EIB KLA COMP.ppt

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EIB KLA COMP.ppt

  1. 1. The European Investment Bank : Funding Public Private Partnerships Competitveness Forum Kampala, 25 September 2008 Carmelo Cocuzza – EIB East & Central Africa Representation
  2. 2. EIB : The EU’s Long Term Financing Institution <ul><ul><li>Created in 1958 the EIB has a traditionally been a major source of long-term finance particularly in infrastructure development </li></ul></ul><ul><ul><li>Eg. the UK-France Channel Tunnel, the trans European railway networks, power stations.. </li></ul></ul><ul><ul><li>In Africa infrastructure is the largest single sector of EIB finance representing one third of total investments financed </li></ul></ul><ul><ul><li>Heavy concentration in the energy sector </li></ul></ul>
  3. 3. EIB’s Infrastructure Financing <ul><li>EIB has traditionally funded Infrastructure projects through: </li></ul><ul><ul><li>Government Loans : </li></ul></ul><ul><ul><li>Ethiopia : Gigel Gibe II Hydropower Plant (EUR 50m) </li></ul></ul><ul><ul><li>Corporate Loans to Commercially Viable Parastatals : </li></ul></ul><ul><ul><li>KenGEN: Olkaria II Geothermal Power Plant (EUR 35.2m) </li></ul></ul><ul><ul><li>now the emphasis is on project finance : </li></ul></ul><ul><ul><li>- SPVs (East Africa - EAssY Project) and </li></ul></ul><ul><ul><li>- PPPs (Uganda - Bujagali) </li></ul></ul>
  4. 4. PPPs in Infrastructure EIB has funded some 140 Public-Private Partnerships (PPPs) projects worldwide, mostly in Europe, (total exposure of over EUR 20 bn covering most sectors). PPPs in Africa: Recent success stories: energy, Bujagali (Uganda), AES Sonel (Cameroon); transport, N3 Toll Road in S.Africa But there have been failures, notably in the water sector, as well as operations cancelled or rejected
  5. 5. African Infrastructure / PPPs <ul><li>Reason why PPPs are preferred to public service: </li></ul><ul><ul><li>insufficient public funding for large projects </li></ul></ul><ul><ul><li>insufficient public sector capacity to manage additional, large investment </li></ul></ul><ul><ul><li>difficulty in risk management – uncertainty about demand, outputs, forex exposure, etc. </li></ul></ul><ul><li>Conclusion : </li></ul><ul><li>PPPs can play a role in Africa’s infrastructure development…. </li></ul><ul><li>…… but there are prerequisites to their success . </li></ul>
  6. 6. P REREQUISITES TO PPP SUCCESS: <ul><li>Project must be economically well-justified </li></ul><ul><li>Public sector must play its role in the partnership and ensure commercial viability </li></ul><ul><li>There has to be an acceptable legal framework for the project for all the parties involved </li></ul><ul><li>Payments mechanisms are devised in a way that motivates private operators to provide both </li></ul><ul><li> quality service and value-for-money </li></ul><ul><li>Accountability : Transparent procedures and due regard for the public interest </li></ul><ul><li>All social and environmental impacts must be dealt with </li></ul>
  7. 7. P REREQUISITES TO PPP SUCCESS <ul><li>Striking the right balance between, </li></ul><ul><li>WHAT’S IN IT FOR US vs. WHAT’S IN IT FOR THEM: </li></ul><ul><li>- Government requirement for clear economic benefits for the public, but also </li></ul><ul><ul><li>Provision of legal and institutional framework </li></ul></ul><ul><ul><li>Transparent and fair procurement process </li></ul></ul><ul><ul><li>Realistic approach to risk sharing </li></ul></ul><ul><li>Private sector requirement for appropriate profits (ROE) but subject to acceptable performance levels </li></ul><ul><li>ie. maximise public benefits vs. ensuring that the project is “bankable” </li></ul>
