How OPIC helped an American business bring electricity to one of Africa’s poorest countries
Next month, the United States and Togo will host the African Growth and Opportunity Act (AGOA) Forum, an annual gathering that this year will focus on the U.S. and Africa partnering for prosperity. The setting of this year’s forum, in one of Africa’s smallest countries, is also the site of a groundbreaking infrastructure project that OPIC supported to dramatically increase access to electricity.
Ten years ago, the small West African country of Togo held democratic elections that helped end a financial crisis and begin a process of restoring investor confidence in this long isolated country. But severe electricity shortages presented a major hurdle in the way of progress. Like so much of Sub-Saharan Africa, Togo suffered regular blackouts and a large share of its population lacked regular access to electricity.
In 2008, OPIC committed financing and political risk insurance to ContourGlobal, a young New York company that was just beginning to pursue projects in developing markets, and needed financial support to build a major power plant in Togo’s capitol. Together, OPIC and ContourGlobal negotiated with the Government of Togo terms of a 100 megawatt power plant that could run on a variety of different fuel sources. When it was completed in 2010, the Lomé Thermal Power Plant represented the largest investment in electricity ever made in Togo and tripled the generation capacity of this country.
“This project was one of those let’s-do-something-great projects,” ContourGlobal CEO Joe Brandt later said. “It was brash and the odds were long.” Recalling the challenges of obtaining financing for major projects in developing countries, Brandt recalled, “Without the support of OPIC, it never would have been a success.”
Structured Finance Managing Director Mary Mervenne, led negotiations on the project. Here she explains how OPIC and ContourGlobal succeeded in this challenging project that transformed the energy landscape in West Africa.
Offer a brief background on how this project came about.
As a small West African country situated between Benin and Ghana, Togo had been part of a regional effort to have an interconnected energy market across states, but that ended up not working for Togo. The country was dependent on imports of electricity from Ghana and Nigeria but those sources had become unreliable and inadequate to meet growing demand.
At the same time, the country’s political environment had shifted to a point that it was starting to become more welcoming to private investment. The country had recently held the first democratic elections in years, and the newly elected president was determined both to regain the credibility of the world and build the country’s own source of energy.
ContourGlobal was at the time a young company and this was one of its first major investments in an emerging market.
Togo was one of the poorest countries in Africa and had limited infrastructure and experience partnering with private investors. What made OPIC think that such an ambitious project could be a success?
There were several positive factors, including strong demand, a committed and competent sponsor in ContourGlobal, and strong political support from all levels of the Government of Togo. The country was experiencing crippling power shortages and factories often could only run at limited capacity. Togo’s extreme need for more electricity was evident from the start. At one point during a due diligence meeting, the lights went off.
At the same time, there was no possibility of ContourGlobal obtaining sufficient bank financing for such a large project in Togo. OPIC worked hand in glove with ContourGlobal and the Government of Togo to put together a financeable transaction. It was very challenging because the government had no prior experience on this sort of deal, so it was a bit learning experience but they were extremely professional and hard working.
What were some of the challenges you encountered?
This was the first international financing project ever completed by the Government of Togo, so negotiations and development took longer than expected. There were also delays in securing a long-term gas supply arrangement. The power plant had been designed as a combined cycle plant using gas as the only fuel sources. But given the uncertainty of the gas supply, ContourGlobal and the Government of Togo agreed that the technology for the power plant should be switched from gas turbines to engines that could run on three types of fuel. This technology change led to a lengthy delay in completion of the project
Despite the challenges, the government knew that it desperately needed the energy and that this project would put the country on the map for having secured a world class international financing.
How did OPIC contribute to the project to make it a success, both from a financial and a developmental standpoint?
OPIC worked to develop a payment structure to ensure ContourGlobal would receive timely payment of all payments due under the power purchase agreement, and we worked in partnership with ContourGlobal and the Government of Togo to agree on a workable risk allocation for all parties. We believed that the project made sense economically and we found creative solutions to various obstacles that appeared. However, by far the most important contribution was identifying the right partners to carry this project forward.
What has the impact been of introducing such a major new source of power in Togo?
Having a reliable source of electricity has helped spur investment and development in the country, such as the rehabilitation of the port in Lomé, which is a major driver of economic activity through the country. It has also supported local job creation and knowledge transfer and helped Togo demonstrate to the world that it can attract world class investors and that the Government of Togo was a reliable and committed partner.
On a micro level, this power plant has vastly improved the reliability of the electricity supply for those connected to the grid – health care facilities, businesses, factories, schools – which are all key to the future economic vitality of the country. It demonstrated that a small country like Togo that had been isolated politically, financially and economically could in short order create the necessary conditions for growing the economy and reducing poverty via smart and committed political leadership.