Financing The Mozal Project – Case Analysis

Financing the Mozal Project – Case Analysis
International Finance Corporation (IFC), along with other investors, are faced with the critical decision- whether to invest or not in the Mozal project, a $1.4 billion aluminum smelter in Mozambique. Apart form the magnitude of the investment involved, $120 million for IFC - its largest investment in the world, the project is subject to high risk factors. Moreover Mozambique is a very poor country with a GDP, only a little higher than the total project investment.
Under such adverse conditions, the sponsors along with the support of foreign investors, Industrial Development Corporation (IDC) of South Africa, Multilateral Investment Guarantee Agency (MIGA) and the analysis, expertise and resources of the IFC structure the project to create profitable returns for the stakeholders as well as promote economic, social and industrial development in Mozambique.
The Mozal project, no doubt is a large project both in terms of investment as well as risk involved. The principles of project finance have been effectively utilized to structure the project and mitigate political   as well as resource, technical, completion, operation and many similar risks.  
Since the end of the civil war, establishment of a democratic government and movement towards a capitalist regime, Mozambique is trying to rebuild its economy, infrastructure, human capital via privatization and creating a beneficial environment for foreign investment.
The Mozambican government is taking concrete steps to strengthen its relations and develop an environment to attract investments. The Investment Protection and Promotion Agreement, binds the government to honor and protect cross-border investment. Especially in the case of the Mozal project a special liaison committee has been set up to display government support.
A highly leveraged capital structure financed by major development banks, export credit agencies and multi-lateral agencies provide a sound...