Engaging the private sector for green growth

and climate change, PROPARCO‘s Experience

OECD Workshop – 1st March 2016

PROPARCO AT A GLANCE

72 facilities EUR 1.1bn commitments

180 staff members 13 regional offices

EUR 3.8bn portfolio 370 clients

KEY FIGURES 2014

SHAREHOLDERS 63%

22%

12%

2% 1%

FUNDS AND

ETHICAL

FOUNDATIONS

CORPORATES

INTERNATIONAL

FINANCIAL

INSTITUTONS

FRENCH

FINANCIAL

INSTITUTIONS

AFD

In % of the total portfolio at 31 December 2014

BANKS &

INTERMEDIATION

› Financial institutions

› Microfinance institutions

› Insurance and

reinsurance

› Investment funds

SE

CT

OR

S

PR

OD

UC

TS

EQUITY

› EUR 0.5m to EUR 20m

› 5 to 8 years

LOANS

› EUR 3m to EUR 100m

› 5 to 20 years

GUARANTEES

& OTHERS

› EUR 3m to EUR 100m

› 5 to 20 years

47%

INFRASTRUCTURE

› Energy › Transport › Telecoms › Mines › Water / waste

23%

CORPORATES

› Agribusiness

› Health

› Education

› Tourism

› Industry

30%

11%

89%

>1%

ACTIVITY 2014

Pur s u ing t he s us t a ina b le deve lopment goa l s t h r ough

p r i v at e s ec t o r s uppor t

A BROAD GEOGRAPHICAL MANDATE WITH A STRONG

FOCUS ON AFRICA

PROPARCO, A NETWORK PLAYER OFFERING A WIDE

RANGE OF SOLUTIONS

FIGHT AGAINST CLIMATE CHANGE : PROPARCO’S 10-

YEAR COMMITMENT

OUR CLIMATE STRATEGY : 3 PILLARS & 5 PRIORITIES

RENEWABLE ENERGY

ENERGY EFFICIENCY

SUSTAINABLE TRANSPORT / WATER

FOCUS ON F INANCIAL INSTITUTIONS

SINC E 2009 , PROPA RC O PROV ID ED €450 M TOWA R D S

GR EEN F INA NC E

» €450 M OF PROJECTS SIGNED BETWEEN 2010- 2015

» 5 COUNTRIES AND 1 MULTI- COUNTRY PROJECT IN LATIN AMERICA, ASIA AND MIDDLE EAST

» 14 CLIENTS

LATIN AMERICA & THE CARIBBEAN

€ 120m

MEDITERRANEAN & MIDDLE EAST

€ 170m

ASIA

€ 160m

» RENEWABLE ENERGY PROJECTS: HYDRO, WIND,

BIOMASS, SOLAR…

PROPARCO is involved in several renewable energy projects for more than €330M,

as:

- Hydro power and wind turbine in Turkey with Garanti Bank for € 50m,

- Hydro or wind power plants in Sri Lank with NDB for $ 60m,

- Hydro power plant in Panama with Banco Aliado for $ 20m

» ENERGY EFFICIENCY: GREEN BUILDING,

COGENERATION, TRANSPORT, …

PROPARCO supports the financing of energy efficiency projects in Turkey and

China with:

- AKLEASE: financing energy efficiency projects by way of lease contracts:

finance a tri-generation system to provide electricity, heating and cooling

energy for a shopping center

- IS BANK: € 50m dedicated to housing loans meeting Turkish energy efficiency

standards

- FEH in China: € 25m to finance clean buses via a guaranty

GR EEN F INA NC E IS D EF INED A S R ENEWA B LE

ENERGY OR ENERGY EFF IC IENC Y

F INA NC ING V IA LONG TER M C R ED IT FAC IL ITY

Amount: $ 15- 60M

Currency: EUR or USD

Term: up to 10 years with grace

period

Commercial terms: market related

terms (Euribor/ Libor + margin)

Eligible projects: renewable

energy or energy efficiency

E&S Requirement:

implementation of an ESMS

CONDITIONS

Currency mismatch- projects

must generate EUR or USD income

or swap market must be available

Resource adequacy: credit

terms (rates), timeline for

disbursment…

Need for technical assistance

to better identify and assess the

projects in the field of energy

efficiency

Reputational risk:

Responsibility of E&S DD and

impacts?

LIMITS

C A SE STUDY 1 - ENERGY EFF IC IENC Y IN TUR KEY

One of the few countries where we have been able to finance

energy efficiency projects

» Housing loans for new houses complying with local EE regulation

» Financing of tri-generation equipment for a shopping center

Drivers:

Primary demand for energy is growing rapidly due to

demographic growth as well as economic growth.

