Financing Power Projects in Africa

Jeannot Boussougouth

Senior Manager: Power and InfrastructureSenior Manager: Power and Infrastructure

Jeannot.Boussougouth@standardbank.co.za

Standard Bank

13 September 2012

Dar es Salaam, Tanzania

11Contents

Section Page

1. Introduction 2

2. Standard Bank 4

3. Our African Infrastructure Understanding 10

4. Business and Financing Challenges 12

5. Requirements for Successful Private Sector Participation 15

6. Potential Financial Structure 22

Private and confidential

Section: 1

Introduction

3

� Standard Bank is the largest bank in Africa

– We are present in 18 countries across Africa (especially Sub-Saharan Africa)

– Our market capitalisation is USD $22.77bn (April 2012) and our Total Assets are USD $178.04bn (HY2011)

– We are 20% owned by ICBC (the world’s largest bank)

– In most African countries, Standard Bank operates as an integrated corporate and investment bank

� The purpose of today’s presentation is for :

Introduction

– To exchange views as to key growth countries in Africa

– To exchange views as to key growth sectors in Africa

– To outline strategic considerations and opportunities relevant to an African infrastructure project pipeline

– To agree action points and next steps to progress the mutual relationship

Private and confidential

Section: 2

Standard Bank

5

� On-the-ground presence in 18 African countries

� Nearly 150 years of experience in Africa

� Largest bank in Africa

– Over 40,000 employees in Africa

– Over 8,000 bank branches headquartered in Johannesburg

� Growth on the continent is a key strategic focus area

Most comprehensive network in Sub-Saharan Africa

Key points

Unrivalled knowledge of sub-Saharan Africa

On-the-ground presence in 18 African countries

Standard Bank – Natural Partner in Africa

Overview

Angola (33.3 million)

Botswana (1.8 million)

DRC (63.6 million)

Ghana (23.1 million)

Kenya (34.7 million)

Mozambique (20.3 million)

Lesotho (1.7 million)

Malawi (12.8 million)

Mauritius (1.2 million)

Namibia (2.1 million)

Nigeria (154.7 million)

South Africa (47.4 million)

Swaziland (1.1 million)

Tanzania (37.8 million)

Zambia (14.6 million)

Zimbabwe (13.1 million)South Sudan (10.6 million)

Uganda (27.6 million)

� Growth on the continent is a key strategic focus area

� Investment banking presence across the region and in keymarkets strengthened by some acquisitions:

– IBTC Chartered Bank, Nigeria

– CFC Bank, Kenya

– Recent banking license awarded - AngolaStandard Bank

Strong product teams in Johannesburg, Lagos, Nairobi and London

Saharan Africa through on ground presence

6

Select Recent Accolades

� Best Investment Bank in Africa (2011, 2009)

� Best Investment Bank in South Africa (2011, 2009)

� Best Investment Bank in Nigeria (2009)

� Best Debt House in Africa (2011)

� Best Debt Bank in Africa (2011,2009)

� Best Emerging Markets Bank in DRC, Namibia, South Africa and Uganda (2011)

� Best Overall Bank for Cash Management in Africa (2009, 2010)

� Best Bank for Payments and Collections in Africa (2009, 2010)

� Best CLS-Linked Bank Offering (2009)

� Best Foreign Exchange Provider in South Africa

� Ranked 94 out of 1,000 top world banks by Tier 1 capital (2011)

� Bank of the Year in Africa (2011)

� Best Bank in Africa (2010)

� Best Bank in Lesotho, Malawi, South Africa, Uganda and Zimbabwe (2010)

� Best Investment Bank from Africa (2009)

� Deal of the Year Africa: Bonds (2010)

� Deal of the Year Africa: Capital Raising (2010)

� Deal of the Year Africa: Structured Finance (2010)

� African Bank of the Year (2009, 2008)

� Bank of the Year, South Africa (2009, 2008)

Best Investment Bank from Africa (2009, 2008)

� Investment Bank of the Year, Africa (2009)

