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  • Lake Kivu is a large lake bordering Rwanda and the DRC 300 km3 of dissolved carbon dioxide and 55-60 km3 of methane gas are accumulated and trapped at significant depth in the lake More than 500MW of power can be produced from the gas trapped in the lake
  • Stockholm Presentation

    1. 1. Frontier Markets Fund Managers Financing the Power Sector – the case for local currency Chris Vermont Head, Debt Capital Markets October 2008
    2. 2. Emerging Africa Infrastructure Fund - EAIF <ul><li>First dedicated infrastructure debt fund for sub-Saharan Africa </li></ul><ul><li>Size: US$365 million, increasing to US$ 600m shortly </li></ul><ul><li>Equity capital from governments of Sweden, Netherlands, Switzerland and UK </li></ul><ul><li>Additional debt from development finance institutions and private sector international banks </li></ul><ul><li>Over $130m financing provided for AES Sonel (Cameroon), Bugoye (Uganda), SAEMS (Uganda), Rabai (Kenya) and Aldwych (pan African). Total investment enabled - over $800m </li></ul><ul><li>&quot;The most prominent fund in project finance in Africa&quot; Project Finance International - 2008 yearbook </li></ul>
    3. 3. Infrastructure projects financed / in the process of financing by EAIF                       
    4. 4. <ul><li>Case Study – The Bugoye Power Project </li></ul>
    5. 5. Bugoye power project basic facts <ul><li>Bugoye is located at the foot of the Rwenzori Mountains - western Uganda, bordering DRC </li></ul><ul><li>It will be a run of the river hydro plant with an installed capacity of 13 MW </li></ul><ul><li>It will feed its energy into the main grid </li></ul>
    6. 6. The Project’s Structure <ul><li>Total Project Costs: </li></ul><ul><li>US$ 56m </li></ul><ul><li>Grant from GON: </li></ul><ul><li>US$ 10m </li></ul><ul><li>Equity: </li></ul><ul><li>US$ 16m </li></ul><ul><li>Total Debt US$30 m </li></ul><ul><li>- Tranche A: US$ 6m, </li></ul><ul><li>5 year tenor </li></ul><ul><li>- Tranche B: US$ 24m 15 years tenor </li></ul>Trønder Energi Trønder Kraft 100% Tronder Power Limited ( the Borrower ) Norfund Ca 70% Ca 30% GON Grant EAIF Grant ca 10 MUSD Govt of Uganda UETCL Support Agreement PPA ERA NEMA DWD Licence & permits Direct agreements Construction contracts Contractor Norplan Owners’ engineer
    7. 7. The Project Time Line <ul><li>Mandate signed October 2007 </li></ul><ul><li>Credit Committee Approval December 2007 </li></ul><ul><li>Board Approval January 2008 </li></ul><ul><li>Financial Close May 2008 </li></ul>A project can be closed in 8 months
    8. 8. Key Success Factors <ul><li>A funding structure that mitigates hydrology risks </li></ul><ul><li>Strong sponsors – Tronder Energi & Norfund </li></ul><ul><li>A well established power sector and regulator in Uganda </li></ul><ul><li>A dedicated team which worked together with GOU, the sponsors and the lenders to find a bankable structure </li></ul><ul><li>…… but who bears the FX risk? </li></ul>
    9. 9. GuarantCo Enabling infrastructure Finance in Local Currency
    10. 10. The GuarantCo initiative <ul><li>GuarantCo’s business is: </li></ul><ul><li>“ C redit enhancement of local currency debt issuance by the private, municipal and parastatal infrastructure sectors in lower income countries” </li></ul><ul><li>In addition to enabling infrastructure this approach also builds sustainable financing capacity in domestic capital markets through partnering with local institutions and introducing new approaches to project risk evaluation and financing </li></ul>
    11. 11. Why local currency finance? <ul><li>Local currency finance is better at both project level and country level </li></ul><ul><li>Financing in local currency allows a project to match its currency of revenue with its currency of debt service </li></ul><ul><li>Even if a GenCo has a PPA with a DisCo that allows pass through of currency risk, the end consumer may not be able to pay if there is a devaluation - contractual agreements may fail </li></ul><ul><li>Financing with local currency involves productive recycling of savings within a country instead of increasing the country’s external debt burden </li></ul><ul><li>Involvement of domestic banks and institutions helps build capacity to finance further projects </li></ul>
    12. 12. … So why are most power projects in Africa financed in $ or Euro? <ul><li>DFI’s and multilaterals find it easier to lend in $ or Euro </li></ul><ul><li>National utilities are used to accepting pass through of currency risks through PPA’s </li></ul><ul><li>Domestic debt markets cannot usually offer the tenors required and interest rates may appear comparatively high </li></ul><ul><li>But national governments can begin to break the vicious cycle ….. </li></ul>Reliance on $ debt from DFI’s and Multilaterals Crowding out of Domestic lenders Absence of long term debt markets
    13. 13. Local currency guarantees. A partnership between offshore guarantors and domestic institutions <ul><li>Funding of projects by domestic banks / pension funds who take as much or as little risk as they wish </li></ul><ul><li>Partial risk or partial credit guarantees from offshore for the balance risks </li></ul><ul><li>Offshore guarantors have more experience of assessing project risks </li></ul><ul><li>Domestic lenders have more experience of conditions on the ground </li></ul><ul><li>Partnership with important contributions from both sides </li></ul><ul><li>The key focus is extending debt maturities – both credit risk and funding risk </li></ul>
    14. 14. Extending tenor of domestic finance – Nigerian IPP example <ul><li>180MW open cycle gas fired IPP. Financing requirement $120m of which $25m equivalent in Naira </li></ul><ul><li>Local banks would not take repayment risk on the Naira loan beyond 7 ½ yrs or funding risk beyond 10 years </li></ul><ul><li>IPP needs 15 years finance to make tariff affordable </li></ul><ul><li>Solution…. </li></ul><ul><li>The local banks make a 15 year loan with GuarantCo guaranteeing loan repayments after year 7 ½. GuarantCo also agrees to take over the loan at the end of year 10 if the local banks wish to exit. </li></ul><ul><li>The guarantee is flexible and can be cancelled at any time </li></ul><ul><li>There is a viable alternative……… </li></ul>
    15. 15. Contact <ul><li>Chris Vermont, Head Debt Capital Markets </li></ul><ul><ul><li>Tel: + 44 207 8152950 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul><ul><li>Douglas Bennet, Senior Guarantees Executive </li></ul><ul><li>Tel: +44 207 8152786 </li></ul><ul><li>Email: douglas.bennet@ frontiermarketsfm .com </li></ul>

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