AFD Group Financial Instruments and Innovations for a Sustainable and Inclusive Urban Development

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1 AFD Group Financial Instruments and Innovations for a Sustainable and Inclusive Urban Development Barcelona CMI conference March 15th, 2011 Bertrand NORA Country Manager for Turkey, Balkans and Iraq Mediterranean and Middle-East Department

2 «Agence Française de Développement» AFD Group AFD PROPARCO CEFEB FFEM Banks Public Policies, Public national and local investments finance Private Sector Studies & Training French Fund for global Environment In French Overseas Territories Financial institution wholly owned by the French State (triple A rated) 2009: EUR 15 bn Balance Sheet and EUR 6.2 bn New Commitments Active on 5 continents with almost 70 overseas offices 22 février

3 The greatest share of funding (52%) is devoted to infrastructure and urban development (end 2009) 22 février

4 AFD Strategy in the Mediterranean and Middle-East Area Support more competitive economies better integrated with the European Union markets Social integration and poverty reduction Address youth and employment issues A sustainable development, respectful of the environment and the water resources, including our common sea A balanced management of territories 22 février

5 A Regular Expansion in the Mediterranean and Middle East Algeria, Morocco and Tunisia (1992) Palestine (1998) Lebanon (1999) Turkey (2004) Jordan (2005) Egypt (2006) Yemen (2007) Syria (2009) Iraq (2010) 22 février

6 AFD Overall Strategy in the Municipal Sector Promote better living condition and reduce slums and informal housing Support general access of the population to basic public services, such as water, sanitation, public lighting, sludge and management Improve urban mobility and transportation capacity Support economic activities and local employment Support decentralization process and PPP regulation 22 février

7 AFD Pragmatic Operational Approach Adaptation to the level of administrative and financial decentralization Adaptation to the local structure / organization of municipal infrastructure investment (local to national or national to local) Promote - when possible - project management and financial autonomy of local authorities through direct framework loans to municipalities without state guaranty (Turkey case) Support and co finance PPP for major infrastructure through PROPARCO 22 février

8 A Long-Term Partnership Strategy based on Finance strategic local diagnosis (LCC in Gaziantep) Financial diagnosis, an efficient instrument for developing a dialogue on local policies, investment prospects, economical and social impacts and medium term financial sustainability Adaptation, innovation, technical assistance and local teams training through CEFEB, key conditions for a long term partnership and better public services 22 février

9 Innovations to Strengthen Urban Development Finance? Promote sectorial framework investment programs such as in Turkey (Kayseri, Konya) Find local banks co financing and specialized credit lines in favor less capitalistic local investments (ex. DENIZBANK in Turkey) Improve private sector expertise and financial resources mobilization through PPP (on local and international base) see AFD and PROPARCO recent projects 22 février

10 Main obstacles to PPP Development Political instability and national level interference => A&FD Lack of confidence between local and foreign partners => MC Social constraint, tariff Adjustment and national public finance deficits => PABA Inadequate public services regulation due to a lack of political and social agreement on State missions and public services perimeter => D&G Procurement transparency => S&G International banks long term resources shortage for project financing => RA Inadequate regulatory framework for PPP => PCNR 22 février

11 Examples of AFD and PROPARCO projects 22 février

12 Direct finance to municipalities infrastructure investments in Turkey Improve access to water and sanitation in Egypt Financing drinking-water supply in Jordan Financing local bus transportation in Amman Building clean public transportation and metro in Cairo Co finance a PPP regulatory framework in Syria And PROPARCO expertise and experience in project finance and PPP, with a diversified expertise in energy, transportation and water supply and in PPP financing (more than 200 millions in 2010) 22 février

13 AFD Direct Finance Municipalities Infrastructure Investments in Turkey The financial autonomy of Turkish municipalities is limited but more important than anywhere in the region Access to borrowing is strongly dependent on specialist funds or public facilities Few commercial banks want to finance municipalities AFD has lent directly more than 200 million to several metropolitan municipalities without any state garanty, of which the Istanbul metro extension (with EIB) and the Kayseri tramway AFD has lent 80 million to Denizbank, a private commercial bank (driven by DEXIA) to finance Turkish secondary municipalities infrastructure investments The funding will be used to raise the standards of urban services infrastructures such as water, waste treatment, roads and mass transit The operation is encouraging other commercial banks to develop municipal credit products and loans The Turkish authorities are working on a new regulation on PPP in order to facilitate local public services development 22 février