� Best Issuing House in Africa (awarded to Stanbic IBTC Bank) (2008)

� Deal of the Year - ICBC 20% acquisition of Standard Bank (2008)

� Best Investment Bank in Africa (2009, 2008)

� Best Investment Bank in Nigeria (awarded to Stanbic IBTC Bank) (2009)

Standard Bank – Recent Accolades

Key points

Global Finance:Best Investment Bank in Africa (2011)

The Banker: Best Investment Bank in Africa (2011) � Best Foreign Exchange Provider in South Africa

(2009)

� Best Investment Bank in Africa (2010, 2009)

� Best Investment Bank in Nigeria (2010)

� Best Bank in South Africa (2010, 2009)

� Best Equity House in Africa (2009)

� Lakatabu Expansion - Africa Industrial Deal of the Year (2009)

� MTN Uganda - Africa Telecoms Deal of the Year. (2009)

� Zain - Middle East Telecoms Deal of the Year (2009)

� Best Investment Bank from Africa (2009, 2008)

� Best Bank in Botswana, Lesotho, Malawi, Swaziland , Tanzania (2009)

� Deal of the Year for the Ruashi Copper Mining Project in DRC (2008)

� Deal of the Year - Botswana for National Development Bank BWP100 million 11.25% notes due 2017 (2008)

� Deal of the Year - DRC for the Ruashi Copper Mining Project (2008)

� Deal of the Year - Finland for Talvivaara Nickel Project US$320m debt facility (2008)

� Deal of the Year - Germany for Kreditanstalt fur Wiederaufbau NGN28.7 billion 8.5% notes due by 2011 (2008)

� Deal of the Year - Tanzania Electricity Supply Limited TZS300 billion syndicated loan (2008)

� Deal of the Year - Zambia Sugar Project (2008)

� Deal of the Year (South Africa) for the 20% investment by ICBC in Standard Bank (2008)

� Deal of the Year Award - Bahrain for Arcapita Bank US$1.1b syndicated Murabaha facility (2008)

� Most innovative in Trade and Project Finance (2008)

� Best Natural Resources Deal in EMEA: Kayelekera Uranium project (2009)

� Best Oil and Gas Deal in Africa: Oando (2009)

� Best Project Finance Deal in Africa: Botswana Power Corporation (2009)

� Best Project Finance House in Africa (2009)

� Carbon Finance Deal of the Year for Camco-Standard Bank Structured Carbon Credits Transaction (2009)

� Best Africa Investment Bank (2009)

� Best Africa Research Team (2009)

� Infrastructure Deal of the Year for Gautrain (2008)

Africa (2011)

Euromoney:Best Investment Bank in Africa (2010)

7

Financial Advisory and/or Debt Arranging

� Ongoing – Mphanda Nkuwa Hydropower Project, Mozambique

Standard Bank is mandated as the Financial Advisor to the Mphanda Nkuwa consortium (consisting of Electricidade de Moçambique, Camargo Corrêa Moçambique lda and Energia Capital) on the development of 1,500MW hydro electric project in Mozambique

� Ongoing – Forest Petroleum, South Africa

Standard Bank is mandated as Financial Adviser to Forest Petroleum on the development and financing of a 545MW CCGT IPP using natural gas from the offshore Ibhubesi gas field

� 2009 – Morupule B Power Project, Botswana

The US$1.6bn coal-fired Morupule B Power Project in Botswana. Standard Bank was mandated as Joint Lead Arrangers (with ICBC) and Hedge Provider for 20 year USD 825m Term Loan Facility and US$140m Bridge Facility

Selected Energy Credentials

Arrangers (with ICBC) and Hedge Provider for 20 year USD 825m Term Loan Facility and US$140m Bridge Facility

� 2009 – Eskom Kusile Project (6*800MW), South Africa

Standard Bank acted as the Mandated Lead Arranger in the Kusile Boilers contract. Standard Bank acted with 4 international banks in funding the €705m contract over 12 years. Export Credit was also arranged with Euler Hermes (German ECA) over the foreign content of the contract with Hitachi Power Europe

