© africa finance corporation, 2012 confidential. not for further reproduction or distribution...
TRANSCRIPT
© Africa Finance Corporation, 2012Confidential. Not for further reproduction or distribution
Infrastructure Financing in Africa
Enhancing Regional Trade and Investment
Presentation By:
Andrew AlliChief Executive Officer
AFRICA FINANCE CORPORATION
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1.Introduction to the Africa Finance Corporation
2. Problem Definition and Presentation Outline
3. Key Issues, Case Studies and Recommendations Integrated Strategy for Extractive Sectors Developing Credible Projects to Access Financing Strong Sponsors to Close Deals Government’s Capacity to Structure Projects Implementation of Regional Integration
4. Success Stories and Conclusion
Contents
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Introduction to the Africa Finance Corporation
Founded 2007 as JV between public-private investors
International organization established by treaty
Private majority shareholders include leading banks
US$1.3bn in total assets
Multiple award winning principal investment franchise
US$1.4bn in approved financing transactions since 2007
US1.0bn committed and US$0.7bn disbursed to date
Growing debt, equity and mezzanine franchise
Leading regional public sector adviser on infrastructure
Strong expertise as project developer in Africa
Oil, Gas, Power, Transport, Industry are key focus sectors
About 60 staff operating on pan-African basis
Summary Overview
Angola
Nigeria
South Africa
Mozambique
Tanzania
Kenya
GhanaCIV
Guinea
Cameroon
Zambia
Gabon
Ethiopia
Malawi
Uganda
Senegal
Rwanda
Equatorial Guinea
North Africa***
*Project reviewed or investment closed**No detailed project reviewed***Not actively seeking deals
An international institution established to help address Africa’s infrastructure development needs, while seeking a competitive
return on capital for its shareholders
Project Footprint*
Limited Coverage**
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Problem Definition and Presentation Outline
Africa Needs
US$93.0bnPer
Annum
2006 – 2015
Current Average Annual
Spending US$62.0bn
2009 Actual Private
Investment
2006 – 2015 2006 – 2015
Theoretical Annual
DemandUS$31.0bn
US$1.4bn
Private Sector
PotentialUS$29.6
2006 – 2015
Total Current
Financing Available
Africa Infrastructure Finance Market Overview
Source: World Bank (Africa Infrastructure Country Diagnostic), 2009 data refers to Q3
KeyIssues
Case Study
Policy Import
African Infrastructure Finance Market Opportunity is Sizeable, with nearly US$30.0bn in Potential Annual Deal
Flow
Yet, Actual Annual Private Investment Flows Struggle to Match the Potential, Due to Several Commercial
and Policy Issues This presentation will highlight some of the key issues and challenges faced by private sector developers and financiers of infrastructure assets across various sectors in Africa
A few case studies of actual projects (typically AFC investments and current or past mandates) will be utilized to illustrate more practically the nature of the key issues
Some ideas on the policy implications and potential reform suggestions to address the issues and catalyze greater volumes of private investment will be presented
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Issue 2: Developing Credible Projects to Access Finance
KeyIssue
Case Study
Policy Import
Source: Thomson Reuters, Roland Berger
Only 17.0% on Average of “Announced” Projects for Development Reached Financial Close across Infrastructure Sectors in Africa between
2000 and 2010
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340MW Greenfield IPP in Ghana: Cenpower
KeyIssues
Case Study
Policy Import
Opportunity Ghana is a fast-growing economy with significant electric power
supply deficits forecasted based on current pace of growth AFC (in conjunction with major local and international partners)
is working to develop a 340MW combined cycle thermal IPP to meet existing demand, and potentially utilize discovered gas resources
The Project is appropriately structured and enjoys support at the highest levels of local and national government in Ghana, as well as strong private sector supportProject Highlights
Work is concluded regarding necessary permits, agreements, approvals and licenses, as well as early stage project development planning
Financial close now planned for late 2012, with key contracts in final stages of documentation, particularly around government support
Project co-sponsors include local entrepreneurs, international DFIs and international power companies
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KeyIssue
Case Study
Policy Import
New Policy Approach to Support Project Development
Centralized coordination of negotiations and approvals across Government agencies for key infrastructure transactions, as very often conflicting and contradictory objectives stall developers and lenders ability to close projects. For example: Power: Offtaker (PPA); Regulator (Licenses); Min. of Finance/Energy (Guarantees/Fuel
Supply) Transport: Regulator (Concession); Min. of Finance/Works (Guarantees/Operations) Other Sectors: Min. of Trade, Investment, Justice, Infrastructure, PPP offices
Establish (and adhere to) clear rules and processes within Government for specific kinds of transactions. For example: Power: Established guidelines and processes for going from PPA through GSPA, EIA,
permits, etc Transport: Adhere to clear rules for bidding out projects and securing concessions Oil & Gas: Transparent process for license or operatorship award, renewal and assignment
Develop better understanding of Project Development and Project Finance within Government and Agencies by appointing experienced advisers and personnel into key interfacing roles with private sector
Key Policy Recommendations
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Issue 3: Strong Sponsors Required to Close Deals
KeyIssue
Case Study
Policy Import
Historically, sectors with foreign currency denominated revenues have attracted the strongest international sponsors and seen heaviest private sector participation Telecoms has emerged as a major local currency sector which has seen significant deal volumes following liberalization across the continent Potential for power, industry and transport to follow suit, if market opening reforms well managed to attract high quality sponsors
