WAPIC Presentation. November Ije Ikoku IFC Infrastructure Cluster

Transcription

1 WAPIC Presentation November 2011 Ije Ikoku IFC Infrastructure Cluster

2 Presentation Outline 2

3 IFC is a Member of the World Bank Group IDA International Development Association Shared Mission: To Promote Economic Development and Reduce Poverty 3

4 IFC Financial Performance IFC FY11 Highlights Credit Rating (S&P, Moody s) AAA Portfolio $55.2 billion Committed $12.2 billion Mobilized $6.5 billion # of companies 1,737 # of countries 102 IFC was awarded the 2010 Euromoney Project Finance Magazine Multilateral of the Year award 4

5 Since 1967, IFC s Power Group Has Committed $7.8 billion to 239 Projects in Emerging Markets Cumulative Commitments since 1967 Outstanding Portfolio, June Total Commitments = US$ 7.8 billion Total Portfolio = US$ 4.7 billion 5

6 IFC s Power Group is Active in All Regions Cumulative Commitments since 1967 Outstanding Portfolio, June Total Commitments = US$ 7.8 billion Total Portfolio = US$ 4.7 billion 6

7 Our Power Investments Span 57 Countries L. America & Caribbean # of investments Chile 9 Brazil 8 Mexico 7 Jamaica 5 Colombia 4 D. Republic 4 Guatemala 4 Peru 4 Argentina 2 Bolivia 2 Nicaragua 2 Venezuela 2 Belize 1 Costa Rica 1 El Salvador 1 Haiti 1 Honduras 1 Panama 1 MENA & South Europe East Asia and Pacific # of investments Turkey 11 Pakistan 9 Egypt 2 Moldova 2 Bulgaria 1 Jordan 1 Macedonia 1 Oman 1 Romania 1 # of investments Philippines 14 China 12 Indonesia 3 Thailand 3 Laos 1 Vietnam 1 Europe and Central Asia South Asia # of investments Czech Republic 3 Georgia 3 Tajikistan 2 Ukraine 2 Armenia 1 Hungary 1 Kazakhstan 1 Lithuania 1 Poland 1 Russia 1 # of investments India 29 Sri Lanka 5 Nepal 3 Bangladesh 1 Sub- Saharan Africa # of investments Senegal 4 Cameroon 2 Cote D Ivore 2 Nigeria 1 Uganda 2 Djibouti 1 Kenya 1 Mali 1 Rwanda 1 Togo 1 IFC s power committed portfolio as of June 30,

8 Presentation Outline 8

9 Electricity Market and its Participants Integrated Utility Somewhat unbundled Single Buyer System Generation Transmission Distribution Generation Transmission Distribution IPP IPP IPP A bit more unbundled Single Buyer System Transco Disco Customer s Transco Unbundled System Operator Disco Customer s Market IPP Customer s Customer s IPP High Volume Customers

10 Contractual Framework What Are You Trying to Achieve? Allocate the risk to the party who is best positioned to bear it Cash/Risk neutrality for Borrower/IPP, e.g. : delay liquidated damages ( LDs ) pass through of fuel take or pay back to back of Force Majeure ( FM ) provisions Why It s Important Pre-commissioning: no guarantee of being paid back (unless you have sponsor support that covers the debt and a creditworthy sponsor importance of EPC track record and contract); non recourse financing (generally with the exception of sponsor support during construction); PPA is often the only source of revenue. Why Does It Take so Long? Many parties with diverging interests are involved (off-taker, contractor, fuel supplier, government, regulator, sponsors, other government agencies, groups of lenders). Complex contract structure that at times has to substitute for the absence of a bankable legal framework for private sector participation. 10

11 Contractual Framework Typical Scheme Sponsor Support Agreement 11

12 General Risk Overview Construction Risk Completion on time/loss of PPA Completion on Budget Completion according to Specifications / reduction in capacity payments Operational Risks Default risk: project company/off-taker loss of PPA - Plant Affecting Construction and Operational Phase Political risk: Government /government owned Off-taker Natural disaster: insurance 12

