ICBC contributes to EUR 172 million syndicated loan tranche for 420MW Nachtigal Hydroelectric Power Plant Construction Project

The EUR 1.26 billion Nachtigal Hydroelectric Power Plant Construction Project is an independent power project (IPP) that is being implemented on a Public-Private Partnership (PPP) basis and financed according to a 76:24 debt-to-equity ratio. On November 8, 2018, Nachtigal Hydro Power Company (NHPC) — a special purpose vehicle (SPV) and joint venture of Republic of Cameroon (30% equity stake), EDF International SAS - EDFI (40% equity stake) and the International Finance Corporation (30% equity stake) — signed an EUR 912 million syndicated loan agreement with a group of banks for the 420MW Nachtigal Hydroelectric Power Plant Construction Project. The loan has two tranches: an 18-year, EUR 693.4 million ($794.5 million) development finance institution (DFI) tranche from Africa Finance Corporation (AFC), African Development Bank, Agence Française de Développement, CDC Group, European Investment Bank, DEG, Emerging Africa Infrastructure Fund, European Investment Bank, FMO, International Finance Corp, KfW, OPEC Fund for International Development and Proparco; and a 7-year, EUR 171 million ($200 million) commercial (CFA Franc-denominated) tranche from Banque Internationale du Cameroun pour l'Epargne et le Crédit, Société Générale Cameroun, Industrial and Commercial Bank of China, Standard Chartered Bank Cameroon and Société Commerciale de Banque Cameroun. The project sponsors also agreed to provide EUR 289 million in equity contributions and they applied for MIGA guarantees totaling EUR 191.5 million for up to 15 years against breach of contract risk. The project achieved ‘financial close’ on December 24, 2018. The purpose of the project is to construct the 420MW Nachtigal hydroelectric plant on the Sanaga river (the first IPP to be built on the Sanaga river). The run-of-the-river project, which also includes a 50 km transmission line and a 3km supply canal, will be built under a 35-year concession agreement with the Cameroonian government. The project site located approximately 65 km north-east of Yaoundé. Interest in the Nachtigal Amont site emerged as early as 1965 during the first inventory of the Sanaga River hydropower potential. Since then, several studies were conducted by various developers to understand the site potential. In 2013, a joint development agreement was signed between IFC, EDF, Rio Tinto Alcan Inc., and the Republic of Cameroon to develop the project. Upon completion, the power plant will be connected to the country’s Southern Interconnected Grid (SIG), which transmits about 94 percent of the national electricity consumed and comprises major cities like Yaoundé and Douala. Thanks to its unique site and hydrology, the project is expected to generate on average 2,900 GWh per annum. The project layout includes a 1,455-meter-long, 13.6-meter-high main dam in roller compacted concrete, creating a structure of 27.8 hm3 . The site also includes a 421-ha upstream reservoir, a concrete lined headrace channel about 3.3 km long and 14-meter-deep on average to conduct water to the hydroelectric power plant, with a maximum flow rate of 980 m3 /s corresponding to the project design flow. The powerhouse is equipped with seven Francis generating units of 60 MW each. The Nachtigal Project also comprises a 225-kV substation and a double circuit 50.3 km transmission line to evacuate the power produced to the Nyom 2 connection substation. The project will be ‘developed in compliance with national and international best practices in terms of environmental and social management and infrastructure building’, according to a statement released by the AFC. The project is expected to cause environmental and social impacts that may be significant and irreversible both during construction and operation; however, the project design seeks to ensure that these impacts will be monitored and mitigated as much as possible. NHPC set up a dedicated team to implement the recommendations of and monitor the environment and social management plan (ESMP) throughout the lifecycle of the project. During construction, the project owner’s engineer will be mandated to have a continuous presence on site, to closely monitor the implementation of the ESMP and environment and social (E&S) contractual obligations by contractors, and address any shortcomings. The project owner’s engineer will have the authority to stop the work on site, instruct the contractors to implement mitigation measures through work orders and impose financial penalties on the contractors in case of non-compliance. Its activities will be regularly reviewed by an independent E&S advisor, as well as directly by the Republic of Cameroon, through the IDA-financed Sanaga River Hydropower Technical Assistance Project (P157733), which will fund a Panel of Experts (PoE). As per Cameroonian law, NHPC will be required to create a Social Dialogue Committee, which includes representation from NHPC, EPC contractors, relevant authorities, and workers, to address issues raised by workers on the construction site. Besix is lead EPC contractor for the civil works and is partnered by NGE and Societe Generale des Travaux du Maroc (SGTM). Electromechanical works are being provided by GE Hydro France (a subsidiary of GE Renewable Energy, and one of the Alstom power businesses acquired by GE Power in 2015) and Elecnor. Bouygues has the EPC contract for the transmission line. NHPC was granted the 35-year exclusive right to design, build, operate and transfer the project under a concession agreement signed with Republic of Cameroon in 2017. NHPC and ENEO subsequently signed a power purchase agreement (PPA) for 35 years. ENEO will be sole offtaker for the project under the 35-year take-or-pay PPA with a levelized tariff of €0.061 per kWh (and payments will be made in Central African Francs, 80% of which will be indexed to euros). ENEO’s integral role in the deal meant a restructuring of its debts and the lengthening of its concession by 10 years to 2031 to enable it to invest in upgrading the grid (current technical and commercial losses are around 30%). The project was originally scheduled to commence on October 1, 2018 and concluded on June 30, 2024. However, construction did not begin until February 1, 2019. The project has faced moderate implementation delays due to the Covid-19 pandemic. As of May 2022, the implementation of the ESMP had achieved a 30% progress rate and the revised target commercial operation date (COD) of the Nachtigal hydropower plant was August 2024.