� Ongoing – Just Energy, South Africa

Financial Advisor to Oxfam’s energy subsidiary, Just Energy, to develop [37]MW of wind farms in the Eastern Cape

� Ongoing – CGNPC, South Africa

Financial Advisor to China Guangdong Nuclear Power Corporation (“CGNPC”), China’s largest Nuclear Energy company, in support of their bid to build South Africa’s potential nuclear power programme

� Ongoing - Khanyisa IPP, South Africa

Standard Bank is mandated as the Financial Advisor to Anglo American’s 450MW discard coal-fired IPP

8

Financial Advisory and/or Debt Arranging

� Ongoing – Biotherm Energy, South Africa

MLA to Biotherm Energy on its 4 wind farms and 2 PV projects

� Ongoing – Enel/Built Africa/Power Company, South Africa

FA and MLA to Enel /Built Africa/the Power Company on their multiple PV projects

� Ongoing – Scatec Solar, South Africa

Sole MLA to Scatec Solar on its various Solar PV projects in the Northern and Eastern Capes

� Ongoing – Oelsner Group Wind Farms , South Africa

Standard Bank mandated FA and MLA to Oelsner Groups on two wind farms in the Western Cape

� Ongoing – African Clean Energy Developments, South Africa

MLA for African Clean Energy Development (“ACED”) to develop 3 wind farms [300]MW in the Eastern Cape

Selected Energy Credentials (Contd…)

MLA for African Clean Energy Development (“ACED”) to develop 3 wind farms [300]MW in the Eastern Cape

� Ongoing – SARGE/Gestamp/Shanduka, South Africa

Project / Equity FA, MLA and Carbon Credits provider to SARGE/Gestamp/Shanduka’s 75MW wind farm

� Ongoing – SunEdison, South Africa

MLA to SunEdison in connection with the development of its [300]MW multiple solar PV projects

� Ongoing – Solar Capital, South Africa

FA and MLA for the 75MW De Aar PV project in the Northern Cape

� Ongoing – CEC, Zambia

Standard Bank mandated FA and MLA to CEC on its 40MW Kabompo Gorge Hydroelectric Power Station

� Ongoing – SARGE/Elecnor, South Africa

Project / Equity Financial Adviser, MLA and Carbon Credits provider to SARGE/Elecnor on their 27MW PV project

9

� Ongoing – SARGE, South Africa

FA, MLA and Carbon Credits provider to SARGE’s 140MW wind and 75MW PV projects

� Ongoing – Solar Reserve, South Africa

FA to Solar Reserve on its multiple Solar CSP plants, using molten salt storage technology, each totalling [80-100]MW, in South Africa

� Ongoing – Gitson Energy, Kenya

MLA and FA to Gitson Energy’s [300MW] Wind Power Project in Bubisa, Kenya

� Ongoing – Aeolus, Kenya

MLA to Aeolus Kenya Ltd on a 60MW wind farm project

Financial Advisory and/or Debt Arranging

Selected Energy Credentials (Contd…)

� Ongoing – Aldwych International, Kenya

Joint Lead Arranger for long-term financing to Aldwych International for the 300MW Lake Turkana Wind Project valued atUS$760m

� Ongoing – Basil Read Energy, South Africa

Mandated as MLA to BRE and Metrowind’s [27]MW wind farm near Port Elizabeth in the Eastern Cape

� Ongoing – Astrum Energy & Basil Read Energy, South Africa

Standard Bank has been mandated as MLA to Astrum Energy and Basil Read Energy’s [60]MW solar PV in the Western Cape

� Ongoing – Lanco, South Africa

MLA to Lanco on its 3 PV power projects [combined 130]MW

� Ongoing – Renova, South Africa

MLA to Renova on its 5 PV projects [combined 35]MW

Private and confidential

Section: 3

Our African Infrastructure Understanding

11

� Positive correlation between infrastructure expenditure

and GDP growth

� Inadequate infrastructure is cited as a key constraint to

investment and growth (ADB, 2007)

