Tony Nkuna at Sustainability Conference 2015, NCPC

1. Development funding towards green industrialisation
– through Innovation
INDUSTRIAL EFFICIENCY CONFERENCE
Tony Nkuna
PDM: Industrial Infrastructure Unit
Industrial Efficiency Conference 2015
Durban ICC, July 22nd, 2015

2. The Industrial Development Corporation
o Established: 1940
o Type of organisation: Development Finance Institution (DFI)
o Ownership: South African Government
o Total assets: R123 billion ($10.08 billion) as at end March 2015
o Main business area: Providing funding for private sector projects that are contributing towards
industrialisation and job creation
o Geographic activities: South Africa and the rest of Africa
o Products: Senior and sub-ordinate debt, equity, BEE and BBBEE Preference share funding
& project development funding
o Stage of investment: Early stage (feasibility), commercialisation, expansion
o Project development: Identification and development of projects adding to the industrial base
o Sector focus: Industrial Infrastructure (Energy & Logistics), New Industries, Agro-processing,
Agriculture & Forestry, Mining & Metals Value Chain, Chemicals &
Pharmaceuticals Value Chain, High Impact Sectors (Textiles, Media, Heavy
Manufacturing, Light Manufacturing & Tourism)

3. Positioning of DFIs within the financial system
• Non-commercial focus
• Fiscal transfers and grants
• Development objectives (social)
Government / NGOs
• High commercial focus
• Private sector capital
• Financial objectives
• Known risks
Commercial Financiers
• Commercial and development
focus
• Sharing risk
• Internally generated funds,
government funds, loans
DFIs (e.g. IDC)
Greater importance on financial objectives
Greater importance on social and developmental objectives
DFIs should not compete with other institutions, but should
instead encourage cooperation to achieve its goals

4. Partnering for industrial development
IDC
• 75 years of experience in
industrial development
• Appetite to take risk
• Early stage investment
• Financial muscle
• Targeted funding for specific
interventions
Industrialists/
Entrepreneurs
• Investment plans
• Projects under development
• Technology
• Operating/management expertise
Long-term view on
investments and a
commitment for the
development of the
industry

5. Introducing IDC
Historical perspective
• World War 2 – Shortage
of industrial goods
• South African economy
largely based on
agricultural production
and gold mining
1940s
• IDC established to
provide financing for
industrial undertakings –
at this stage only in the
manufacturing industry
• Food processing;
• Textiles
• South Africa facing
threat of isolation from
the rest of the world
1950s & 1960s
• Securing energy
resources for South
Africa a priority
• Increasing natural
resource beneficiation
• Petroleum
• Fertilizers
• Wood processing
• Chemical beneficiation
• Mining and minerals
• Decentralisation policy
by government
• Increasing isolation
• Self sufficiency
• Balance of payments
1970s & 1980s
• Import replacement
• More resource intensive
industries established –
mainly to bolster export
earnings in non-gold
sectors
• Initiation of high-tech
industries
• Agriculture explored as
a foreign exchange
earner
• Industrial real estate
development
• Resource beneficiation
• Micro-electronics
• Change in government
• South Africa introduced
to a globalising world
• Addressing the
disparities created by
apartheid
1990s
• Moves to encourage
regional integration
• Black economic
empowerment
• Export promotion
• Services related
industries
• Investments elsewhere
in Africa
• Tourism
• ICT
• Unemployment
• Diversification of
economy
• Reducing inequalities
• Infrastructure
constraints
Early and mid 2000s
• Job creation
• Developing rural areas
and other previously
underdeveloped regions
• Downstream industries
• Entrepreneurial
development
• Sector strategies
• Film
• Franchising
• Healthcare
• Financial services
• Transport
• Construction
• Industrial infrastructure
Over its history, IDC has adapted to
South Africa’s changing priorities and
expanded into new industries as the
economy developed and policies
evolved
Late 2000s & 2010s
• Recession
• New Growth Path and
Industrial policy
• Mandate overlap of
DFIs
• Growing financial sector
liquidity
• Climate change
• Focus on NGP,IPAP2 &
NDP
• Phasing out funding to
service industries not
aligned to priorities
• Job creation through
development of key
sectors/value chains
• Expansionary and
broad-based BEE
• Funding to distressed
companies
• Green-industries
• Phasing out:
– Franchising
– Financial services
– Transport
– Construction

