IFC helping the cement industry to implement green initiatives

Sushil Anand February 2015

Senior Investment Officer

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Supporting regional/global players’ investment primarily in high-risk countries and partnering with

emerging players developing regionally

Focusing on frontier markets which are sufficiently large and are underserved

50% of IFC’s portfolio is in frontier countries

Promoting high Environmental and Social Standards

Improving Energy Efficiency and Reducing CO2 Emissions

Off Balance Sheet solutions available

Deal selection based on project competitiveness

Lowest delivered cost producer

IFC sector and regional exposure and IFC additionality

Favoring equity and quasi-equity in cement investments –

Entry price is important

IFC’s Strategies and Priorities in the Cement Sector

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IFC is a Key Partner and Financier in the Cement Sector

FY 2013 Cement Portfolio By Region

Cement Track Record:

Cumulative Investment: $4.0Bn

Outstanding Amount: $1.0Bn

32 projects in 26 countries

In-house industry expertise

Advice sought by key industry stakeholders

Long experience financing cement projects

worldwide

Leader in advocating more climate friendly

production processes (including blended

cement)

FY 2013 Cement Portfolio by Clients

Local, 47Global,

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SS Africa, 18%

S Asia, 14%

MENA, 26%

LAC, 4%

ECA, 22%

E Asia, 16%

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Selected Cement Transactions

Turkey

Sanko Cement

$175 million

A/B Loan

Global

Italcementi

$200 million

Loan, Equity

Ethiopia

Midroc

$55 million

Loan

Kazakhstan

Vicat/Jambyl Cement

$185 million

A/B Loan, Equity

Africa (7 countries)

HeidelbergCement-

Algeria

ACC Cement

$45 million

Loan

Yemen

AYCC

$125 million

A/B Loan

Albania

Fushe Kruje / Seament

$30 million

Loan

Bosnia and Herzegovina

Lukavec/ FCL

$12 million

Loan

Egypt

Titan

$120 million

Equity

Ghana

DiamondCement

$6 million

Loan, Equity

Dominican Republic

Domicem

$56 millionLoan

Trinidad and Tobago

TCL Group

$37 millionLoan, Risk Management

Bangladesh

Lafarge Surma

$60 million

A/B Loan, Equity

China

Shanshui Cement

$58 millionLoan, Equity

China

TianruiCement

$71 millionLoan, Equity

India

OCL India Ltd.

$50 million

Loan

Philippines

Holcim

$27 million

Loan, Equity

Vietnam

Nghi Son Cement (Taiheyo)

$56 millionA/B Loan

China

Anhui Conch

$86 millionLoan

$250 millionLoan, Equity

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IFC Climate Approach to Cement

IFC is willing to support sustainability agenda and specifically the minimization of its environmental

footprint

With financial crisis and economic slowdown putting a strain on spending, and IFC proposes off-

balance sheet structures to limit financial impact while accelerating sustainable programs

“Green” Investments are often based on solid business rational with good paybacks – e.g., 3 to 7 years

(depending on technologies)

Four specific technologies are considered:

• Waste heat recovery: Uses hot gases from the clinker cooler or pre-heater to heat a liquid and

generate steam, to generate in turn electricity for powering the cement plant.

• Alternative Fuel: Uses waste from municipality, from agro-industry, tires… to generate derived fuel

to be burned in the kiln or pre-calciner instead of fossil fuel.

• Solar: Uses solar solutions (photovoltaic or others) to generate electricity to power cement plants.

• Wind: Use wind turbines to generate electricity and power cement plants.

Waste Heat Recovery

Rotary Kiln

PH Boiler

AQC Boiler

Steam Turbine Generator

Condenser

NSP -Preheater

High Pressure Steam

FeedwaterKiln Exhaust

Clinker

Cooler Air

AQC

Clinker

Kiln Exhaust

Cooling Tower

Potential to generate 20% to 30% of plant power requirements (reducing purchased/captive

power needs)

Reduces operating costs

Protects against rising

electricity prices

Enhances power

reliability

Improves competitive

position

Lowers specific energy

consumption, reducing

overall greenhouse gas emissions

IFC provides consultant for pre-investment audit

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Country WHR Market Analysis

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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WHR Investment Potential

0 100 200 300 400 500 600 700 800 900 1000

South Africa

Nigeria

Philippines

Pakistan

Brazil

Thailand

Egypt

Mexico

Vietnam

Turkey

India

MWe

Existing WHR Capacity WHR Capacity Potential

Estimated investment

potential, $ mln

$1,400

$400

$480

$490

$490

$90

$430

$160

$170

$200

$170

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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WHR Project Examples

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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IFC Client: Holcim (Apasco, Mexico)