� The provision of quality infrastructure is a necessary

element of any strategy for economic integration and

sustainable development in Africa

� $93bn/year in infrastructure investment required in SSA

in order to meet MDG, (or around 15% of GDP)

African Context

African Infrastructure Context

Table 1: Overall Infrastructure Spending Needs for SSA

Key points

Inadequate infrastructure is cited as a key constraint to investment and growth

SSA requires $93bn/year in infrastructure

9 3.4

18.2

21.9

ICT

Irrigation

Power

Transportin order to meet MDG, (or around 15% of GDP)

� 15 countries in Africa are land-locked, with 40% of the

continent’s population being estimated to live in these

countries; hence

� Efficient cross-border transportation is vital for their

economic development

infrastructure investment to meet MDG

Better policy frameworks to attract investment required

40.818.2 Transport

WSS

� Opportunity 1: Potentially high economic returns to investment in infrastructure, but requires better policy

frameworks to attract investment and align economic returns with investor risks/returns

� Opportunity 2: Although investment currently dominated by public sector, there’s a strong shift towards private

sector (IPP, PPP, Corporate etc.).

Private and confidential

Section: 4

Business and Financing Challenges

13

� Opportunity Costs of insufficient electricity supply/electrification

– High Cost of Unserved Energy

– Reality Check: the real developmental costs of delayed decisions!!..

� New Generation Planning

– A complete financial model not a shopping list of projects

Key Issues

Business and Financing Challenges

Key points

High opportunity costs of insufficient electricity supply

Greater certainty in future tariffs is paramount

– Should include interest during construction (IDC)

– As an indicator to politicians, regulators and consumers about what realities we face

– Greater certainty in future tariffs is key to funding new investments today

– Greater support to credit ratings of utilities (key to tapping current EM liquidity)

� Effective Domestic Wheeling framework

– Framework must be standardised and transparent for all arrangements

– Pricing and risk sharing should facilitate wheeling not prevent it

paramount

Effective domestic wheeling framework needed

14

� Leveraging credit quality private off-takers

– Allocating risk to those that are able to best manage it

– Creating a domestic industrial/mining offtaker group. e.g. Zambia’s CEC Energy

– Innovative commodity risk management (commodity price indexation in loan terms)

– Allowing more private players on regional power pools (e.g. SAPP)

� Cross-border PPAs

Key Issues (Contd...)

Business and Financing Challenges

Key points

Effective risk allocating approach

Unrivalled knowledge of sub-Saharan Africa

� Cross-border PPAs

– Chicken and Egg situation (smaller countries can’t build large projects alone)

– Mozambique’s Mpanda Nkuwa 1,500MW hydro project would benefit entire region but needs Eskom

– Challenge: STE line and Mpanda Nkuwa require back-to-back contracts

– Could a Mozambique coal IPP sign a private PPA with mine in SA or Zambia?

� Integrated Mining/ Power projects

– Reality check: new mining investment is key to our economies over next 20 years

– Using Diesel Generators cost GDP and jobs

– New quality creditors for power projects: Commodity Buyers

Saharan Africa through on ground presence

Strong product teams in Johannesburg, Lagos, Nairobi and London

Private and confidential

Section: 5

Requirements for successful private sector participation

16

� Finalise the enabling framework to allow and facilitate private sector participation in the power sector

– E.g. In SA’s IPPPP

� Market requires a bankable PPA (which allows for the appropriate risk allocation between the private

sector and the buyer (SOEs or any Integrated System Operators)). This should include such items as:

– A balanced liability regime

– Appropriate protections for the generation companies for risks not within their control

Overview

Key Requirements

Key points

Finalise the enabling framework

Bankable PPA are required

– A stablisation clause for changes of law

– Fair termination events for buyer and seller

– Appropriate termination compensation regime

– Clauses allowing for restructuring which may affect the buyer (e.g. unbundling of the Public utility)

� Government support required to stand behind buyer, in order to provide comfort to private sector

(developers, equity participants, lenders, etc.) that PPA availability payments will be made accordingly and

termination provisions are fair (and termination payments will be funded)

Government support required to stand behind buyer

17

� Market is looking for independent offtaker / buyer

– Independent buyer is seen as key by private sector

� Independent systems operator has been a successful model in other jurisdictions, seen by the market in a

favourable light

Overview (Contd...)

