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  1. 1. AFRICAN BIOFUELS & RENEWABLE ENERGY FUND To become in long term a leader Fund in Clean Energy Development focused on African region Dakar, 4 September 2008
  2. 2. <ul><li>Energy Security: Energy poses a major problem in sub-Saharan Africa, more so than anywhere else in the world. </li></ul><ul><ul><li>The electrification rate < 25% </li></ul></ul><ul><ul><li>The primary energy consumption = 5% of the world total consumption </li></ul></ul><ul><ul><li>An increase in oil price $10/barrel = 1.5% drop in GDP & up to 3% for very poor countries </li></ul></ul><ul><li>Climate change: The poorest countries that will suffer the climate change earliest and most </li></ul><ul><ul><li>Hunger, water shortages and coastal flooding </li></ul></ul><ul><ul><li>The increase of production and exports of oil and gas cannot be an end in itself </li></ul></ul><ul><li>Carbon market: an additional revenue stream </li></ul><ul><ul><li>Kyoto protocol and its local application : European Trading Scheme, CCX (USA),NSW (Australia)… </li></ul></ul><ul><ul><li>Carbon finance could raise $4 billion by 2012 and up to $14 billion thereafter (10 times greater than what is available than Official Development Assistance) </li></ul></ul>Energy Context I. Background
  3. 3. I. Background CDM Opportunities and Biofuels <ul><li>Africa currently accounts for less than 2% of the Clean Development Mechanism (CDM) projects. Yet, the continent is rich in natural resources and the potential for investments in biofuels and renewable energy is considerable. The water and forest resources of the African continent are vast. For example, Africa has: </li></ul><ul><li>17 major rivers with catchment areas of greater than 100,000 km2; </li></ul><ul><li>total forest cover of 650 million hectares (69.8 million haectares in West Africa) accounting for approximately 17% of the world’s total forest cover; </li></ul><ul><li>Many natural resources remain unexploited due to either lack of capital or human resource skills available. </li></ul><ul><li>Average sunshine potential in West Africa represents 5 to 6 kWh/m² per day </li></ul>
  4. 4. I. Background In November 2006, the ECOWAS Bank for Investment and Development (EBID) and the United Nations Conference on Trade and Development (UNCTAD) organized a regional conference in Accra, Ghana, on the financing of bio-fuels and Jetropha cultivation in Africa, and on the development of the carbon market.   During the conference the initiative was launched to establish an African Fund for the development of bio fuels. The President of the Republic of Ghana, his excellency John KUFUOR kindly agreed to be the patron of the Fund. The Fund Creation
  5. 5. II. Objectives of the Fund <ul><li>The Fund will : </li></ul><ul><li>Contribute to the development of the biofuels and renewable energy industry in the African regions, with a particular focus on West African countries </li></ul><ul><li>Provide investors with superior returns through investments in biofuels and renewable energy projects which generate Certified Emission Reductions (CERs). </li></ul>
  6. 6. III. Structure & Mode of Operation of the Fund Structure Africa Biofuels & Renewable Energy Fund (ABREF) <ul><li>Equity Investment </li></ul><ul><li>CERs Purchase </li></ul>Africa Clean Energy Technical Assistance Facility (ACE TAF) <ul><li>Feasibility studies </li></ul><ul><li>Energy audit for potential energy </li></ul><ul><li>efficiency projects </li></ul><ul><li>Project Design Documentation & </li></ul><ul><li>Validation </li></ul><ul><li>Projects preparation costs </li></ul><ul><li>Capacity building </li></ul>Africa Biofuels & Renewable Energy Company (ABREC) <ul><li>Project identification </li></ul><ul><li>Support for Management of </li></ul><ul><li>the TAF </li></ul><ul><li>Liaison & Coordination </li></ul><ul><li>Support to the Fund Manager </li></ul>International Fund Manager) <ul><li>Revew & carry out due </li></ul><ul><li>diligence on projects & </li></ul><ul><li>recommandation to the Board </li></ul><ul><li>of Trustees </li></ul><ul><li>Monitor the project post </li></ul><ul><li>funding & report back </li></ul><ul><li>to the Board of Trustees </li></ul><ul><li>Prepare an annual budget </li></ul><ul><li>for its activities </li></ul>