Advisory Services: Pre-feasibility Study,

2011

Assessment of WHR potential;

identification of energy efficiency

investment opportunities

WHR Type: conventional Rankine

cycle system with a direct contact

condenser and cooling tower

2.5-3.8 MW of WHR capacity

Total cost ~$10-15 million (2011

numbers, currently lower)

IRR 14.2-17.5%

WHR Project Examples

IFC Client (China) – Financing Through FI Model

7.5 MW of WHR capacity

Total cost $7.9 million; ROI 25.2%

Electricity generation

cost US ¢ 2/kWh

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Cement Plant

Commercial Bank

Design &

engineering

Equipment

WHR Design

Boiler Supplier

Turbine Supplier

IFC

WHR Project

Construction

and

InstallationConstruction Co

Loss

Sharing

Facility

Advisory

Services

Build,

Own,

Operate

5 year

loan

Monthly

loan/

Interest

repayment

Equipment

WHR Project Examples

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Cement Plant

Design &

engineering

Equipment

WHR Design

Boiler Supplier

Turbine Supplier

IFC

Construction

and

InstallationConstruction Co

Equipment

IFC Client: Cimko (Turkey) – Direct IFC Financing

FY 2014

5.5 MW of WHR capacity

Total cost $12.5 million

Annual savings ~$3.1 million

Simple Payback ~4 years

Part of a larger cement resource efficiency project

- IFC total financing $40million

Financing

WHR ProjectBuild,

Own,

Operate

Off Balance Sheet Financing for Waste Heat Recovery/RDF

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

IFC and another co-investor form SPV, with or without cement plant owner’s participation. Holcim

could consider appointing right people to run operations

SPV can own 100% of other SPVs for individual projects

• IFC exit through motivated call to be considered – securitization possible for large program

SPV can finance waste heat recovery, e.g. output price set as a discount to market prices, guarantee on

heat supply to be discussed

SPV can provide RDF (need comfort on supply) – again, RDF price set as a discount to primary fuel

• RDF price related to amount of tipping fee and scope/quality of the waste stream to provide

adequate risk adjusted returns

• Can also create and operate a EU compliant municipal waste landfilling site but not recommended

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WHR Potential Structure

Off-Balance Sheet Finance Model for WHR Heat supply agreement: Cement Plant supplies heat to Power Co (at a cost to be defined).

This contract can include liquidation damages in case of significant drop of heat supplied

Off-take agreement: Cement Plant purchases power from Project Co at a discount to market

Project Co

Cement Plant

Strategic partnersInvestors

Design &

engineering

Equipment

Heat Supply

Agreement

Off-take

agreement

Operations

Services

Financing

#1

#2

#3

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Waste-Derived Alternative Fuel

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Waste derived alternative fuels (WDF) sources

Solid waste streams – to make Refuse Derived Fuel (“RDF”) or Solid Recovered Fuel (“SRF”)

RDF is a generic term; SRF higher quality, meets a specification

MSW

Industrial waste

Construction and Demolition (C&D) debris

Auto shredder fluff

Agriculture and Forestry Residues

Other alternative fuel include: End of life tires and Sewage sludge

RDF has been utilized in the cement industry for many years - Challenges

Inconsistent fuel quality

Low calorific value

Contain excessive pollutants such as chlorine

Waste-Derived Alternative Fuel

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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IFC has committed over $135 million in 10 transactions in Solid Waste over the last 10 years

7 transactions at project level for a total project cost of $283 million

4 transactions at corporate level, supporting company growth and expansion (e.g. ~10% revenue

growth for Estre Ambiental)

Additionally, IFC’s Advisory Services has conducted various PPP processes in Solid Waste for a total of

$61 million in project cost

IFC’s experience cuts across all subsectors, from tradition Solid Waste Management to Recycling & Waste-

to-Energy

The focus has been on middle-income countries due to evolved markets, regulatory framework and higher

private sector participation

China, Turkey, Brazil, Mexico, Romania

Others currently being targeted include Indonesia, Philippines.

Waste-Derived Alternative Fuel

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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RDF – processing MSW into higher calorific value (CV) fuel for use in cement kilns, EfW, etc.

Segregate high calorific fraction of waste, consisting largely of paper/cardboard., plastics, wood, and

organics

Cement kilns can substitute up to ~20% without too much concern regarding RDF CV and moisture;

> 20% becomes an issue.

