IDB Infrastructure Financing

Transcription

1 IDB Infrastructure Financing M. Hasan Mahmud, Senior Investment Officer, PPP Division, Infrastructure Department, IDB July 21, 2010 Together we build a better future Islamic Development Bank ٠

2 1. INTRODUCTION O ISLAMIC DEVELOPMENT BANK Islamic Development Bank ١

3 The IDB Group Islamic Development Bank (IDB) Group Islamic Development Bank (IDB) Foster the economic development and social progress of MCs and Muslim communities. Islamic Research & Training Institute (IRTI) Undertake applied & basic research in Islamic Economics and Finance. Islamic Corporation for Insurance of Investment & Export Credit (ICIEC) Provide Shariahcompatible export credit insurance, politicalriskinsurance insurance, technical assistance. Islamic Corporation for the Development of the Private Sector (ICD) Promote development of private sector development. International Islamic Trade Financing Corporation (ITFC) Promote and enhances intra trade and trade cooperation through trade finance and promotion programs Shari ah Compliance Islamic Development Bank ٢

4 Islamic Development Bank Snapshot Jeddah, Kingdom ofsaudi Arabia Regional Offices: Kazakhstan, Malaysia, Morocco and Senegal Field Representatives in several Member Countries AAA Rating by Moody s, Fitch, and S&P. Zero Risk Rating by the European Commission IDB Scorecard As of 17 December 2009 Total Assets : US$ 13.1 bn Authorised Capital : US$ 46.0 bn Mission Statement Paid-up capital Capital of : US$5.5 bn* We are committed to alleviating poverty; promoting human development, science & Rated : Aaa/AAA/AAA technology, Islamic banking & finance; and enhancing cooperation amongst member countries, in collaboration with our development partners Member Countries : 56 Priority Areas Human Development Agricultural Development & Food Security Infrastructure Development Private Sector Development Intra Trade among Member Countries R&Din Islamic Banking & Finance Africa 22 Middle-East & North-Africa 19 South & South-East Asia 8 Central Asia 7 Total Employees : 1,014 Islamic Development Bank ٣

5 Aggregate IDBFinancing ( ) Net Approved IDB Financing: US$ 63.9 bn * Cumulative Sectoral Distribution Agriculture, 1 1% Social, 6% Other, 4% Energy, 36% Industry, 12% Transport & Coms; 31% * Excluding operations of ICIEC & ICD Islamic Development Bank ٤

6 Infrastructure Department Mandate To Develop infrastructure projects in Member Countries. Infrastructure Scorecard Organizational Structure As of May 2010 Total Financing : US$ 15.5 bn Total Operations : 939 Walid Abdulwehab Director, Infrastructure Active Projects : US$ 9.8 bn Active Operations : 279 Total Employees : 48 Irfan Bukhari Division Manager, Public Private Partnerships Farrukh M. Mian Division Manager, Energy & ICT Walid A. Fagih Division Manager, Transport Idrissa Dia Division Manager, Urban Development & Services Non Sovereign Operations Sovereign Guaranteed Operations Islamic Development Bank ٥

7 Eligibility for IDB s Infrastructure Financing The project should have the following key characteristics: located and incorporated in the MCs. strong developmental impact socially and environmentally sound acceptable risk profile sufficient local support Preference for green projects The transaction should be Shari ah compliant PPP PPPprojects musthaverepayment capacity Tenor depends on the project needs & related risks Maximum tenor of up to 20 years Islamic Development Bank ٦

8 Typical Project Lifecycle Project Stage Identification Preparation Detailed Appraisal Approval Execution Monitoring & Supervision Project Desk Review by a cross functional team Intra Departmental Review Board of Executive Directors (BED) Project Processing/ Credit Committees Inter Departmental Review Management Review APPROVAL Execution Results Analysis Deliverable Project Concept Document (PCD) Project Appraisal Document (PAD) Financing Agreements Comments Member Country Partnership Strategy (MCPS) Receipt of Request Country Programming and inclusion in the yearly work program Review of feasibility study and available project docs Appointment of consultants Coordination with lenders Initial Concept Clearance Due Diligence: Technical, Legal, Environmental, S ocial, Financial, I nsurance Site Visit Meetings with stakeholders Credit Assessment Negotiations of Project Docs & Terms and Conditions Approval from Credit Committees and Board of Executive Directors (BED) Subsequent to BED s approval Financing Agreements are finalized. Signing Satisfaction of conditions precedent to disbursement Disbursement Regular monitoring by Project Officer through KPIs specified in the Results Analysis Impact Analysis carried out by Group Operations Evaluation Department after project completion Islamic Development Bank ٧