13 Least Cost Dispatch Order. PPA Bankability Issues Tenor of PPA vs debt. Off-taker Liquidity or Credit Support/ Government Guaranty Acceptability of comfort letter as proposed substitute. Award of PPA and licenses Transparency scrutiny Unusual Force Majeure/Termination Provisions mismatch among project contracts. No Direct Agreement. Short term Fuel Supply Agreements Market disruption on the fuel. 13

14 PPA Bankability Issues Stranded asset in the event of loss of PPA - Lack of market direct sales to high volume customers sales to neighboring countries. Currency mismatch between costs in FX (ROE, debt, fuel, O&M) and revenue in local ccy. Tariffs do not permit reasonable return on equity (what is reasonable?) No Inflation Adjustment: Tariff not adjusted to cover components of fixed and variable expenses which rise over time. Change of Law/Political Force Majeure: Tariff not adjustable to cover increased costs due to Political Force Majeure (including Change of Law). 14

15 FSA - Certain Key Bankability Issues In comparing terms of different contracts (e.g., FSA, PPA and O&M) must consider start date of term to ensure timely start of delivery obligations. Is supply based on an exhaustible reserve? Are reserves dedicated to the Project Company? Alternate sources? Transportation? Security over reserves and/or transportation? Need for parent guarantee and/or other credit support if Fuel Supplier or Buyer not sufficiently creditworthy. Price/foreign exchange rate risk and hedging/mismatch of PPA. 15

16 FSA - Certain Key Bankability Issues Conformity of fuel specifications with equipment manufacturers requirements, ash storage capacity, etc. Relationship of PPA energy charge calculations with pricing of fuel under FSA pass-through? Take or pays? (Sometimes comfort through market studies in deregulated markets). FMs back to back with PPA 16

17 EPC Certain key bankability issues & recurring themes Mismatch with PPA: technical specifications, completion deadlines, penalties/damages Mismatch with projected Project economics (plant capacity; levels of delay or performance LDs) Owners scope and other work outside scope of EPC Contractor: force majeure claims, change order claims, price adjustment claims Force Majeure definition and related risk allocations Interfaces between contractors/suppliers Change orders Environmental requirements Other 17

18 Presentation Outline 18

19 IFC/IDA ENGAGEMENT IN CAMEROON S ENERGY SECTOR (~15 YEARS) 1997: IFC Advisory signs mandate with Cameroon for the privatization of the countries national utility (Sonel) 2001: Sonel is is privatized with AES Corp buying 56% of the 58 year old national utility. The new entity is is called AES Sonel 2005: World Bank commences support to strengthen public sector capacity 2008: World Bank ESDP aims to increase access to energy, improve the planning & management of sector resources, assist with LPHP (unlock hydro potential) 2006: IFC leads a syndicate of 8 DFIs to raise Eu260 million to support AES-Sonel s Eu380 million 5 year investment program 2012: IFC expected to lead a syndicate of 6 DFIs in securing Eur193.5 Million debt package to support Kribi (Cameroon's 2 nd nd IPP). This will be a joint WorldBank/IFC project, with IDA providing a guarantee to unlock local bank financing : Cameroon passes new electricity law; setting up regulator, and paving the way for PPP in the power sector. 2003: The Kribi gas power project is is the trigger for the GOC to develop a comprehensive Gas Masterplan in 2003, 2011: IFC leads a syndicate of 3 DFIs to close US$88 mill for Dibamba, Cameroon s 1 st st IPP Key milestones IFC World Bank 19

20 Cameroon Country Highlights Economy EconomyFacts Facts(2005) (2005) Population: 16 million Population: 16 million GDP GDPPer PerCapita Capita(2005): (2005):US$ US$ (proj. (proj.growth growth~5%) ~5%) Currency: CFA Francs (XAF) Currency: CFA Francs (XAF) Key Sectors: agriculture (20%), industry (31%), services Key Sectors: (49%) agriculture (20%), industry (31%), services (49%) Oil/gas sector: Cameroon produces about 32 million barrels Oil/gasper sector: Cameroon produces about 32 million year of crude oil; extractive industries barrels per year of crude oil; extractive industries account for only 8-10% of Cameroon s GDP. account for only 8-10% of Cameroon s GDP. Governance: key impediment to growth/investment; Corruption Governance: key impediment to growth/investment; Corruptionisisprevalent prevalentatatall alllevels levelsofofsociety society Commodity dependent economy: ~34% of GDP (of which Commodity dependent oil is less than 5%).economy: ~34% of GDP (of which oil is less than 5%). Major exports: crude oil, cocoa, coffee, cotton, timber Major exports: crude oil, cocoa, coffee, cotton, timber Surface Area: 475,000 km2 2 Surface Area: 475,000 km Vision GoC aims totoreduce poverty, Vision2035: 2035: GoC aims reduce poverty,spur spur growth & create jobs through increased growth & create jobs through increased industrialization, industrialization,improved improvedcompetitiveness competitiveness&&better better governance governance Commercial Center/City: Douala Commercial Center/City: Douala Political Political&&Administrative Administrativecapital capital Yaounde Yaounde 20

