IFC Power and Renewables Dzenan Malovic Technical Specialist Balkans Renewable Energy Program International Roundtable on Water and Energy Nexus in transboundary basins in SEE Sarajevo, 06. 11. 2013
IFC: Part of the World Bank Group IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency Est. 1945 Est. 1960 Est. 1956 Est. 1998 Role To promote institutional, legal and regulatory reform To promote institutional, legal and regulatory reform To promote private sector development To reduce political investment risk Clients Governments of member countries with per capita income between $1,025 and $6,055 Governments of poorest countries with per capita income of less than $1,025 Private companies in member countries Foreign investors in member countries Products Technical Assistance Loans Policy Advice Technical Assistance Interest Free Loans Policy Advice Equity/Loans Risk Management Advisory Services Political Risk Insurance 2
Twin Goals of the World Bank Group Ending Extreme Poverty From 18% to 3% of world population by 2020 Increased incomes for bottom 40% of every developing country Boosting Shared Prosperity An Unprecedented Opportunity: Ending Extreme Poverty in One Generation 3
IFC s History A global institution, now owned by 184 member countries 1990-1956 1980 Today 2000s IFCLaunch PSD added to the global economic agenda IFCcoins term emerging markets IFCscales up investments The global leaderin private sector development finance 4
Over $97 Billion Invested Since 1956 Largest multilateral source of loan/equity financing for the emerging markets private sector Founded in 1956 with 184 member countries AAA-rated by S&P and Moody s Equity, quasi-equity, loans, risk management and local currency products Takes market risk with no sovereign guarantees Promoter of environmental, social and corporate governance standards Resources and know-how of a global development bank with the flexibility of a merchant bank Holds equity in over 756 companies worldwide, 185 of which are funds Cumulative Investments by region FY2012 highlights Portfolio* Committed Mobilized $45.2 billion $15.4 billion $3.5 billion # of Companies 1,737 # of Countries 103 *IFC s account only. 5
IFC s Three Businesses IFC Investment Services IFC Advisory Services IFC Asset Management Company Loans Equity Syndications Resource Mobilization Trade finance Risk management Advice Access to finance Investment Climate Sustainable Business Public-Private Partnerships Wholly owned subsidiary of IFC Private equity fund manager Invests third-party capital alongside IFC $49.6 b portfolio (FY13) $232 m (FY13) $5.5 b under mgmt(fy13) 6
IFC is a Leading Investor in Emerging Markets Power 200+ power investments in 57 countries since 1967 We typically invest in utility-scale projects/companies: Generation Financed 26,000+ MW across wide range of technologies Transmission Selected investments in transmission assets Distribution- Current power portfolio of ~160 million customers around the world We can also invest in: Early stage start upsin the renewable energy space Smaller assets/companies through financial intermediaries(banks, PE funds) We often invest in first-in-kind projects in markets under reform 7
Key Trends in IFC Power Business Commitment volume has been steadily growing; renewable energy investments increased 5x since 2007; 65% to 75% of power business, up from ~25% 5 years ago IFC Investment Services Mobilization has been an increasingly important part of our business; we mobilized $1.7 billion in B-loans and other parallel loans in FY2011 We have been developing locally based teams with market expertise Greater technology diversification: not just hydro and wind, but also geothermal, solar, and biomass In-house technical expertise allows us to better appraise investments in new and emerging technologies / prototypes Investments through financial intermediaries(e.g. private equity funds, holding companies) an increasing share of our business; allow us to support smaller companies / projects 8
Energy Sector Investments - Regions 1.600 40 1.400 35 1.200 30 US$ millions 1.000 800 600 400 25 20 15 10 World LAC CAF CME CEU CSA CEA Project Count 200 5 0 FY08 FY09 FY10 FY11 FY12 0 9
Energy Sector Investments - Structure 1.800 100% 1.600 90% US$ millions 1.400 1.200 1.000 800 600 400 80% 70% 60% 50% 40% 30% 20% Non RE Total Geothermal RE/EE Funds/Fis Biomass/WTE Solar Wind Hydro Mobilization RE MW as % of all Power RE $mn as % of all Power 200 10% 0 0% FY08 FY09 FY10 FY11 FY12 10
Diverse Clients Trust IFC as a Power Sector Partner Half our business is with global clients We have forged long-term partnerships with key clients Recent trend of partnering with renewable energy companies expanding into emerging markets We support local clients to become global clients Local power companies investing in their own country or expanding into other emerging markets Local industrials expanding into the power sector Our local clients are becoming a larger share of our business as market reform increases opportunities for private investment in the power sector We work with emerging renewable energy companies We have supported newly started local renewable energy firms, as they begin to build their first projects 11