Turkey is a net importer of energy, which relies on imports of

fossil fuel for its thermal production

Public policy promoting energy efficiency to reduce the growing

demand of energy

But generally, those projects are hardly financed without technical

assistance to support LFI

for energy audits, project structuring, assessment of projects

eligibility…

C A SE STUDY 2 - F INA NC ING OF R ENEWA B LE

ENERGY IN PA NA M A

A country with important potential for renewable energy » $20m facility: 3 hydro power plants on Rio Piedra in Chiriqui Province

» $30m facility : 4 hydro power plants in Chiriqui Province and 1 wind power

project

Rationale

Willingness of the government to promote these new sources of

energy

Strong involvement of commercial banks in financing those

projects

However, hydro projects are considered as high risk project from

an E&S point of view and Chiriqui river a sensitive area

E&S REQUIREMENTS

» Development and implementation of an ESMS according with E&S

action plans negociated between the borrower and Proparco

» Assessment criteria and action plans for high risk projects more

restrictive than those laid down by the ANAM (local agency for the

environment)

» Definition of eligibility criteria for hydro power plants (capicity max

of 20MW – height of dam limited to 15m)

E n t r e p r e n d r e p o u r u n a v e n i r d u r a b l e

THANK YOU

PROPARCO’s pr inc ip les and key strengths

• GOALS

• Stimulating growth and job creation.

• Developing and deepening financial markets.

• Promoting responsible and sustainable economic models.

• PRINCIPLES

• Subsidiarity:

Not to substitute local private stakeholders when they are in a position to take action.

• Additionality: Stepping in where market forces prove insufficient, while having effect on development.

• Patient investment: Offer its partners long-term resources.

• Leverage: Catalyze private investment in Southern countries.

• Responsibility: Finance investments with strong developmental impacts.

• KEY STRENGTHS

• Climate expertise: Renewable energy, energy efficiency

• In-depth knowledge and experience of Africa: Nearly 40 years of continuous presence, through 5 regional offices.

• Role as promoter of development: Support for projects with effect on development.

• A network of partners: Multilateral institutions, European Development Finance Institutions (EDFI), private investors and commercial banks.

• Environmental and social approach: Assisting clients in improving their environmental and social performance.

• Multi-sector expertise: Financial and technical know-how.

• Synergies between PROPARCO and AFD : Extensive knowledge of countries, direct contact with local authorities and main donors, possibility of co-financing.

• High standard due diligence procedure : Anti-money-laundering and counter-terrorism financing procedures, environmental and social impact measurement.

Large network of partners

PROPARCO fulfills its function as a catalyst, thanks to its large network of public and private sector partners.

COOPERATION BETWEEN EUROPEAN DFIs

• Since 1992, PROPARCO has been an active member of the EDFI, the association of European Development Finance Institutions.

• Creation of two co-financing facilities:

- EFP (European Financing Partners) : special purpose vehicle for co-financing of private-sector enterprises in ACP countries (Africa, Caribbean, Pacific);

- ICCF (Interact Climate Change Facility) : a facility endowed today with €406m in resources that finances climate change and climate efficiency projects.

3-WAY COOPERATION: PROPARCO, DEG AND FMO

• Joint financing facility signed in October 2012 between PROPACO, DEG and FMO.

• Purpose: to facilitate co-financing for projects by pooling resources throughout the examination, investment, negotiation and monitoring phases.

• 30 joint projects signed in 2012 and 2013.

• 25% of 2012 and 2013 commitments co-financed with FMO or DEG.

PARTNERSHIP AGREEMENT WITH IFC

• In 2009, PROPARCO entered into a Master Cooperation Agreement with IFC.

• Purpose: to facilitate co-financing for projects in developing regions that commercial banks tend to bypass.

• In 2013, PROPARCO contributed funding to 5 IFC projects focused on agribusiness in India, telecommunications in Bangladesh, as well as renewable energy and energy efficiency in the Ivory Coast, India and Southeast Asia.

OTHER PARTNERSHIPS

• Development banks: African Dev. Bank (AfDB); Asian Development Bank (ADB); Dev. Bank of South Africa (DBSA); Korea Exim Bank; European Bank for Reconstruction and Development (EBRD); European Investment Bank (EIB); Interamerican Dev. Bank (IDB)

• Private development finance companies: Emerging Africa Infrastructure Fund Limited (EAIF).

