The International Development Association (IDA) of the World Bank Group, a major source of soft loans to African governments, will now also provide guarantees for commercial loans to the private sector. The first such guarantee covers a commercial loan of $30.3 mn, obtained last December by a group of private companies in Côte d'Ivoire known as Cinergy. The loan completes the estimated $223 mn cost of building the Azito power plant in Côte d'Ivoire. The International Finance Corporation (IFC), also of the World Bank Group, worked closely with IDA to appraise the project and arrange the guarantee facility.
Photo: UNDP / Ruth Massey
The rest of the funding for the 300 megawatt power station had been raised mostly through loans from the IFC, equity and a syndicate of bilateral and multilateral institutions led by the Commonwealth Development Corporation (CDC). Société Générale of France is the syndication underwriter for the combined commercial bank package. The IDA guarantee facility is a "partial risk guarantee," based on the understanding that the government of Côte d'Ivoire, the developers and the commercial bank involved, will bear some of the potential risks associated with the project, including construction risks and the cost of overrun.
Mr. Mikhail is certain that IDA's new role as loan guarantor will boost the confidence of both public and private business holdings in the countries that constitute IDA's main clientele. But he notes that certain conditions apply to IDA's provision of the facility, stressing that the economic and political climate in the countries in which interested businesses operate have to be open-market oriented and stable. Similarly, the project for which they seek commercial loans that IDA can guarantee has to be viable, he says.
In this context, he explains that Côte d'Ivoire's Cinergy was able to obtain the IDA guarantee essentially due to the privatization of the power sector and an energy tariff level that ensured full cost recovery and convinced IDA of the viability of the project. The reputation and experience of the project developers and owners of Cinergy, as well as IDA's confidence in the stability and political leadership of Côte d'Ivoire, also helped, he adds.
The project developers had to meet two other conditions to secure the IDA guarantee. The first comprised cash compensations and a resettlement package for locals living by the project site, and the second was a commitment to IDA's "safety-net" recommendations against possible pollution and environmental damage from the operation of the plant.
The Azito power plant is designed to boost Côte d'Ivoire's socio-economic base, by helping sustain its economic growth. Energy is the motor for economic development and no one can sustain economic growth without the security of sufficient energy, Mr. Mikhail notes. Azito, he adds, was conceived to offer that security to Côte d'Ivoire, in addition to the direct generation of savings in foreign exchange. Because the project will run on locally produced natural gas, a cost-effective power source, it is anticipated that the country will save up to $4 mn a year in fuel costs.
Furthermore, the project is intended to improve Côte d'Ivoire's supply of electricity to its rural areas, home to about 56 per cent of its rapidly growing population of 14.3 million. The project appraisal document indicates that the demand for electricity in the country is presently growing at an annual rate of 12 per cent. Under Côte d'Ivoire's rural electrification programme, about half the rural population now has electricity, World Bank sources say. It is expected that Azito, when completed, will help accelerate the programme, and also enable Côte d'Ivoire to export electricity to neighbouring countries.
Mr. Mikhail notes that the IDA loan guarantee is a facility that many private companies in other African countries can take advantage of, for the funding of projects with similar socio-economic value. He says infrastructural projects that can produce revenue and are, therefore, inherently attractive to investors, are especially favoured.
