FINANCING OPTIONS AVAILABLE FOR COAL-FIRED POWER IN ASIA DUNCAN RITCHIE CEO, AEQUERO 3 rd Annual Emerging Asian Coal Markets, Vietnam 5 6 November 2014 1
Background to Aequero Aequero CEO led ANZIB office in Vietnam 1994-1998 Advised on various energy / infrastructure projects Financial Advisor on Phu My 2-2 Project from bid to closing Aequero advises on / supports development of energy and infrastructure projects in Asia Advising on coal-fired power projects in Indonesia and Sri Lanka Advising on / developing captive energy crop biomass projects in Thailand Aequero also advises governments, development agencies, investors and financiers on energy / infrastructure transactions e.g., advised ADB / MPI on Vietnam Project Development Facility (PDF) for PPP Projects Cover Photo Source: AsiaPower A Coal-Fired Power Project in the Philippines 2 2
Financing Projects in Asia - Overview Need to consider projects holistically: Country context country credit rating; creditworthiness of the off-taker; need for sovereign guarantees Who are the Project Sponsors Project siting, and access e.g., for construction, coal supply Technology Who will build and operate the Project experience; creditworthiness of counterparty; quality of contracts Projects are the sum of their contracts: EPC Contract; PPA; Coal Supply Agreement(s); O&M Agreement; Land Agreement(s); Government Guarantees etc. Counterparty credit risk is crucial esp. for the PPA off-taker 3 3
S&P Country Credit Ratings B- n/a AA- BBB- BB- n/a n/a AA- BBB+ n/a BB- BBB B+ A- BB+ n/a Investment Grade Non-Investment Grade Highly Speculative / Not rated Map Source www.mapsonline.org; S&P Foreign Currency Credit Ratings as at 1 November 2014. 4
Financing Landscape for Coal Projects Financing Source Historical (2007-2013) Today Multilateral Development Agencies - Financing + PRI, guarantees, conduits Significant (USD 13.5 B) Figures indicated for public finance from 2007-2013 (Source: www.eca-watch.org).. (almost) Nil OECD Bilateral Development Agencies Significant (USD 3.8 B) (almost) Nil European ECAs / US EXIM - Financing + PRI, guarantees Asian ECAs Financing, PRI, guarantees Significant (USD 12.6 B) Significant (USD 18.7 B) Very selective and diminishing Significant Chinese Financial Institutions Significant (USD 6.0 B) Significant International Commercial Banks Domestic Commercial Banks Significant, but often with ECA / other PRI Limited, market driven Significant, but often with ECA / other PRI Selectively significant, market driven Islamic Finance Selective, market driven Selective, market driven Non-ECA PRI Providers Limited Limited Capital markets (Int. + domestic bonds) Nil Nil, potential refinancing 5 5
Factors Influencing Financing Landscape Systemic factors impacting global / regional financial markets e.g., Asian Financial Crisis (1997), GFC (2008) Emergence of domestic financial markets in a number of countries e.g., Thailand, Malaysia, Philippines But some constraints may remain e.g., tenor, interest rate swap horizons Climate policy in particular, impacting public finance for coal projects Most MDAs have pledged not to finance coal projects incl. World Bank, EIB, EBRD. ADB still funding public sector coal projects (2014) but may not extend this to privately financed projects ECAs under pressure to end financing for coal projects; many ECAs already limit financing for coal projects 6 6
Call to End ECA Financing for Coal Projects Between 2007 and 2013 national ECAs provided C. USD 32 billion financing to international coal projects (63% of total financing from public agencies) Pressure being applied to ECAs to end financing to coal projects (see right) US, UK and the Netherlands governments propose OECD ECA group to adopt restrictions on financing high carbon-intensity projects Source: www.eca-watch.org. 7 7
Looking Forward Coal-fired generation remains a core supply option for Asia Climate policy and environmental activism likely to reduce lenders appetite / ability to finance coal projects Public finance (including ECA financing) looks to be under threat International banks may also come under pressure some already introducing restrictive policies Project sponsors may need to look to other alternatives to finance coal projects e.g. non-oecd public finance e.g., Chinese public sector banks, EXIM May have the unintended consequence of promoting less efficient technologies i.e., availability of financing drives technology selection 8 8
Looking Forward Countries with higher credit ratings, better creditworthy offtakers and more developed financial markets will be less impacted Other countries will find it challenging to access financing potentially impacting Cost of electricity supply Electricity supply mix Public policy makers might consider imposing constraints rather than a prohibition on coal projects e.g.: A portfolio carbon intensity approach; or Ratio of renewable project funding to coal project financing ($XX RE per $YY Coal) 9 9
Contact Duncan Ritchie, CEO Tel: +852 2251 8573 Mob: +852 9307 5343 Email: duncan-ritchie@aequero.com 10