9 Risk Rigor Sovereign vs. Non Sovereign Risk Mitigation Tools Project Risks Country: a. War and Civil Commotion b. Transfer and Convertibility Legal: a. Enforcement of Judgments b. Court Procedures Construction: a. EPC/ other contracts b. Site Conditions Sovereign Guaranteed Project Sovereign Structure Government Guarantee Government Guarantee Government Guarantee Non Sovereign Guaranteed Project PPP Structure Implementation Agreement Concession Agreement Implementation Agreement Concession Agreement EPC Bonds & Guarantees Sponsor Guarantees EPC Contract Operation: a. Operations O&M Contract Government Guarantee b. Inputs (utilities) O&M Bonds c. Economic Environment Financial: a. Repayment py Capacity b. Market Risk Government Guarantee Assignment over project cash flows Implementation Agreement Concession Agreement Off take Agreement Islamic Development Bank ٨

10 Infrastructure Department Security & Assets Sharing in Islamic Project/Corporate Finance Multisource Financing All payment obligations in respect of the facilities rank pari passu at all times. (IDB) Facility Facility Islamic Utilizations, draw downs and any prepayments are typically addressedconventional pro rata across all facilities. 1 Common Terms Agreement 1. The asset of the Islamic Facility Providers is treated as security and is assigned/pledged 2. Shared Security Agreement to the common pool for the benefit of all lenders. Rights of pool (typically overseen by the Lenders the event of a Lenders Security In Inter Ownership The common security Agent or Inter the Leased Assets liquidation the creditor Agent) is shared pari passu by allsecurity the lenders Common Pool(conventional and Islamic). Assigned/Pledged to common security pool Pool of enforcement of security all parties act in accordance is shared by allinter lenders In thetheevent with the on a pari passu basis creditor arrangement. IDB Owned A Asset Lease Islamic Development Bank Project C Company ٩

11 Aggregate Infrastructure Financing ( ): Sectoral Distribution US$ 15,520 m Net Approved Financing* * Total Approvals less Cancellations Islamic Development Bank ١٠

12 Public Private Private Partnerships (PPP) Division Key Focus Areas Non sovereign Financing in the Energy, ICT and Transport sectors Infrastructure Financing in Africa Creating relationships to leverage IDB s participation in Infrastructure development Going forward, create Products/Funds Credit enhancement tools/instruments Position IDB as a catalyst for attracting co financiers and mitigating risk Advisory services for PPP focused project development/country capacity building Signature Achievements Aggregate Net Financing* of over US$ 2,200 m. Sr. No. Project Description DB Participation (US$ m) Country 1. TIFERT 150 Tunisia 2. ADB/IDB Infra Fund 150 Regional 3. SNIM 108 Mauritania 4. South Klang Valley Expressway 75 Malaysia 5. Doraleh hcontainer Terminal 65 Djibouti 6. Laraib Hydropower IPP 37 Pakistan * Total Approvals less Cancellations Islamic Development Bank ١١

13 Energy & ICT Division Key Focus Areas Regional Power Transmission Integration CASAREM De Carbonizing Energy Generation Renewable Energy (RE) Small Hydro, Wind, Solar, Geothermal Increasing Energy Security through Energy Efficiency Enhancement (EEE) Energy for the Poor for timely achievement ofmdgs Rural Electrification Bridging Digital Divide Signature Achievements Sr. No. Project Description DB Participation (US$ m) Country 1. Janub Combined Cycle Power Plant 170 Azerbaijan 2. Rural Electrification 146 Morocco 3. Neelum Jhelum Hydropower 138 Pakistan 4. Renewable Energy Program 100 Turkey 5. Tehran Power Transmission Project 66 Iran 6. Regional Power Transmission Interconnection 30 Afghanistan & Tajikistan Islamic Development Bank ١٢