IFC s Long Standing Experience in Hydro IFC has financed key private sector hydro projects in Albania, Chile, Guatemala, Nepal, India, Philippines, Uganda, Turkey and Pakistan, among others IFC has made over 40 hydro investments totaling more than 4,500 MW of capacity IFC supports hydro projects by: Providing long maturities to match asset life Taking on full or partial merchant risk Assisting with managing E&S issues Taking construction risk Creating innovative bundling for small hydros 12
Energy Sector Directions Paper Given: 90% (70%) of hydropower potential in SSA (SAR) remains unexploited Hydropower is largest source of affordable renewable energy in many energy markets Delivers adaptation as well as mitigation benefits Provides storage to balance other renewables WBG will respond to demand for hydropower: Including both large and small hydropower (no longer a distinction) Including both run-of-river and reservoirs Based on multi-purpose vision and informed by nexus Environmentally and socially sustainable, including benefits-sharing with local communities 13
Selection of Recent Regional RE Investments SHPPsinAlbaniaownedbytheAustrianensoG.m.b.H Installed power up to 50 MW Investment value up to EUR 100 million IFC equity investment EUR 6 million WindpowerplantSibenikinCroatiaownedbytheAustrianRPGlobalHolding Installed power 44 MW Investment value EUR 84 million IFC loan EUR 20 million; mobilized additional EUR 35 million WindpowerplantJelinakinCroatiaownedbytheSpanishAccionaS.A. Installed power 30 MW Investment value EUR 55 million IFC loan EUR 20 million; mobilization of additional EUR 25 million HPP privatization in Albania by the Turkish Kurum International Installed power 77 MW Investment value EUR 120 million IFC loan EUR 30 million; mobilization of additional EUR 66 million 14
IFC in Bosnia and Herzegovina BosniaandHerzegovinabecameashareholderandmemberofIFCin1996 Since then IFC invested $343 in Bosnia-Herzegovina s economy As of July 1, 2013, IFC's outstanding portfolio in Bosnia-Herzegovina is $100 million. IFC is focusing its investment services on supporting foreign and domestic businesses in: The real sector Infrastructure, with particular focus on climate solutions and renewable energy and Financial markets IFC advisory services aim to improve: The investment climate Performance of private sector companies Access to finance PPPs and Renewable energy sector 15
Balkans Renewable Energy Program Program funded by: Austrian Ministry of Finance (BMF) 16
Renewable Energy Project Activities in BiH Part of the larger regional Balkans Renewable Energy Program(BREP) RE BIH project implementation started in October 2010 The overall goal of the Project is to create a comprehensive framework to support the development and implementation of RE projects. This goal will be achieved through the systematic implementation of three individual objectives: Improve the existing regulatory framework to enable RE power plant sponsors to develop and construct feasible projects Work with RE power plants sponsors to improve their designs and business plans Work with selected financial institutions (FIs) in BIH to improve their internal capacities and knowledge on RE projects financing 17
Identified Obstacles & BREP s Components Regulatory Obstacles Inexperienced RE Developers Local Banks No RE Experiences 18
RE BiH Key Highlights RELawinRepublikaSrpskaadoptedintheRSNationalAssembly RE Law in Federation of BIH in parliamentary procedure Law on concessions in Federation of BIH in parliamentary procedure Number of by-laws developed Signed legal documents with RE developers Developed training materials for commercial banks 19
Annex IFC s Value-Add in Power Transactions From Patient Equity to Long Term Debt Sector Expertise Country Risk Mitigation Environmental & Social Risk Management Advisory Services DEBT LongMaturities Tailored to Project Needs Fixed/Floating Rates, Local Currencies Flexible Amortization Profile Syndication/Mobilization SUB-DEBT Termstailored to meet project needs EQUITY Upto 20% in project or company Extensive sector knowledgegained from experience In-house Engineers: Canoffer technical advice and consider new technologies In-house Market Expertise: Can assess and structure for Merchant Risk In-house Regulatory Expertise: Can assess and structure for Regulatory Risk Government Relations Neutral broker Role World Bank Synergies Advice on Environmental and Social Best Practices Equator Principles Modeled after IFC Standards Access todonor Funding/ConcessionarySupport Coordination Programs to assist client, including: Local Supplier Development, Corporate Governance, Community Development Funding Carbon Finance On selective basis, start-up equity/co-developer under Joint Development Agreement 20
