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Symposium on Private Financing for African Power
Infrastructure
US Treasury DepartmentWashington, DC
October 13, 2008
InfraCo Overview
Development and Investment in Early Stage Infrastructure Projects
− Privately Managed Infrastructure Development company,
− Funded by the Private Infrastructure Development Group
Creates Privately Financed Bankable Infrastructure Projects,
− Balancing the Interests of Host Governments,
− Private Sector Equity Investors and
− Senior Debt Lenders
2
InfraCo Scope of Operations
Geographic Focus− Sub Sahara Africa− DAC I/II Countries (Least Developed and Low Income Countries)
Project Focus− Greenfield Investment− Expansion/Rehabilitation of Existing Facilities
Sector Focus− Energy & Power − Water and Waste water − Transportation
Acts as a Principal Project Developer− InfraCo is not an advisor
Leads and Actively Participates in the Development of Projects − InfraCo is not a passive funding source
Assumes Development Risk− InfraCo shoulders the costs and risks of early stage development
Geographic Focus− Sub Sahara Africa− DAC I/II Countries (Least Developed and Low Income Countries)
Project Focus− Greenfield Investment− Expansion/Rehabilitation of Existing Facilities
Sector Focus− Energy & Power − Water and Waste water − Transportation
Acts as a Principal Project Developer− InfraCo is not an advisor
Leads and Actively Participates in the Development of Projects − InfraCo is not a passive funding source
3
Development Process Overview
Origination
1Host Country Macro-economic, Political and Power Sector
Assessment
Early Stage Development
2Financial
Assessment: Prevailing
Tariffs
EconomicAssessment:
Demand Forecast and Reserves
TechnicalAssesment
Legal Assessment: Power Sector Regulatory
Framework; Private Sector Investment
FeasibityGate
Project Budget and Schedule
MoU with Host Country or Utility
Joint Development Agreement
Advanced StageDevelopment
3Site Control, Technology Selection, Preliminary Engineering and Costing, Preliminary Financing Plan, Basic
Financial Modeling, PPA Term Sheet, [Fuel Supply Term Sheet/ Wind Resource, Assessment/Solar Irradiation Assessment/Hydrology Reports], Interconnection Study, Environmental/Social Impact Assessment
Implementation
4Power Purchase Agreement and
Security Package
[Fuel Agreement/Final Renewable Resource
Report]
Procurement and EPC Contract
Financing Term Sheet
Acquisition of Site and Rights-of-Ways
Permits and Regulatory Approval
Project Information Memorandum
Equity Financing
Debt Financing
4
Risk Allocation Matrix
Power Purchase Agreement Tariff− Capacity and Energy Tariff− Indexation (Forex and inflation)− Completion and Functional
Guarantee (output; availability; heat rate)
EPC Contract− Scope− Price and Payment Milestones− Delay and Functional Guarantees− Liquidated Damages and
Performance Security
O&M− Owner Operated or Outsourced− Regular & Major Maintenance− Price Protection− Availability Guarantees
5
Fuel Supply− Minimum Take− Price Formula − Matching Energy Payment− Delivery Risk− Security Package− Termination
Sovereign Guarantee− Financial Guarantee: − Ring-Fencing Sector Cash Flow
More Effective More Controversial
Change of Law/ Regulatory Risk− Exchange Controls− Currency
Convertibility/Availability− Political Events
Typical Project Structure
PROJECT
Turnkey Design& Construction
Engineering, Equip-ment Procurement, Construction Start-
up and Testing
6
Environmental & Other Permitting
Permits for Plant, Air, Water, Mining & Ash
Disposal
Site ControlSite
Right-of-Ways and Easements
Fuel SupplyAgreements
Primary/ Secondary Fuel Sources Transportation
Sovereign/ Regulatory
Issues
Operations &Maintenance
Regular Operation, Overhaul and
Outage Maintenance
Project FinancingProject Structure
Construction LoanEquity/Debt
Power PurchaseAgreement and
Security Package
Constraints to Energy Project Development
Host Governments− Discipline in Execution of Policy
− Avoid Politicalisation of Projects
− Realistic Expectations
− Offtakers (Electric Utilities) Still Not Bankable without Sovereign Guarantee or Other Credit
Enhancement
Multilaterals and DFIs− Review Conditionalities
Compatibility with the Host Country Situation
− Predictability Consistency in Execution
− Bureaucracy Less
− Transparency More
7
Constraints to Energy Project Development
Contractors and Suppliers− Market is not Competitive
US Contractors: Absent
European Contractors: Large Projects Only
Asian Contractors: Increasingly Present
Local Contractors:o Civil Works: Adequate Local Skills/Capacity Existso Electro-Mechanical: Reliance on Foreign Skills/Capacity
− Construction Risk Still High Difficult to Mitigate
Frontline Risk
8
Constraints to Energy Project Development
Private Debt Financing− Local Currency Debt
Not Enough Competition in Local Market
Limited Source of Long-Term Funding
Interest Rates Are Very High
− Hard Currency Debt Short/Medium Term: Closed Except with Enhancement
− Short-Medium Term Solution Increase Local Currency Guaranty Products
Supplier’s Credit (ECAs’) for Hard Currency
9
Constraints to Energy Project Development
Strategic Investors− Tied to Equipment Supplier, Contractors or Operator
− Sub-Optimal Alignment of Interests
Financial Investors (Private Equity)− Better Alignment of Interests
− Return Requirements: Unrealistic for Power Infrastructure
− Exit Requirements: Unrealistic for Illiquid Nature of Asset Class
10
Africa Private Equity Fundraising - 2007
Worldwide vs Africa− Only 4%
Natural Resource Driven− 56%
− Infrastructure: 2%
Existing Businesses Not Greenfield
Sub-Sahara Africa (Ex RSA)
− 61%
− Mostly in Commodities
Source: EMPEA
Worldwide Fundraising Africa PE Funds
$2.34 billion
$59.16 billion
Worldwide vs Africa− Only 4%
Natural Resource Driven− 56%
− Infrastructure: 2%
Existing Businesses Not Greenfield
1,300,000
924,000
40,000
29,000 20,000
20,000
Source: EMPEA
Natural Resources Generalist Infrastructure
Consumer Products Technology Other
40,000
2,122,000
108,000
70,000
Source: EMPEA
Buyout Growth Mezzanine
Venture Capital
306,000 67,000
1,421,000
546,000
Source: EMPEA
North Africa Pan-Africa Sub Sahara Africa (ex-RSA)
South Africa
11
InfraCo Sub-Sahara Infrastructure Fund
$300MM Private Equity Fund− $100 Million OPIC Loan
Approved by OPIC Board in May 2008
− $200 Million in Limited Partnership Investments Currently Being Raised
ISSIF will Invest Primarily in Projects Developed by InfraCo
Geographic Focus− Sub Saharan Africa (Excluding South Africa)
Transaction Focus− Greenfield Infrastructure
Sector Focus− Power
− Transportation
− Water and Sanitation
12