Abu Dhabi National Energy Company (TAQA) recently signed a $1.4 billion multi-currency facility to finance the $1.85 billion expansion of its Jorf Lasfar coal-fired power station in Morocco. The deal, which has yet to close, will be the biggest international project financing in Morocco for a decade and the first to combine local and international lenders in the power sector.

It also attracted Japanese and Korean export credit agencies to the country for the first time, with their presence allowing the deal to reach its market-defying 16-year tenor. Jorf Lasfar highlights the robust local debt market and Morocco’s ability to withstand both the ongoing global financial crisis and political turmoil in the region.

The additional 700MW facility raises the plant’s gross capacity to 2,056MW, and the expansion will account for 10% of the country’s electricity production when it comes online in 2014. The plant expansion is designed to reduce the country’s reliance on costly imports and diversify its energy mix, in a country where economic growth is responsible an estimated annual growth in electricity demand of 7%.

The Japan Bank for International Cooperation provided a direct buyer’s credit loan of $216 million, and the Tokyo branches of BNP Paribas, Societe Generale and Standard Chartered Bank a $360 million cofinanced portion. Kexim is understood to be providing Eur156 million ($200 million) in direct debt, and covering another Eu104 million in debt from the same three commercial banks. The three international commercial banks are also understood to be providing about Eu100 million in uncovered tranches.

The deal also features a substantial Moroccan dirham portion of around Dh4.5 billion ($500 million), for which BCP was mandated lead arranger, and in which Banque Marocaine du Commerce et l’Industrie and Societe Generale Marocaine des Banques participated. Taqa is also providing $450 million in equity.

The Jorf Lasfar expansion is structured as a wholly separate deal to the existing plant. Although the new plant will be built alongside the existing power station, and has the same offtaker, the project company for the expansion is Jorf Lasfar Energy Company 5 & 6, and it has its own power purchase agreement with ONEE (Office National de l’Electricité & de l’Eau Potable).

Both entities share facilities under a common facilities agreement, however, using plant infrastructure like coal conveyors and unloading equipment. Such expansions are most typically funded with additional debt for the same borrower as the first phase, often alongside a refinancing. However, few project financed expansions take place 14 years after the original project financing. It made no sense to tack a new plant onto the back of the existing IPP because the duration is not long enough to support a new financing, says sources familiar with the financing.

As on the original Jorf Lasfar financing in 1997, the PPA benefits from a government guarantee, and at 30 years is much longer than many comparable emerging market offtake agreement. Other comforting factors include the track record of the existing plant and its strong relationship with ONEE, which has “fulfilled every payment”, notes one source familiar with the project. TAQA’s relationship with ONEE is strong enough that it was willing to start construction before the financing signed.

The financing includes both interest rate and currency hedges, and the formula that governs payments under the power purchase agreements is also designed to minimise lender foreign exchange risk. The deal combines local banks and international lenders for the first time. To date, power projects in Morocco have been funded either by international banks in the first instance and then refinanced locally, or wholly by local banks. BCP was the lead bank with the local banks – affiliates of BNP and Societe Generale – coming in as participants.

Down the line, the lenders will probably syndicate down their commitments, and dominant local player Attijariwaffa is likely to come in. It was “quite an achievement” raising nearly half the amount in the local currency market, says one banker familiar with the process. Many local banks have lent to corporate clients and need to clear their balance sheets before they can start lending to infrastructure projects.

The deal also showed the resolve of crisis-hit French banks to back the most high-profile and strategic projects. Both BNP Paribas and Société Générale were downgraded during the financing process. These tremors did not affect the pricing, which TAQA says came in “well below” the 10-year borrowing costs of the Spanish and Italian governments. A banker familiar with the deal commented that the pricing was still very beneficial to the borrower and ONEE.

A consortium of Japan’s Mitsui and South Korea’s Daewoo holds the project’s engineering, procurement and construction contract. Mitsubishi and IHI are building the steam turbine and boiler, the principal components of the plant. The expansion units 5 and 6 are scheduled to be commissioned in December 2013 and April 2014, respectively.

Jorf Lasfar Energy Company 5 & 6 SA

STATUS: Signed June 2012
SIZE: $1.85 billion
LOCATION: Jorf Lasfar, Morocco
DESCRIPTION: 700MW expansion of the coal-fired Jorf Lasfar power station
SPONSOR: TAQA
DEBT: $1.4 billion
MANDATED LEAD ARRANGERS: Standard Chartered, BNP Paribas, Société Générale, Banque Centrale Populaire
ECAS: JBIC, NEXI and Kexim
LEGAL ADVISERS TO THE LENDERS: Linklaters and Kettani Law Firm
LEGAL ADVISER TO THE SPONSOR: Allen & Overy (Paris)
LEGAL ADVISER TO ONEE: Chadbourne & Parke
FINANCIAL ADVISER TO THE SPONSOR: BNP