21 Key Project Highlights AES Sonel is the privatized integrated national power utility of Cameroon: Privatized in 2001 with advice from IFC advisory Acquired by The AES Corp. of the US (56%); Republic of Cameroon retained shareholding of 44% Operates under a 20-year concession terminating in 2021 Holds generation, transmission, & distribution assets in northern & southern grids of Cameroon; In 2006, IFC led the coordination of EUR 260 million financing of the EUR 380 million five year Investment Plan being implemented by the Company to renew and refurbish their generation/transmission/distribution assets in order to improve the quality of service & increase electrification rates. Syndicate of 8 DFI lenders included IFC, AfDB, EIB, Proparco, FMO, DEG, EAiF, BDEAC. 21

22 Cameroon Electricity Market Highlights (2005) Electrification Electrification Rates: Rates: 31% 31% of of urban urban households households & 11% 11% of of rural rural Hydro Hydro Potential/Dependence: Potential/Dependence: 2nd 2nd highest highest hydro hydro potential potential in in the the region(after region(after DRC); DRC); Installed Installed Capacity: Capacity: MW MW with with 77% 77% based based on on hydro, hydro, specifically specifically from from the the Sanaga Sanaga basin, basin, which which is is seasonal seasonal Population Population Dispersion: Dispersion: highly highly dispersed dispersed population population (31% (31% in in large large towns, towns, and and 31% 31% in in small small towns) towns) makes makes it it expensive expensive to to serve serve the the entire entire population population Alucam: Alucam: More More than than 40% 40% is is consumed consumed by by a a single single customer customer Alucam Alucam the the country s country s aluminum aluminum smelter smelter Tariff Tariff Classes/Levels: Classes/Levels: LV/MV LV/MV retail retail clients clients with with tariffs tariffs of of EUR EUR c/kwh c/kwh and and EUR EUR c/kwh c/kwh respectively; respectively; HV HV Industrial Industrial clients clients (Alucam) (Alucam) with with tariffs tariffs of of EUR EUR c/kwh c/kwh Lagdo Generation Strong Hydro Dependence 72 MW 4.5 bn m3 Mbakaou 2.2 bn m3 Mapé 3.6 bn m3 Bamendjin 1.8 bn m3 Total 7.7 bn m3 Song Loulou 384 MW Edéa 265 MW Total - Hydro 721 MW 77% Thermal GRID HFO 122 MW 13% Diesel 66 MW 7% Isolated 24 MW 3% Total - Generation MW 100% Sanaga River Water Flow Fluctuation 22

23 Cameroon Electricity Market Highlights (2005) Regional Regional Demand Demand Breakdown Breakdown Power infrastructure in Cameroon Northern Region - 8.5% of revenues, 4.6% of energy delivery Western Region 12.1% of revenues, 8.3% of energy delivery EN SEM B LE D ES IN FR ASTRU CTU RES PER TINENTES AES-SON EL LEG E NG E Barrage de retenue Centrale Thermique Centrale Hydroélectrique Poste THT/HT 225/90 KV Poste THT/HT 110/90 KV Makary Fotokol Goulfé Afade Maltam Kousseri Djilbe Logone Birni Ndiguina W aza Kolofata M ora Tokom béré Coastal / Littoral Region 53.7% of revenues, 68.3% of energy delivery Center Region 25.7% of revenues, 18.8% of energy delivery Poste HT/MT 90/30/15 KV C entres AES -S O NEL Ligne TH T 225 KV ou 110 KV Lignes H T 90 KV Lignes M T 30 K V Réseau Camrail Routes nationales G aroua Poli N gong M okolo Meri M aroua M indif M outouroua Kaélé G uider Bidzar Figuil Pitoa Lagdo Rey Bouba Tcholliré Yagoua Touboro South South grid grid km km kv kv and and km km kv kv T-lines T-lines N gaoundéré 2 2 components components : : Alucam Alucam and and Public Public Sector Sector North North grid grid (9%) (9%) km km kv kv and and km km kv kv T- T- lines lines Isolated Isolated centers centers (1%) (1%) isolated isolated localities localities supplied supplied by by LFO LFO small small gensets gensets 23