6. Introducing the Unit
Industrial Infrastructure
• Established in April 2015
• Enabling industrial development
through infrastructure investments
• Mainly driven by IDC value chains
1) Energy
– Renewable energy
– Fuel based energy
– Energy efficiency
– Base load energy
– Biofuels
2) Logistics, Water and Telecoms
Infrastructure
– Telecoms and broadband
– Water infrastructure
– Rail, road, warehousing
– Industrial hubs etc.
A value chain approach apply with
emphasis on industrial development
(including localisation) and job creation

7. Role: Industrial Infrastructure
Objectives
• Support specific infrastructure that unlocks or enables industrial capacity development and economic
opportunities
• Ensure that Value Chain projects have all the necessary infrastructure requirements to achieve their
developmental outcomes
Approach
• Support private sector or PPP industrial infrastructure where it is necessary to specific projects within IDC value
chains or New Industries or targeted industrial capacity building
• Play a coordination role to ensure that requisite infrastructure is funded and developed by other funders
• Invest selectively in strategic, economy wide, large scale interventions
Measures of success
• No Core VC projects delayed by infrastructure requirements
• Total disbursement amount facilitated by actively influencing other funders
• Number of direct and indirect jobs unlocked through infrastructure investments
• Quality of portfolio

8. Role: Industrial Infrastructure (cont’d)
Focus Areas
• Energy: Renewable Energy, Base load (Coal and Gas), Fuel Based Energy (Waste to Energy, Cogeneration),
Energy Efficiency (Grid), Biofuels
• Logistics: Industrial Hubs, Rail, Aerial Ropeways, Port, Pipelines (excl. oil & gas), ICT Broadband, Transmission
Lines, Maritime (Operation Phakisa), Road Corridors, etc.
Proactive Strategies
• Relieve electricity demand pressure on the grid through implementation of new energy capacity
• Optimisation of Energy Efficiency interventions to reduce energy consumption and pressure on the grid
• Ensure logistics system that will allow local industries to be competitive and be able to access new markets/
suppliers in the RoA and be globally competitive
• Introduction of the biofuels sector in the RSA economy through the development and execution of the Cradock
Ethanol Plant
Reactive Strategies
• Providing strategic input to water development
• Providing Strategic & Technical input to the SIP18 projects and influencing government in policy formulation/
review
• Increase existing broadband network capacity/redundancy and extend coverage to underserved areas

9. 9
Transition
Challenges:
Carbon intensity;
Natural resource
management;
Unemployment;
Economic concentration;
Competitiveness;
Protectionism;
Operating environment.
Current drivers:
New Growth Path;
Integrated Resource Plan
Industrial Policy Action Plan;
National Climate Change
Response White Paper;
National Development Plan.
Opportunities:
Amongst best solar
resources;
Wind energy potential;
Biodiversity;
Economic diversification
through infant industries;
Job creation;
Up-skilling of workforce;
First mover advantage.
Limited window of opportunity!
Drivers of Green Economy transition in SA

10. Green Economy: IDC Strategy
• IDC’s role in growing the green economy is through
investments in:
– Cleaner production;
– Clean and renewable energy;
– Energy efficiency;
– Demand-side management interventions;
– Emissions and pollution mitigation;
– Waste reduction; and
– Bio-fuels.
• Focus on early phase project development.
• Develop specific funding interventions (e.g. IDC/KfW Green
Energy Efficiency Fund) - Innovation.
• Support and development of emerging industries at various
levels.
• Follow a value chain approach, with emphasis on industrial
development (including localisation), job creation and the
development of long-term sustainable industries.

