DeLucia Session17 ACEF2008

8/14/2019 DeLucia Session17 ACEF2008

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SS33IDFIDF--USUSCambridge, MA, USACambridge, MA, USA a public charity under Section 501(c)(3) of U.S. tax codea public charity under Section 501(c)(3) of U.S. tax code

SS33IDFIDF--IndiaIndiaBangalore, IndiaBangalore, Indiaa Section 25 nota Section 25 not--forfor--profit company with Section 80G tax exemptionprofit company with Section 80G tax exemption

Copyright 2008 by Dr. Russell J. deLucia & S3IDF All Rights Reserved

Presentation/ Talking Points

USAID-ADB Asia Clean Energy ForumJune 3-5, 2008 Manila, Philippines

byRussell J. deLucia, President

The Small-Scale Sustainable Infrastructure Development Fund, Inc. (S3IDF)

Member, Private Financing Advisory Network (PFAN)

SS33IDFIDFs Social Merchant Bank Model for Financings Social Merchant Bank Model for Financing

Explicitly ProExplicitly Pro--poor Smallpoor Small--Scale Clean Energy Projects:Scale Clean Energy Projects:Examples and Lessons and an Introduction andExamples and Lessons and an Introduction and

Perspectives on PFANPerspectives on PFAN


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More than one billionpeople worldwide lack

access to infrastructureservices necessary forpoverty alleviation:

modern energy

potable water

sanitation

transport

information & communication

other infrastructure servicesS3IDF

The Need S3IDF is Addressing

Tens of millions of thesepeople are in S3IDFs current

market shed in southern India

soon to include Nepal.

Image Source: http://www.kamat.com/kalranga/deccan/map.htm


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Shortcomings in the paradigms of large development entities Little focus & support for small projects and small, local, private

players. Limited menu of institutional arrangements and ownership models.

Often ignore capital market linkages and local synergies, especiallyproject co-financing by local banks.

Inadequate focus on diverse financial sustainability, especially thepoors definition of sustainability.

Technology Know-how lacking Majority lack know-how of available technology and knowledgeAccess to Finance Poor do NOT have collateral to access bank finance and bankers

conceive poor as non-bankable.Financial Structure and Business Development Services Financial structuring should be in line with poors willingness and

ability to pay and business development services to be provided as

required.

The Problem

S3IDF


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Financially SustainableEnterprises cash flow must cover allcapital and operating costs fromimplementation onwards.

Replicable

Environmentally ResponsibleEnvironmentally-friendly technologies are apriority.

Explicitly pro-poorThe poor benefit as: clients, customers,enterprise employees, and investment

asset owners when feasible.

S3IDF

S3IDFs Solution

Locally Owned & Operated Micro/Small/MediumInfrastructure Enterprises (MSMEs) that are:

A solar powered computer kiosk run by a local

entrepreneur in the rural village of AndhraPradesh.


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The Connected/GoodAccess World

Universe of WidespreadNetworksInfrastructure Services

Physical and OrganizationalNetworks.And access to Know-how,technology financing and theirsupply chains

The Unconnected/non-Access World

Universe of little or no

Infrastructure Services Physical and OrganizationalNetworksLittle or no access to Know-how, technology financingand their supply chains

OverlappingUniverse of

veryunreliablenetworks

and lots ofgaps in

access andsupplychains

The Universe in Which S3IDF Operates

Policy and Regulatory Background: May or May Not Be aLevel Playing Field

S3IDFs Operating Zone

S3IDF


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S3IDFs Social Merchant BankApproach

Elements of the Model:

Innovative financing Revolving funds with a gap filling

menu of debt, equity, partialguarantees, etc. Owner-operator must have some

capital or sweat equity at risk. Facilitates participation of local

banks.

Deal structuring that reflects thepoors financial capabilities.

Business development services

Linkages to technology providers

Monitoring and Evaluation Improve our performance

Basis for dissemination

S3IDFs Social Merchant Bankmodel brings elements typical oflarge infrastructure projects to small-

scale, pro-poor infrastructureprojects.

LPG Cookshop a common kitchen providespoor women with clean, convenient cookingmade affordable by a pay-for-use operation.