  7. 7. III. Structure & Mode of Operation of the Fund <ul><li>Board of Trustees </li></ul><ul><li>Investment Committee </li></ul><ul><li>Management of the Fund </li></ul><ul><li>Two options </li></ul><ul><ul><ul><li>Joint Venture between ABREC and the International Fund Manager (IFM) </li></ul></ul></ul><ul><ul><ul><li>One International Fund Manager (SICAV : a “limited liability company with a variable share capital”) </li></ul></ul></ul>Mode of Operation
  8. 8. IV. Fund Size, Category of Shares & Investment Parameters <ul><li>ABREF Equity investments : € 200 million </li></ul><ul><ul><li>€ 150 million (75%) of the Fund’s capital for equity investments in specific projects </li></ul></ul><ul><ul><li>€ 50 million (25%) to purchase CERs </li></ul></ul><ul><li>Debt facility : US $ 1 billion </li></ul><ul><li>ACE TAF : € 10 million </li></ul><ul><ul><li>Contributions from governments </li></ul></ul><ul><ul><li>Voluntary contributions from private sector </li></ul></ul>Fund Size
  9. 9. IV. Fund Size, Category of Shares & Investment Parameters <ul><li>Two options : </li></ul><ul><li>Option I </li></ul><ul><ul><li>Private Investors , Share A </li></ul></ul><ul><ul><li>Governments, Share B </li></ul></ul><ul><li>Option II </li></ul><ul><ul><li>ABREC (African investors), Share A </li></ul></ul><ul><ul><li>Governments (Non African), Share B </li></ul></ul><ul><ul><li>Non African Institutions, Share C </li></ul></ul>Category of Shares
  10. 10. IV. Fund Size, Category of Shares & Investment Parameters <ul><li>A minimum contribution from any one investor of € 5 million euro; </li></ul><ul><li>The investment from African Investors will be represented by ABREC with an minimum investment by ABREC of €5 million euro with a minimum of €1 million euro by any one investor; </li></ul><ul><li>A maximum contribution from any one investor of € 40 million euro; </li></ul><ul><li>A minimum of Euro 50 million for the fund to close, in the event that it proves extremely difficult to raise the € 200 million target </li></ul><ul><li>A minimum of 5 investors of which at least two must be Government investors and at least two must be private sector investors </li></ul>Investment parameters
  11. 11. V. Eligible sectors <ul><li>Energy-Efficiency (Household & Industrial); </li></ul><ul><li>Renewable Energy (e.g – small hydro); </li></ul><ul><li>Biomass (new generation facilities using biomass); </li></ul><ul><li>Fuel-Switching (e.g – coal or gas or oil to biomass); </li></ul><ul><li>Methane Capture (e.g – landfill gas); </li></ul><ul><li>Biofuels (e.g. – Jatropha plantations). </li></ul><ul><li>N.B : All the projects will be financed on the base of their financial profitability </li></ul>
  12. 12. VI. Eligible countries <ul><li>First Phase </li></ul><ul><li>Second Phase </li></ul>ALL AFRICA
  13. 13. VII. Types and Parameters of investment Types of Investment Category Carbon (CER Generation) Description of Type of Investment 1 No Equity Investments 2 Yes Equity Investments with CERs 3 Yes Intermediation of Debt in Return for CERs
  14. 14. VII. Types and Parameters of investment Parameters of Investment <ul><li>At least 75% of the Fund’s capital should be invested in the preferred categories of projects (energy-efficiency, small hydro, biomass (new cogeneration) and biomass (fuel switching); </li></ul><ul><li>A minimum investment in any one project of €1 million euro; </li></ul><ul><li>A maximum investment in any one project of 10% of the Fund or €20 million euro, whichever is lower. </li></ul>
  15. 15. VIII. ABREF Business Plan <ul><li>The business model of ABREF will be to : </li></ul><ul><li>Identify </li></ul><ul><li>Originate and </li></ul><ul><li>Execute investments in renewable energy projects from the ABREC’s pipeline of projects wich generate an additional return from the sale of CERs </li></ul>
  16. 16. IX. ABREF Pipeline of Projects SECTORS NUMBER Agriculture 4 Biofuel 19 Biomass Energy 10 Energy Distribution 7 Energy Efficiency industry 2 Energy Efficiency households 9 Energy Efficiency own generation 5 Fossil fuel switch 5 Hydro 22 Afforestation / Reforestation 4 Solide Waste management 17 Solar 3 Wind 1 TOTAL 108
  17. 17. X. Target rate of return <ul><li>With the additional return from CERs : </li></ul><ul><li>The Fund expects a minimum of 15% Internal Rate of Return (IRR) based on this following assumption: </li></ul><ul><ul><li>Governments : 5% </li></ul></ul><ul><ul><li>Private investors : 25% </li></ul></ul><ul><li>Assuming that the Fund is composed of 50% government funding and 50% private funding </li></ul>
