MIGA issues guarantees to Azura to enable ownership transfer of CTRG power plant in Mozambique
MIGA has issued guarantees to Azura CTRG Holdings of Mauritius (Azura) to cover up to $149.85 million for equity into and loans to Central Termica de Ressano Garcia (CTRG) for a period of approximately 13 years against the risks of breach of contract (BOC) and transfer restrictions (TR).
Azura will acquire stakes owned by Sasol New Energy Holdings Pty Ltd (SNE) of South Africa in CTRG and requires MIGA coverage to do so. In addition, MIGA issued guarantees for eight years to Absa Bank Limited of South Africa (Absa) for up to $36.5 million in loans to CTRG against the risks of TR, BOC, expropriation, war and civil disturbance, which are also needed to facilitate ownership transfer.
The Government of Mozambique (GoM) aims to provide universal access to electricity for its entire population by 2030. Currently, the country has among the lowest electrification rates in Sub-Saharan Africa, with only 34 per cent of its population having access to electricity, and only 8 percent of the rural population having access.
At the same time, Mozambique has abundant natural resources and the third largest proven natural gas reserves in Africa. The country therefore has the potential to be self-sufficient in meeting domestic demand and serve regional markets. Long-term, private sector investment, is essential for Mozambique to unlock this potential and achieve its goal of providing universal electricity access and becoming a regional power producer.
MIGA’s guarantee will allow Azura to acquire and operate CTRG, an existing 175-megawatt (MW) gas-fired power plant, owned by Electricidade de Moçambique (EDM), Mozambique’s state-owned electricity utility, with a 51 percent stake and by SNE with a 49 percent stake. After the acquisition, Azura will own 49 percent, EDM 46 percent, with the remaining 5% held by CTRG itself in treasury. The plant, operational since February 2015, is a fundamental contributor to the baseload power needs of the overall national system. CTRG also has eased Mozambique’s dependency on hydroelectric power, which is subject to the risk of lower rainfall and drought.
“MIGA’s guarantees are essential for drawing in financing in support of Mozambique’s ambition of delivering universal access to electricity,” said Hiroshi Matano, MIGA Executive Vice President. “This financing package will help strengthen the plant’s resilience to extreme weather, improve the quality of electricity supply, and forge a pathway towards renewable energy options.”
After acquiring CTRG, Azura intends to further increase the plant’s operational efficiencies. Azura will also take measures to enhance the plant’s climate resiliency so that it can better withstand potential extreme weather events such as wildfires, drought, extreme temperatures, cyclonic activity, and flooding. It will also work with the GoM to consider how to adjust CTRG’s operations to meet the evolving energy needs and clean energy goals of the country.
MIGA’s guarantees to cover Absa were a prerequisite for Azura’s acquisition of SNE’s stake in CTRG. Originally, Absa had obtained political risk insurance from SNE’s parent company, Sasol Limited. With SNE’s withdrawal from the project this protection ended, and MIGA stepped in to supply the necessary coverage so Absa could continue providing long-term lending to CTRG.
“We are very pleased to have included MIGA in the financing structure for the transaction,” said Theuns Ehlers, Head of Resource Project Finance at Absa. “We believe that the MIGA guarantee will enhance the existing finance package in place for the transaction. We understand that the CTRG project is a strategic project to the electricity supply ambitions for Mozambique. Absa looks forward to working with Azura as new owners and with MIGA on this project and many others in the future.”
CTRG currently provides a stable and competitively priced source of power to meet the increasing electricity demand in Mozambique. The power plant also offers flexible dispatchable power generation that paves the way for the country to introduce renewable energy options.
Azura Power’s CEO, Alan Muir, said “We are thrilled to have completed the acquisition of CTRG, a leading power plant in Mozambique. This represents a significant milestone for our business and is hopefully just the first of many Azura projects in Mozambique, a country and power sector which we have long seen as strategically important. When combined with our assets in Nigeria and Senegal, we are now strongly positioned for future growth in three of Africa’s leading gas-to-power economies.”
The World Bank Group (WBG) is a long-standing partner of the GoM in the energy sector with a portfolio exceeding $1billion in commitments to date. WBG has provided technical support to develop the sector’s strategies, supported electrification programs, and contributed to the rehabilitation and expansion of transmission and distribution infrastructure. The International Finance Corporation (IFC) is a long-term investor in Mozambique supporting the mobilization of large-scale private sector investments into the power sector. IFC has made equity investments and provided debt financing to gas and solar projects, including CTRG.