S3IDF


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S3IDF

Transportation ofbatteries

Reliable and betterlighting for hawkers

For the Light Point projects, S3IDF arranged the business development,technology and financial assistance to help these entrepreneurs increase theirincome, generate employment and provide cost savings and improved lighting

for working-class hawkers.

Entrepreneur atsolar charging station

Hawker Lighting Project


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battery chargingbattery charging

milking machinemilking machine

cookingcooking

Biogas plantBiogas plant(gas outlet)(gas outlet)

water pumpwater pump

compressorcompressor

electric generatorelectric generator

SS33IDF provided working capital and assistance with business plan dIDF provided working capital and assistance with business plan development toevelopment toa local business installing biogas plants and biogasa local business installing biogas plants and biogas--based generators.based generators.

Enterprise Support for Biogas andProductive End Uses

S3IDF

L Mil El i i Di ib i


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The Ibrahimpatnam substation 33/11 KV

Discussions with theCherlapatelgudaPanchayat.

Last Mile Electricity DistributionFranchising Project (Complex Case)

Franchisee/EntrepreneurMr Hanumanth Reddy addressing

attendees at the inaugurationceremony.

Interactions with the community aboutthe franchisee operations.

Meter reading atthe feeder level.

In partnership with ASCI, S3IDF is implementing a unique business model using franchisees for providing better

electricity services to the villagers in Cherlapatelguda feeder. Over time, the franchisee will provide other value-added services to the community such as access to finance, potable drinking water, and information services.

S3IDF


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What is PFAN?

Informal Network of Private Sector Companies / Individuals Under the Climate Technology Initiative (CTI) umbrella in support of UNFCCC Commmon interest / involvement in providing finance & financing services to

climate friendly projects Moving from Pilot (end of 2007) to Program Effort

Offers freeconsulting service to project sponsors & developers to

help them raise international private finance.

Aims Knowledge & Know How transfer

Technical Assistance Provide an interface between public sector policy goals and private sectorcommercial reality

Increase the number of bankable renewable energy / climate friendly projectsand help get them to financial close

S3IDF


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PFAN and its ServicesWho is Currently Involvedin PFAN?

PartnersClimate Technology Initiative (CTI)International Center for EnvironmentalTechnology Transfer (ICETT)United States Agency for InternationalDevelopment (USAID)United States Department of State (DOS)Asia Pacific Partnership (APP)

Members

Investors (5)Consultants/Advisors (6)Some Members can/will do both

Further Partners and Members

Envisioned

S3IDF

PFAN Services

Advice & GuidanceOverall Project CommercialStructure & DesignFinancing StructureSourcing & Procurement of

FinancingTechnical & Engineering Advice(selected)

Technical Assistance (limitedand selected)

Contacts/Introductions

Money/Financing directly fromPFAN Members


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More on S3IDF and PFAN if Time/Q&A

1. Using the Social Merchant Bank Approach, We are

2. Project Cycle Diagram

3. Levels of Financial Sustainability & Subsidy Needs atProject Level

4. Perspectives on NewTechnology

5. More S3IDF Clean Energy Project Examples

6. More on How PFAN Works7. PFAN Pilot Phase Sample Projects

S3IDF

U i h S i l M h B k A h


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Impacting lives - mostly of peopleliving on $2/day or less.

Creating employment and reducingpoverty.

Building a project portfolio (now120+) and pipeline (now 100+).

Investing all along the supply chainthrough to end-use.

Undertaking enterprise support

transactions in upstreamundercapitalized existingtechnology and know-how SMEs.

Facilitating market entry of gap

filling technologies

S3IDF

Using the Social Merchant BankApproach,We are

Studying with the assistance of LED based lights.


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Promoting environmentally-friendlytechnologies.

Changing business-as-usualpractices of local financialinstitutions.

Achieving financing leverage(2:1).

Facilitating the entry of smallinfrastructure investments intomicrofinance institutions portfolios.

Expanding local partnerships forincreased transaction efficiencies.

Building international partnerships(GVEP/I in East Africa) to bring the

S3IDF model to other countries.

S3IDF

Using the Social Merchant BankApproach,We are


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Project Cycle

THE SMALL-SCALE SUSTAINABLE INFRASTRUCTURE DEVELOPMENT FUND,INC.

