Project Finance and Guarantees()PDF by ps94506


									                           Project Finance
                           and Guarantees
                           Resource Mobilization and Cofinancing Vice Presidency
                                                                                                                    November 1997

                           Project Finance and Guarantees Department

                           Morocco’ Jorf Lasfar Power Station

                                    Project Overview

                                    The Jorf Lasfar Power Station is a 1,356           ply with World Bank standards for NOx and
                                    megawatt coal-fired power project located on       SO2 air emissions. In addition, bottom and
                                    the Atlantic Coast of the Kingdom of Morocco.      fly ash, which prior to financial closing were
                                    The first two units, 1 and 2, were built by the    released into the ocean by ONE, will be used
This project brings worlds-best     Moroccan state electric utility, Office National   as landfill initially on site and, subsequent to
                                    de l’ Electricité (ONE), and were placed in        the operation of Unit 3, in an inactive quarry
operational practices to Morocco.   service in 1994 and 1995, respectively. The        owned by the Moroccan Ministry of Public
                                    second stage, units 3 and 4, will be built by      Works five kilometers away. The power sta-
                                    subsidiaries of ABB Asea Brown Boveri Ltd          tion uses ocean water for cooling.
                                    of Zurich, Switzerland. CMS Morocco Oper-
                                    ating Co, a wholly owned subsidiary of CMS         Energy Sector Background
                                    Energy Corporation of Dearborn, Michigan,
                                    will operate all four units as an “independent     The Government of Morocco has embarked
                                    power producer.”                                   on a program to reform the energy sector
                                                                                       and to promote private investments in its in-
                                    All of the power produced by the generating        frastructure. In the petroleum sub-sector, the
                                    station will be sold to ONE under a 30-year        distribution companies were privatized dur-
                                    power sales agreement. The tariff includes         ing 1994 and 1995. The majority shares of
                                    energy and capacity payments. All four units       the two national refineries were sold to pri-
                                    of the power station are baseload units.           vate investors during 1997.