Key Requirements (Contd…)

Key points

Need for independent offtaker / buyers

ISO has been a successful model

18

� The PPA grants the concession and sets the tariff. It is the primary document that the SBO would focus

on. To some extent all the others are secondary

PPA 101

Key Requirements (Contd…)

Key points

Grants the concession • Grants the concession - gives the project the right to exist, and the right to generate electricity. Term typically 20-25 years from completion of construction

Ownership • BOO or BOT

Sale and purchase of capacity

• Generator (IPP) paid on the availability of net dependable power capacity irrespective of despatch sufficient to cover debt service, equity return and fixed O&M

• Procurer (SBO) takes price and despatch risk

• Take or Pay

Sale and purchase of Net Electricals

• Variable O&M costs recovered through the sale of the net electrical energy dispatched

O&M

Indexation • Tariff payments may be indexed for inflation and movements in Foreign Exchange rates

• Procurer may take inflation and forex movements risk

� The responsibilities will be split

Specifications and Performance Standards of the Plant

• PPA sets out the responsibility of the Generator to build by a given date a plant to very precisely documented specifications, operating standards and designs

• Generator / EPC Contractor takes the responsibility and risk of building the plant to the requirements of the Procurer

Revenue Write Down provisions for non-Performance

• PPA includes provisions to reduce the payments payable to the Generator if the tested dependable capacity at any time or the actual availability [or the heat rate] is worse then the levels the Generator is contracted to provide

• Generator takes performance risk

Delay LD’s for late commissioning

• Delay LDs payable for late commissioning payable by Generator/ EPC Contractor

• Generator takes risk of late commissioning

Performance criteria

19

� The responsibilities will be split (Contd…)

PPA 101 (Contd...)

Key Requirements (Contd…)

Key points

Third party

responsibilities

Water and Power

Transmission interconnections

• Generator would seek to make it an obligations of the Procurer to design build and commission all required water and transmission linkages by an agreed date and prior to scheduled testing

• Procurer takes responsibility for providing Water and Power Interconnections

• The PPA sets out provisions for the Procurer to keep the Generator whole and / or pay compensation if such facilities are late

Supply of Gas / Coal / Fuel • In many markets, the Generator would seek to make it an obligation of the Procurer to supply Gas / Coal / Fuel (ie energy conversion)

• Generator may take fuel / hydrology risk assuming satisfactory pricing and supply

• Procurer takes risk of fuel supply and pays deemed commissioning if fuel is not available Generator takes efficiency risk through an incentive penalty regime

Force majeure /

political events

assuming satisfactory pricing and supply risks

Permits • PPA allocates responsibility for obtaining permits

• Split between Procurer and Generator

Natural Force Majeure • PPA sets out provisions in relation to relief of liability and the provision of insurance (both damage and business interruption) to mitigate Natural Force Majeure Risk

• (Lightening, fire, earthquake, accidents, explosions, epidemics etc.)

• Insurance

Political Force Majeure • There are certain risks which are uninsurable, political in nature and which Generators will not accept and need to be taken by the Procurer

• (Act of war, blockade, boycott, rebellion, civil commotion, Change in Law and / or unjustified failure to renew permits)

• Procurer Risk

• Payments of deemed commissioning [or termination buyout if prolonged] or tariff adjustments to compensate for additional costs or revenue losses

20

� The responsibilities will be split (Contd…)

PPA 101 (Contd...)

