Question : Success Factors and Challenges

$5\mathrm{.}1.$ Identify critical success factors that contributed to the Azito project's success, as outlined by John S$.$ Strong. $(5$ marks$)$

$5\mathrm{.}2.$ Highlight unresolved issues that may influence future infrastructure projects in C$$te d$$Ivoire$,$ such as political pressure on electricity prices and gas supply management. $(5$ marks$)$

Important

Azito, C$$te d$$Ivoire Type of project

$288$ MW power plant and $225$ kV transmission system.

Country

C$$te d$$Ivoire$.$

Distinctive features

$$ First major private infrastructure project in sub$-$Saharan Africa $($South Africa excluded$)$ to be financed with private commercial bank term loans.

$$ First power project in the region financed on a non$-$recourse basis.

$$ Model for similar projects in the region.

$$ First project financing with a guarantee from the International Development Agency $($IDA$).$

$$ Largest thermal power plant in West Africa.

$$ Second largest independent power project in C$$te d$$Ivoire$.$

$$ Successful project financing requiring involvement of multilateral agencies.

Description of financing

The total project cost of US$$223$ million was financed in $1999$ from the following sources:

$$ US$$44$ million in sponsors$$ equity;

$$ US$$32$ million as an A loan from the International Finance Corporation $($IFC$)$;

$$ US$$30$ million as a B loan from the IFC;

$$ US$$30$ million from commercial banks with an IDA guarantee;

$$ US$$47$ million from the Commonwealth Development and bilateral agencies; $$ US$$22$ million in subordinated debt; and

$$ US$$18$ million in cash from operations.

Debt is repayable over $12$ years. Pricing on the commercial bank portion, not made public, was reportedly about $300$ basis points $($bps$)$ over the London interbank offered rate $($Libor$).$ To protect part of the project debt against interest rate volatility, the IFC provided a US$$32$ million interest rate swap to convert its exposure from a floating rate to a fixed rate.

Project summary$1$

Azito, the largest thermal power plant in West Africa, was financed partly through A and B loans from the International Finance Corporation $($IFC$),$ which is part of the World Bank

POWER PLANT

$70$

Group. It was the first major private infrastructure project in sub$-$Saharan Africa $($South Africa excluded$)$ to be financed with private commercial bank term loans. The International Development Association$$s $($IDA$$s$)$ partial risk guarantee was critical in attracting commercial lenders to C$$te d$$Ivoire$,$ a country that was not yet an established international borrower. The IDA is also part of the World Bank Group.

In $1990,$ after a state$-$owned corporation responsible for the electricity sector ran into difficulty, the government had signed its first concession for the generation, transmission, distribution, export and import of electricity. Success with that concession led the government to increase private$-$sector participation. Legal issues in the course of the Azito project negotiations included:

$$ the use of project assets for collateral;

$$ the availability of international arbitration in the event of a project dispute;

$$ structuring power sector revenues through a cash$-$flow waterfall; and

$$ preventing dilution of Azito project cash flows as a result of subsequent project approvals.

The government acknowledged the need to develop concession contract laws to cover Azito and future projects. The project is a model for future infrastructure projects in the region. It will be a test of the government$$s credibility, and of its willingness to comply with its obligations to the sponsors and lenders.

The power sector in C$$te d$$Ivoire

History since $1952$

Starting in $1952,$nergie $$lectrique de C$$te d$$Ivoire $($EECI$),$ a government corporation overseen by a unit of the Ministry of Economic Infrastructure, was responsible for generation, transmission, and distribution of electricity. In the $1980$s$,$ however, EECI ran into financial difficulty as a result of overexpansion, droughts, financial mismanagement, the deterioration in the country$$s economy and problems with collecting bills from other government agencies. The company accumulated significant debt despite levying some of the highest electricity tariffs in the world. At the same time, the poor performance of many other public enterprises, the increasingly competitive international economic environment, and successful experience with a water and sewerage concession granted to a private Ivorian$/$French consortium led the government to formulate a privatisation program in $1990.$ It focused first on large enterprises in the infrastructure and agroindustry sectors that would have the biggest impact on the economy$\mathrm{.}2$

Faced with a national emergency in the electricity sector, the government of President F$$lix Houphou$$t$-$Boigny sought the advice of international power companies and French multinationals operating in C$$te d$$Ivoire on a private solution. In October $1990$ the government signed a $15-$year concession for generation, tr