EASSy Cable

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25340
Company name	West Indian Ocean Cable Company Ltd
Country	Eastern Africa Region
Sector	Information
Environmental category	B
Department	Global Inform. & Comm. Tech.
Status	Active

Date SPI disclosed	February 15, 2007
Projected board date	May 31, 2007
Previous Events	Invested: June 12, 2008 Signed: November 21, 2007 Approved: August 2, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The East African Submarine Cable System (EASSy) is an initiative to construct and operate a submarine fiber optic cable along the east coast of Africa to connect eight coastal countries and island nations to each other and to the rest of the world (the Project). The cable will have an initial equipped capacity of 20Gbits/sec, and an ultimate capacity when fully upgraded of 320Gbits/sec. The route will be from South Africa to Sudan, covering about 8,500 km, and connecting the following countries: South Africa, Mozambique, Madagascar, Tanzania, Kenya, Somalia, Djibouti and Sudan. Twenty-eight leading telecommunications operators (the Operators) from East and Southern Africa signed a Memorandum of Understanding (MOU) in December 2003 to carry out the construction and maintenance of EASSy. EASSy will be the first optical fiber connection for most of these countries to the global optical fiber network. In separate projects, EASSy signatories are working on the development of terrestrial backhaul connections to link land-locked countries of the region to the cable (including Botswana, Burundi, Ethiopia, Lesotho, Malawi, Rwanda, Uganda, Zambia and Zimbabwe).

The Hybrid Model for the financing and ownership of EASSy is composed of two parts:

- a Special Purpose Vehicle (the SPV), which will receive funding from the private-sector arms of the involved DFIs, including IFC, to create a commercially viable structure which meets open access policy objectives as well as supporting some operators (the SPV Operators) to fund their investment in the Project; and
- a Consortium, which will be composed of those operators (the Consortium Operators) that elect not to join the SPV and, instead, make direct investments in the EASSy cable.

The SPV has recently been incorporated in Mauritius with the name of West Indian Ocean Cable Company Ltd. It will be majority owned by the SPV Operators. The SPV will have its own by-laws, Board of Directors and professional management team. It will function as a commercial entity which will manage, market and sell or lease its capacity to SPV Operators and any other authorized third parties.

IFC has been asked to provide financing to the SPV, along with five other DFIs including EIB, AfDB, DBSA, AFD/Proparco, and KfW. The funds will be used to finance that share of the Project cost resulting from the projected capacity requirements of the SPV Operators (the SPV Project Cost), as well as certain preparation and start-up expenses. The SPV Project Cost will ultimately depend on the composition of the SPV, which has yet to be finalized; however, in the current scenario which assumes 14 SPV Operators, the SPV project cost is approximately $120 million.

Project sponsor and major shareholders of project company

The sponsors of the project will comprise up to 28 telecommunications operators who signed the Memorandum of Understanding and who subsequently complete final legal documentation and make an equity subscription. These are predominantly well-established, African carriers in their home countries. There is an approximately equal mix of government-owned institutions and those which are private. Each party has a successful record of implementing telecommunications services in its home market(s). There are a small number of international telecom operators among the sponsors, which bring a beneficial interest to the EASSy transaction through their ability to provide onward connectivity to other continents including Europe and Asia.

Total project cost and amount and nature of IFC's investment

Total project cost of the EASSy cable to be financed by the SPV and Consortium Operators is estimated at $235 million. The cable is to be designed, constructed, operated and maintained according to a Construction and Maintenance Agreement (C&MA) signed by Operators and the SPV. A turnkey contract for the cable construction will be awarded on a competitive basis based on comprehensive bids. It is possible that one or more Islands on the East African Coast and corresponding operators will join the Project before commencement of construction. Any such cases will be accommodated through variations to the fixed Supply Contract and their additional cost would be fully funded by the related operators involved.

The IFC investment will take the form of a loan of up to US$30 million. This amount will depend on the final number of entities which elect to join the SPV and the loan allocations among the other DFIs. Co-financiers are expected to include all or most of the following DFIs: EIB, AfDB, DBSA, AFD/Proparco, and KfW.

Location of project and description of site

The EASSy submarine cable will be routed from Mtunzini in South Africa going north on the bed of the Indian Ocean generally at depths of between 1,000 – 2,000 meters, approximately 50-150 kilometers off the East Coast of Africa up to Port Sudan in the Red Sea. Branches from the cable will connect to six other Landing Stations in the following countries: Mozambique, Madagascar, Tanzania, Kenya, Somalia and Djibouti. Of the total eight Landing Stations to be involved in the project, four already exist and four additional new stations will be constructed. These structures would contain telecommunications equipment, air conditioning and electricity generators. Each structure will typically be located a few kilometers from the sea and connected to the marine branch of the EASSy cable through buried ducts.

