Kasaro Ezekiel Senior Manager Generation Development. ZESCO Limited Zambia Z E S C O

Transcription

1 Kasaro Ezekiel Senior Manager Generation Development ZESCO Limited Zambia Z E S C O

2 Project Finance from a Developer s Perspective: The case for ZESCO Limited

3 Background Zambia Experienced Economic decline in Stagnation in energy demand - excess capacity Inadequate energy pricing policies Luck of essential maintenance and repair of facilities In 1991, government began taking steps to recover from the economic decline - Liberalisation and Creation of a Free Market Economy

4 Background In 1994, the government promulgated a National Energy Policy (NEP) Power Sector Reform Programme started Promoting the participation of the private sector in the energy business. Twenty Year, Zambia Power System Master Plan( ) was Developed Demand for power would outstrip supply by the year 2008

5 Background Demand Forecasts for Zambia Years Demand Installed Capacity MW

6 SAPP DEMAND FORECAST 1998 TO 2010 Demand [MW ] Watch out for: Wingdings MS line draw Monotype sorts Scientific symbol fonts Asian language fonts Can embed 1 2 TrueType fonts 7 8in 9file Years

7 Projects Identified for Development Itezhi Tezhi (ITT) - Feasibility Studies Done (1996) Kafue Gorge Lower (KGL) - Feasibility Studies Done (1995) Kariba North Bank Extension - Feasibility 1992 Norconsult, 2003-Sinohydro Kalungwishi Hydro and Luapula Hydros Feasibility Studies Done (2000) North Western Hydros Feasibility Studies Done (2000) Zambia Namibia T- Line Feasibility Studies Done Zambia - Tanzania Interconnector Feasibility Studies Done Zambia Power Rehabilitation Project (1998)

8 Project Development 1995 to 2004, efforts by the government and ZESCO to raise financing for the development of hydropower project could not materialise ZESCO s balance sheet was constrained ZESCO embarked on the Power Rehabilitation Project ($210 Million, now $320 million) the country was a HIPC nation Private sector also failed i.e. Fall of Enron

9 Project Development through Project Finance Project Finance Concept No Balance Sheet, Lender looks to Project Cash flow, Project Bankability and not Company liquidity ZESCO decided to go the route of Project Finance to facilitate the development of hydropower stations in the country ZESCO started and engaged a Transaction Advisors (TA) to start packaging the projects for marketing, solicitation and securing of funds. Project Identified were ITT, KNBE, KGL

10 Project Development through Project Finance The Kariba North Bank Extension (KNBE) and the Itezhi Tezhi (ITT) Power Project were selected for immediate Development Kariba North Bank Extension (KNBE) to be developed by ZESCO Limited Itezhi Tezhi (ITT) Power Project to be developed by TATA Africa Holding and ZESCO Limited

11 Project Structures: Kariba North Bank Extension Project Lenders China Exim Bank (CEB) ZESCO DBSA ZESCO (Operator) O&M Project Company: KNBEPC PPA1 ZESCO (Off taker) PPA2 Contractor EPC: Sinohydro Other Off takers

12 Project Structures: Itezhi Tezhi Power Project Zambia Zambia Government Government ZESCO IPPA IPPA CONCESION CONCESION PPA PPA Transmission Transmission Shared Facilities DEBT DEBT Project Project Company: Company: ITPC EQUITY EQUITY EPC: EPC: Sinohydro Sinohydro TATA TATA AFRICA AFRICA

13 Kariba North Bank Extension Project Project Company was set up i.e. KNBEPC CEB financing through export credit and on lent to the KNBEPC through ZESCO Preferred mode by CEB (risk perception) ZESCO provided the funds as Shareholder s Loan Security to CEB - ZESCO existing PPA s Security to ZESCO - PPA1 DBSA financing Directly to KNBE Security - PPA1 (Otherwise preferring PPA2) Partial Security ZESCO PPAs (to expedite project development)

14 Kariba North Bank Extension Project EPC contractor not procured using a competitive bidding process (single sourced) ZESCO developed technical specification and RFP sent to the contractor World Bank, Design and Build Form of Contract used. Contract Reviewed by independent Consultant i.e. Scott Wilson Construction Supervision Consultant Procured through ICB (WB form of contract) PPA1 with ZESCO

15 Project Finance Documentation / Agreements Traditionally, ZESCO developed projects using balance sheet financing (Documentation very few) Else borrowed by Govt and on lent to ZESCO Project Finance - Increased number of documents / Agreements required The structure of the documents Terms and conditions unique to project financing The coherence of one document to the other Financiers timing for conclusion of documentation Long Stop date to Credit offer.

16 Project Finance Agreements Principal Agreements include among others: Loan Agreements (Shareholders loan Subordinated) PPA (Peaking Station; No utility or entities have signed a peaking power purchase agreement) PPA Security Assignment Third Party Security Assignment Account Bank Agreement Account Charge (Financiers to be paid first) Insurance (Installation All Risk; Financiers as Named Insurer)

17 Project Finance Agreements Principal Agreements include among others: Mortgage (Land and Buildings) Plant and Machinery Debenture (Mortgage) Charge Over Shares (ZESCO is a Govt Company) Direct Agreement (Granting to a Lender, the Security Interests in and to the Operations and Maintenance Agreement) Land and Title ZESCO Guarantee (Risk perception of KNBEPC being 100% owned by ZESCO) GRZ guarantee (HIPC Nation Vs Risk perception of KNBEPC being 100% owned by ZESCO owned 100% by Govt)

18 Conclusion ZESCO/KNBEPC has managed to close one major transaction - Kariba North Bank Extension Power station, a 360 MW power station; Raised $420 million Project Finance is a reliable means of funding a project where Balance Sheet is constrained Where Project Bankability is ascertained, Project Finance should be recommended for hydro projects A mix of funding arrangements with Project Finance are also possible

19 Thank you