  18. 18. XI. CER Contracting and Sales Strategy <ul><li>The CER contracting structures include : </li></ul><ul><li>Fixed price with 30-50% of CER contract valued at financial closure and the rest on delivery of the CERs </li></ul><ul><li>Low fixed price with the project sponsor and the Fund sharing returns above the fixed price </li></ul><ul><li>Partial Sale of CERs at a low fixed price of which 100% is payable up front. The remaining CERs can then be sold later once the project is more developed either on the spot market or through a forward contract. </li></ul>
  19. 19. XII. The Voluntary Carbon Market <ul><li>The Fund will also focus on the Voluntary Carbon Market for t he projects which are not able to generate CERs </li></ul><ul><li>The VER market is expanding with a future increased demand </li></ul><ul><li>In the absence of regulation, there is an increasing number of companies around the world who are wanting to go ‘carbon neutral’ in order to prove their green credentials. VERs can be generated for projects where there is not an approved CDM methodology yet in place or in countries where it is not yet possible to undertake CDM projects. </li></ul>
  20. 20. XIII. Risk Management <ul><li>Country risk </li></ul><ul><ul><li>Can be mitigated through close working with the governments of the respective countries who badly need the services to be provided by the projects </li></ul></ul><ul><li>Market risk </li></ul><ul><ul><li>Can be mitigated through the use of appropriate partners in each country and through the commissioning of thorough feasibility studies </li></ul></ul><ul><li>Economic risk </li></ul><ul><ul><li>The benefit of carbon credits earned under the CDM mechanism will assist the economic returns on the project </li></ul></ul><ul><li>Management Risk </li></ul><ul><ul><li>This risk is mitigated by conducting a tender to select the best possible international fund manager and by ensuring that ABREC works closely with the International Fund Manager in a cooperation and support role </li></ul></ul><ul><li>Carbon CER Delivery Risk </li></ul><ul><ul><li>Can be mitigated in three manners : </li></ul></ul><ul><ul><ul><li>by not forward selling CERs from the project until the project is well advanced under development </li></ul></ul></ul><ul><ul><ul><li>by conservatively selling the volume of CERs expected to be generated by the project and </li></ul></ul></ul><ul><ul><ul><li>by taking out CER delivery guarantee insurance with an insurance company </li></ul></ul></ul><ul><ul><li>The risk of there not being any CERs, post 2012 can be mitigated by not selling any post 2012 CERs until the international climate regime, post-2012 becomes clearer. </li></ul></ul>
  21. 21. XIV. Exit Strategy <ul><li>Two obvious exit routes : </li></ul><ul><li>An Initial Public Offering (IPO) of the Funds equity stake, including in its project CER portfolio </li></ul><ul><li>A tender and private sale to private investors and/or CER purchasers. </li></ul>
  22. 22. XV. Tax Regime <ul><li>ABREC will be the International Financial Institution. The tax regime depends on the location and the form of the management of the Fund. If : </li></ul><ul><ul><li>Joint Venture between ABREC and the International Fund Manager (IFM) …… 45% </li></ul></ul><ul><ul><li>One International Fund Manager (SICAV) ……………………………………………. 0% </li></ul></ul><ul><li>The Fund is tax exempt </li></ul>
  23. 23. XVI. Road Map
  24. 24. THANKS TO OUR SPONSORS Ecowas Bank for Investment & Development United Nations Conference On Trade & Development World Bank Carbon Finance Assist Economic Community Of West African States ECOBANK Group International Energy Insurance (Nigeria) Fonds Africain de Garantie et de Coopération Economique OUR PARTNER ECOSUR Energy.Environment. Innovation Alien Energy Empresa Brasileira de Pesquisa Agropecuària FIRST CLIMATE Agence Nationale d’Appui Au Développement Rural Communauté Electrique du Bénin DENTON WILDE SPATE Union Economique et Monétaire Ouest Africaine
  25. 25. Head of Project Mr. Thierno Bocar TALL Tel : (+228) 221 68 64 Fax : (+228) 221 86 84 (+228) 222 81 51 E-mail : [email_address] www.faber-abref.org THANK YOU FOR YOUR KIND ATTENTION Contact