Anticipated development impact of the project

The objective of this Project is to increase accessibility of countries in the region to the world’s global backbone communications network by providing high speed broadband connectivity, significantly reducing the current prohibitive cost of telephony and internet services in Eastern and Southern Africa. Currently most of the region is served by restricted and expensive satellite requiring transit through third countries outside the region for country to country communication and information exchange. As mentioned earlier, terrestrial backbone networks are also being built in separate developments to link all capitals and major cities in Eastern and Southern Africa to the EASSy cable and the international backbone system. The Project is expected to have the following development outcomes:

- Significantly increasing the supply of high quality reliable broadband capacity and simultaneously reducing wholesale bandwidth costs, supporting a parallel reduction in end-user prices for telecommunications service, thereby boosting regional competitiveness and enabling Africa to participate more fully in the global information economy. This is expected to help provide the conditions for growth of existing businesses and to attract new enterprises which need modern low cost connectivity. The improved access to the internet resulting from the project would also benefit educational and medical institutions and will help boost general computer usage and literacy.

- Fostering an open, non-discriminatory communications regime that ensures that capacity is available to all at a fair price: the EASSy SPV will sell capacity to all authorized purchasers thereby ensuring competition. This mechanism is designed to encourage open access and the charging of fair prices.

- Promoting private-sector led models for ICT infrastructure development in the region: The EASSy Cable will be financed on a commercial basis, using a combination of operator equity and debt from private sector DFIs (via the EASSy SPV). This financing and ownership structure is in line with the World Bank’s strategy of maximizing private sector participation in the ICT sector.

- Promoting regional integration through the sharing of infrastructure facilities.

IFC's expected development contribution

The World Bank has established a revitalized ICT agenda for the region. Its Africa Development Strategy (adopted in July 2003) identified ICT as one of the three emerging positive factors of the 21st century for Africa. The WB has supported many of the region’s reform programs to date and is poised to support further reform of the telecommunications sector in the region.

The transaction represents a significant joint World Bank/IFC project, and its first major public-private-partnership initiative in Africa, aimed at addressing a serious market deficiency. This collaboration combines the Bank’s extensive relationships with regional governments to promote the open access principle, with IFC’s financial engineering and structuring expertise to guide the transaction. Both IFC and the World Bank have invested substantial resources over the past two years through bringing interested parties together, extensive negotiations and project development work, and influencing the advancement of the Project. The WB and IFC’s efforts have been instrumental in the successful transformation of this Project into an open access market-based venture supporting competition. In conjunction with the WB, IFC has played a critical role in bringing the parties together, in designing the principles under which it will be implemented and operated, and in developing the commercial structure under which financing will be provided.

Environmental and social issues - Category B

Based on review of the project information, key social and environmental issues associated with the project include: right of way selection, impacts on natural habitats, land acquisition, community engagement, labor standards, and social and environmental management systems. This investment has been provisionally categorized as B and will require at least 30 days disclosure by IFC prior to Board. The following Performance Standards are expected to be applicable:

- PS1: Social and Environmental Assessment and Management Systems (SEMS)
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS5: Land Acquisition and Involuntary Resettlement
- PS6: Biodiversity Conservation and Natural Resource Management

Given the timing and structure of the Project, a two phased approach to the Social and Environmental due diligence has been established in coordination with the sponsors, together with KfW and the AfDB (who are providing Technical Assistance for the two phases respectively), and the World Bank/IDA who are also lenders to the associated terrestrial backbone components. Phase 1 entails completion of an SEIA (Social and Environmental Impact Assessment), now complete and to be made available through the project Environmental and Social Review Summary (ESRS), and covers international waters and Environmental Audits of rights of way for national water, landing point and terrestrial cable. Phase 2, which will cover SEIAs for the eight different landing point countries, will include completion of SEIAs to meet national and IFC Performance Standard requirements. It is anticipated these SEIAs will be completed over the next 12 months as the respective national operator project is physically defined. Phase 1 is a KfW funded and managed process and Phase 2 is AfDB funded and managed; IFC’s Environment and Social Development Department has been coordinating with these partners (and the World Bank) on the scope and depth of the SEIAs required. The Phase 1 SEIA reveals that in 4 of 8 landing sites the cable will avoid direct impacts on sensitive habitats and fishermen by following existing cables/channels and using existing landing points through shallow water. Phase 1 also includes development of a Corporate (umbrella) Social and Environmental Management Plan (SEMP) and an SEMP model, which Phase 2 SEIAs must develop, resulting in an integrated SEMP which will govern national and international level operations. IFC and other donors will review Phase 2 SEIAs as these are completed.

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