Additional details

1. The seven-year tranche is designed to offset currency risk, with an option to extend twice to 21 years, and is covered by an up to 21-year IBRD partial risk guarantee. The IBRD loan guarantee is designed to provide comfort to local commercial lenders, thereby allowing them to extend the tenor of their loans beyond the seven-year regulatory limit. IBRD is also providing a stand-by letter of credit for the sponsors. 2. The size of ICBC’s contribution to the EUR 171 million syndicated loan tranche is unknown. For the time being, AidData assumes that all 5 members of the syndicate made equal contributions (EUR 34.3 million). 3. The Republic of Cameroon informed all parties of its intention to sell down half of its stake in NHPC (15 percent), which was created on July 7, 2016, at or around financial close to Africa50 Project Finance. Africa50 Project Finance is an investment platform owned by 25 African government, two central banks and the African Development Bank. After financial close, the Republic of Cameroon honored its commitment. STOA – an EUR 600 million joint investment fund founded in 2017 by AFD and Caisse des Depots – and pan-African fund Africa50 (founded by the AfDB) both bought stakes in the SPV from the Cameroon Government. 4. As global coordinator of a large syndicate of 11 DFIs and five local commercial banks, IFC played an anchor role in mobilizing long-term financing. 5. Individual contributions to the DFI tranche include EIB (€50 million), AfDB (€118 million), Africa Finance Corporation (€50 million), AFD (€90 million), CDC (€90 million), DEG (€35 million), PIDG/EAIF (€50 million), FMO (€30 million), OFID (€50 million) and Proparco (€60 million). 6. EDFI is a holding company comprising EDF’s investments outside of France. EDF is a French utility involved in all segments of the energy value chain: generation, transmission, distribution, energy supply, and trading with a portfolio of more than 130 GW of generation capacity spread throughout Europe, South America, North America, and Asia. EDF is Europe’s largest renewable energy producer and has an extensive footprint in the hydropower sector. EDF had total revenues of EUR 69.6 billion in 2017 and is currently rated A-, A3, and A- by S&P, Moody’s, and Fitch, respectively. 7. This project does create a contingent public sector liability. The contingent liability arising from the project consists of the guarantee provided by the Republic of Cameroon to backstop ENEO’s payment obligation (a guarantee which will be secured by an IBRD-guaranteed revolving L/C in the amount of EUR 86 million, for which the Republic of Cameroon is the reimbursement obligor) and the Republic of Cameroon’s obligation to pay termination compensation to NHPC in the case of early termination of core Project agreements, a customary market-standard protection that is reportedly indispensable to the project’s bankability. 8. The December 12, 2018 indemnity agreement between the Republic of Cameroon and the IBRD (for payment guarantee number G-2630 and loan guarantee number G-2640) can be accessed in its entirety via https://documents1.worldbank.org/curated/en/119421547128746160/pdf/ITK171540-201900100856.pdf. 9. The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank Group. MIGA provides political risk insurance (guarantees) for projects in a broad range of sectors in developing member countries, covering all regions of the world.

Number of official sources

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