14 Transport Division Key Focus Areas Facilitate Regional Integration Promoting economic cooperation and regional integration among MCs Development of Transport Corridors Focusing on the Development of international transport corridors within MCs Improve transport Infrastructure Improving the transport services through better infrastructure Increase Accessibility Provide access to the remote areas. Signature Achievements Sr. No. Project Description IDB Participation (US$ m) Country 1. Khanewal Multan Motorway 160 Pakistan 2. Akieni Okondja Road 107 Gabon 3. Marrakech Agadir Highway 106 Morocco 4. Arboutchatak bitkine Road 62 Chad 5. Singrobo yamou Soukro Highway (Phase Iii) 61 Cote d'ivoire 6. AqabaCoastal Highway 31 Jordan Islamic Development Bank ١٣

15 UrbanDevelopment & Services Division Key Focus Areas Facilitate Access for all to water and sanitation services Promoting cost effective solutions Improve health conditions and standards of living Raising awareness on the link between sanitation and health issues Strengthen capability of Municipalities in handling solid waste Improve water supply and sanitation Promote sustainable water infrastructure Increase accessibility/affordability of private housing for low income populations Provide access to land and shelter to most the needy Innovative housing solutions including green houses. Signature Achievements Sr. No. Project Description IDB Participation (US$ m) Country 1. Qom Water Supply 129 Iran 2. Expansion Of Damascus Water Supply 106 Syria 3. Mashhad Sewerage Project 69 Iran 4. Choutrana & Meliana Waste Water Mgmt. 28 Tunisia 5. Abidjan Wt Water Supply Rif Reinforcement 15 Cote d'ivoirei 6. Nouakchott Water Supply 16 Mauritania Islamic Development Bank ١٤

16 IDB s Future Strategic Direction Sectoral Focus in Infrastructure Four Core Sectors 80% Financing Allocation Focus on Four Core Re Balancing Regional Sectors Allocation Scaling Up Enablers Mobilize Private Sector and PPP Financing Introduce New Financing i Instruments t (Guarantees and Syndications) Sponsorship and Promotion of Infrastructure Funds Internal and Et External lcollaboration Support Regional Integration Islamic Development Bank ١٥

17 THANK YOU Islamic Development Bank ١٦

18 2. CASE STUDY SU IDB S FINANCING OF SOUTHKLANG VALLEY EXPRESSWAY (SKVE), MALAYSIA M. Hasan Mahmud Senior Investment Officer PPP Division Infrastructure Department Islamic Development Bank ١٧

19 SKVE: Introduction Background The project was the result of GoM s efforts to privatize key economic sectors including transportation The Build, Operate and Transfer ( BOT ) Concession Agreement was signed between SKVE Holdings & the GoM in August 2006 Project Concept The SKVE is planned as a 51.2km three lane dual carriageway It will include nine (9) interchanges and six (6) toll plazas It is divided into 4 main sections: Section 1A was successfully completed in Year 2001 by Gadek Perspec Sections 1B, 2 & 3 part of the new construction; however, project company will also toll section 1A The Expressway is destined to be part of the regional road network for Klang Valley which is located in the suburbs of KL; Will provide an alternative east west movement and an essential link between Putrajaya Cyberjaya to the East, and the Port Klang area to the West Sponsored by SKVE Holdings, a SPV set up by HuntertonSdnBhdand Virtual Peaks Bhd of Malaysia. Total cost estimated at RM 1,582 million (Approx. US$ 440 million) Islamic Development Bank ١٨

20 Construction & Design 7.8km 11.9km 12.6km 18.9km Section 1A Section 1B Section 2 Section 3 Completed Yr2001 To Complete Nov 2009 To Complete Dec 2009 To Complete Dec 2010 Air Itam Toll Uniten Interchange B15/LDP Interchange WCE Interchange & Toll Pulau Carey Interchange & Toll Pulau Indah Interchange Putra Interchange Wetland Interchange NSECL Interchange & Toll Telok Panglima Garang Interchange & Toll Tanjung Segan Toll Islamic Development Bank ١٩

