IFC - Advisory and Financial Instruments by Nebojsa Arsenijevic at GIB Summit


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Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014.
Read more about the world leading platform for Sustainable Infrastructure Finance at www.gib-foundation.org.
Next Summit: 27 & 28 May 2015 in Switzerland

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IFC - Advisory and Financial Instruments by Nebojsa Arsenijevic at GIB Summit

  1. 1. IFC's Advisory and Financial Instruments RE Market Development and Risk Management - example of activities in the Western Balkans - Nebojsa Arsenijevic International Finance Corporation Global Infrastructure Basel Basel, May 22, 2014
  2. 2. 2 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
  3. 3. IFC is a Leading Investor in Emerging Markets Power • 300+ power investments in 67 countries since 1967 • We typically invest in utility-scale projects/companies:  Generation – Financed 30,000+ 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 ups in 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 3
  4. 4. Key Trends in IFC Power Business IFC Investment Services 4 • 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 • 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
  5. 5. 5 Identified Obstacles Political Obstacles • Incomplete legal framework • Lack of institutional capacity • High political risk RE Developers/Sponsors • Technical capacity • Financial capacity • Proper market assessment Local Banks • Capacity relating to RE project • Experience in Project Finance • Long-term funding
  6. 6. 6 AS - Balkans Renewable Energy Program (BREP) Component Activities C1 Regulatory framework improvements C2 Support to renewable energy sponsors (Market and company level) C3 Support to financial institutions (Market and bank level) BREP Countries ALB Albania* BIH Bosnia and Herzegovina* MAC Macedonia** MNE Montenegro*** KOS Kosovo*** SRB Serbia*** MDA Moldova*** (limited scope) * Started FY10; ** Started FY12; *** Started FY13
  7. 7. 7 BREP’s Key Results – Legal Framework Country Legal Document Enacted SRB Decree on Feed-in Tariffs Decree on Privileged Status Decree on End-User Fee Calculation Preliminary PPAs (below and above 5 MW) Jan, 2013 Jun, 2013 ALB Law on Renewable Energy May, 2013 BIH (RS) Law on Renewable Energy and Efficient Cogeneration Law on Concessions May, 2013 Jun, 2013 BIH (FBIH) Law on Renewable Energy and Efficient Cogeneration Sep, 2013 Targets: • Align national regulation with EU; Fulfill obligations in accordance to EC Treaty of SEE; • Design appropriate incentive mechanisms; • Increase transparency of concessions granting procedure (credibility); • Design investment promotion tools and mechanisms for SHPPs; • Decrease collateral requirements;
  8. 8. 8 BREP’s Key Results – Support to Sponsors Country Activity Type ALB B2B – Linking international and local SHPP companies Registration of Programmatic CDM for SHPPs Review of the Feasibility study for a cascade of seven SHPPs Market Company Company SRB Analysis of biogas plants costs and incomes in Serbia Market BIH Support in SHPP tender preparation Review of the Preliminary design for a cascade of three SHPPs Market Company MAC Pre-feasibility study preparation for biomass plant Company Market Level Interventions Company Level Interventions • B2B workshops • Support to Associations • Knowledge sharing • Promotion of new technologies • Designs cross-check and review • Business plan preparation • E&S assessment • CDM projects registration
  9. 9. 9 BREP’s Key Results – Support to Banks Country Activity Type ALB Country level workshop Training and support to Credins Bank Training and support to Intesa Bank Market Company Company BIH Country level workshop Market KOS Country level workshop Market MAC Country level workshop Market MNE Country level workshop Market SRB Country level workshop Market Market Level Interventions Bank Level Interventions • Training material development • Integration of Regulatory/ Budgeting/ Engineering and Risk in the Finance Manual • Country level workshops • In-depth training focused on SHPPs and project finance • Support in SHPP assessment • Portfolio analysis and recommendations
  10. 10. 10 IFC’s Infra Venture (IV) Objectives $ 150 MM Global Infra Fund 20-30% of dev. costs (up to $ 8 MM) IFC IV equity at fin. close Eligibility Activities PPP or private infrastructure (IDA or MIC) Early stages of development Type of projects: • Agreement with Gvt • Tendered by the Gvt • Need of surrogate sponsor at initial stages feasibility studies and pilot tests economic, social, technical and environmental studies Financial modelling Obtaining required permits
  11. 11. 11 Objectives Catalyze investments Address market barriers Achieve demonstratio n effect Approach FY13 Results Blend donor funds alongside IFC investments Disciplined, targeted, & strategic Examples: • Lower interest • Longer tenor • Contractually subordinated loan alongside IFC To support total project size $2.5B Blended with $600M IFC financing $130M concession. funds Blended Finance for Climate Projects Concessional funds take higher risk than IFC’s own funds
  12. 12. 12 World Bank Group’s facilities (IBRD, MIGA) IBRD/IDA Partial Risk Guarantees (PRG) MIGA Partial Risk Guarantee Main Objectives: • Back Government obligations • Cover private debt against a Gvt’s obligations to private or public prj • Improve overall credit quality of project-partial use of AAA mitigant • Enable viability and bankability through strong risk mitigation Risks Covered: • Gvt’s contractual payment obligations: payments, termination, subsidies, etc. • Regulatory Risk: change in law, negation of license, tariff adjustment • Currency Risk • Political Force Majeure: expropriation, war & civil disturbance • Frustration of arbitration Main Objectives: • Focusing on sustainable development • Difficult or frontier markets • Investments in poorest countries • Supporting infrastructure projects - both the sovereign and sub-sovereign • Promoting cross-border investments between developing countries Risks Covered: • Currency Transfer Restriction and Inconvertibility • Expropriation • War and Civil Disturbance • Breach of Contract • Non-Honoring of Sovereign Financial Obligations
  13. 13. Appendix 13
  14. 14. 14 Legal Docs Drafting C1 – Regulatory Level Business to Business C2 – Market Level Programmatic CDM C2 – Company Level Equity Investment IFC IS C3N Country Level Workshop C3 – Market Level In-depth + Assessment C3 – FI Level Dedicated RE Loan IFC IS FM AS ISExample: ENSO HYDRO Example: CREDINS BANK Approach in transforming the market
  15. 15. 15 Selection of IFC’s Recent Regional RE Investments • SHPPs in Albania owned by the Austrian enso G.m.b.H  Installed power up to 50 MW  Investment value up to EUR 100 million  IFC equity investment EUR 6 million • Wind power plant Sibenik in Croatia owned by the Austrian RP Global Holding  Installed power 44 MW  Investment value EUR 84 million  IFC loan EUR 20 million; mobilized additional EUR 35 million • Wind power plant Jelinak in Croatia owned by the Spanish Acciona S.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
  16. 16. 16 Challenges in RE (SHPP) Development Design vs. Operation (or estimated vs. actual generation)