24 Cameroon s Electricity Market MWh/yr 900, , , , , , , , , MT BT GDP WB ,000 2,500 2,000 1,500 1,000 Historically, retail demand growth in line with GDP Bn FCFA (constant) M W h 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, LV sales (MWh) MV sales (MWh) Total energy requirements (MWh) LV+MV sales (MWh)..and projections illustrate healthy demand growth But also a looming supply deficit MW Kribi Existing capacity Alucam load MV/LV load Significant investment for additional generation capacity will be needed to avoid load shedding; This is expected to come from IPPs such as Kribi 24

25 Client Base Cameroon s Electricity Market Public sector: including low-voltage (domestic, professional and street-lighting), medium voltage (small businesses, other retail) accounts for 54% of sales & nearly 90% of the total revenue Industrial clients: mainly Alucam and four other large customers, accounts for 44% of sales & 10% of revenue 25

26 Regulatory Framework Since 1998, the GoC has initiated a series of policy & structural reforms to improve efficiency & governance in the power sector and increase private sector participation. Electricity law introduced in 1998 sets out basis for a competitive market. GoC is a member of the Central African Power Pool (CAPP), which aspires to connect the electricity grids of all members of the Central Africa Economic Community (CEEAC); GoC wants to position itself as a key power supplier in the CAPP Key Stakeholders include: 26

27 AES Sonel In crisis in years following privatization WORST POWER OUTAGES IN CAMEROON S HISTORY MINIMAL PERFORMANCE IMPROVEMENTS Cameroon experiences its 4 th th driest year in 60 years; 90% of installed capacity is hydro Severe drought coupled with an uptick in economic growth Situation exacerbated by poor communication by AES Sonel to its customers Alucam arbitration against AES Sonel due to inappropriate rationing of power & poor management of the situation Electricity losses remained high; collection levels low; E&S standards lacking reflecting deferral of significant investments in the sector since 1992 Substantially below concession targets, particularly new connections, many concession objectives set with unrealistic expectations & were unattainable Management & technical team, unable to deal with crisis INABILITY TO ATTRACT FDI STRAINED RELATIONSHIP Downturn in global infrastructure market immediately following privatization led to inability to fund post privatization program AES Corp narrowly escapes bankruptcy due to rapid expansion, crash in energy prices & distress in Latin America where it had significant exposure. Leading to strained relationship between AES Sonel & Govt. of Cameroon Perceived lack of sensitivity to local culture 27

28 signs of tide turning at time of IFC s investment ADDRESSING SUPLY DEFICIT & CUSTOMER RELATIONS Construction of new thermal capacity & good hydrology 85MW HFO plant at Limbe in 2004, plus another 48MW of thermal capacity Settlement with Alucam, leading to AES Sonel providing free energy credits NEW AES SONEL MANAGEMENT TEAM SIGNS OF OPERATIONAL/ FINANCIAL IMPROVEMENT After two rounds of management changes, Jean David Bile was hired as DG, Able to take steps to re-build relationship with RoC & demonstrate better performance through hiring of qualified staff Increase in distribution & transmission efficiencies Improvement of business processes & organizational structure CAPACITY STRENGTHENED WITHIN THE GOVT In parallel, sector institutional capacity strengthened particularly in the Ministry of Energy with the help of the WB Better long term planning in place evidenced by development of a country-wide least cost generation expansion plan RELATIONSHIP ON THE MEND All resulting in a more constructive dialogue between AES Sonel & RoC Allowing for the re-negotiation of the concession with more realistic targets 28

