Symposium on Private Financing for African Power

InfrastructureUS Treasury Department

Washington, DCOctober 13, 2008

InfraCo Overview Development and Investment in Early Stage Infrastructure Projects

− Privately Managed Infrastructure Development company, − Funded by the Private Infrastructure Development Group

Creates Privately Financed Bankable Infrastructure Projects,− Balancing the Interests of Host Governments, − Private Sector Equity Investors and− Senior Debt Lenders

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InfraCo Scope of Operations Geographic Focus

− Sub Sahara Africa− DAC I/II Countries (Least Developed and Low Income Countries)

Project Focus− Greenfield Investment− Expansion/Rehabilitation of Existing Facilities

Sector Focus− Energy & Power − Water and Waste water − Transportation

Acts as a Principal Project Developer− InfraCo is not an advisor

Leads and Actively Participates in the Development of Projects − InfraCo is not a passive funding source

Assumes Development Risk− InfraCo shoulders the costs and risks of early stage development

Geographic Focus− Sub Sahara Africa− DAC I/II Countries (Least Developed and Low Income Countries)

Project Focus− Greenfield Investment− Expansion/Rehabilitation of Existing Facilities

Sector Focus− Energy & Power − Water and Waste water − Transportation

Acts as a Principal Project Developer− InfraCo is not an advisor

Leads and Actively Participates in the Development of Projects − InfraCo is not a passive funding source

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Development Process Overview

Origination1

Host Country Macro-economic, Political and Power Sector

Assessment

Early Stage Development

2Financial

Assessment: Prevailing

Tariffs

EconomicAssessment:

Demand Forecast and Reserves

TechnicalAssesment

Legal Assessment: Power Sector Regulatory

Framework; Private Sector Investment

FeasibityGate

Project Budget and Schedule

MoU with Host Country or Utility

Joint Development Agreement

Advanced StageDevelopment

3Site Control, Technology Selection, Preliminary Engineering and Costing, Preliminary Financing Plan, Basic

Financial Modeling, PPA Term Sheet, [Fuel Supply Term Sheet/ Wind Resource, Assessment/Solar Irradiation Assessment/Hydrology Reports], Interconnection Study, Environmental/Social Impact Assessment

Implementation

4Power Purchase Agreement and

Security Package

[Fuel Agreement/Final Renewable Resource

Report]

Procurement and EPC Contract

Financing Term Sheet

Acquisition of Site and Rights-of-Ways

Permits and Regulatory Approval

Project Information Memorandum

Equity Financing

Debt Financing

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Risk Allocation Matrix Power Purchase Agreement Tariff

− Capacity and Energy Tariff− Indexation (Forex and inflation)− Completion and Functional

Guarantee (output; availability; heat rate)

EPC Contract− Scope− Price and Payment Milestones− Delay and Functional Guarantees− Liquidated Damages and

Performance Security O&M

− Owner Operated or Outsourced− Regular & Major Maintenance− Price Protection− Availability Guarantees

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Fuel Supply− Minimum Take− Price Formula − Matching Energy Payment− Delivery Risk− Security Package− Termination

Sovereign Guarantee− Financial Guarantee: − Ring-Fencing Sector Cash Flow

More Effective More Controversial

Change of Law/ Regulatory Risk− Exchange Controls− Currency

Convertibility/Availability− Political Events

Typical Project Structure

PROJECTTurnkey Design& Construction

Engineering, Equip-ment Procurement, Construction Start-

up and Testing

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Environmental & Other Permitting

Permits for Plant, Air, Water, Mining & Ash

Disposal

Site ControlSite

Right-of-Ways and Easements

Fuel SupplyAgreements

Primary/ Secondary Fuel Sources Transportation

Sovereign/ Regulatory

Issues

Operations &Maintenance

Regular Operation, Overhaul and

Outage Maintenance

Project FinancingProject Structure

Construction LoanEquity/Debt

Power PurchaseAgreement and

Security Package

Constraints to Energy Project Development

Host Governments− Discipline in Execution of Policy− Avoid Politicalisation of Projects− Realistic Expectations− Offtakers (Electric Utilities)

Still Not Bankable without Sovereign Guarantee or Other Credit Enhancement

Multilaterals and DFIs− Review Conditionalities

Compatibility with the Host Country Situation− Predictability

Consistency in Execution− Bureaucracy

Less− Transparency

More

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Constraints to Energy Project Development

Contractors and Suppliers− Market is not Competitive

US Contractors: Absent European Contractors: Large Projects Only Asian Contractors: Increasingly Present Local Contractors:

o Civil Works: Adequate Local Skills/Capacity Existso Electro-Mechanical: Reliance on Foreign Skills/Capacity

− Construction Risk Still High Difficult to Mitigate Frontline Risk

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Constraints to Energy Project Development

Private Debt Financing− Local Currency Debt

Not Enough Competition in Local Market Limited Source of Long-Term Funding Interest Rates Are Very High

− Hard Currency Debt Short/Medium Term: Closed Except with Enhancement

− Short-Medium Term Solution Increase Local Currency Guaranty Products Supplier’s Credit (ECAs’) for Hard Currency

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Constraints to Energy Project Development

Strategic Investors− Tied to Equipment Supplier, Contractors or Operator− Sub-Optimal Alignment of Interests

Financial Investors (Private Equity)− Better Alignment of Interests− Return Requirements:

Unrealistic for Power Infrastructure

− Exit Requirements: Unrealistic for Illiquid Nature of Asset Class

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Africa Private Equity Fundraising - 2007

Worldwide vs Africa− Only 4%

Natural Resource Driven− 56%− Infrastructure: 2%

Existing Businesses Not Greenfield

Sub-Sahara Africa (Ex RSA)

− 61%− Mostly in Commodities

Source: EMPEA

Worldwide Fundraising Africa PE Funds

$2.34 billion

$59.16 billion

Worldwide vs Africa− Only 4%

Natural Resource Driven− 56%− Infrastructure: 2%

Existing Businesses Not Greenfield

1,300,000

924,000

40,00029,000 20,000

20,000

Source: EMPEA

Natural Resources Generalist  Infrastructure

Consumer Products Technology Other

40,000

2,122,000

108,000

70,000

Source: EMPEA

Buyout Growth MezzanineVenture Capital

306,000 67,000

1,421,000

546,000

Source: EMPEA

North Africa Pan-Africa Sub Sahara Africa (ex-RSA)

South Africa

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InfraCo Sub-Sahara Infrastructure Fund

$300MM Private Equity Fund− $100 Million OPIC Loan

Approved by OPIC Board in May 2008− $200 Million in Limited Partnership Investments

Currently Being Raised

ISSIF will Invest Primarily in Projects Developed by InfraCo Geographic Focus

− Sub Saharan Africa (Excluding South Africa)

Transaction Focus− Greenfield Infrastructure

Sector Focus− Power− Transportation− Water and Sanitation

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