Addax Bioenergy

Addax


Country Sierra Leone
Sector Agri-Infrastructure
Signing Date June 16th, 2011
Total Project Cost €268M
ICF Debt Pool Exposure €21M
IFI Exposure €120M

Project Description

Addax Bioenergy, the bio-energy division of the international energy corporation, Addax & Oryx Group (AOG), is developing a green-field integrated agricultural and renewable energy project at Makeni in central Sierra Leone, which will produce anhydrous fuel ethanol from sugarcane (ethanol or bio-ethanol) and electric power. The project will be the country‘s first Independent Power Producer ("IPP"), the largest commercial agriculture project and the single largest private sector investment that the country has seen since the civil war. The €21M loan to Addax will be used to finance (1) the development of a ~10,000 hectare sugarcane plantation, (2) an ethanol distillery factory producing ~82,000 m3 of ethanol per annum to be sold under an off-take agreement for export to the European Union and for the domestic market, and (3) a 32MW cogeneration power plant, of which at least 15MW will be sold into the domestic power grid under a power purchase agreement with the government of Sierra Leone.

Financing Structure

The Project will be funded by (a) €107.10M in equity, (b) €19.76M from net operating cash flow projected to be generated following the plant commissioning pre-Technical Completion, and (c) a €141.55M term loan facility. The current Lender group consists of FMO 25€, BIO 10€, EAIF 20€, AFDB 25€, ICF 21€, DEG 20€, and IDC 22 (equiv). BIO, the Belgian Investment Company for Developing Countries is investing underneath FMO in this transaction.

Infrastructure Component

Addax will export at least 15 MW per annum of excess power to the Sierra Leone grid. In addition, the power plant will also help stabilize the seasonal supply of power from the Bambuna dam. The Project will contribute to the economic recovery of Sierra Leone through rural infrastructure development and the spill-over effects associated with large-scale agricultural operations, including the development of small businesses around the project.

Investment Rationale

  • Strong Project Rationale: The Project will improve productivity and revenue generation of mainly un-used or under-utilized land. Modern agriculture techniques will be used and the Project is expected to employ about 2,300 people. These people will be trained and benefit from relatively high paying jobs in a very poor country.
  • Strong Sponsor: Addax is a financially strong investor with significant cash liquidity from the recent divestiture of its oil producing assets. It has shown commitment to the Project and is prepared to provide significant support during construction and until financial completion.
  • Well Designed Project: The sponsor brings a thorough understanding of Sierra Leone to the Project. Their local knowledge is reflected in the design of the Project which includes (a) extensive public consultation, (b) extensive dialogue with the government and local authorities who strongly support the initiative, (c) the involvement of Local Chiefdom Councils and land owners from whom land will be leased, and (d) employment for local communities.
  • Strong Market Demand for Ethanol: Sugar cane currently is the most efficient source of ethanol feedstock, not only in terms of cost, but also with regards to the low level of Green House Gas (GHG) emitted during the production life cycle thanks to the use of bi-products for power generation and fertilizer.. EU policies mandate the use of biofuels and increasingly require that the “GHG friendliness” of the biofuel be taken into account. These strong advantages and duty free access through ACP duty exemptions provide a compelling rationale for the Project.

Development Impact

Employment: During construction an estimated 2,300 people will be employed and during operation (running at full capacity) ~2,000. According to Addax the minimum wage in Sierra Leone is US$ 1.20 per day and Addax is paying daily labourers more than double this amount.

 Government Revenues: After the tax free period of 10 years, the Project will contribute ~€200M to the country‘s budget (through to 2022) plus foreign exchange export earnings from the first day of operations.

 Added Value by Lenders: This is the single largest investment in Sierra Leone since the civil war. Investment by AOG and also the Lenders will encourage other investments in the country and will create a precedent for the government’s argument that "Sierra Leone is open to business".

 Social Impact: The co-operative arrangements with International IITA and FAO should increase the productivity of local farmers and optimise their involvement as potential out growers of sugar cane and/or other crops. The Project is also aligned with Sierra Leone’s macro-economic targets; it not only adds power to the country, but by diversifying the industrial base, it adds value to raw materials and helps attract foreign direct investment. 

Additionality

Funds: Commercial financing was available to a few selected projects in Sierra Leone before the crisis. Today, it is unlikely that the few banks who ventured in Sierra Leone before the crisis would do so again, particularly for a 12 year maturity. This ensures ICF-DP additionality.