29 Key Project Strengths Why we did it Macro Considerations Government Support Strong World Bank Engagement Experienced, Capable Sponsor Strong Earnings Potential Cameroon has enjoyed economic growth and political stability; economic situation had improved considerably. The growth rate of GDP had risen to a steady 5% per year; inflation remained low, and the current account deficit turned slightly positive in 2005 Although many aspects remain to be developed, the GoC had lent its support to ongoing reform of the sector and privatization of Sonel, authorized tariff increases. A least cost generation expansion plan was being developed with all relevant parties in the sector. GoC and AES Corp appointed senior management members/officials to the Board as a sign of their commitment. The World Bank had played a key role in Cameroon by engaging all stakeholders in a constructive policy dialogue, clearing the way for revision of the Concession and development of the least cost generation expansion program. The Bank also provided capacity building of sector entities; Strong Sponsor with technical capabilities, global track record in emerging markets power; After a some problems in 2002, AES Corp had regained its position as a global power player In spite of recent challenges, revenues had doubled & EBITDA had quadrupled since privatization; the Company was projected to generate an EBITDA of US$173 million and net income of US$54 million by the end of the 5 year investment program in 2009; This would have been adequate to service a substantial debt levels 29

30 so how does AES Sonel make money? Concession is structured to bring efficiency & competition into the power sector Tariff (& its regulation) is designed to promote efficiency & investment while providing a fair return for investors & reasonable cost of power for end-users KEY DRIVERS Tariffs Collections Reducing network losses Demand growth & new connections Planning & Investment Good track record of implementing mostly cost reflective tariffs with appropriate & timely pass-through of costs [& any tariff subsidy]; Meet concession targets to avoid incurring penalties Tax schemes & tax rates impact tariff levels which can impact tariff affordability Accurate & timely billing; timely disconnection of customers for non-payment Develop a culture of paying for power political support important Keeping tariffs at reasonable levels helps in maintaining good collection rates Aggressively tackling non-technical losses (theft) with effective programs understanding of local context & consistent approach are key Targeted investments in network to reduce technical losses New connections an important concession target. However, increasing access is not always a high payback investment for AES Sonel, particularly in remote areas. Least cost supply additions needed to keep up with demand growth. Continuous system planning & productive (high NPV) investments which improve efficiency & are approved in the regulated asset base 30

31 Key terms of the AES Sonel Concession (1) Exclusivity: AES Sonel has exclusive right to provide transmission services & distribute and sell electricity to MV, LV & HV customers fro 20 years. After 1 st 5 years: AES Sonel is to set up a subsidiary to manage the transmission network Maximum installed generation capacity: AES Sonel has the exclusive right to install generation capacity in the country up to a cap of 1000 MW Main obligations of AES Sonel *: Connect 51,000 new customers on average every year during the concession; Meet performance standards incl. specific targets for un-served energy, Pay an annual fee to the Regulator of 1% of revenue; Submit to ARSEL for approval, a 5-year program and financial plan; Respect principles of equality of treatment, non-discrimination &continuity of power supply; Link, upon request, any new IPP to the transmission network. Regulated monopoly on distribution, steps towards complete unbundling Generation cap to promote competition Improving access a key priority for RoC 31

32 AES Sonel Tariff Structure Correct Correct the the lack lack of of tariff tariff increases increases in in the the years years preceding preceding privatization privatization despite despite the the currency currency devaluation devaluation and and higher higher levels levels of of inflation; inflation; Mitigate Mitigate external external risks risks to to AES AES Sonel Sonel (inflation, (inflation, hydrology, hydrology, fuel fuel costs, costs, etc.); etc.); Provide Provide an an incentive incentive to to AES AES Sonel Sonel & any any other other power power sector sector participant participant to to become become more more efficient efficient in in their their operations; operations; Provide Provide for for a a sustainable sustainable revenue revenue stream, stream, which which includes includes a a reasonable reasonable rate rate of of return return on on investment, investment, given given efficient, efficient, operating operating and and maintenance maintenance practices; practices; Create Create an an environment environment which which fosters fosters an an efficient efficient level level of of investment investment within within the the sector; sector; Tariff Tariff methodology: methodology: Different Different tariff tariff evaluation evaluation phases phases split split over over year year period period with with a a 33 yr yr grace grace period period for for all all penalties penalties for for unmet unmet obligations obligations Price Price Cap: Cap: (1st (1st years) years) specific specific formula formula for for average average tariffs tariffs with with pre-agreed pre-agreed increases increases in in tariff tariff levels levels Revenue Revenue Cap: Cap: (2nd (2nd year year period) period) (i) (i) a a cap cap on on AES AES Sonel s Sonel s revenues; revenues; & (ii) (ii) a a guaranteed guaranteed rate rate of of return return on on AES AES Sonel s Sonel s regulated regulated asset asset base base (requires (requires regulator regulator approval) approval) 32

