Making savings: Mali’s first IPP

Mali’s debut independent power project financing, for a greenfield heavy fuel oil-fired power plant, features a blend of Islamic and DFI debt with tight pricing given the risk. The financing includes a debt service reserve account replenishment facility priced at nearly half the cost of the senior debt.

On 5 July 2017 Albatros Energy Mali (AEM) signed a 14-to 15-year €84.8 million ($99.5 million) DFI-backed facility to finance the construction of a 90MW thermal power plant in Kayes, western Mali – the country’s first independent power project (IPP).

AEM was awarded the 20-year build, own, operate and transfer (BOOT) concession by the government of Mali in 2012. Construction began in July 2017 and the project is scheduled for completion in November 2018.

The $127 million scheme is financed on a debt-to-equity ratio of 70:30 with the equity split between African Infrastructure Investment Managers (AIIM), the largest shareholder (with a 44% stake in AEM), Redox Power Solutions, Burmeister & Wain Scandinavian Contractor (BWSC), and Denmark’s Investment Fund for Developing Countries (IFDC). BWSC is also engineering, procurement and construction (EPC) contractor and will operate and maintain the plant for a minimum of 13 years. Herbert Smith Freehills provided sponsor legal counsel while Hogan Lovells acted for the lender group, with Linklaters serving as project counsel.

“The most interesting feature of this deal is the long term fixed rate debt funding with little currency risk,” a source at AIIM tells TXF.

West African Development Bank (BOAD) lead arranged the project debt and provided €10.05 million at a fixed rate of 6%. Islamic Development Bank (IDB) joined with €30 million, the Islamic Corporation for the Development of the Private Sector (ICD) with €20 million, the OPEC Fund for International Development (OFID) €15 million and the Emerging Africa Infrastructure Fund (EAIF) put up €9.7 million in conventional and Islamic tranches at a margin of around 6%. Local debt was provided at a fixed rate of 7% with funds provided by Attijariwafa Bank (facility agent) and the International Bank for Mali (security agent). GuarantCo provided a 13-year debt service reserve account (DSRA) guarantee for €3.8 million. The DSRA was priced at 4% compared to an average of around 7% on the senior debt. If the project failed to meet its payment obligation, requiring draws on the guarantee, these draws would, paradoxically, be cheaper than the senior debt.

This project is peculiar for an African project in that the DSRA is primarily represented by a revolving credit facility rather than a cash deposit. The benefit for sponsors here is that the project costs are reduced because the project only pays the cost of having the facility in place rather than paying interest on drawn cash.

“The transaction was innovative because we managed to combine Islamic, DFI, and private equity financing for the same project,” Jules Samain, GuarantCo’s West African director, who structured the DSRA guarantee, tells TXF. “The pricing was really competitive too, given the risk in Mali but the government was very much behind this project.”

The project is backed by a 20-year power purchase agreement with Mali’s state-owned Energie du Mali (EDM) that signed in October 2016, and benefits from a 100% sovereign guarantee covering the offtaker’s obligations. Lenders can also take comfort from the fact there is a 5 to 6-year tail period after the end of the debt’s 14-to 15-year tenor.

“Structuring the financing document was the greatest challenge here, as it was the first time most the lenders had dealt with a guarantee for the DSRA,” adds Samain.

The minimum purchase by EDM will represent about 8% of 2019’s projected generation capacity for the country. Despite having potential for solar and hydro capacity the current pipeline of projects cannot provide baseload power generation. Thus, thermal generation remains an essential part of Mali’s power strategy, and in turn, EDM has added the AEM project to the 2016-2018 list of priority projects for Mali.

With Mali’s fast growing population and a GDP growth rate forecast for 5% over the next five years, the West African country’s debut IPP couldn’t have come any sooner. Mali is among the world’s 25 poorest countries and, according to the African Development Bank, only 25.6% of its 17.6 million people have access to electricity, with this level falling to 15% in rural areas.

Upon completion in 16 months, the plant will add at least 25% to Mali’s baseload fleet and create enough power for about 780,000 households. The project will contribute to a reduction in the country’s energy deficit while reducing the cost of producing electricity.

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