• Investment funds

• Shareholder network : ~30 private and public shareholders from the North and the South (financial institutions, corporates, funds and ethical foundations)

S E C TO R A L E X P E R T I S E RENEWABLE ENERGY : OUR STRATEGY

› Contribute to limiting climate change and diversifying energy mix

› Finance profitable projects without feed-in tariffs as a priority

› Promote and support the introduction of new technologies in emerging

countries

› Establish partnerships with promoters specialized in their sector for tried-

and-tested technologies

› Evaluate our financing: Private Sector & Development Magazine in May

2010, “Private equity and clean energy: how to boost investments in

emerging markets?”

IMPACTS AND KEY FIGURES

TOTAL INSTALLED CAPACITY IN THE PORTFOLIO

4646,2 MW, I.E. 58% OF ENERGY PROJECTS

HYDRAULIC

2,449 MW

WIND

1018MW

SOLAR

250,2 MW

GÉOTHERMAL

71 MW

CO2 EMISSIONS RÉDUCTION (*)

919,900TONNES P.A.

Contr

ibutio

n e

xpecte

d f

rom

pro

jects

fin

anced a

nd

cofin

anced

by P

RO

PA

RC

O in

2014

Cobra

Peru

2015

2 Senior Loans

USD 29 m

Wind

S E C TO R A L E X P E R T I S E RENEWABLE ENERGY

EoloNica

Nicaragua

2012

Loan

USD 26,5m

Wind

Hidrotenencias

Panama

2012

Equity

USD 7,5m

Hydro

T Solar

Peru

2011

Mezzanine Loan

USD 7,15m

Solar

Brennand

Brazil

2011

Loan

EUR 40m

Hydro

Belen/Eolos

Turkey

2012/2010

Loan

EUR 31 and 11,5m

Wind

Eurus

Mexico

2010

Loan

USD 35m

Wind

Theun Hinboun

Laos

2009

Loan

USD 40m

Hydro

Polesine

Uruguay

2013

Senior Loan

USD 40 m

Wind

Solarpack

Chile

2013

Senior Loan

EUR 25m

Solar

Electra

Brazil

2013

Senior Loan

EUR 30m

Hydro

NRPPL

India

2013

Equity

INR 825m

Solar

Vesa

Honduras

2013

Senior Loan

EUR 21m

Wind

Sindicatum

Asia

2013

Senior Loan

USD 15m

Biomass

Oryx, GLAE and

EJRE

Jordan

2014

Senior Loan

USD 50 m

Solar

Itezhi Tezhi

Zambia

2014

Senior Loan

USD 36 m

Hydro

Penonome

Panama

2014

Senior Loan

USD 20 m

Wind

Terra Solar

Honduras

2014

Senior Loan

USD 12 m

Solar

Lake Turkana

Kenya

2014

Senior loan

EUR 50 m

Wind

Khi Solar

South Africa

2012

Senior Loan

USD 30 m

Solar

Solaire Direct

Chili

2015

Senior Loans

USD 23 m

Solar

Krnovo

Montenegro

2015

Mezzanine

USD 20 m

Wind

A GROWING AND DIVERSIFIED ACTIVITY

2015 : €960 M NEW COMMITMENTS

67 COUNTRIES OF INTERVENTION

75 NEW TRANSACTIONS

NEW CHALLENGES FOR 2016

• New ambitions: growing from 1.1 Bn€ in 2015 to 1.9 Bn€ in

2020 in support of the Sustainable Development Goals.

• A new step for 2016: target of 1.25 Bn € of new authorised

commitments including 600 M€ on the African continent (530

M€ in Sub-saharan Africa)

• Focus on climate change: 30% of new commitments to

contribute to climate change mitigation or adaptation.

• More value added: focus on equity, quasi-equity & additional

support through technical assistance for our clients.

• Mobilising new funding: develop new products with EU finding

and Global Climate Fund and develop existing initiatives.

A WIDE RANGE OF FINANCIAL INSTRUMENTS

EQUITY, QUASI-EQUITY, LOANS, GUARANTEES (EUR, USD, LOCAL

CURRENCIES).

Lon

g te

rm lo

ans

• Diversified loans : senior, mezzanine, etc ...

• In EUR, USD or local currencies

• From 3 to 100 M€

• From 5 to 20 years

• Cofinancing with other development finance institutions

Equ

ity

inve

stm

ents

• Direct investments in equity or quasi equity (convertibles, preference shares, etc …) of financial institutions or corporates.

• Investments through specialised or generalist private equity funds.

• From 0,5 to 20 M€

• Always minority investments, with a horizon of 5 to 8 years.

Gu

aran

tees

• Helping clients to mobilise local currency.

• Guarantees for bonds or bank loans. Guarantees for long term local currency loans.