Public Private partnerships as a funding model a Discourse at AirRail Africa

Transcription

1 Public Private partnerships as a funding model a Discourse at AirRail Africa 7 October 2016

2 Singapore United States South Africa China Russia Brazil Afganistan Niger Cote d'ivoire Guinea Guinea-Bissau Venezuela DRC Eritrea Rep. Congo Chad CAR Doing business and investing in Africa Nine of the ten most difficult countries in the world to do business in are in Africa Countries that are the most difficult to do business in African countries Other countries Economies are ranked on their ease of doing business, from A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators such as: Starting a Business, Getting Credit and Enforcing Contracts Source: IFC, World Bank & OECD (2013) More than half of the world s fragile economies are in Sub-Saharan Africa Fragile economies A fragile region or state has weak capacity to carry out basic governance functions, and lacks the ability to develop mutually constructive relations with society. Fragile states are also more vulnerable to internal or external shocks such as economic crises or natural disasters Fragility and resilience should be seen as shifting points along a spectrum (OECD, 2012). African Countries include: Eritrea, South Sudan, Sudan, Chad, Niger, Nigeria, Guinea, Guinea-Bissau, Sierra Leone, Liberia, Togo, Cameroon, Angola, CAR, DRC, Zimbabwe, Rwanda, Burundi, Uganda, Malawi, Kenya, Ethiopia, Comoros, Somalia,

3 Therefore, within this complex environment, the DBSA has carved a niche for itself in pursuit of the national interest. THE BANK S FUNDAMENTAL PROBLEM STATEMENT FOR AFRICA How do we address continent s catalytic infrastructure needs in such a way as to: Facilitate regional integration Support commodity-led industrialisation Promote inclusive economic growth Strengthen its value adding linkages into the global economy? The DBSA needs to define the projects that matter, finance the projects that matter and prepare the projects that matter

4 Introduction Founded in 1983 Overview 100% owned by SA Government Total assets of R63.8billion Mission is to advance development impact in the region by expanding access to development finance and effectively integrating and implementing sustainable development solutions Priority Sectors Focus is on preparing, financing and implementing bulk infrastructure projects in South Africa and the rest of the African continent

5 DBSA s Geographic Mandate DBSA MANDATE PRE 2014 REVISED DBSA MANDATE DBSA FOCUS Kenya Ghana Nigeria Republic of Congo Uganda Rwanda Although the DBSA s mandate allows for investment in all countries on the African continent, the DBSA will continue to primarily focus its investment activities in SADC. A gradual approach will be pursued into the rest of Africa, by initially pursuing opportunities only in the following 6 pivot countries outside of SADC: For continental, regional and national strategic considerations, the DBSA may consider investments outside the pivot countries identified here, on a case by case basis. Kenya Uganda Rwanda Republic of Congo Ghana Nigeria (Ethiopia) In the road sector alone addressing undermaintenance can save governments up to $1.9 billion in rehabilitation. DBSA step in to support sovereign entities and state backed companies where there is sufficient market demand and if this is absent, work with private sector partners to alleviate the burden on the state fiscus. SAD C

6 DBSA loan portfolio Geographi c split South Africa $5bn 74.8% Rest of Africa $1.5 bn 25.2% Billions Sector split Billions

7 International Financing has formulated and started executing its strategy in SADC and select African countries. Mapaka and Juana SADC COUNTRIES 6 SELECTED NON SADC COUNTRIES REST OF AFRICA Country Mode of operation All SADC countries Developing Preparing for financing Financing Kenya, Uganda, Rwanda, Republic of Congo, Ghana, Nigeria Preparing for financing (limited) Financing Strategic considerations (Regional priority / integration) (authorized by Board) Strategic considerations (Financing only) (authorized by Board) SEEDLIN GS BLOSSO MS LOW HANGING FRUIT BLOSSO MS LOW HANGING FRUIT LOW HANGING FRUIT Sectors Strategic considerations (Primarily Energy) (authorized by Board) BLOSSOMS Client type Sovereigns Infrastructure guarantee Project see-through Utilities PPP Private sector PPP Sovereigns Infrastructure guarantee Project see-through Utilities PPP Private sector PPP Strategic considerations (Sovereign linked only) (authorized by Board) Return requirement Developmental RoE > 12% Commercial RoE >16% (subject to refinement by DBSA Finance) RoE >16% Sustainability P&L range 7 (subject to refinement by DBSA Finance) 7

8 The DBSA s contribution to core economic infrastructure (e.g. energy, roads, water and sanitation and ICT) development in SADC has been far reaching. Examples of DBSA s contributions over the past several years In South Africa (over the past 5 years) Contributed 0.2% (average) to national GDP per year Created 25,700 (average) jobs per year 2,800 km of road rehabilitation 3 Ports projects US$614m towards the development of transport infrastructure 330,000,000 m³ bulk water storage volume US$2.4 billion committed to energy projects In SADC (over the past 15 years) 4,383 km of road rehabilitation US$350m towards the development of telecommunications infrastructure 2,960MW energy generation capacity 9,000,000 m³ bulk water storage volume 865km of gas pipelines 183m GJ pa of gas production capacity 75,000t of petroleum product transportation capacity US$200m in support of growing regional development banks

9 Rail PPP infrastructure projects in Africa: DFI Financing structures

10 THE CASE FOR INVESTING IN PPP s Zero-low financial returns Low-high blended financial returns High financial returns sought Public sector owns and operates assets Public-Private Partnerships (PPPs) Private sector owns and operates assets Municipalities, Agencies, State-Owned Enterprises (SOEs) Social & Economic sectors Concessions, BOT, DBO Economic sectors balance sheets financing Government funded Mix of public and private finance All private finance Fiscal finance spectrum DFI/Commercial finance spectrum Low Extent of Private Sector Participation High