11. 11
Key success factors
Conducive regulatory environment
Securing resources
Generic issues Localisation
Developing skills
Taking the lead, growing demand
Successfactors
Successful implementation of the green economy
• Policy framework, pace of regulatory revision, amendment and
development.
• Stakeholder communication and co-ordination.
• Simplification and streamlining.
• Public sector playing an exemplary role.
• Gradual, effective transformation of production and consumption
patterns.
• Commitment, awareness and readiness by the private, public
and household sectors.
• Institutional capabilities.
• Funding availability, incentives, mechanisms.
• Regional coordination.
• Integration and coordination.
• Local procurement and export market penetration to develop
critical mass.
• Availability of competitively priced inputs and services.
• National industrialisation strategies.
• R&D capabilities and technology transfer.
• Address shortages of skills in certain areas.
• Re-skilling and development of specific skills capabilities.
• Availability, accessibility, quality, sustainability and pricing of
required resources.

12. IDC
Total Investment -
R631m
Total BW1- 3
Investment
R117bn
Total Investment –
R34bn
Total Investment –
R41bn
Total Investment –
R42bn
4%
96%
IDC
30%
70%
SOLAR PV WIND
CSP HYDRO
10%
90%
IDC
22%
78%
IDC
Renewable Energy:
IDC participation in REIPPP
• 33 Projects, 1484 MW • 22 Projects, 1984 MW
• 2 Projects, 14 MW• 5 Projects, 400 MW

13. R3.9bn
R0.5bn
R1.4bn
IDC’s approach:
• Project developer
• Community funding (2.5%
free carry)
• BEE funding with operational
involvement
• Debt and or/sub debt
funding with a combination
of BBBEE and/or BEE
IDCs participation in debt provide:
• Bigger ZAR value participation for IDC per deal
• Duty of care to IDC from lender technical and legal consultants
• Appreciation by market that IDC shares risk
• Additional liquidity to the commercial lending pool
REIPPP:
IDC Funding instruments
Senior Debt, 53%
Sub-Debt
3%
Equity, 19%
BEE, 5%
BBBEE, 20%
R7.0bn
R2.7bn
R0.6bn
R2.5bn
R0.5bn
Direct Equity
Min 10% with minority
protection
Max 30% (not majority)
Lending to trust or BEE shareholder to invest in
project
Repayment with dividend.
Tenor of 15 years
post COD
Interest during
construction can be
capitalised

14. Green FBE (WtE):
Industry structure
Municipal solid
waste or
Biomass or Tyres
Grown biomass
Organic waste
Sewage sludge
Animal litter
Feedstock
Waste Gas
Pyrolysis
Sorting
Anaerobic
Digestion
Combustion
Incineration or
Waste heat
Gasification
Primary Process
Steam turbine or
organic rankine
cycle
Electricity
Industrial fuel
On-site heating
Vehicle fuel
End Use
Recycling
Co-generation
Internal gas
combustion
Gas Cleaning
Liquefied
Biogas (LBG)
Compressed
Biogas (CBG)
Steam
Piped
gas
Secondary Process

15. Green FBE (WtE):
Attractiveness of fuel based green energy
• Storage and flexibility of
dispatch, so Load Factor of 80 %
and even 2x (stored biogas at
night)
• Can be moved, so can be used
as high value transport fuel or
can enable reliable off-grid or
back-up power
• Can be used as a peaking plant
• Risk – feedstock can become a
commodity & increased prices.
Fuel Based Energy
In SA competes with low value
coal
Best use for biogas lies in the
Transport sector in SA, in back-
up power, off-grid or for weak
grid in Africa

16. Green FBE (WtE):
IDC Approach to WtE and Co-generation
Feedstock
(Raw
material)
Offtake
(Revenue)
Process
(Technology
options)
Investment decision
Feedstock (Fuel) security:
• No feedstock security, no start
• Challenge: Long term supply agreement to cover
debt tenure + 2 years
• Quality, quantity, price & period
• MFMA requirements for municipalities
Process/Investment options:
• Driven by feedstock qualities, quantities term and
off take options
• Typical cost R15-35m/MW
• High load factors (e.g. 90%)
Offtakes:
• Low O&M cost
• If Offtake/feedstock price strong
• Repay debt quickly