21 Project Cost The total project cost is estimated at RM1,582 Million (USD440 Million) The land cost valued at about RM 500 Million (USD139 Million) comprising 32% of total cost Pre operating expenses includes project preparation expenses such as engineers reports, traffic surveys, legal fees for the concession negotiation etc Capital expenditures (Capex) include road, bridges and toll plazas construction and supervision Islamic Development Bank ٢٠

22 Financing Plan The proposed project financing include equity (5%), quasi equity (49%) and debt (46%) Local senior lenders will finance the project over a 17 years period Subordinated debt provided by Bank Pembangunan having a tenure of 23 years, and is subrogated in right and payment of principal and interest to the project s senior indebtedness, includingidb Islamic Development Bank ٢١

23 Salient Features of Concession Agreement Parties The Concession The Government of Malaysia [GOM] & SKVE Holdings Sdn Bhd Privatization of the design, construction, management, operation and maintenance of an expressway with the total length of approximately 51 kilometers Conditions Precedent a. Submission of a Public Opinion Survey result within 6 months from execution of the CA b. Submission of a duly executed Shareholders Agreement to the EPU within 12 months from execution of the CA c. Submission of Financial Term Sheet within 12 months from execution of the CA Concession Period Performance Bonds 40 years from the Effective Date 5% of the contract value of each section Maintenance a. In respect of Section 1A, from the first date of tolling until the termination or expiry of the Concession; and b. In respect of the other Section of the Expressway, from the completion of the construction works in relation thereto until termination or expiry of the Concession Islamic Development Bank ٢٢

24 Salient Features of Concession Agreement Rights and Authority a. To design and construct the Expressway, except Section 1A granted by the GOM b. To takeover the maintenance of Section 1A Land Government s Compensation c. To supply and install tolling and other equipment (including Telecommunication equipment) at the toll plazas and to manage, operate and maintain the same d. To demand, collect and retain toll for its own benefit from all vehicles using the Expressway e. To maintain the Expressway f. To manage and operate the Expressway, except Section 1A g. To design, construct, manage, operate and maintain the Administrative Offices GoM shall grant to the Company throughout the Concession Period the right and licence to enter upon and to occupy all land required by the Company Failure by the GoM to gazette the Agreed Toll on the agreed dates shall require the GoM to compensate the Company Islamic Development Bank ٢٣

25 Salient Features of Concession Agreement Finance Assignment of Rights Termination by Company The Company shall be responsible for obtaining all the finance, both debt and equity, necessary to carry out and fulfill its obligations in respect of the Concession The Company may assign to and create security in favour of its lenders in respect of the following: a. All its rights, interest and title in respect of demanding, collecting and retaining toll b. All its rights, interest and title in respect of designing, g, constructing, managing, operating, managing ancillary facilities and retaining the income arising therefrom; and c. All its rights, interest and title in respect of the compensation payable to the Company If the Government, without reasonable cause, fails to perform any of its obligations which adversely affects the right and authority of the Company to demand, d collect and retain toll, then the Company may give the Government 6 months notice to terminate the Concession In the event of termination, the Government shall py pay appropriate p compensation, as agreed in the CA, to the Company not later than 6 months after the termination Islamic Development Bank ٢٤

26 Salient Features of Concession Agreement Termination by Government Step in Rights of the Government The Government reserves the right to terminate the CA with three months notice, if the Company: a. Without reasonable cause, fails to commence construction or fails to perform its obligations under the CA; or b. Without reasonable cause, suspends or abandons the whole of the construction works for a continuous period of sixty (60) days or fails to complete construction works or breach any of the terms under the CA; or c. Breaches the terms of the CA or goes into liquidation In the event of default by the Company, the Government shall have the right to assume the operational responsibility of the Company under the CA. The Government shall ensure that the moneys collected shall be utilized in the following manner: a. Firstly, towards the operational cost of operating and maintaining the Concession including the Government's costs b. Secondly, towards the discharge of the payment obligations of the Company to its lenders Islamic Development Bank ٢٥