Source: Thomson Reuters, Roland Berger
Private Infrastructure Financing: Sector Distribution (2000 to 2010)
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Nigeria Oil and Gas Maritime Operator: Seatrucks
KeyIssues
Case Study
Policy Import
Opportunity Seatrucks Group is a US$1.0bn company established in Nigeria in
1977 with operations across West Africa, the Middle East, and Asia Pacific
The company is a leading oil & gas marine services operator, with a fleet of nearly 200 offshore, inland and state-of-the-art heavy-lift marine support vessels providing critical upstream infrastructure support
Opportunity existed to provide US$200m in long-term expansion financing to grow its fleet, by way of a convertible bond investmentInvestment Highlights
AFC was the lead African anchor participant on the transaction, working alongside a number of international financial investors
Transaction provided a healthy capital infusion for a strong operator to consolidate on recent growth and explore expansion opportunities
Ongoing support and partnership is expected to transform the company into an internationally competitive operator
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KeyIssue
Case Study
Policy Import
Local-Foreign Partnerships Work to Close Transactions
Strategic objective should be to award projects and concessions to credible sponsors, local or international, to ensure high quality capital raising capacity. For example Telecoms: Spectrum award to high quality names [like MTN in Nigeria] played major role in
success story, as sponsor had strong capacity to raise financing, and credible team to execute
Transport: Road and port concessions require particularly strong sponsors (local or international, or in JV), given pioneer status in Africa [e.g AIIM, Old Mutual, etc in Lekki and Bakwena; and Maersk, Dangote, etc in Lagos Ports; Bouygues in Cote d’Ivoire]
Flexibility in application of indigenous content legislation to allow for partnerships, recognizing learning curve of local sponsors in the development of complex projects. For example: Oil & Gas: JVs in local content contract and concession awards Other Sectors: Partnerships with foreign sponsors to undertake national infrastructure
projects
Strong efforts to avoid “tainted” or “compromised” awards as private infrastructure financing relies heavily on presumption of long-term sustainability of contracts
Key Policy Recommendations
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Issue 4: Government Capacity to Structure Projects
KeyIssue
Case Study
Policy Import
Source: Thomson Reuters, Roland Berger
Private Infrastructure Financing Relative Market Share (2000 to 2010)
Nigeria, South Africa and Angola are all high target markets for private infrastructure in Africa, albeit with natural resources being the major driver of flows Going forward, greater efforts will be required to both increase quantum of private flows and channel into non-extractive sectors Key areas of capacity development include: technical expertise (legal, engineering and financial) as well as closer inter-agency coordination
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Nigeria Government Advisory: Ministry of Finance
KeyIssues
Case Study
Policy Import
Opportunity Nigeria has one of Africa’s largest infrastructure deficits, relative
to its size, in terms of GDP, population and geography Realizing that public sector financing alone would be insufficient
to bridge the funding gap that existed for large-scale critical infrastructure in the country, the Ministry of Finance sought to catalyze new sources including private sector and concessional funding
Ministry required technical expertise to quantify, inventory, and prioritize the critical infrastructure projects in the country, and determine which would be viable for commercial funding
Federal Ministry of Finance
Critical Infrastructure Project Financing
2010 - 2011
Adviser
Project Highlights AFC acted as Adviser to the Ministry on this assignment,
developing a detailed report which listed the key projects but also performed preliminary analysis to ascertain viability as private sector projects
Assignment provided Ministry with a strong pipeline of transactions to base its capital raising strategy and plans, with a view to accessing the necessary funding for channeling into specific projects
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KeyIssue
Case Study
Policy Import
Develop or Procure Capacity to Deal with Private Sector
Secure strong external advice on transaction structuring and execution, to ensure favorable terms for taxpayers on all negotiations, as well as creation of successful projects which meet government development objectives. Willingness to pay for high quality technical advice cannot be over-emphasized, across various areas: Feasibility studies, technical and environmental assessments Legal advice Financial advisory
Create internal special teams or task forces within government with specialized capacity to manage private sector interface, and provide funding/capacity for such teams to operate across projects
Training and development of senior civil service personnel to understand the opportunities offered by private infrastructure developers, as well as the implementation challenges
Key Policy Recommendations
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Issue 5: Implementation of Regional Integration
KeyIssue
Case Study
Policy Import
Public Sector-led Regional Integration Efforts Not Leading to Completed Projects
Project* Key Outstanding Issues
Trans-Sahara Highway Project Funding and ownershipPolitical acceptance by Govt. of Niger
Nigeria-Algeria Gas Pipeline and Fibre-Optic Network Firm commitment from all states involvedCommon Feasibility Studies
Dakar-Djibouti Road and Rail Project Funding and coordinationOwnership of certain project components
North-South Corridor Road and Rail Project Funding and coordinationOwnership and management