IFC invests Equity, Senior Debt, Everything in Between Equity Corporate JV (early equity investments, Infraventures) Typically up to 20% shareholding Long-term investor, typically 6-8 year holding period Mezzanine / Subordinated Debt Any number of structures/flavors of subordination Subordinated loans, income participating loans, convertible loans Senior Debt Senior Debt (corporate finance, project finance) Fixed/floating rates, USD, EUR and local currencies available Long maturities: 8-20 years, appropriate grace periods Range of security packages suited to project/country Mobilization of funds from other lenders and investors 21
Annex Some Basics on How IFC Finances Projects IFC s totalinvestment size on its own account is set by the following criteria: Greenfield with total cost >= $50 million Up to 25% of project cost Greenfield with total cost < $50 million Up to 35% of project cost Expansion or rehabilitation Up to 50% of project cost IFC can deliver the following complements to its own debt investment B loans Syndicated loans where IFC is lender of record, typically with funds provided by international commercial banks. Parallel loans IFC can mobilize parallel lenders, typically DFIs or local lenders IFC is able to work alongside co-lenders as part of lender group IFC s equity investment typically cannot exceed 20% of total share capital 22
Early Review Annex IFC s Project Cycle Due Diligence Disclosure Commitment and Disbursement Monitoring Monitoring Client needs determined Assessment of project s impacts and development contributions Policy Committee approval Assessment of business opportunities and risks Analysis of environmental and social opportunities and risks Appraisal Disclosure of environmental and social information Opportunity for public comment Negotiation and agreement of principal terms Board approval Signing of legal documents Disbursement Annual review of project performance Financial Environment & Social Report Mandate letter Credit Committee approval We Agree on a Specific Timeline to Meet Client s Needs 23
Annex IFC Sustainability Framework 24
Annex Performance Standards Overview PS1: Assessment and Management of E&S Risks and Impacts PS2: Labor and Working Conditions PS3: Resource Efficiency and Pollution Prevention PS4: Community Health, Safety and Security PS5: Land Acquisition and Involuntary Resettlement PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources PS7: Indigenous Peoples PS8: Cultural Heritage 25
Annex What Clients Value About IFC Long-Term Partner Role WBG Stamp of Approval Financing Not Readily Available Elsewhere Ability to Mobilize Additional Funds Worldwide Presence Broad Range of Products Global/ Local Knowledge of Industries & Markets Perceived Risk Mitigation 2013 IFC Client Survey 26
Annex List of IFC Projects Active in BiH (FY13-14) Public-Private Partnerships In April 2013, the Government of FBiH signed the mandate to engage IFC as Lead Transaction Advisor to assist FBiH Road Directorate in attracting a private sector investor/operator for the design, finance, construction, operation and maintenance of 39km section of the Corridor 5c Investment Climate Project Supports regulatory reform efforts at all levels of the Governments focusing primarily on subnational administrative simplification, FDI and investment policy, and agribusiness competitiveness Microfinance Project Supports development of the microfinance sector in BiH by fostering transformation of microfinance institutions in the Federation of BiH, clearing bottlenecks in existing regulation and further harmonizing microfinance legal and regulatory landscape Corporate Governance Program Works with companies and market regulators to improve corporate governance standards, and with local institutions on building their capacity to provide corporate governance advisory services. 27
Annex List of IFC Projects Active in BiH (FY13-14) The Southeast Europe Tax Transparency and Simplification Program Works in Bosnia and Herzegovina to achieve two objectives - simplify tax administration procedures to reduce tax compliance costs, particularly for SMEs; and improve the legal framework and efficiency of administration of international taxation procedures, with a focus on transfer pricing and double taxation treaties The Western Balkans Trade Logistics Project Works in Bosnia and Herzegovina to achieve two objectives- reduce the number of documents and days needed for goods to be exported and imported; and streamline procedures for the flow of cargobyroad,air,andriver Balkans Renewable Energy Program Works to develop the renewable energy market, with a special emphasis on small hydro power plants(shpp), in Western Balkans countries with the highest impact potential- Albania, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Montenegro and Serbia. 28
THANK YOU Telephone: +387 33 251 555 E-mail:dmalovic@ifc.org 29