27 Salient Features of Concession Agreement Expropriation Expiry of Concession The Government may expropriate the Concession by giving not less than 3 months notice to that t effect to the Company if it considers that t such expropriation is in the national interest or national security Upon expropriation, the Government shall pay appropriate compensation, as agreed in the CA, to the Company not later than 6 months after the date of expropriation Upon expiry of the Concession Period, the Company shall: a. Forthwith cease to operate and maintain the Expressway b. Hand over the Concession Area to the Government tin a well maintained i condition; and Islamic Development Bank ٢٦

28 Project Justification Economic Benefits Easement of traffic from and to the Port Klang area Reduced travel time to Putrajaya/Ciberjaya Increased productivity it through h reduction in ti trip time and transportation t ti cost Boost economic development along the route Potential improvement in financial viability of land development projects by facilitating access Estimated EIRR of 14%. IDB s Involvement Signature experience for IDB in many ways; First toll road project on PPP basis IDB financed its share in the project by raising local RM 270 million Sukuk (IDB s first LCY Sukuk) Dual impact: project finance and capital market development Proved instrumental in promoting Islamic finance in the region by boosting confidence of investors in sukuk ktransactions Islamic Development Bank ٢٧

29 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Land Acquisition (Cost overrun Risk) Acquisition of Land is the responsibility of GoM, but it has only allocated a budget of RM306 million for this purpose; and any land acquisition cost above this ceiling is to be borne by the project company. Most of the land has been acquired except for a small portion for Section 1.b. Based on the land consultant s report, the land cost, including the non acquired portion, will total RM245 million, yielding savings of RM60 Million over the GoM s budget. Construction Increase in the construction costs. Most of the construction risks, including delay or Risk cost overruns are borne by the EPC contractors, Any material cost overrun will have a which have agreed to cap contract costs and guarantee their performance with their balance negative impact on the feasibility of the sheet. projectand its repayment ability. Furthermore, cost overrun requires additional funding that may not be easily available. Other risks are covered with insurance. The sponsors have also agreed to sign a project funds agreement, which will provide that any cost overruns for the project will be covered by the shareholders. Appropriate independent audit mechanism used to ensure design compliance Islamic Development Bank ٢٨

30 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Traffic Risk ActualTraffic onthe tolled road Experienced Traffic Consultant & highly reliable base year differs significantly and adversely data of 1998 & 2001 from the figures projected in the The project was deemed viable as early as 1998 by JICA Traffic Study. Rigorous vetting & calibration of the assumptions used in the projection model Lead to the problem of Market risk with major implications on revenue collection and debt servicing A debt service reserve account, to be partially funded by the sponsors, is also set up to partially offset the risk. Regulatory Risk Termination of the Concession Agreement by either party GoM will be entitled to complete the construction works and call on the performance bond during the construction period, or indemnify SKVE for the value of completed works if termination occursin the course of operations. Senior lenders are therefore well protected, as the value ofconstruction works will at all times be higher than outstanding senior debt. Government may not allow the toll rates as stated t in the CA to be charged to consumers This risk is mitigated by the provisions in the CA, which allow SKVE to seek compensation from the Government in the event that the toll rates as stated in the CA are not approved Islamic Development Bank ٢٩

31 THANK YOU Islamic Development Bank ٣٠

32 2. CASE STUDY SU IDB S FINANCING OF Al Qatrana Power Project, Jordan M. Hasan Mahmud Senior Investment Officer PPP Division Infrastructure Department Islamic Development Bank ٣١

33 Al Qatrana Power Project: Introduction Project Background Project Company Shareholdingh Commercial Government Guarantee Financial Debt Arrangement 2 nd IPP in Jordan In 2008, power sector had installed capacity of 2,500 MW 373 MW combined cycle gas turbine power plant; fuel: natural gas Korean Electric Power Company (KEPCO), South Korea(65%) XenelIndustries Limited i (XENEL), Saudi Arabia Offtaker: National Electric Power Company (NEPCO) Gas Supplier: NEPCO; gas price is a pass through under the PPA Gov t Guarantee covering commercial risk (TAVANIR s Obligations) Project Cost: US$ 457 million Debt : Equity: 68:32 Debt Requirement: US$ 310 million IDB Financing: US$ 80 million; mode of financing: Leasing KEXIM direct loan: US$ 118 million KEXIM covered loan: US$ 96 million PROPARCO: US$ 50 million Islamic Development Bank ٣٢