  8. 8. African Infrastructure / PPPs <ul><li>Value added of EIB lending (1) </li></ul><ul><li>Provision of long term funding (up to 25 yrs) </li></ul><ul><li>Non-recourse lending, or lending with credit enhancement </li></ul><ul><li>Assumption of risks - e.g., political risk - commercial lenders do not normally take, hence </li></ul><ul><li>Catalytic effect on mobilising commercial bank loans for project finance </li></ul><ul><ul><ul><li> (Eg: Bujagali:13% commercial funding) </li></ul></ul></ul>
  9. 9. African Infrastructure / PPPs Value added of EIB lending (2) <ul><li> All projects are subject to a thorough technical, economic and financial review </li></ul><ul><li>Analysis of technical and legal aspects of the concession </li></ul><ul><li>Ensure compliance with international social and environmental standards </li></ul><ul><ul><ul><li>and </li></ul></ul></ul><ul><ul><ul><li>Balance the risk between public and private sectors </li></ul></ul></ul>
  10. 10. <ul><li>250 MW of power desperately needed by Uganda </li></ul><ul><li>Project had stalled and had come under criticism from NGOs and civil society </li></ul><ul><li>Huge Investment Requirement of USD 875m: could the Government really afford to finance, build and operate such a massive infrastructure undertaking? </li></ul>PPP: An example – The Bujagali Hydropower project
  11. 11. <ul><li>An ideal WIN WIN situation with a tailored partnership between GOU and Private Sector was negotiated: </li></ul><ul><li>Funding was provided through non recourse project finance from multilateral, bilateral and commercial banks </li></ul><ul><li>Public Sector : bears some of the major risks, but NOT the debt burden of the project (opportunity cost) </li></ul><ul><li>Private Sector: makes an adequate ROE based on performance, BUT offers electricity generation at affordable rates – with added incentives for operating efficiencies </li></ul><ul><li>Rigorous Environmental and Social mitigants </li></ul>The Bujagali Hydropower project
  12. 12. b <ul><li>Value Added from EIB and other financiers: </li></ul><ul><li>Long term Funding : 20 years, cashflow impact </li></ul><ul><li>Project Finance Catalyst: (8 DFI’s and 2 commercial banks) </li></ul><ul><li>Transparent Procurement: </li></ul><ul><li>a) in the selection of the private sponsor; and </li></ul><ul><li>b) in the selection of the civil works contractor </li></ul><ul><li>Implementation of appropiate due diligence on: </li></ul><ul><li>- Environmental Impact (1 year) </li></ul><ul><li>- Social Aspects and Compensation (Riparian water use issues and regular reporting on water levels) </li></ul>The Bujagali Hydropower project
  13. 13. bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb <ul><li>… and the rest is history: </li></ul><ul><li>2007 AFRICAN POWER DEAL OF THE YEAR </li></ul><ul><li>(PF Magazine) </li></ul><ul><li>Without the Government of Uganda’s strong commitment in ensuring fast-track financing arrangements and a fair and mutually beneficial legal framework, the project would never have been realized . </li></ul>The Bujagali Hydropower project
  14. 14. <ul><li>The success of PPPs largely depends on thorough due diligence and negotiations between Government and its private sector partners </li></ul><ul><li>A Win-Win situation can only be achieved if the project pre-requisite conditions are met to the satisfaction of both parties involved, </li></ul><ul><li>The involvement of external financiers helps mitigate risks, ensures transparency in the procurement processes, catalyses commercial funding and ensures a rigorous environmental and social scrutiny to optimise the interests of all the stakeholders in the project . </li></ul>… .to Conclude
  15. 15. Thank you. www.eib.org Contact: EIB Eastern and Central Africa Regional Representation 5 th Floor, Africa Re Centre, Hospital Road, Nairobi, Kenya Carmelo Cocuzza, cocuzza@eib.org

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