In February, the first disbursements under the Azito project financing were made. The Azito deal - a 300 MW, $223 million power project in Côte d'Ivoire - is significant for two reasons: it is the largest project financing in west Africa since the debt-restructuring crisis of the 1980s and it was concluded under the OHADA uniform laws. These create a transnational uniform legal system across 16 countries in francophone Africa. Between them they establish new company, bankruptcy and securities-law provisions designed to make the region more attractive for project financings and other inward investment, without radically altering the basic French-law civil-code system in operation.
"The treaties provide convenience," says John Riggs, a partner in the Paris office of US law firm White & Case, which has been involved in several recent project financings in Africa. "They combine many of the best elements of New York and English law without disrupting the pre-existing legal systems based on the French civil code."
Negotiations for the Azito project began before the treaties came into force in January 1998, so the lenders - advised by White & Case - would probably have gone ahead anyway. And until there has been a certain amount of interpretative case law, the treaties remain new and unproven. But in all likelihood they will encourage increased interest in the region on the part of international banks and companies.
As Riggs explains, one of the challenges of francophone Africa is the dominance of French interests which, though reassuring in one sense, can have the effect of making other international investors feel that they could come off second best. In the case of Azito, the World Bank - through the International Finance Corporation (IFC) as a lender and the International Development Association as a sponsor - was keen for non-French interests to form a majority of the project's sponsors, in order to avoid possible conflicts of interest - such as a natural tendency on the part of local borrowers to pay off French creditors first.
"As with most developing countries, it is hard to get companies involved that are not based in non-interested or non-ex-colonial countries - ie, those that have not been there before," says Riggs, who is himself an honorary Frenchman, being the only non-French member of the Council of the Paris Bar.
The solution was to attract as a principal sponsor ABB Asea Brown Boveri, the Swiss/Swedish construction conglomerate, together with Electricité de France, the French state electricity provider, and an Ivorian affiliate of the Aga Khan Foundation for Economic Development. "The challenge was how to build assurance into the deal. Our solution was for ABB to build the support system - mainly in the form of $10 million-worth of transmission lines to and from the plant, ownership of which will be transferred to the Ivorian government. Financially speaking, the support and plant are all-in, but legally they are separate."
The deal was complicated by the large number of lenders, including - apart from IFC - the African Development Bank, the Commonwealth Development Corporation, Deutsche Investitions-und Entwicklungsgesellschaft, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden and Société Générale. "With the large number of parties, including the government of Côte d'Ivoire and a diverse group of multilateral institutions, banks, contractors and sponsors, this made the whole exercise very complex," says Riggs.
"In any emerging market, any form of secured lending is likely to be more risky than normal," explains Margaret B Cole, a partner in White & Case's London office, who advised most of the lenders in the $1.3 billion Mozal aluminium smelting project, the first major private-sector project in Mozambique, on which first disbursements of loans took place in December. "Typically the lenders attempt to retain some degree of control over the project's moveable assets. But the complication in a civil-code jurisdiction such as Mozambique is that some security instruments such as floating charges are not recognized and other assignments by way of security can be complex. The difference between many countries in Africa and, say, the CIS, is that the CIS has new laws but no history of how they are enforced. In Africa the provisions of the legal systems that relate to international financings, such as the creation and enforcement of security, were established under colonial regimes - Portuguese, English, French, German - but have not developed significantly since independence.
"For example, Mozambique law is in many aspects pre-independence Portuguese law. Particularly in these matters it is common for local lawyers to tell you that what you are trying to do hasn't been done before, so in order to start to develop an effective security package project lawyers have to begin with an analysis of the relevant pre-independence legal system. On top of that, many of these countries have been beset by civil war so that little judicial development of their jurisprudence has occurred."
John Janks, a partner in White & Case's Johannesburg office, advised the South African government on the first real project financing in the country, of two toll roads together totalling over 1,000km and $700 million in loans. Although the legal system (based on Dutch Roman law) is developed, there is cultural complexity - in South Africa the private sector traditionally had little role in providing or operating infrastructure.
"Public utilities and services on a large scale were state-run or state-supported," explains Janks. "But now, in any case, the new South African state cannot afford to finance all the infrastructure needed to service underprivileged areas. At the same time, organized labour is still very suspicious of the private sector, since it is seen as having benefited on the back of black labour during the apartheid era. The toll roads, which will connect us with Mozambique upon completion, and their financing, are providing the first material test of the benefits that the private sector can deliver."
Lawyers are expert at understanding and neutralizing conflicts of interest: in emerging-market project financings, it is just one of the many skills they need.