33 What Happened? - AES Sonel Performance vs Projections Operational Performance has been mediocre, falling short of most of the concession targets Catching up on connections targets, which have been historically low, still falls short of cumulative target Maintains strong collections rates unserved energy has improved, but still falls short of targets total system losses have historically been & are still high at 24.9%, in part due to a high prevalence of fraud. 33

34 What Happened? - AES Sonel Performance vs Projections Poor operational performance relative to targets has had an impact on the bottom line They continue to meet their revenue targets, but underperform on earnings & net income 34

35 So, was the privatization successful? Cameroon s electrification rate of 49% is almost twice the SSA average & up from 31% at time of IFC investment Cameroon s end-user tariff of US$16.5 cents / kwh consumers are in line with SSA tariffs Although cost reflective, end user tariffs are relatively high considering hydro potential High system losses & more expensive thermal capacity have had pressure on tariff levels. 35

36 So, was the privatization successful? Despite its ongoing challenges, AES Sonel has succeeded in tripling revenue, growing EBITDA by 6X since privatization & transforming the former govt entity from a loss making utility (with negative net margin of Euro35 million) to an income generating asset today. AES Sonel continues to attract the most capital out of the four privately operated electricity concessionaires in Sub-Saharan Africa, and represents one of the strongest credits among power companies in region. Private capital flowing to Cameroon s power sector continues with market opening up to IPP models, initially Dibamba followed shortly by Kribi. AES SONEL today generates and distributes power to over 712,000 customers in Cameroon. 36

37 Designing concession targets / Practical financing covenants First Impressions Die Hard The Elusive Loss Reduction Stakeholder Engagement is Not Optional Building a sustainable energy sector program is a longterm commitment LOOKING BACK LESSONS LEARNED Need to set realistic & attainable targets at the outset also important when managing expectations with government & general population Need to ensure that contract is structured with sufficient incentive for appropriate levels of investment throughout life of concession; Revision of priorities should be expected in a financing of a large utility Being able to show tangible results early on is critical AES Sonel was slow to show improvements in performance due in part to high management turn-over & poor understanding of local operating / political environment; The lost credibility has been difficult to regain Loss reduction can be challenging to achieve & sustainable improvements require a long-term commitment from a qualified management team; There are few examples where this has been done successfully Proactive management of stakeholders including government, employees, and customers is critical; AES could have better managed customers during load shedding period to avoid arbitration/brand erosion Perceived lack of sensitivity to cultural/language differences made relations with stakeholders more contentious Proper planning for medium/long term investments is required Large investments at early stage of sector reform require intensive supervision Broad DFI support, as well as coordinated sector engagement across WBG & DFI community, is key for managing an effective dialogue with government & the Sponsor, especially when faced with difficult issues. 37

38 Presentation Outline 38

39 Kribi Power Development Corporation (KPDC) Kribi Project: 216MW gas-fired power plant & 100km transmission line Technology: Wartsila engines: 13 x 18V50DF- gas reciprocating engines of 16.6MW gross capacity each Siemens-KEC JV: 100km 225kV double circuit transmission line; step-up 11/225kV sub-station Fuel type: gas to be provided from off-shore Sanaga Gas field Location: near coastal city of Kribi, in the South Province of Cameroon Target COD: early 2013, in time for dry season Off-taker: AES Sonel, integrated power utility for Cameroon KPDC is owned by The AES Corporation (56%); Republic of Cameroon (44%) IPP using PPP Framework 39