                                    Jorf Lasfar Energy Company (JLEC) will             In the power sub-sector, the Government
                                    purchase coal through competitive bidding          has taken important steps to secure private
                                    from various sources overseas under me-            investors. For example, in 1994 the elec-
                                    dium-term and spot purchase contracts. The         tricity law was amended to permit the opera-
                                    operator will also operate a coal unloading        tion of independent power producers. The
                                    terminal at the port of Jorf Lasfar, two kilome-   Government is also reforming the sector’   s
                                    ters away from the power station. The project      regulatory framework and practices. The
                                    also includes extension and refurbishment          World Bank provides financial assistance to
                                    of the quay. Depending on the size of ves-         the Government for these efforts.
                                    sels actually used, approximately 60 vessels
                                    per year will be unloaded at the quay for the                       s
                                                                                       The World Bank’ country assistance strat-
                                    power station; in addition, the operator will      egy for Morocco is to support policies and
                                    unload another 12 vessels per year for de-         investments in four areas:
                                    livery to ONE’ Mohammedia Power Station.
                                                                                       • growth and competitiveness;
                                    The plant will use electrostatic precipitators     • social development;
                                    to reduce particulate emissions to World           • environment & natural resources man-
                                    Bank standards for coal-fired power stations.        agement; and
                                    The plant design and the specifications in the     • modernizing the public sector.
                                    fuel supply plan will allow the plant to com-
ProjectFinance                                  s
                                       The Bank’ partial risk guarantee for the Jorf      In return, JLEC paid the lease payments as
andGuarantees                          Lasfar Power Station is part of a series of        a lump sum initial amount in present value
                                       projects being developed to improve                terms at financial closing. Cash generated
November 1997                                  s
                                       Morocco’ rate of growth and competitive-           by units 1 and 2 will be an important com-
                                       ness.                                              ponent in the financing of the construction of
                                                                                          units 3 and 4.
                                       Project Background
                                                                                          Units 3 and 4 have been financed by limited
                                       In October 1994, ONE, the state-owned elec-        recourse project finance facilities consisting
                                       tric utility company, initiated an international   of two types of debt: commercial bank fi-
                                       competitive bidding to bring world-best prac-      nancing backed by political risk guarantees
                                       tices to Morocco by granting a concession          and a US$200 million direct loan funded by
                                       to operate the two existing units at Jorf Lasfar   Overseas Private Investment Corporation
                                       and to build and operate two new units adja-       (OPIC) of the United States. The two rank
                                       cent to the existing units. As mentioned           pari passu. The commercial bank financ-
                                       above, the law in Morocco was changed to           ing has four tranches, as follows:
                                       permit a foreign operator, but ownership of
                                       the power station assets is to remain with         • a DM62 million tranche guaranteed by
                                       ONE. The resulting structure is essentially          Geschäftsstelle für die Exportrisikogarantie
                                       a 30-year lease by the project company of            (ERG), the Swiss export credit agency;
Five different multi-lateral and bi-   the four units.                                    • a DM456 million tranche guaranteed by
                                                                                            Società per L’ Assicurazione dei Crediti
lateral agencies combined efforts      ONE selected the ABB/CMS consortium as                  Esportazione (SACE), the Italian export
to enable this financing to close.     the winning bidder, and in April 1996 signed         credit agency;
                                       a Protocol Agreement which outlined the            • a US$237 million tranche guaranteed by
                                       responsibilities of the consortium, ONE, and         the Export-Import Bank of the United
                                       the Government. As ONE completed units               States, with take-out funding at commis-
                                       1 and 2, contract negotiations were finalized.       sioning; and
                                       The project reached financial closing in Sep-      • a DM313 million tranche guaranteed the
                                       tember 1997. Units 3 and 4 are scheduled             World Bank.
                                       to be placed in service before December
                                       2000.                                              The lead arrangers for the commercial bank
                                                                                          financing are ABN AMRO Bank NV, Banque
                                       The equity investors in the project company,       Nationale de Paris, and Credit Suisse First
                                       known as Jorf Lasfar Energy Company, are           Boston. The project debt will be fully amor-
                                       as follows:                                        tized over a 12-year period, commencing at
                                       • JLEC Management AB, JLEC Capital
                                         GmbH, and JLEC Power Ventures GmbH,              In addition to providing interest rate swaps for
                                         which are wholly owned subsidiaries of           the ERG, USEXIM, and World Bank
                                         ABB Asea Brown Boveri Ltd, own 50% of            tranches, the commercial banks will also
                                         the project.                                     provide financing for other project costs,
                                                                                          thereby providing more flexibility for the
                                       • Jorf Lasfar Handelsbolag, Jorf Lasfar            sponsors and JLEC.
                                         Power Energy HB, and Jorf Lasfar I HB,
                                         which are entities wholly owned by CMS           Contractual Framework
                                         Generation Co., own 50% of the project.
                                                                                          The suite of project agreements is fashioned
                                       Jorf Lasfar Energy Company is incorporated         without the benefit of direct ownership of the
                                       in Morocco as a société en commandite par          power station assets.
                                       actions, a legal form similar to a limited part-
                                       nership.                                           • Power Purchase Agreement, between
                                                                                            ONE and Jorf Lasfar Energy Company,
                                       Financing Structure                                  provides for the sale of energy and capac-
                                                                                            ity from all four units. The Government of
                                       The project company has acquired the                 Morocco guarantees any termination pay-
                                       rights to operate Units 1 and 2 for 30 years.        ment that ONE might owe in the event of
ProjectFinance                           a default under the agreement.
                                                                                       World Bank Guarantee would not cover events
andGuarantees                          • Transfer of Possession Agreement, be-
                                                                                       of default caused by operations or force ma-
November 1997                            tween ONE and Jorf Lasfar Energy Com-
                                                                                       jeure events at the power station, but payment
                                         pany, transfers the right of use and quiet
                                                                                       under the World Bank Guarantee could be as
                                         enjoyment of all four units to JLEC and
                                                                                       a result of such events as:
                                         provides for the completion of punch list
                                         and warranty items on units 1 and 2.
                                                                                       • political force majeure events such as war,
                                       • Construction and Procurement Agree-
                                                                                         invasion, blockade, or terrorist activity;
                                         ment, between ONE and Jorf Lasfar En-
                                                                                       • natural force majeure events such as earth-
                                         ergy Company, provides for the
                                                                                         quake or storm damage affecting ONE;
                                         construction and subsequent transfer to
                                                                                       • general strikes;
                                         ONE of units 3 and 4.
                                                                                       • expropriation or breach of “quiet enjoyment”
                                       • Construction Contracts and EPC Parent
                                                                                         of the site;
                                         Guarantee, among Jorf Lasfar Energy
                                                                                       • payment default by ONE under the power
                                         Company and various subsidiaries of
                                                                                         sales agreement; or
                                         ABB Asea Brown Boveri Ltd, provides for
                                                                                       • breach of Government letters in support of
                                         the turnkey construction of units 3 and 4.
                                                                                         currency convertibility and transferability.
                                       • Coal Terminal Agreement, between Office
                                         d’Exploitation des Ports (ODEP) and Jorf
                                                                                       The World Bank Guarantee is contained in a
                                         Lasfar Energy Company, establishes an
                                                                                       Guarantee Agreement between the Interna-
This power station will bring state-     operating scheme for the coal terminal of
                                                                                       tional Bank for Reconstruction and Develop-
                                         the port of Jorf Lasfar.
of- the -art -technology to Morocco.   • Operations and Maintenance Agreement,
                                                                                       ment and ABN AMRO Bank NV, as agent for
                                                                                       the commercial lenders. It is capped at DM
                                         between CMS Morocco Operating Co
                                                                                       313,000,000 and declines over the 12-year
                                         and Jorf Lasfar Energy Company, pro-
                                                                                       amortization period of the bank loans. In par-
                                         vides for operations and maintenance of
                                                                                       allel, the Government of Morocco and the
                                         the power station and port facilities.
                                                                                       Bank have entered into an Indemnity Agree-
                                       • Coal Supply Agreements, between JLEC
                                                                                       ment whereby the Government will reimburse
                                         and various coal suppliers, provides for
                                                                                       the Bank for any draws under the World Bank
                                         coal through a tendering process with con-
                                         tract approval by ONE.
                                       • Loan documentation consisting of: Com-
                                                                                       Benefits of the World Bank Guarantee
                                         mon Agreement, Facility Agreements,
                                         Intercreditor Agreement, etc, provide for
                                                                                       The Bank Guarantee was a catalyst for mobi-
                                         debt facilities in an aggregate amount of
                                                                                       lizing the financing for the Jorf Lasfar project,
                                         about US$900 million. Borrowings are in
                                                                                       by providing political risk coverage for a com-
                                         US Dollars and Deutsche Marks.
                                                                                       mercial debt tranche. With this coverage,
                                       • Equity documentation consisting of Capi-
                                                                                       most of the project debt was covered against
                                         tal Contribution Agreements and Capital
                                                                                       political force majeure events in one form or
                                         Contribution Guarantees between ABB
                                         and CMS entities and Jorf Lasfar Energy
                                         Company, provide for primary and con-
                                                                                       The Bank’ guarantee has demonstrably at-
                                         tingent equity contributions.
                                                                                       tracted new sources of financing, reduced fi-
                                                                                       nancing costs, and provided the commercial
                                       World Bank Guarantee
                                                                                       lenders with the comfort necessary to extend
                                                                                       maturities to 12 years in a country that lacks
                                       The World Bank Guarantee supports the
                                                                                       credit ratings on its sovereign indebtedness.
                                       commercial bank syndicate by protecting
                                                                                       This was possible because the World Bank
                                       against political events preventing payment
                                                                                       Guarantee covered risks that the market was
                                       of certain specified termination amounts that
                                                                                       not able to bear or adequately evaluate.
                                       would be payable upon termination of the
                                       power sales agreement and wind-up of the
                                       project. As noted above, the Government of
                                       Morocco guarantees this payment, and it
                                       would be only if the Government failed to pay
                                       that the World Bank Guarantee would make
                                       payment to the commercial lenders. The
November 1997

