renewables Made in Germany Initiative Renewable Energy Sector Indonesia Financing Opportunities and Risk Mitigation Jakarta, November 3rd, 2015 Project Finance International: Dr. Joachim Richter
PFI Corporate Profile Highly specialized Consulting Company Financial Engineering Export & Trade Finance Financing Marketing Political Engineering Research inside the Donor-Institutions Financial Experts for Export Initiative Renewable Energies
Financial Engineering Risk Mitigation Business Rational for Exporting Companies The creative project development The creative financing, The professional risk management decides in an increasing global competitive pressure about the sales success This applies for: Consultants, (Sub)-Suppliers, EPC Contractors, Investors
4 Financing Scenarios for Indonesia Local financial Market Government Subsidies Donor Financing International Finance Institutions Financing Facilities Cash flow based Project financing BOOT Models Export credits ECA Guarantees
1 st Scenario - The Donor Financing World Bank Group KfW/DEG Frankfurt ADB Manila
1 st Scenario - The Donor Financing Loan Contract between Development Bank / Donor Organization and the Government of Indonesia, State owned Enerprise (PLN), or Public non banking Organisation 3 general principles ( Blue Book Publication) Application Principle Sovereign Guarantee (applicable for Multilateral Development Banks - not for KfW) Tender Procedure
1 st Scenario - The Donor Financing Development Bank LOAN AGREEMENTS BORROWER Government of Indonesia SUPPLIER CONTRACTOR CONSULTANT IMPLEMENTING AGENCY (PLN) Supply or Service Contracts
1 st Scenario - The Donor Financing Responsibility of Executing Agency (in our case PLN) Preparation of Procurement Procedure Preparation of Procurement Plan and Tender Doc`s Invitation to Bid Tender Evaluation Implementation
Business Opportunities Donor financed projects Consulting Companies Feasibility Studies, project preparation, specific services Environmental Assessment Study or Institutional Capacity Training Courses Lender`s Engineer Legal Opinion Suppliers and specific technology provider project is structured in individual lots individual procurement of lots EPC contractors turn key procurement business rational for (local) SMEs nominated subcontractor
How to track Business Opportunities Country Assistance Strategy Sector Support Strategy Monthly Operational Summary Project Information Document (source: United Nations Development Business) Project Appraisal Document Contract Awards World Bank Doing Business Assessment (important for potential Investors)
2 nd Scenario - local financial market Finance Institutions in Indonesia will receive refinancing loans from International Finance Institutions (IFIs) like: The World Bank / International Finance Corporation Asian Development Bank
2 nd Scenario - Commercial financial Market Private Sector Departments from International Finance Institutions The World Bank (IFC/MIGA) Asian Development Bank DEG from Germany / Member of KfW Banking Group
2 nd Scenario Commercial financial Market Lease Models for proportional Self Consumption Self-consumption allows to feed in behind regional distributors meter Interconnection on client site Connection behind Public Meter minimizes regulatory compliance requirements
2 nd Scenario Commercial financial Market Lease Models for proportional Self Consumption Private Equity Funds example: HKG based Symbior Lease Models Symbior gets a return on investment from the power generated over 5 years from the installed solar panels Symbior will "run" the power generation for 5 years no construction risk on client side selection of the suppliers will be done in cooperation with Lessor as the Lessor will be the ultimate owner warranty comes from the suppliers, Symbior is only the funder and not a manufacturer
3 rd Scenario - export financing risk mitigation Payment Securities Export Credit Agencies
Letter of Credit L/C issuing bank (Bank of Importer) Payment under L/C Presentation of Documents Issuance of L/C L/C advising bank (Bank of Exporter) Documents Documents Debit of L/C value L/C Application Payments Advising (confirmation) of L/C Indonesian Importer (L/C Applicant) Delivery Contract German Exporter (Beneficiary)
3 rd Scenario - export financing risk mitigation Trade Facilitation Programme supported from ADB and IFC Counter guarantee for LC with longer tenor
Euler Hermes-covered Buyer`s Credit Buyer credit cover enables banks to insure their receivables arising from the financing of a German export transaction Buyer credit cover offers protection against payment default, particularly if the borrower becomes insolvent the borrower fails to make payment within one month after due date (protracted default) adverse measures are taken by foreign governments or warlike events arise local currency amounts are not converted or transferred
Euler Hermes-covered Buyer`s credit (Corporate loan) Indonesian Importer Delivery Contract German Exporter Local Loan Agreement Repayment (Instalment/ Interest) Disbursement (pro rata deliveries and Services) State ECA EulerHermes Indonesian Bank Loan Agreement Repayment (Instalment/Interest) Bank of Exporter
Euler Hermes-covered Buyer`s credit (Corporate loan) Indonesian Importer Delivery Contract German Exporter Repayment (Instalment/Interest) Indonesian Bank Disbursement (pro rata deliveries and Services) Bank of Exporter State ECA EulerHermes
3 rd Scenario - export financing risk mitigation Major pre-requisites for credit assessment on Corporate Risk Annual and interim reports Equity to be compatible with the contract value Additional information: Commercial and bank references Received foreign credits Credit history Description of export activities/ FX income
3 rd Scenario Country Policy - ECA Coverage Maturity Short term Explanation Cover is available for transactions with private buyers on the basis of up-to-date information material Cover facilities for major projects are available on a case-by-case basis. Medium/long term A restrictive approach is adopted to cover of transactions with public buyers and large-scale projects are carefully examined to determine their eligibility for cover. Cover is available for transactions with private buyers on the basis of up-to-date information material and a special examination of the project s economic viability Country Category 3 out of 7 General Information A restrictive approach is adopted to cover of transactions with public buyers and large-scale projects are carefully examined to determine their eligibility for cover. Restricted approach for Coal fired Power Plants Green Financing supported
4 th Scenario - Cash Flow based Project Finance Equity Partner IFC/ DEG commercial banks Feasibility Studies Lender`s Engineer Sponsor Equity Provider Project Development Special Purpose Company Commercial Borrowing Loan ontracts Power Purchase Agreement Offtaker Turn Key Contract Plant Erection Plant Operation Management Contract Concession Government Entity
4 th Scenario BOOT Projects (IPP or PP Scenario) After intensive project preparation work, due dilligence Financial closing captive power plant will be built B="build The plant will be owned and operated Debt Service Cover Ratio O+O= "own" and "operate After termination of concession period plant will/might be transferred to the State T= "transfer
Risk allocation for RE Projects Project implementation risks Political risks, regulatory risks Machine Break down risks Technology risks Project risks Financial risks Resource risks Risks against force majeure events
Investment Guarantees of the Federal Republic of Germany Investing abroad means to pursue opportunities Whereas technical and financial issues are more or less calculable risks to be considered when planning an investment abroad The political environment in emerging countries very often is almost unpredictable and must therefore play a predominant role in the overall corporate risk assessment
Investment Guarantees of the Federal Republic of Germany The Federal Republic of Germany may grant guarantees for eligible foreign direct investments of German entrepreneurs in Indonesia by protecting them against political risks. Investment Protection Treaty (IPT) between Germany and Republic of Indonesia
Thank you very much for your kind attention! Project Finance International - Dr. Joachim Richter richter@project-finance.de www.project finance.de