Abu Dhabi National Energy Company (TAQA) closed two significant power deals in Africa in 2012, helping each project’s host country to meaningfully bulk up its power generation fleet. The expansion financing for the Jorf Lasfar power plant in Morocco and the Takoradi power plant in Ghana were both completed in challenging markets, with wide international lender support, over a period of around three years.

TAQA, established in 2005, develops and operates energy, water and natural resources projects in the Middle East, Europe, Asia, North America and Africa. It currently produces around 61.9 million barrels of crude oil, 11.5 million barrels of natural gas liquids and 394.5 million cubic feet of natural gas each day. It is the largest independent power producer in the MENA region, with a total gross generating capacity of 15,413MW and a water desalination capacity of 887 million gallons per day. In the nine months ending 30 September 2012 the company generated revenues of Dh9.7 billion ($2.6 billion) and achieved profits before tax of Dh3.6 billion.

Last year the sponsor signed the financing for expansions to two of its power plants in Africa. Jorf Lasfar 5&6, winner of Project Finance Magazine’s African Power Deal of the Year award (see p66 below), required a $1.4 billion multi-currency debt package. The deal broke new ground by attracting Japanese and Korean ECAs to the Moroccan market for the first time, and was the largest project financing in the country for more than 10 years.

Takoradi 2 was TAQA’s other significant 2012 financing. The project involves increasing the plant’s generating capacity from 220MW to 330MW, and the upgrading its operating system from single to combined-cycle. TAQA owns 90% of the project, with Ghana’s main electricity generator and supplier Volta River Authority (VRA) holding the remaining 10%. The sponsors contributed $109 million in equity, although $86 million of that is the value of the existing plant. A club of development finance institutions led by FMO provided $329.6 million in debt.

CMS developed the original single-cycle plant in 2000 as part of a government initiative to diversify Ghana’s energy sources, pivoting away from hydroelectricity, which accounted for as much as 90% of production in the mid-1990s. The government had always intended for the plant to be subsequently expanded, but in the early part of the last decade there were not enough international lenders active in the Ghanaian market to finance the work.

In the middle of the decade depressed cocoa and gold prices further dented Ghana’s credit profile. The government responded by introducing several regulatory reforms, including the establishment of the Energy Commission, which regulates the relationship between generators and offtakers. CMS sold its interest in Takoradi and Jorf Lasfar to TAQA in 2007, and within two years the Abu Dhabi-based developer was in initial discussions to extend their capabilities.

“The ability to bring in private capital with a long debt component, on long tenors is very important in regards to the all-in electricity price in an emerging market like this,” commented Joe Tomasik, vice-president of business development at TAQA. “Ten years ago it would not have been possible. Takoradi is a bell-weather for the opportunities that could exist in this market.”

TAQA decided against assembling a club deal and mandated FMO as lead arranger in August 2010. It approached the International Finance Corporation at the same time to provide a separate A loan. Each institution is lending $80 million to the project, with the FMO loan having a 15-year tenor while the IFC tranche has a 16-year tenor. The financing signed on 13 July 2012 and reached financial close in January 2013.

The $212.1 million FMO tranche also features Proparco ($40 million), DEG ($24.9 million), AfDB (22.2 million, Emerging Africa Infrastructure Fund ($15 million) and the IFC Debt Pool ($30 million). The margin on this debt is understood to be between 410bp and 450bp above Libor. In addition to the $80 million IFC commitment, the Canadian Climate Change Fund provided $15 million of 16-year debt and the OPEC Fund for International Development also participated with $22.5 million in debt. Mitsui and Kepco ENC are the EPC contractors on the deal, and VRA is the project’s sole offtaker.

As commercial bank appetite for Sub-Saharan power projects remains depressed, the ability to source debt from a variety of official lenders has become vital to project finance in the region. TAQA’s domestic government support – it is 75.1% indirectly owned by the Abu Dhabi government – gives it an advantage in this respect. And as these two deals have shown, its connections and experience also enable it to revive moribund power sectors.

“Jorf Lasfar and Takoradi demonstrate TAQA’s ability to execute complex, capital intensive projects in emerging markets,” says Frank Perez, executive officer and head of global power at TAQA. “Our strong strategic relationships allowed us to attract the support of government entities, EPC contractors and local, international, multi-laterals, development and ECA lenders.”