Angola Looks to New Avenues to Finance its Energy Vision
September 30, 2013 - After a 27-year civil war that ended in 2002, Angola has enjoyed political stability and is looking to consolidate its impressive growth and diversify its economy. Thanks largely to its significant oil reserves, the country achieved average GDP growth rates of 11 percent between 2001 and 2011. Despite this progress, the country’s infrastructure, largely destroyed during the war, needs significant levels investment to serve a growing economy. The power sector is a case in point. Less than 30 percent of the country’s population has access to electricity – and most of them live in the capital city of Luanda. To help close this gap, the government has embarked on a $23 billion investment program to expand power generation and transmission capacity from 1,913 megawatts to 7,256 megawatts by 2017. With the country’s “graduation” to middle-income status and departure from reliance on concessional financing, the government is looking to the private sector and commercial lenders to help it deliver on this ambitious target.
One of the first initiatives under this plan is the expansion of the Cambambe hydroelectric power plant located about 180 kilometers east of Luanda on the Kwanza River. The river is the longest in Angola and is estimated to offer power generation potential of up to 7,000 megawatts – of which only 700 megawatts is currently used. The expansion of the Cambambe facility involves the construction of a second powerhouse and four additional turbine generators with a total additional capacity of 700 megawatts on the basis of an engineering, procurement, and construction contract awarded to Odebrecht SA of Brazil.
The €300 million debt financing for the Cambambe expansion is being provided by commercial lenders HSBC Bank plc, Société Générale, and BHF-Bank Aktiengesellschaft. MIGA is providing non-honoring of sovereign financial obligations cover to the project’s lenders for a period of 13 years. This cover protects the lenders in the event of losses resulting from a government’s failure to make a payment when due under an unconditional financial payment obligation or guarantee. This risk-mitigation instrument is especially valuable to assist growing, but relatively untested, markets unlock access to commercial finance.
“MIGA’s participation in this transaction was critical to helping us mobilize the long-term debt financing to complete this project,” says João Baptista Borges, Minister of Energy and Water of Angola. “This project will bring us one step closer to realizing the ambitious goals we have set out in our national development strategy for the energy sector.”
The role that MIGA played in helping to mobilize commercial financing for Cambambe is a cornerstone of the World Bank Group’s new country partnership strategy for Angola for 2013-2016. “As we’ve discussed a new approach to supporting the country’s development goals that reflects the country’s transition to middle-income status, the notion of a comprehensive support program drawing on a variety of Bank Group instruments has been welcomed by government authorities,” says Laurence Clarke, the World Bank Country Director for Angola, Mozambique, and São Tomé and Principe. “We expect to see more involvement of MIGA as well as the International Finance Corporation in energy and other economic sectors.”
A further advantage to MIGA’s involvement in the Cambambe expansion is the application of MIGA’s environmental and social performance standards. Better protection of the natural environment is a stated objective of the country’s development strategy. Angola is one of the most biodiversity rich countries in Africa with respect to variety of ecosystems, diversity of flora and number of endemic species. As with all major infrastructure projects, MIGA carried out a site visit to identify the potential environmental and social impacts and provided support on how to manage them. As the project progresses, MIGA will further monitor the project to ensure the performance standards are being met. This additional scrutiny by MIGA also delivers added assurance to the lenders, who have adopted the Equator Principles, a framework for managing environmental and social risks.
“Our support for this investment will help bring a clean source of energy to Angola as it endeavors to diversify its economy,” says Antonio Barbalho, MIGA’s Sector Manager for Energy and Extractive Industries. “It also fits squarely with broader World Bank Group efforts to help sub-Saharan Africa tap into its massive hydropower potential.”