The Project Cycle & S

3

IDF Need for Grant FundsPre-investment phases (Studies, Surveys,

Feasibility Analysis & Arranging Co-financing)- Timelines after entry to Category A: generally

minimum 5-8 months; some projects more than 1

year due to complexities and/or partner constraints.

Implementation/Construction Phase

- Timelines: few months to year+ depends oncomplexity.

Operation Phase

- Timelines: M&E for at least 2-3 years. For someprojects atleast till the debt/equity are paid

Financial Closure Implementation endsImplementation begins Operation Starts

Project Operates Financially

Some cost share with partners, cost can not beabsorbed by the project (because of small sizeand pro-poor characteristics).

These costs must be supported by grant funds. Some of the costs are applicable to broader

project replicability.

Current pipeline 50 projects in Category A (detailed pre-

investment studies).

40 projects in Category B (preliminaryconcept)

Project capital (implementation, construction)and operations costs are covered.

Project operates in a financially viable fashionincluding loan, guarantee fee, etc. payments to

S3IDF revolving fund.

Some monitoring done as part of financingprocedures by both S

3IDF and cofinancing

bank in both this and operations phase (until

debt, etc. repaid).

Technical support, SME capacity building mustbe covered in part/whole by grant funds.

Revolving fund must initially be capitalized bysoft or grant fund, but then it operates on

sustainable basis.

Post-implementation Monitoring &Evaluation and Lessons Disseminationcritical to replication by S

3IDF (and

others) and critical to S3IDFs broader

mission of getting big development

entities to do similar projects.

These costs must be supported by grantfunds.

Now (May 08) M&E well underway as120+ projects including many enterprise

support agreements are in place(implementation or operations).

Implementation Monitoring & Evaluation and Support

Post Implementation Monitoring & Evaluation Lessons, Dissemination

S3IDF

A M t C iti l I L l f Fi i l


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A Most Critical Issue Levels of FinancialSustainability and Subsidy Needs at Project Level

A. Infrastructure Service Provider Types have Different Financial Criteria

i. WB Survey a few years back suggest multinationals RoE targets low 8-12%, high 25% (some above), most inmiddle; Regional corporates targets likely high end except if for self supplyii. NGOs, CBOs, GP municipalities may accept very low Return on Equity targets

B. Sustainability, Problems and Levels of Cost Recovery

Hard investment cost: includes: costs of all the equipment construction etc. to put project into implementation andon an operating basis, all the capital financing costs (e.g., debt and equity charges) and OM & R.

Soft investment cost: includes, investment or enterprise specific pre-investment costs (a special challenge) [in largerinfrastructure projects these costs are normally capitalized into the investment costs, effectively becoming part of thehard costs in the financial structure of the project]

Other soft cost: more programmatic costs - helping developing players including upstream players, government/regulators, organizing community groups, etc.

The Challenge: Small pro-poor projects dont allow full capitalization of soft costs into the financial cost of the project.Also it will require considerable time & experience to learn the range of possible soft cost recovery/capitalization (nextslide)

Maximum Sustainability covers all hard and soft cost Conventional Sustainability - All hard & soft investment costs Partial Sustainability All OM & R and some of capital costs (financing and RoE) OM & R sustainability no capital costs covered Non-sustainable

Meeting the Challenge: S3IDF aims for Conventional Sustainability less soft investment costs (sometime partialcoverage) and raises grant monies to cover other costs. We address trade-off of increasing efforts (and therefore softcosts) for certain partner collaborations and for accessing government/other support programs that may lessenrevolving fund requirements. We are innovating with fees and deal structuring to capture some producer surplus whilekeeping deal viable and pro-poor.

S3IDF

P i N T h l


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Incremental vs.Transformational Technology

Incremental: improvedefficiency/low cost pumps(modern power or human/animal)

Transformational: submersible

electric pumps

S3IDF

Night soil biogas in residential school.

Perspectives on New Technology

Supply Chain Issues How Know-how intensive from

choice through operations What are the sales, service and continuing inputs requirements (e.g.

diesel, lubricants)? How easily can/will existing supply chains work? or,

Will new chains be required?