Kinshasa-Brazzaville Bridge Road and Rail Project Funding and coordinationOwnership and management
East Africa Terrestrial Broadband Cable Projects Financial support for enabling environmentObtaining permits from individual countries Source: NEPAD Presidential Infrastructure Champion Initiative (PICI)
Below are the major AU-NEPAD led regional infrastructure integration projects under development
*Selected success stories do exist, including the East Africa Submarine Cable System, which has been completed and is operational
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West Africa Sub-Marine Cable Company: Main One
KeyIssues
Case Study
Policy Import
Opportunity Main One set up to own and operate a sub-marine fibre optic
cable from Portugal to South Africa, landing in Nigeria Consists of 12,378km long cabling, with landing stations in key
markets across Northern, Western and Southern Africa Capacity is 10x the current size of SAT-3, Nigeria’s monopoly
cable Strong revenues from leases/capacity sales to leading local
telecoms operators Cable completed to cost and on-time, now live and operational
Transaction Highlights Project cost: US$240.0m AFC is co-largest equity investor with up to US$37.0m committed Sponsors are local African entrepreneurs and institutions Financing partners include: AfDB, DEG, PAIDF & Nigerian banks Project has dramatically improved regional connectivity and access Significant technology/broadband cost reductions to local
businesses
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KeyIssue
Case Study
Policy Import
Private Projects Should Drive Regional Integration
Private sector appetite and leadership should be a major gauge for determining whether to invest in any regional integration projects, right from the onset as: Projects will ultimately have to demonstrate commercial viability to be financed Risk allocation typically better managed by private developers and investors Execution capacity and incentive higher in privately developed projects
Political support should be channeled towards fully implementing and expanding existing privately-led regional integration success stories. For example: West Africa Gas Pipeline Main One Cable Company Bakwena Toll Road
Public sector regional integration focus could focus more on policy harmonization and advocacy within Governments for support to private-sector ventures under development. Selective commercial interventions may be contemplated
Key Policy Recommendations
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Conclusion: Success Stories Point to Future Potential
In summary, a number of key success factors stand-out in evaluating private infrastructure financing across Africa, including: Relatively favorable macroeconomic and political conditions Explicit and well-understood policy framework, with credible implementation Strong, commercially minded project sponsors Expertise and financial capacity of project developers Well coordinated and committed support from relevant public sector agencies Willingness to focus on targeted interventions on a case-by-case basis vs. broad sector
reforms
In addition to aiming for the above, countries seeking private sector infrastructure finance in Africa will need to address some of the issues raised in this presentation, including: Strategic approach to link extractive industries to domestic infrastructure development Improving the business climate to facilitate shorter and less painful project preparation Supporting high quality local or foreign sponsors in concession awards, as a strategic
imperative Enhancing capacity of public sector officials to deal with private transactions Promoting stability in policy environment to provide comfort to long-term investors and
lenders
Key Success Factors
KeyIssue
Case Study
Policy Import
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Cape Verde Operational Wind Farm: Cabeolica
KeyIssues
Case Study
Policy Import
Opportunity Cape Verde is an archipelago country with outstanding wind
resources, a heavy reliance on expensive imported fossil fuel for energy generation and a strong growth economy with one of the better credit ratings in Sub-Saharan Africa
The Project comprises the development, construction, ownership and operation of 30 wind turbines on 4 islands for an approximate 28 MW of installed capacity for Cape Verde
AFC worked with leading international developers, InfraCo, and local electricity company, Electra, to deliver the project
Project Highlights Project is now partially operational and delivering power to the
national utility in Cape Verde Construction being concluded as planned, in two phases over a
40 to 60 weeks period from commencement AFC’s c.40.0% ownership interest in a €61.0m innovative
renewable energy project underscores commitment to this sub-sector in Africa
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South Africa Operational Toll Road: Bakwena
KeyIssues
Case Study
Policy Import Opportunity
Bakwena Road consists of a 95km section of the N1 highway running from Pretoria northwards, and a 290km section of the N4 highway running from Pretoria westwards, to the Botswana border
Route designed as part of intercontinental axis to stimulate agriculture, manufacturing, mining and tourism traffic, with combined urban and intercity tolling
Early maturity stage toll-road, fully operational since December 2004, with proven traffic charactersitics and blended annual average growth rate from 2004 to 2009 of more than 9.0%
Strong investor group and management team, including leading local and international financiers and operators Transaction Highlights
AFC US$20.0m equity investment as part of US$160.0m post-completion acquisition transaction
Financing partners include: Macquarie, Old Mutual, Kagiso (a BEE fund) and PIC, the South African pension fund manager
Significant decrease in transportation costs since inception, reducing travel times and vehicle operating costs through improved road surfaces
Africa Finance Corporation A: 3A Osborne Road,
Ikoyi, LagosNigeria
T: +234 279 9600E: [email protected]
Contact Information
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Andrew Alli T: +234 279 9605Chief Executive Officer E: [email protected]