11 Avenues of Funding DBSA and other DFI s can provide various financial products to support both private and public sector clients across various stages of the project development lifecycle Types of services for roads infrastructure financing include: underwriting, arranging, lending, syndication and transaction management Key clients include local authorities, state owned enterprises (SOEs), public private partnerships ( PPPs ) and private sector clients PRODUCTS Project Development Advisory Project Identification and Scoping Feasibility Assessment Technical Assistance Development Funding Institutional Modeling Financial Structuring Project Financing Debt Mezzanine Equity Limited/nonrecourse lending Development Funding Technical assistance Guarantees Corporate Lending Debt Mezzanine Equity Development Funding Technical assistance Underwriting Arranging Lending Syndication Equity Investing Private Equity DBSA Investments Empowerment Financing Transaction Management SERVICES

12 Project Preparation (PP) support can be defined as financial and non financial / capacity support to project sponsors, to prepare projects to bankability. This support includes amongst other things feasibility studies, modeling, designs and related activities to prepare a Project Information Memorandum (PIM) to enable the DFI to appraise and consider the project for lending; Preparation of projects for lending is done with the objective to ensure a good quality pipeline of projects and is supplementary to prepared projects presented to DFI lending divisions; DBSA will not only use its own sources to fund the preparation activities but will mobilise funding from national and Incomplete PIM A project submitted to the Lending Divisions for funding and fails to meet all requirements for funding (as identified from the PAT) PP Opportunities Greenfield Projects A sponsor approaches DFI for participation in a new project Brownfield Projects A sponsor approaches DBSA for participation in the subsequent phase or upgrading of an existing project 12

13 PP ACTIVITIES WITHIN THE PROJECT CYCLE Project Definition Prefeasibility Full Project Feasibility Project Structuring Project identification and scoping Project concept notes ToR for prefeasibility Project and Program management expertise Establish enabling environment, legal/regulatory/insti tutional and other issues for consideration Development of ToR for the full feasibility Procurement of Advisors and sector analyses Provision of sector specialist expertise on the project Technical / Engineering assessment Institutional capacity Financial assessment and modeling Environment al Impact Assessment Social impact assessment Provision of a financial, legal and technical advisor to provide project structuring inputs to enable the project

14 Financing categories PROJECT PREPARATION FUNDS INFRASTRUCTURE INVESTMENT PROGRAMME FOR SOUTH AFRICA AFD DBSA PROJECT PREPARATION AND FEASIBILITY STUDY FUND SADC PROJECT PREPARATION DEVELOPMENT FUND PAN AFRICAN CAPACITY BUILDING PLATFORM THE GREEN FUND PPF S Co-funding of EU grants with loans from DFIs to support national and regional infrastructure projects INVESTMENTS Enabling the implementation of NEPAD projects Primarily senior debt lender Up to 15 years US$ funding Local currency funding possible No Basel related tenor restrictions Public sector involvement Sovereign lending with project seethrough Sub-sovereign lending (utilities) Assist SADC to address implementation of SADC Regional Infrastructure Development Master Plan (RIDMP) Build African capacity for infrastructure development Provide catalytic finance to facilitate investment in green initiatives g Political risk mostly taken on balance sheet No need for ECA backing in most instances Development impact and monitoring Regional integration Corridor developments Environmental and social monitoring

15 Other potential sources of funds DBSA KwF EIB AFD AfDB FMO WB IFC BRICS DFIs DFIs Private Sector Private Companies Developers Consulting Engineers, etc IDC PIC NSC Initiative PDF Transnet ESKOM Other South African Companies / Institution Government s / Municipalitie s State departments Local authorities

16 Ability to finance projects that matter Offer a singular approach from project identification, Facilitate project preparation within a C-capital structure towards bankability Assist in working towards a gearing and lead arranger services to attract other financiers Lead arrange debt financing Creating and developing financial vehicles with local partners.

17 Considerations for bankability Source: Africa Strategic Infrastructure Initiative Project Finance in Africa: A commercial perspective on financing rail projects

18 DFI Financing options Source: Africa Strategic Infrastructure Initiative Project Finance in Africa: A commercial perspective on financing rail projects

19 Financing structures Source: Africa Strategic Infrastructure Initiative Project Finance in Africa: A commercial perspective on financing rail projects

20 Alternative revenue sources to secure market and demand risk User-based fees (e.g. tolls) Beneficiary fees and taxes Enterprise revenues

21 Types of alternative revenue sources *Beneficiary fees and taxes Value capture TIF Development impact fees Hotel taxes

22 Types of alternative revenue sources *Beneficiary fees and taxes Development fees Joint development Air rights Advertising and sponsorship

23 CONCLUSIONS DFIs willing to facilitate participation in PPPs Structures to deliver core infrastructure to relieve public sector balance sheet limitations The Optimality in PPPs is a must, to balance demand risk, user fee distortions and opportunity cost of public funds implies min revenue guarantee and a revenue cap Economics of value add (ROIC > Cost of Capital) at a project/programme level must be considered to justify the economic rationale Select equity/mezzanine participation can be considered in projects to create capacity ahead of demand and where risk-return profile justify a share in the upside Financial Sustainability of PPPs via SPCs, Project finance manner, Credit risk, Gearing, Collateral and Contracts mandatory Partnerships with Sponsors/funders should be mutually beneficial, to access new funding opportunities

24 Thank You Presentation by Laverne Dimitrov, DBSA Transport Sector Specialist