40 Kribi: Project Highlights Kribi confirmed as the next least cost investment in the power sector The Kribi Project will: significantly expand the country s energy generation capacity help bridge the period before further hydropower developments provides much needed low-carbon thermal complement to hydro-based system catalyze the first commercical development of Cameroon's gas reserves benefit 163,000 households (equivalent) As second IPP in Cameroon & one of few IPPs in Africa, the Project: serves to demonstrate a replicable IPP model successful example of a Public Private Partnership in the power sector Broad and diverse lender group Prospective DFI lenders include IFC, African Development Bank (AfDB), European Development Bank (EIB), FMO, Proparco, BDEAC Standard Chartered Bank led local bank syndicate backed by WB partial risk guarantee First private long-term local currency project finance for an infrastructure project 40

41 KPDC: Contractual Structure EPC Procurement: Fixed price EPCs Wärtsilä & Siemens T&D /KEC International (KEC) - selected on a competitive basis Power Purchase Agreement / Connection Installation Agreement: 20-year off-take with AES-Sonel for 100% of the power; AES (56%) GoC (44%) AES (56%) GoC (44%) SHA GCA DIRECT AGREEMENT WITH: GoC, SNH, [Perenco], AES Sonel, AES Engineering, EPC Licenses: 20-year sales & generation licenses issued by Minister of Energy upon recommendation of ARSEL; MINEE/ ARSEL LICENCES Kribi Power Development Company Loan CTA PPA CIA LENDERS AES SONEL Gas Supply Agreement: With SNH (National Petroleum Agency), with Perenco as the upstream operator; SNH GSA 1 GSA 2 Power Plant EPC (KPDC) T-Line/CI EPCs ASA TSA AES ENGINEERING Government Commitment Agreement: Agreement through which RoC commits its support to the Project Wärtsilä Siemens/KEC T&D 41

42 Kribi: Key Project Risks & Mitigants Sector-related: new electricity law, capacity Government commitment to reform WBG active sector dialogue; WB partial risk guarantee (PRG) Broad DFI support through financing of bankable projects Timely construction of power plant, transmission line, gas supply facilities Choice of proven technology & relatively standard design Competitively bid fixed price contracts with reputable companies Contractual alignment of construction schedules Appropriately sized penalties for contractor under-performance Balanced contractual structure In line with good industry practice RoC had international advisors for project structuring & negotiations Regulator reviewed & provides its non-objection on contracts Off-taker credit-worthiness One of the strongest credits among power companies in SSA; AES Sonel is profitable with EBITDA of US$100M in 2010 End user tariffs are cost recovery with respect to costs of IPPs There are risks but with appropriate allocation among stakeholders they can be adequately mitigated 42

43 Role & Risk Allocation for Project Sponsor: AES Corporation Shareholder / Equity contribution Strong financial capacity Project Development Experienced Sponsor with track record in emerging markets power Arranging financial close Experience in structuring bankable project documents for project finance lending Global relationships with DFI & commercial lenders Over-seeing construction & operation of the Project Technical capability to develop the Project Active in Cameroon s electricity sector since 2001: 56% owner of AES Sonel (national integrated utility) concession awarded in % owner of Dibamba Power Plant (88MW HFO plant) - COD achieved 2009 Able to leverage existing in-country platform & expertise of local staff working at AES affiliate companies 43

44 Role & Risk Allocation for Government: Republic of Cameroon Role Shareholder /Equity contribution Back-stops bulk of payments in connection with early termination of power purchase agreement (PPA) or gas supply agreement (GSA) Key Risks Sizable contingent obligations vis-à-vis the Project Obligations not unusual given early stage of development of country s energy sector Most RoC undertakings are covering risks which are within RoC s control ROC assisted by international advisors Commitment to sustainable sector reform Maturity enhancement of local tranche Guarantee support for bridge loans Non-performance of private participant Selection of strong & experienced operator Performance based incentives / penalties Close monitoring by regulator Striking right balance between constructive engagement and negative interference 44

45 Key Success Factors for IPPs Political commitment to implement IPPs & government support for its obligations Meets a need competitively and efficiently Adequate tariffs, good adjustments, payment discipline Regulatory framework independent & transparent Contractual arrangements balanced & fair Good legal documentation: this is contract-based financing An appropriate financial structure Strong and creditworthy participants Government and Private participants advised by experienced firms 45

46 THANK YOU FOR YOUR ATTENTION 46