Key Requirements (Contd…)

Key points

Termination

Termination • The Agreement will stipulate the Events of Default, cure periods and the termination regime

• In the event of termination due to Procurer default, the Procurer is obligated on request to purchase the plant for an agreed sum that covers debt and probably an equity return

• In the event of termination due to Generator Default, the Procurer has the right but not the obligation to purchase the plant but for a lesser sum covering only debt

Credit Support • In the event of termination due to Procurer Default and a purchase price being payable then lenders may seek some form of

• It is a matter of commercial negotiation as to whether SBO would be required to provide such a backstop. It may be possible to structure without

backstop credit support in respect of the payment to be made, typically in the form of a payment guarantee

21

� A number of different tariff structures are feasible – Availability’ payment structure as the most commonly used

structure

� The RFP for an IPP tender will specify the tariff structure which bidders must adhere to and will form the basis of payments to / from the Project Company (Generator) and the offtaker (Procurer)

� Each bidder will be invited to bid a number of Charge Rates

– Occasionally charge rates can be firmly fixed and bidders would have to target LEC (Levelised Electricity Cost) based on an Asset Value (Brownfield)

– Lower charge rates however may not always equate to better value for money for the procurement

Tariff structure – integral component of PPA

Key Requirements (Contd…)

Key points

Availability payment structure

Bidders would have to target LEC

Authority

Service Payment

Capacity Payment

Base capacity component Fixed O&M component

Output Payment

Fuel adjustment payment

Variable O&M payment

Payments typically split between Capacity and Output

� For an availability driven tariff, payments will typically be split between Capacity and Output

– Capacity Payments are designed for recovery of all the fixed costs of the plant, including debt service, taxation, equity return and fixed O&M costs. Typically deductions for non-availability and / or poor plant performance would be netted off against these capacity payments

– Outputs Payments recover the variable operating costs of the plant and may also include an adjustment for fuel consumption

Private and confidential

Section: 6

Potential Financing Structure

23Financing Structure

IPP

Utility/Single Buyer

PPA

Discard coal

Mine orSmelterCo

Sale of coal to local industry and smelters

Potential Financing Structure

� Leveraging credit quality of end-users

– Mines

– Smelter or Steel mill

– Commodity offtakers

� Unlocks the Chicken/Egg problem

– Facilitates investment in interdependent power, port and mining infrastructure at same time

Coal Mine Co

PortCo

RailCo

Commodity Offtaker

Discard coal

Security of supply for Coking Coal Offtaker

� PPP basis

– Private sector partnerships with public electricity, rail and port utilities

– But reduces investment, guarantee and operations burden on utilities/Treasury

� Standard Bank can facilitate:

– Advisory

– Bring in foreign partners

– Debt Funding

– Commodity Risk Management

24Disclaimer

This presentation is provided for information purposes only on the express understanding that the information contained herein will be regarded as strictly confidential. It is not to be delivered nor shall its contents be disclosed to anyone other than the entity to which it is being provided and its employees and shall not be reproduced or used, in whole or in part, for any purpose other than for the consideration of the financing or transaction described herein, without the prior written consent of a member of the Standard Bank Group. The information contained in this presentation does not purport to be complete and is subject to change. This is a commercial communication. This presentation may relate to derivative products and you should not deal in such products unless you understand the nature and extent of your exposure to risk. The presentation does not include a personal recommendation and does not constitute an offer, or the solicitation of an offer for the sale or purchase of any financial product, service, investment or security. The investments and strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value Whilst every care has been taken in preparing this presentation, no member of the Standard Bank Group gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information in this presentation Past performance is not indicative of future results. For the avoidance of doubt, our duties and responsibilities shall not include tax advisory, legal, regulatory accounting or other specialist or technical advice or services. You are to rely on your own independent appraisal of and investigations into all matters and things contemplated by this presentation. By accepting this presentation, you agree to be bound by the foregoing limitations. Kindly note that this presentation does not represent an offer of funding since any facility to be granted in terms of this presentation would be subject to the Standard Band Group obtaining the requisite internal and external approvals. Copyright 2010 Standard Bank Group. All rights reserved.

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