                                                        Principal Contractual Relationships

                    Government                    Construction                         CMS                           Export
                        of                        Consortium                         Morocco                         Credit
                     Morocco                      Units 3 and 4                     Operating Co                    Agencies

                                                                     Construction                      Agreements                                     World Bank
                                                                     Agreements            O&M
                                      Guarantee of                                                                                                    Guarantee
                                                                                           Agreement                         Project
                                      Termination Amount
                                     Power Purchase Agreement                                                              Credit
                                     Transfer of Possession Agreement                Jorf Lasfar                         Agreement
                Construction         Construction & Procurement Agreement              Energy
                   Consortium                     Coal Terminal                                                                                    OPIC
                   Units 1 and 2
                                                                             Coal Supply

                        ODEP                                                                                 CMS                                    ABB

                                                                  Sources and Uses of Funds
                                                                             (construction period)

                                                        US$1,483                                                      US$1,483
                               Cash Flow                                                                                       88           Debt Reserve
                               Units 1 & 2
                                                            35              ERG
                                                            200             OPIC

                                                            256             SACE                                          1010
                                  Debt                                                                                                      Units 3 & 4

                                                            237             US ExIm

                                                            176             World Bank

                                 Equity                     387                                                            385              Units 1 & 2

                                                     Sources                                                           Uses
                 (US$ in millions)

            For more information on the Jorf Lasfar Power Project and the World Bank’ Partial Risk Guarantee, please contact Scott
            Sinclair (202-473-9157) or Pierre Vieillescazes (202-473-3781) of the Project Finance and Guarantees Department or Jorge
            Larrieu (202-473-0249) of the Middle East North Africa Department.

            To obtain a copy of the brochure, The World Bank Guarantee: Catalyst for Private Capital Flows or the Guarantees
            Handbook, please call (202) 473-7594. Please direct editorial comments to Andres Londono, tel: (202) 473-2326.

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