17. Energy Efficiency:
Policy environment and enabling legislation2008
2008
National
Energy
Efficiency
Strategy
for South
Africa
2005
(NEES),
Revised
2012
- Targets
energy
intensity
reduction
of 12% by
2015
2009
2010
2011
2012
2012
2013/14
1 million Solar Water Heater
Government Target
Announcement by Minister of
Energy 23 June 2009
Government
Objectives
>>>
Energy
Efficiency
Projects
through the
various
ESKOM
EEDSM
programmes
>>>
Energy
White
Paper of
1998
1 million
SWH
Target by
2014
(revised
to 2016)
Integrated
resource
plan (IRP)
2010
Industrial
Policy
Action
Plan
(IPAP2)
2012/2013
– 2014/15
Green
Industries
a key
sector
Building
Regulati
ons &
Building
Code
(SANS
10400-
XA:2011
) with
SANS
204
NGP
Green
Accord
0
500
1000
1500
2000
2500
3000
3500
4000
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13
Energy Efficiency Projects (MW Savings)
Eskom Verified Savings (MW)
Income
Tax Act –
Regulation
s on tax
allowances
for Energy
Efficiency
Savings
(Section
12I and
12L)
Carbon
Taxes-at
R120 per
ton
National
develop-
ment plan
DSM 3 yr target:
To save another 1074MW

18. Late
2010
2011
2012
2013
• Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of
FUND committed at launch
• Aggressive marketing with Industry Associations & Partnership with
Eskom
• IDC and KFW sign loan agreement for €48M and €2. 1M
Technical Assistance and Capacity Building Grant
• ESCO Market Study published-access to finance barrier to entry
• R400 million AFD credit line established to finance PPA based
1MW- 10 MW and greenfields EE
• 17 companies financed at R174 million ( ca 35% of GEEF)
• 69% of funds committed to SMEs
• Total Energy savings of 387 GWh/yr
• Carbon emission reduction – 383 KtCO2/yr
• MoU with Green Fund – projects demonstrate additionality
MARKET SITUATION
Constrained
electricity
supply and high
prices
Access to
finance barrier to
EE/RE
investments
RESPONSE
Increased
demand for
ESCO services
High cost of
small scale RE
development
HIGHLIGHTS
8MW Cogen
plant -
45GWh/yr and
46ktCO2
Mass rollout of
310 GWh
/34MW
showerheads
60% of
committed
funding to
ESCOs
27 FREE
Walk through
audits and 4
investment
grade audits
Industrial
Energy
Efficiency
Energy Efficiency:
IDC response - Innovative funding GEEF & AfD

19. Renewable Energy:
Its role in terms of SA energy mix & economy
• Diversification of SA’s generation mix which is predominantly coal
• Emissions and pollution mitigation
• Localisation of manufacturing capacity and sourcing of local components – IDC
requires PV panels and inverters to be locally sourced
• Regional and rural development and diversification of economy (e.g. in Northern
Cape and Eastern Cape)
• Job creation during construction and operation phase (> 10 years)
• Substantial private sector expertise which has benefited skills development
objectives of the country
• Competitive industry that has benefited the country through competitive prices.

20. Renewable Energy:
Where to from here?
• Continue to support projects that are aligned to our strategic imperatives (new
generation capacity)
• However more focus is on projects that provide a differentiated participation e.g.
supporting black developers and operators, have significant localisation
opportunities
• Support projects that have new technologies where IDC will provide a catalytic
role
• Have high appetite for projects in marginalised provinces – achieve regional
equity

21. The Industrial Development Corporation
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
Telephone (011) 269 3000
Facsimile (011) 269 2116
E-mail callcentre@idc.co.za
THANK YOU