CHALLENGES TO FINANCING WTE

IN EMERGING MARKETS

JAMES MICHELSEN, SR. INDUSTRY SPECIALIST

World Waste to Energy Cities Summit

May 19 2015

IFC is the largest development bank focused solely on the private sector

We create opportunity for people– to escape poverty and improve their lives

Main driver of private sector development in the World Bank Group

• Profitable since 1956

• More than half of IFC’s ~4,000

staff work in field offices

• More than 100 offices in 95

countries

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We offer a wide range of financial products which can be tailored to client needs

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Senior Debt &

Equivalents

Equity

Mezzanine / Quasi Equity

• Senior Debt (corporate finance, project finance)• Fixed/floating rates, US$, Euro and local currencies available• Commercial rates, repayment tailored to project/company needs• Long maturities: 8-20 years, appropriate grace periods• Range of security packages suited to project/country• Mobilization of funds from other lenders and investors, through• cofinancings, syndications, underwritings and guarantees

• Subordinated loans• Income participating loans• Convertibles • Other hybrid instruments

• Corporate and JV• Typically 5-15% shareholding (not to exceed 20% of total equity)• Long-term investor, typically 6-8 year holding period• Not just financial investor, adding to shareholder value• Usually no seat on board• Infraventures (early equity investments)

IFC Investment Snapshot

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S&P, Moody’s AAA

Outstanding Portfolio $66.9 billion

Committed in FY14 $17.3 billion

Mobilized in FY14 $5.1 billion

# of companies 2,011

# of countries 98

IFC FY14 (06/30) Highlights

FY 2014 Commitments – by region

FY 2014 Commitments – by sector

Latin America and the

Caribbean23%

Sub-Saharan

Africa21%

Europe and Central Asia

20%

East Asia and the Pacific

16%

Middle East and North

Africa10%

South Asia9%

Global1%

Trade Finance

41%

Financial Markets

20%

Infrastructure14%

Agribusiness & Forestry

6%

Manufacturing6%

Consumer & Social Services

5%

Telecom & IT3%

Funds3%

Oil, Gas & Mining

2%

FY14 Investments in Infrastructure

(excluding Oil, Gas & Mining)

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FY 2014 Commitments – by region FY 2014 Commitments – by sector

Latin America and

the Caribbean

39%

Sub-Saharan

Africa12%

Europe and Central Asia

16%

East Asia and the Pacific

9%

Middle East and North

Africa11%

South Asia13%

Global0%

Utilities5%

Transportation and

Warehousing25%

Electric Power70%

Infra commitments reached $2.4m in FY14 and mobilized an additional $1.7m in external funding.

Track Record in Solid Waste

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~$200 million committed in 13 transactions. Select projects* highlighted below:

China Green

IFC TotalUS$20.0 million

Loan

China

June 2004

China Green

Estre Ambiental

IFC TotalUS$24.4 million

Loan/QE

Brazil

June 2009

Petstar SA

IFC Total

US$13.7 million

Loan / QE / Swap

Mexico

June 2007/2007

Modern Asia

IFC TotalUS$15.0 million

Loan

ASIA

June 2004

Recycling Waste to Compost / FertilizerWaste-to-EnergyWaste Management

Porr AG

IFC Total

US$47.8 million

Loan

Southern Europe Region

June 2008

IFC’s Experience in Solid Waste (Selected Investments)

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• A service provider for the reuse and recycling of used electronic goods. It acts as a combination of a “Kelley Blue Book” for used electronic goods, , and a “Kayak” to provide an online platform to determine the highest bidding price for the goods. For goods that cannot be reused, then AHS sends them to government designated, accredited, formal e-waste recycling companies.

� By the end of 2015, the Company targets to enable the recycling and reuse of 200,000 phones on a monthly basis.

� Estre Ambiental is a solid waste management company in Brazil that owned six sanitary landfills, 5 in Brazil and 1 in Argentina, at time of IFC investment in June 2009

� IFC investment supported management’s expansion plans, through acquisitions, upgrading and expanding existing landfills and exploring possible WtE projects

� IFC provided a BRL equivalent to US$19.9 million senior corporate loan and a US$4.5 million quasi-equity

Estre Ambiental

IFC TotalUS$24.4 million

Loan/Quasi Equity

Brazil

June 2009

� Petstar was formed in June 2006 to construct and operate a bottle-to-bottle recycling facility in Toluca, Mexico

� The facility converts post-consumer polyethylene terephthalate (PCP) bottles into food-grade, recycled PET Resin (rPET) sold to the Mexican soft drinks bottling industry

� The total project cost was US$34 million

� IFC provided a senior loan of US$8.55 million and subordinated Loan of US$5 million. IFC also mobilized a subordinated loan with Cordiant for US$11 million and provided a US Dollar interest rate swap

Petstar

IFC TotalUS$13.7 million

Loans / QE / Swap

Mexico

June 2007

• Up to a €15 equity investment to support Lafarge’s alternative fuel (AF) program, Ecocem This program aims at developing projects to replace fossil fuels in Lafarge’s cement plants in emerging countries with AF from waste coming from municipalities, agriculture or tires.

