Nigeria: Azura-Edo reaches financial close
After a long and complex gestation with frequent setbacks, the $900m, 450MW Azura-Edo gas power project finally reached financial close on 28 December, CbI's publication African Energy can exclusively reveal. Azura Power West Africa managing director and Amaya Capital director David Ladipo told African Energy the first debt drawdown had taken place on 29 December with notice to proceed issued to engineering, procurement and construction contractors Siemens and Julius Berger the following day.
The project template – from the commercially competitive gas supply agreement with Seplat to World Bank guarantees and private sector led development – is being seen as a model for independent gas-fired power projects in Nigeria (AE 290/1).
The complexity of the project structure and vagaries of the Nigerian energy sector have meant that reaching financial close was by no means assured. The execution of partial risk guarantees worth up to $237m from the World Bank’s International Bank for Reconstruction and Development was stalled for more than seven months pending the resolution of a legal question surrounding the validity and enforceability of the put-call option agreement signed in October 2014 by Azura, the Nigerian Bulk Electricity Trader (NBET) and the federal government (AE 307/8).
“It was always going to be a very tough transaction to close,” Ladipo said. “It was very big. It was path-breaking on multiple fronts. It involved 15 different banks from nine different countries. It had liquidity and termination guarantees from various arms of the World Bank. And as the litmus test for Nigeria’s newly privatised energy sector it was, inevitably, the subject of a considerable amount of public scrutiny.” He added: “Now we just have to build it.”
Major questions remain about the extent to which the Azura-Edo model can be replicated. The World Bank has been clear that it will only support power purchase agreements signed with NBET for between three and five projects as NBET establishes stronger cash flows. Challenges include the lack of liquidity in the Nigerian financial sector as a result of low oil prices, fears of a currency devaluation and the reorganisation of government bank accounts from local banks to the central bank. Problems at privatised distribution companies and uncertainty over the future of the transmission network, which President Muhammadu Buhari has said he will privatise, are also concerns. Change is expected at the top of the Nigerian Electricity Regulatory Commission after the terms of commissioners, including chairman and chief executive Sam Amadi, expired in December. Successors are yet to be named.
Azura-Edo is 97.5% owned by Azura Edo Ltd, whose equity holders are Azura Power Holdings Ltd (50%), which is majority owned by Mauritius-based Amaya Capital and US investment fund American Capital Energy & Infrastructure, Macquarie Group and Old Mutual’s African Infrastructure Investment Fund 2 (30%), the UK’s Aldwych International (9.2%), Nigerian asset manager Asset and Resource Management Ltd (6%) and the Netherlands’ FMO (4.8%). Edo State government will take the remaining 2.5% stake (AE 284/9). The plant will be sited near Benin City using gas supplied by Seplat on the basis of a gas supply agreement for 116mcf/d at $3/1,000 ft3 signed in 2014. PIC Marubeni is the operation and maintenance contractor.