Project detail - AFC- FMO PROJECT DEVELOPMENT

Who is our customer

The project concerns the funding of the development of a 60MW windfarm IPP in Djibouti located in Ghoubet area between Lake Assal and Djibouti City. This is a desert like area with what appears to be little human activity on the project site and no vegetation (to be confirmed at due diligence stage). The wind resources are excellent. FMO intends to support and participate with development funding in a development consortium alongside Africa Finance Corporation ("AFC") (lead developer), Climate Investor One ("CIO"), a specialist renewable energy fund, and local partner Great Horn Investment Holdings ("GHIH"). The latter is the investment holding vehicle of the Djibouti Ports Authority, 100% owned by the Djibouti Government. The project is planned to be developed approx. within a 12-month horizon to a 100% equity funded financial close, whereupon construction will require approx. 18 months. The project is planned to support about 40-50% of the current Djibouti power demand at a competitive rate and is expected to replace partly inefficient and polluting thermal power, and possibly prevent further expansion of polluting energy industry.

What is our funding objective?

Development funding pre-financial close towards the realization of a 60MW highly efficient wind power farm. FMO will provide 20% of the total development funding required alongside AFC, CIO and GHIH. Post-financial close FMO intends to become a minority shareholder and senior debt financier/arranger along with its development partners, investors AFC, CIO, and GHIH.

Why do we fund this investment?

The transaction is expected to have a high impact in terms of local sustainable development. It will bring about an estimated 322-331 Gwh/yr of renewable power to Djibouti, increasing Djibouti’s generation capacity 40-50%, and replacing expensive, polluting diesel/HFO generated inefficient power, as well as possibly preventing further expansion of polluting energy industry. The project is a priority project of the Djibouti government given the growing demand for (renewable) power resulting from ongoing industrial and public infrastructure investment programmes. The Project intends to contribute towards the UN Sustainable Development Goals (‘SDG’) 7 through the provision of additional, renewable energy capacity and UN SDG 8 by creating employment opportunities in a remote area. FMO supports the development of investments with sound partners who have strong resources and a good track-record, also in reaching sustainability objectives. For dispatch, the Project will connect to a new transmission line, for which construction is planned to start early 2018 by Chinese contractors and Chinese funding, linking the project to Djibouti City and the not yet connected Tadjourah town.

What is the Environmental and Social categorization rationale?

The project will likely have positive and adverse impacts consistent with all of the IFC Performance Standards (PS1-PS8). Based on current available information, adverse E&S risks and impacts appear to be limited and effective mitigation commensurate with the impact magnitude and in line with GIIP should likely be possible. Verification of the applicability of these PS’ and the appropriate mitigation measures are to be conducted following project feasibility and ESIA studies, as well as the DD studies. Project categorization is likely ‘B+’, to be confirmed by ongoing E&S studies. Although the latter will cover all relevant E&S issues, specific focus will be applied to Land legacy issues (concession area is considered government land), Water due to local scarcity, Avifauna habitat, as little information is currently available, and Stakeholder engagement as PS7 issues and FPIC requirements might be applicable. Specialist advisors will carry out the E&S studies, conducting their work based on the IFC’s Performance Standards, applicable EHS Guidelines and ILO policies. FMO highly values their early involvement in this Project and their supervisory role during the E&S studies to ensure sustainable outcomes. As such, FMO’s development financing is therefore not only of financial importance to the Project, but can actually contribute toward the “bankability” of the Project.

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