel and eventually convert to light or heavy fuel oil if need be.

Another challenge was ensuring that related infrastructure essential to the operation of the project came in on time and that the numerous project contracts were safely in place to ensure bankability. In a long development chain, the wider project comprised an offshore gas extraction platform, a gas treatment facility, pipeline infrastructure, the construction of the Kribi plant and a 100km transmission line to dispatch the power, though the financing simply covers the power infrastructure.

There were endless questions like will the engines be there and working when the gas comes on stream or will the quality of gas match the quality of the engines used said one expert involved in the deal. Because contracts had been signed at different times and with different delivery dates, amendments had to be negotiated to these contracts to align the dates. Even so, there were difficult moments. With an eye on completion in early 2012, the sponsors chose to begin construction in early 2010 and contributed the total equity required well ahead of any debt financing.

Delays in closing the financing then threatened to push completion of the project back. The sponsors opted to close bridge loans of up to Eu120 million with local banks in order to maintain the construction timeline before the long-term financing was disbursed. Thanks to this scheme the plant will come on line during the first term of 2013. It would have been delayed by at least one additional year if the construction activities had to start with the proceeds of the long term financing, says Bitanga.

The deal closed in spite of Cameroons undeveloped gas market and a lack of regulation. Here new laws were introduced in tandem with the projects progress. The last big challenge was to adapt the loan documentation to the new electricity law that was promulgated just two days from the scheduled signing date, says Bitanga. The project has contributed to the creation of a more favourable environment for future IPPs that will streamline negotiations and project implementation in Cameroon. It has led to the development of templates for key agreements like generation licenses, sales licenses and power purchase agreement, that the government and the regulator can use for future projects. In another measure designed to shield consumers from increased tariffs, retail prices will be capped and the government will reimburse AES the foregone tariff.

Kribi Power Development Company
STATUS: Closed 13 January 2012
TOTAL PROJECT COST: Eu263 million
DESCRIPTION: 216MW gas-fired power plant in Kribi, Cameroon
SPONSORS: AES Sonel (56%), Government of Cameroon (44%)
DEBT: Eu198 million
LOCAL BANK TRANCHE LEAD ARRANGER: Standard Chartered
DEVELOPMENT LENDERS: AfDB, BDEAC, EIB, FMO, IFC, Proparco
SPONSOR LEGAL ADVISERS: Simmons & Simmons (transaction); Cabinet Marie-Andree Ngwe (local)
LENDER LEGAL ADVISERS: Clifford Chance (transaction), Jing and partners (local)
GOVERNMENT LEGAL ADVISER: Orrick, Herrington & Sutcliffe
LENDERS’ INDEPENDENT ENGINEER: Sargent & Lundy
OWNERS’ ENGINEER SKM INSURANCE ADVISER: Marsh