Jorf Lasfar Energy Company (JLEC)

The Project

Jorf Lasfar Energy Company (JLEC)

Jorf Lasfar (Arabic for "Yellow Cliffs") is a deepwater commercial port on the Atlantic coast of Morocco, 100 kilometers south of Casablanca, and home to one of the country's most important industrial zones.

By the early 1990s, Morocco faced a serious and growing energy challenge: rapid economic growth had pushed demand for electricity well beyond what the national grid could reliably supply. The state electricity utility, Office National de l'Électricité (ONE), experienced severe power shortfalls in 1993 and 1994.

New generating capacity was urgently needed, but the government's fiscal constraints made traditional public financing of a large-scale power station impossible.

Morocco was the first country in North Africa to introduce Independent Power Producers (IPPs).*) In 1994 the government amended its electricity law specifically to permit private power generation for the first time, and launched an international competitive tender for a private operator to take over the two existing 330 MW coal-fired units at Jorf Lasfar and construct two additional units of the same specification.

 

*) See also: Daniel Müller-Jentsch, "The Development of Electricity Markets in the Euro-Mediterranean Area," World Bank, 2001, p. 50.

Project Description

The ABB/CMS consortium was awarded sole bidder status in February 1995, and a Protocol Agreement was signed with ONE in April 1996. The resulting structure was a 30-year Build-Transfer-Operate (BTO) concession. The project company, Jorf Lasfar Energy Company (JLEC), was established under Moroccan law as a joint venture between ABB Asea Brown Boveri Ltd of Switzerland and CMS Generation Co. of the United States, each holding a 50% stake.

Under the arrangement, JLEC leased the two existing units from ONE, constructed units 3 and 4 on a fixed-price turnkey basis, and sold all power generated to ONE under a long-term Power Purchase Agreement. At the end of the 30-year term, operating rights revert to ONE. Financial closing was reached in September 1997.

At a total project cost of USD 1.5 billion, the Jorf Lasfar project was the largest independent power project in Africa and the Middle East at the time of its closing. The project also represented the single most significant foreign investment ever made on Moroccan soil. The plant reached an eventual generating capacity of 1,320 MW, equivalent to approximately one third of Morocco's national power output.

Financial Advisory

Peter Hellmonds was responsible for obtaining the German federal investment guarantee under the Germany-Morocco bilateral investment protection treaty, covering ABB's DM 300 million equity stake in the Jorf Lasfar transaction. He led this work largely himself, partly supported by one colleague, while the project's core financing decisions lay with the Energy Ventures team in Princeton, New Jersey, and the Project Finance International team in Zurich, with whom he worked closely.

The task required demonstrating to PwC, acting on behalf of the responsible German interministerial committee, that ABB Germany was the substantive investor in the transaction. This also meant building the corporate structure required for it: ABB Energy Ventures GmbH as the German holding company, with JLEC Capital GmbH and JLEC Power Ventures GmbH beneath it as the two actual equity investors in JLEC. This structure meant a future stake sale could happen by simply changing ownership of one or both subsidiaries, without touching JLEC's own Moroccan shares. This structure mirrored the one CMS had built on the American side, and preserved the option for future partial sell-offs.

The role required the use of several languages and areas of expertise: English with the team in Princeton, a mix of English and German with Zurich, French and some Arabic with the Moroccan partners, Italian with ABB's manufacturing site, coordination with Dutch colleagues on the US GAAP accounting treatment of the financial lease underlying the tax structure, and coordination with an ABB-owned Swedish insurance broker who arranged the investment guarantee for the construction period, before the German guarantee took effect.

The investment guarantee was a structurally critical element of the transaction: by securing ABB's equity contribution against political risk, it was a precondition for the entire USD 1.5 billion project financing to be bankable. Financial closing was reached in September 1997.

 

Key Characteristics
Project Jorf Lasfar Power Station expansion and privatization
Location Jorf Lasfar, Atlantic coast of Morocco, 100 km south of Casablanca
Structure Build-Transfer-Operate (BTO) / 30-year concession
Sponsors ABB Asea Brown Boveri Ltd (Switzerland) 50% and CMS Generation Co. (USA) 50%
Project Company Jorf Lasfar Energy Company (JLEC), incorporated in Morocco as a société en commandite par actions (SCA), a partnership limited by shares.
Capacity 4 × 330 MW coal-fired units (1,320 MW total); eventual one-third of Morocco's national power output
Total Project Cost USD 1.5 billion
Financial Closing September 1997
Offtaker Office National de l'Electricité (ONE), Morocco, under a 30-year Power Purchase Agreement
Significance At the time of its financial closing, the largest independent power project in Africa and the Middle East, and also the most significant foreign single investment Morocco had seen to that point.

Financing Package

The total project cost of USD 1.5 billion was financed on a limited-recourse basis with a 25:60:15 ratio of equity, senior debt, and surplus operating cash flow. The debt package of approximately USD 894 million was arranged by ABN AMRO as lead bank and supported by a coalition of export credit agencies whose participation was each conditioned on World Bank involvement: the US Export-Import Bank (US EXIM), the Overseas Private Investment Corporation (OPIC), Italy's SACE, and Switzerland's ERG.

The World Bank provided a Partial Risk Guarantee of up to DM 313 million (approximately USD 184 million) against sovereign political risks, which formed an essential basis of risk coverage for the entire commercial lending syndicate.

ABB's equity stake of DM 300 million was covered by a German federal investment guarantee secured under the bilateral investment protection treaty between Germany and Morocco, protecting against expropriation, transfer restrictions, and political force majeure. CMS Energy provided the matching 50% equity on the American side.