Aihuishou

IFC TotalUS$4 million

Equity

China

2014

Ecocem

IFC TotalUS$10 million

Equity

Iraq

2015

IFC’s Investment Approach in Solid Waste

Promote development of waste industry in emerging markets

• Encourage low cost, technically viable, and climate favorable waste solutions with energy recovery where feasible

Leverage existing formal and informal sectors

• to maximize poverty & social impacts and improve health & safety

Support upstream industry / populations to adopt “3Rs” (Reuse, Reduce, Recycle) and Extended Producer Responsibility

Access concessional finance

• to enable waste projects in LICs where full cost recovery is not yet being achieved

Support selective new technologies to enter market, especially in middle income countries

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IFC Waste-to-Energy (WtE) Strategy

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� Land and transport infrastructure constrained

� Large land sites for landfills are not available near urban centers, land is expensive, and difficult to site -“NIMBY”

� Road infrastructure constrained for truck traffic

� WtE facilities can be put in city centers on small land footprints, lowering waste transport costs

� Electricity tariffs or energy costs are high

� Attractive electricity tariffs

• Renewable FIT, RECs

• Displacing high cost import fossil fuel generation (eg. HFO, LFO)

� Proximity to energy demand, co-locate with end user(s) for behind the fence, co-gen or district heating applications

� And/or: Tipping fees, proven merchant markets, or other revenues streams

� Existence of tipping fee and evidence of end user cost recovery

When WtE Makes Sense Where WtE Makes Sense

� Rapidly growing large urban cities

� Megacities or large cities, particularly in middle income countries

� Part of a integrated SW management plan including recycling, re-use, and waste reduction

� Island nations

� Land constrained

� Economies driven by tourism

� High electricity cost

� No or low alternative sources of fuel

� WtE can be a “Win Win”

� Utilities/governments get base load renewable electricity sources

� Public SW authorities get a environmentally sustainable disposal solution financed by the private sector

� Favorably impacts other sectors and urban infra –tourism, property values, flooding, transport, water & air quality, GHG emissions

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IFC Criteria for New WtE Technology

� Advance Thermal Conversion Technologies (ATCT) (e.g. pyrolysis, gasification, plasma gasification)

� MSW feedstock - emerging technology

� Sludge utilization

� Sludge to energy (ATCT, sludge derived fuel, incineration)

� Composting

� Anaerobic digestion

� Refuse-derived-fuel

� Cement industry

� Processing technologies, including bio-drying

� Smart technologies

� Collection network optimization

� “Smart bins”

� The potential partner has an existing facility in operation, or uses a third party technology with a facility already in operation, including upfront waste processing and syngas treatment

� The existing facility operates at a similar scale (Waste throughput and output) to the project being planned

� The potential partner can provide operational and performance data (including emissions) for their existing operations, demonstrating that the commercial facility can operate off the same feedstock continuously for an extended period

� The syngas should be used as feedstock in the energy conversion equipment (e.g. reciprocating engines, turbines, or boiler) for an extended period

� There are substantial performance guarantees from the private operator

Overview New Technology Criteria

IFC Approach to Waste-to-Energy

IFC Approach:

• Strategically important sub-sector for IFC:

• Potentially large environmental / climate benefits

• Significant risks if not handled properly

• Development Financial Institutions (DFIs) have catalytic role to play in demonstrating

bankable WtE financial models in emerging markets

• Focusing on MICs with large urban cities able to support WtE projects that extract value

from waste

• Tipping tees, electricity tariffs, steam sales, revenue from other sources (e.g.

recycling, ash, specialized/secure waste disposal, carbon credits)

• Municipalities paying the tipping fee - Cost recovery from constituents

• “Green Cement” / Refused Derived Fuel (RDF)

Key focus markets:

• Brazil, Turkey, Egypt, Indonesia, China and Philippines - strong fundamentals for growth

plus favorable regulation & incentives for private waste solutions

• Sub-national (typically municipal) lending: Turkey; Romania, South Africa

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Thank You!

jmichelsen@ifc.orgWeb: www.ifc.org/climatebusiness