34 Sponsors Selection The Sponsors were selected via International Competitive Bidding by the Government of Jordan MEMR used two envelope evaluation process to select the successful bidder Envelope I contained technical aspects of the proposal. Envelope II contained the bidder s final tariff proposal. MEMR received four qualified proposals. Bidding Consortium International Power, Saudi Oger AES, Mitsui, Tohoku KEPCO, XENEL Mitsubishi, GAMA, Enara Countries United Kingdom, Saudi Arabia United States, Japan, Japan Korea, Saudi Arabia Japan, Turkey, Indonesia/Jordan/Greece MEMR conducted technical evaluation first then opened Envelope II proposals The KEPCO XENEL Consortium proposed the lowest tariff MEMR recommended to award the project to KEPCO XENEL consortium. Islamic Development Bank ٣٣

35 Project Sponsors KEPCO, South Korea Shareholders: Korean Government (51%), foreigners and others (49%) Represents 94% of the total power generation in Korea Installed capacity of 60 GW Rated A (S&P), A2 (Moody s), A+ (Fitch) XENEL, Saudi Arabia Founded in 1973, a private company incorporated in Saudi Arabia and completely owned by members of Ali Reza family. Has diversified experience in Energy, Industries, Construction, Healthcare, real estate and global investing. Total workforce of 7,000 staff. Islamic Development Bank ٣٤

36 Implementation Capacity and technology The project consists of a gas fired CCGT power plant with a net capacity of 373 MW. The project will use two Siemens Gas Turbines and one Steam Turbine from Skoda. Fuel The Project uses natural gas as a main fuel and distillate heavy fuel as back up. Fuel is procured by NEPCO, which is responsible for all costs associated with the procurement and transportation of the fuel Gas price is a pass through under the PPA Implementation schedule 18 months for the first 254 MW (Phase 1); 9 months for the next 119 MW (Phase 2) Islamic Development Bank ٣٥

37 Project FinancingPlan Source US$ Million % Cash Equity 60 13% Shareholder Loan 63 14% Net Early Generation Revenues 22 5% The proposed project financing includes equity (13%), quasi equity q (14%), early generation revenues (5%), and senior debt (68%) Total Equity % Senior debt & shareholder loan tenor: 18 KEXIM Direct Loan % KEXIM Covered Loan 96 21% IDB 80 18% PROPARCO 50 11% Total Debt % years door to door including 2 year gestation period Loans under the KEXIM facility will be funded by commercial banks benefiting from a 100% political and commercial risk guarantee Total % Islamic Development Bank ٣٦

38 Project ContractualStructure KEPCO (65%) XENEL (35%) MEMR Implementation Agreement Shareholding KEXIM J Guarantee Go NEPCO WAJ MoF/Dept. of Land & Survey Power Purchase Agreement Water Supply Agreement Land Lease Agreement EPC Al Qatrana Electric Power Company Financing Agreements O&M Agreement Political & commercial cover Commercial Lenders IDB GoJ Government Agreement Lotte E&C KOSPO PROPARCO SNC Lavalin, Fichtner India Islamic Development Bank ٣٧

39 SalientFeatures of Project Agreements Implementation Agreement (IA): Power Purchase Agreement (PPA): Under the IA, the Government grants the Project Company the right to construct and operate the power station on the site. It assures the Project Company of all fiscal incentives and other benefits provided in the Investment Promotion Law and the Income Tax Law and the free convertibility and transferability of foreign exchange through the Central Bank of Jordan to meet the company's foreign currency remittances. The IA specifies the compensation to be paid in the event of early termination of the project. Project Company is responsible for designing, engineering, construction, management, operation and maintenance of a 373 MW combined cycle power plant. NEPCO will purchase the electricity output of the Plant on the basis of two part tariff consisting of: (i) a capacity payment, and (ii) an energy payment The Project Company will guarantee the heat rates (efficiencies) of the plant for each of natural gas and distillate oil. All of the distillate oil and natural gas requirements of the project will be supplied by NEPCO under the PPA. Islamic Development Bank ٣٨