Usually need to dry RDF if using the organic fraction and you need high CV, low moisture

Bio Drying

Solar drying

Thermal Drying

Sludge Derived Fuel – Sewage sludge is acceptable in calorific value if moisture can be removed

Alternative Fuel Structure

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Project Co Cement Plant

Strategic partnersInvestors

Concession with

municipality or

simply supply

agreement

Financing

Municipality

Waste Collection

Cos

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Rest of waste to landfield

Sale of RDF

Off-take

agreement

Alternative Fuel Project Structure Waste supply arrangement: SPV enters into concession with municipality or simply enters into

waste supply agreements with either municipality directly or private waste collection companies

Sale of RDF - Off-take agreement: Cement Plant purchases RDF from Project Co at a discount to

market

$900m invested - 60 deals across the entire Solar value chain (2007-2014)

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

Solar PV Sector knowledge and a track record of more than 60

investments across the whole solar value chain

• More than $660m committed in solar energy assets

• Close to 1GWp in generating capacity

• Close to $230m committed in manufacturing projects

• Financing of first-of-a-kind captive power projects

Established relationships to industry’s top tier suppliers,

developers, operators, service providers

Leading financial institution in emerging markets

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44

12

60deals

Renewable Captive Use

Power Generation

Components & Systems

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Captive Solar PV Solutions

Commercial and Industrial installations include photovoltaic (PV) power plants ranging from a few hundreds kilowatts to a few megawatts

Have a predominant self-consumption character

Can be rooftop or ground mounted

Take no longer than 6 months to build and operate

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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10 MWp PV Plant example

Generic cement plant, 2 million tons p.a. facility

Power needs 25-30 MW, power consumption 198 GWh

Land requirements: 20-30 ha

Electricity production: 18-24 GWh/year or 9-12% of

total power needs

Avoided emissions 15,000-20,000 tCO2e p.a.

SPV CAPEX ~$15 m; Unlevered project IRR 13-15%

Cement company savings ~$1.2 m pa (off-balance sheet)

Solar PV Potential Structure

On-balance financing yields lower cost of electricity but requires initial capital expenditure ($1.5m/MW)

Off-taker may prefer Power Purchase Agreements (PPA) sometimes with slightly higher price

Off-balance sheet financing offers a flexible solution to transform CAPEX in OPEX

IFC can offer to structure off-balance sheet financing of renewable energy assets by leveraging existing partnerships with leading IPPs and bankable top tier system suppliers. Holcim financial contribution to the Project Co is not a requirement

Strategic partnersIFC/Investors

Off-take

agreement

Financing

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Project Co

Cement Plant

$1.2B invested - 38 deals across the entire Wind industry value chain (2007-2014)

Wind PowerIFC Experience:

36 downstream investments, 2,600+ MW of capacity

2 upstream investments in wind turbine manufacturing

Key transactions in Brazil, Mexico, Bulgaria, Turkey, Romania,

Croatia, China, Sri Lanka, and India

Projects in new markets/regulatory regimes

Experience with both equity and debt financing

IFC Approach:

Products that optimize leverage (e.g. deferrable subordinated

debt) that take more wind risk layered on top of senior debt

Can mobilize concessional financing where appropriate

We understand new regulatory support mechanisms

We can assess and structure for regulatory support risk

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2

38deals

Power Generation

Components & Systems

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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Captive Use of Wind: Solutions

Wind-Diesel for Diavik Mine, Canada High power costs at a Rio Tinto diamond mine

Site 300 km north of grid; accessible by

seasonal winter road two months of the year

Electricity from diesel generation was

expensive ($60m/yr) and subject to supply

disruptions with warm winters

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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9.2MW Wind Power Plant

4 Enercom 2.3 MW wind turbines

Electricity production: 10% of total power needs

CAPEX ~$30 m

Annual savings ~$5 million

Payback time ~6 years

World’s first large scale wind-diesel for a

mine; built, owned and operated by Diavik

Use of Wind Energy - constraints

Wheeling through grid

• Most common approach for wind procurement by

private entities

• Wind farm is located in an area of high wind (usually

at a distance to manufacturing facility) with power

“wheeled” through national transmission grid

• IFC can advise on favourable regulatory

environments, including financial incentives for

renewable energy, wheeling status, etc.

• IFC can implement similar structure as for solar

(offtake agreement and off-balance sheet structure),

mostly in Central and South America due to

regulatory constrains (wheeling)

Waste Heat Recovery

And Waste to Alternative FuelSolar and Wind energy

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IFC Investment and Advisory Support

Financial Services• Direct loans and equity investments

• Credit facilities to banks

• Support in structuring and attracting off-balance

sheet financing

Advisory Services• Assessment, pre-feasibility studies and

implementation support for Waste Heat Recovery,

Alternative Fuels, Solar PV and Wind captive

power solutions

• Market intelligence

Disclaimer: This summary has been prepared to facilitate discussion of broad

parameters of financing options offered by IFC. All figures, terms, and

conditions are subject to change. Only the legal documents as finally executed

will contain binding terms and conditions. The summary of indicative terms

does not constitute a contract or an offer or a commitment by IFC. IFC’s

decision to invest in any project is contingent on approval by IFC’s management

and Board of Directors and execution of final documentation in form and

substance satisfactory to IFC.

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