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S3IDF Clean Energy Project ExamplesSolar lighting for silk cocoon rearing centre

Silkworms placed in the Chandrikawhere they form cocoons.

Solar panels atop thecocoon rearing centre.

S3IDF provides technology andfinancial linkages (partial guarantee

with the local bank for loans taken bythe farmers)

Solar lights being used toassist in feeding theworms.

Silk being reeled at a reeling center fromthe cocoons in the basket at extreme right

(from another project)

S3IDF Cl E P j t E l


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S3IDF Clean Energy Project ExamplesReliable and cost effective lighting services for poor

households

Different types of CFL and LED lanternsand lights. LED lighting for poor households in the

absence of grid electricity.

Bank Manager visitinghouseholds that were

financed for CFL lanternsbecause of unreliable

grid

S3IDFs assistance withalternative lightingsolutions and financialstructuring allowed poorhouseholds to accessbetter and safer lighting.


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More on How PFAN Works(Phased Framework /Process)

Initial Review/Program Induction

Rigourous vetting of Project Proposal / Economic Feasibility

Selection / Rejection

PFAN Member assigned to project as dedicated adviser / mentor

Further Reviews to guide project to bankability

Follow up to Initial Review: Commercial & Financing Structure Engineering / Technical Studies / Certification / Equipment Supply

Fine Tuning: Cash Flows & Achievement of Conditions

Financial Close

PFAN Members have Right of First Offer to make financing offers

Offered terms should be fully competitive / Not binding

PFAN support can be terminated if financing thought unachievable.

S3IDF


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PFAN Pilot Phase Sample Projects

8 Projects currently (50+ reviewed) 1015 (of the rejections) would have been suitable for support 1st Project reached financial close in July 07 (funding in Aug/Sep)

Small Hydroelectric Power Station in Mexico (8,5 MW / USD 17 mio)

Later Phase/ Review Phase Bio Diesel Refinery in Brazil (66.000 tpa / USD 18 mio)

Earlier Phase/Review under way Small Hydro in Chile (5,6 MW / USD 5 mio) Biomass in Chile (8 MW / USD 14 mio) Wind Farm in Chile (20 MW / USD 30 mio)

Small Hydro in Chile (6,3 MW / USD 10 mio)

Initial Review / Pipeline Induction Pending Photovoltaic Power Station, South Africa (10 20 MW) Clean Coal Powerstation, Botswana (400 MW / USD 600 mio)

Geo-Thermal Project, Georgia (9,3 MW / USD 4,3 mio)

S3IDF

S3IDF S i l M h B k


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S3IDFs Social Merchant Bank

WINNER OF THE INAUGURAL 2007

WORLD CLEAN ENERGY AWARD

(NGO and Initiatives Category)

Nominated by Worldwatch Institute

Selected by a prestigious international Jury

Chris Flavin, Director General, Worldwatch InstituteNicky Gavron, Deputy Mayor of London, ICLEI LocalGovernments for Sustainability

Ashok Kholsa, CEO, TARAhaat

James Leape, Director General, WWF InternationalAmory B. Lovins, President, Rocky Mountain Institute

Andre Schneider, Managing Director/Chief OperatingOfficer, World Economic Forum

Klaus Topfer, former UNEP Secretary General

Ernst U. von Weizsacker, Professor, Bren School ofEnvironmental Science and Management

S3IDF
http://www.cleanenergyawards.com/uploads/pics/026_f4f_150607_P6158692.JPG


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Contact us

S3IDF US:The Small-Scale Sustainable Infrastructure Development Fund, Inc.

The Carriage House, 5 Hastings SquareCambridge, MA 02139 USA

Tel: +1-617-576-0652 Email: [email protected]

S3IDF India:

The Small-Scale Sustainable Infrastructure Development FundNo. 813, 12th 'B' Cross23rd Main

J P Nagar 2nd Phase

Bangalore - 560 078 Karnataka, India

Tel: +91 80-65902558

For more information about S3IDF visit www.s3idf.orgor email us at [email protected]

S3IDF
mailto:[email protected]://www.s3idf.org/mailto:[email protected]:[email protected]://www.s3idf.org/mailto:[email protected]

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DeLucia Session17 ACEF2008