40 SalientFeatures of Project Agreements Government Guarantee The Government Guarantee guarantees the payment obligations of NEPCO under the PPA and the Connection Agreement, and of all of the Water Authority of Jordan obligations under the Water Supply Agreement. Land LeaseAgreement The Government leases the land to the Project Company under the LLA. (LLA) Water Supply Agreement Water for the power station will be purchased from WAJ under the WSA. (WSA) The Project Company will construct a seven day water storage facility at the site. EPC Contract EPC Contract is a fixed price date certain contract. The EPC Contractor has an established track record in turnkey construction work, although lacking in comparable projects outside of Korea. To compensate for its limited experience in the Middle East, Lotte E&C and its parent company (Honam Petrochemical) has proposed to provide a full completion guarantee, in addition to standard performance guarantee. Islamic Development Bank ٣٩

41 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Political Risk Political stability GoJ provide guarantees covering all government Force Majeure Risk agencies obligations Expropriation of Land & assets Compensation by the GoJ in case of termination as a result of Local or Foreign Political Force Transfer and convertibility risk Majeure which should cover the outstanding debt plus initial equity and any consequential costs. Project Company and its contractors have the right to open and retain local and foreign currency bank accounts in Jordan and to purchase foreign exchange for use in connection with the Project. GoJ warrants under the IA that the Project Company shall be allowed to transfer out of Jordan, in foreign currency, all and any amounts required to meet its financial obligations. Islamic Development Bank ٤٠

42 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Construction Technical noncompliance EPC Contractor s financial obligations shall be Risk Escalation of construction supported by adequate performance bond cost Construction delay Construction will be undertaken under a fixed price turnkey EPC contract Shortfall in early Contingencies included in the financing plan generation revenue The EPC contract will include a guaranteed completion date with delayed liquidated damages to cover additional financing costs and penalties payable under the Project Agreements The EPC contractor shall provide a completion guarantee through its parent company, for an amount covering the entire debt and equity Early generation revenue allocated towards equity is guaranteed by the sponsors. Lender Engineer has opined positively on the EPC contractor ability to deliver the EPC requirements Islamic Development Bank ٤١

43 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Operation and Operation of the plant Natural gas and back up fuel are procured by Maintenance might be interrupted by NEPCO which will be responsible for all tariffs, Risk non supply of fuel costs, fees, charges and penalties associated with Operation of the plant mightbeaffectedbylack of proper maintenance the procurement and transportation of the Fuel. In case fuel is not supplied, Project Company still receives capacity payment that covers debt repayments and fixed O&Mcost. A six year term Long Term Maintenance and Service Agreement to cover maintenance of the entire Facility. A performance guarantee to be submitted by the Operator. Islamic Development Bank ٤٢

44 Key Risks & Mitigants Key Risks Risk Description Risk Mitigant Insurance Risk Incomprehensive Al Qatrana Project will benefit from a comprehensive coverage insurance package. Insurance program includes covering construction risk, operating risk, sabotage & terrorism insurance, workers compensation & employers liability insurance, etc. 95% of the insurance cover will be reinsured into the international insurance market. The Lenders insurance advisor reviewed the Project Company s insurance package Islamic Development Bank ٤٣

45 Project Justification Economic Benefit Adding power to the national grid to meet increasing power demand Attracting FDI to the Country Creating local jobs Investment Rationale Strong Sponsor Support: Highly committed qualified sponsor Attractive sector fundamentals Guaranteed offtake: 25 year concession term & no market risk The contractual structure of the project documents allocates risk properly and is similar to the structures generally underpinning IPP/IWPPprojects in the Region. Sovereign guarantee: GoJ guarantees the payment obligations of NEPCO Sound project financial projections Islamic Development Bank ٤٤

46 THANK YOU Islamic Development Bank ٤٥