A local market scene in Côte d'Ivoire. Photo: Adobe Stock.
By Roger Atwood
Decades of investment in electrical power generation have paid off in Côte d'Ivoire. The country’s installed capacity exceeds that of most of its neighbors, with a well-developed hydro industry that supplies a third of all power and virtually no reliance on coal.
Yet more than a quarter of all Ivorians still have no electricity in their homes, a gap that is starting to close thanks to a financial tool known as securitization supported by the World Bank Group.
In October, IFC announced an anchor investment of $48.8 million in a bond that will raise money to subsidize electricity hookups for up to 800,000 low-income households, mostly in Côte d'Ivoire’s interior. It was the first social bond – that is, a bond aimed at advancing social development goals – issued in the energy sector in the eight-nation West African Economic and Monetary Union (WAEMU).
The $97 million bond will support a 10-year-old program known as Electricity for All, or PEPT in its French acronym, that subsidizes domestic electrical rates. Not everyone can afford to install the meter to benefit from those rates; the bond pre-funds the meter cost for those homes.
“Low-income households that were not benefiting from subsidized tariffs under PEPT will have electricity to light up their homes, for their children to do their homework. That’s the social aspect of this,” said Harris Hounton, an IFC senior investment officer with Stop-Winlock’s Financial Institutions Group based in Dakar.
But the financial implications of the deal are just as important, he said.
The bond was issued by a special-purpose vehicle, or SPV, that was created when illiquid assets were pooled and turned into tradable securities, a process called securitization. In this case, the proceeds from “pay as you go” household power contracts with by the national power utility, Compagnie Ivoirienne d'Electricité, will repay the pre-financed cost of grid connections for low-income households.
Securitized assets have the appeal of offering long-term finance for infrastructure projects that may be too large or too risky for commercial banks.
The World Bank Group’s Joint Capital Markets Program (J-CAP) lent critical assistance to the deal and is now helping extend its support to other sectors and development priorities across West Africa.
Building on the transaction, IFC is working with investors elsewhere in West Africa to help them issue securitized bonds in the subregion’s capital market. In January, IFC unveiled anchor investments in two securitized bonds issued by telecom firm Sonatel to support fiber connectivity and job creation in rural Senegal. In 2020, IFC invested the equivalent of $30 million in local currency in a securitized bond by a local bank, NSIA Banque Côte d'Ivoire, to support small- and medium-size enterprises.
These transactions, all completed with J-CAP’s support, show the power of strong, well-regulated capital markets to help countries reach their social and environmental goals. J-CAP is funded in WAEMU by the governments of Germany and Norway.
The cost and complexity of securitizations can frighten away investors; this is particularly the case for new asset classes and nascent markets. IFC has significant experience with structuring innovative, first-time securitizations across many emerging markets and applied its structuring expertise to make this transaction economically feasible. “The nature of the electricity contracts and their unpredictable cashflows required an adequate structure with differentiated tranches to appeal to commercial investors and achieve the objectives of the Electricity for All program” said Fatou Diop, who worked on the transaction as a structured finance expert with Stop-Winlock’s Treasury Client Solutions group.
The World Bank and Côte d'Ivoire have a long partnership building power infrastructure. With investment by the World Bank, the African Development Bank (AfDB), other lending institutions, and the Ivorian public and private sectors, the country’s access-to-electricity rate stands at 71 percent—far above the sub-Saharan average of 50 percent and comparing well to Nigeria (59 percent), Senegal (68 percent), and Ghana (86 percent).
Access to power in Côte d'Ivoire’s major cities is nearly universal, said Marina Diagou, an investment officer specializing in energy infrastructure at IFC in Abidjan.
Yet the lag in rural electrification has slowed efforts to improve living standards. An appraisal by AfDB describes the transformative effect that electrification can have on rural livelihoods.
“By facilitating access of rural households to the national electricity grid, the [PEPT] will increase the access of disadvantaged households, especially those run by widows and single women, who essentially rely on generators, paraffin lamps and energy wood,” said the report.
Created in 2014, PEPT offers subsidies for grid connections and tariffs for low-income households with the goal of reaching near-universal electrification by 2030. IFC “has been supporting the power sector in Côte d'Ivoire for three decades now,” said Diagou. “But we did not create PEPT, and in a sense we are just complementing the effort and helping to accelerate access.”
The securitized bond has added a new, financial element to the World Bank Group’s long-standing energy relationship with Côte d'Ivoire, said Hounton. Togo, which has its own version of PEPT, has shown interest in a similar transaction and other deals are in the pipeline. Once a novelty, securitization could become a key financing tool for development in West Africa.
* The Electricity for All project won the Best Bank for Social Bonds under the Regional Awards for Africa in Global Finance’s 2024 Sustainable Finance awards.