WEST AFRICA S ENERGY ROADMAP OPPORTUNITIES ON REGIONAL ELECTRICITY MARKET January 24, 2018
REGIONAL COOPERATION IN ELECTRICITY TRADE Electricity needs in developing countries, especially in Africa, are vast However, not all countries are endowed with resources that will allow them to generate enough electricity to satisfy all of their demand As such electricity trade is an important element in filling this gap, especially among neighboring countries In order to enable such trade a proper infrastructure needs to be in place Cross-border trade arrangements between foreign public entity and domestic public entity are common in enabling electricity trade In these situations, the public entities in both countries, usually enter into agreements on purely commercial terms This gives rise to a need for credit enhancement and risk mitigation on both sides of the agreements 1
CURRENT AND FUTURE REGIONAL GRID IN WEST AFRICA Existing Hydro Plant (before WAPP) Hydro plant under construction (finance secured) Hydro plant under construction (no WBG involvement) Planned Hydro Plant Planned Hydro Project (no WBG involvement) Existing Thermal Plant Planned Thermal Plant project Gas fields under development Planned Solar Projects 2
WORLD BANK GUARANTEE INSTRUMENT NEW FEATURE Intended to attract investment in infrastructure by providing credit enhancement support to Sovereigns and Sub-Sovereigns Mitigate risks to support the mobilization of private capital Enable projects by enhancing the credit worthiness of borrowers/offtakers Improve risk profile and transaction structuring Examples of backstopped obligations: Power Purchase Agreements, Gas Sales Agreement, Commercial Loans, Bonds Facilitate public-to-public cross-border trade While traditionally only private sector entity could have been the beneficiary of Guarantee, now this is extended to a foreign public entity as well An example include when foreign public entity enters into contractual relationship with a domestic public sector entity, which creates a payment obligation for the latter 3 Effective use of member countries World Bank allocation IDA countries benefit from a 1:4 preferential booking treatment (only 25% of the guarantee face value is booked against their country allocation) IBRD countries may also benefit from the same preferential 1:4 booking treatment on a case by case basis
WORLD BANK GUARANTEE PRODUCTS Commercial bank/bond investors Bond/Loan guarantees Guarantees on loan related obligations for public or private projects Project-Based Guarantees For private projects and SOEs Project Company/Foreign SOE Payment guarantees Guarantees on non-loan related /SOE payment obligations for private projects/ or foreign public projects Guarantee Products Policy-Based Guarantees For governments Beneficiaries Commercial bank/bond investors Bond/Loan guarantees Guarantee supports a WB Member Country s program to promote growth and reduce poverty 4
PUBLIC-TO-PUBLIC PAYMENT GUARANTEE Indemnity Agreement Indemnity Agreement Country A Exporter owned Ongoing payment Liquidated Damages Country B Importer owned WB Guarantee WB Guarantee Payment Guarantee covers both non-payment by electricity buyers, as well as LDs for electricity nondelivery by sellers. 5
EXAMPLES OF PUBLIC-TO-PUBLIC GUARANTEE OPERATIONS CASA 1000: - Electricity trade reinforcement among 4 countries (Pakistan, Afghanistan, Kyrgyzstan, and Tajikistan) through new transmission lines - All 4 countries have requested World Bank guarantee as a credit enhancement tool - World Bank guarantee to backstop obligations of both, importers and exporters Kenya Ethiopia: - New transmission line currently being build to connect the two countries - Kenya has requested World Bank guarantee support as credit enhancement tool - World Bank guarantee would backstop Kenya Power s payment obligations for electricity purchased from Ethiopia 6
ADVANTAGES OF HAVING THE WORLD BANK INVOLVED Strong regional engagement and bilateral relationships with each country that allow Word Bank to serve as a neutral forum for key discussions Brings contractual discipline by ensuring that each party of the agreement complies with its obligations World Bank guarantee is not meant to be a source of liquidity, but rather leverage its presence and sector dialog towards problem solving World Bank has direct recourse to the through an Indemnity Agreement in case a call under the guarantee 7