14 Improve access to water and sanitation in Egypt Nearly all Egyptians have access to drinking water but sanitation and wastewater treatment is underdeveloped in rural areas and in the Nile Delta where a third of the people live In 2004, a major reform of the water and sanitation sector was undertaken. Autonomous public companies were created. Several European funders have grouped together to support the reforms AFD participates in the 272 million European program to improve water and sanitation in the Nile Delta with a 40 million loan to Egypt The program will improve access to drinking water for 1.6 million people and sanitation for 2.5 million 22 février

15 Financing drinking-water supply in Jordan Jordan ranks among the ten most water-deprived countries in the world. Its cities are the primary victims: in Amman, residents only have access to potable water about twice a week. The best medium-term solution is to tap the aquifers of the city of DISI in southern Jordan. AFD and PROPARCO made two loans of $100 million to construct and operate a water adduction system made up of wells and 320 kilometers of conduit to transfer fossil water from DISI to Amman, extracting 100 million cubic meters of water per year for fifty years. Amman s 2.5 million residents will thus have drinking water, and some resources that are currently over-exploited will be preserved. AFD and PROPARCO ensure the water project s construction by buffering the declining availability of commercial bank financing during the global recession. 22 février

16 Building clean public transportation in Cairo Cairo is the largest city Africa and suffers acutely from disorganized urban traffic, congested roads, lack of parking and pollution. 44 million loan for construction of a third subway line. AFD applies its extensive experience in urban mass transit: suburban railways in Algiers, light and fast rail in Tunis, a tramway in Rabat, subways in Hanoi and Brasilia. Objectives: Improve residents environment and surroundings, increase the fluidity of the capital s activities, and reduce emissions by 102,000 tons of carbon dioxide per year. 22 février

17 PROPARCO A Diversified Expertise in PPP Financing PROPARCO has been financing a very wide range of PPP s in various parts of the world in Gas transportation : Gas pipeline concession Power Private concessions for Transmission & Distribution Generation BOT s : hydro, wind, biogas, biomass, geothermal, gas CCGT, HFO diesel Transportation Railway concessions Airport concessions Ports : container terminal concessions Toll road concessions or partneship contracts 48% Infrastructures portfolio distribution % Water supply Water supply concessions Water treatment BOTs Telecom Concession for backbone telecom network in rural area 9% 13% Energy Telecom Transportation Water 22 février

18 With A significant expertise in the Power Sector Energy projects Commitments: EUR 445 M Aggregated installed capacity: 2155 MW (clean energy) CO 2 offsets: 1,2MtCO 2 eq/year (2009) Strong experience in the whole electric sector Production : BOTs Hydro - 3 dams in China (78MW), Bujagali dam in Uganda (250 MW), Laraib in Pakistan (84MW), Theun Hinboun in Laos (500MW) Wind energy 5 wind farms in Morocco, in the French West Indies, in India and in Turkey Geothermal Olkaria plant in Kenya (43 MW) Biogaz Loan guarantee for a project in Thailand CCGT Phu My 2.2 power plant in Vietnam (750MW), Al Qatrana in Jordan (373 MW) Fuel Kounoune power plant in Senegal (67,5MW) Supply AES Sonel, Cameroun Support of the Clean Development Mechanisms process Ability to provide an overall offer AFD soft loans for additional environmental and social measures FFEM Grants (French Global Environment Fund) for clean energy projects Support of Public-Private Partnerships 22 février

19 Al Qatrana: CCGT Power Plant in Jordan Context High dependence on energy imports with significant impact on bills (21% of imports in value in 2008) Regulation of the energy sector, commitment to better energy mix Energy consumption growing (+7% p.a. from 1998 to 2007) Investment required to sustain consumption growth: estimated at USD 5.8 bn by 2020 Al Qatrana (Jordan) Type : Power / Gas Pays : Jordan Year : 2009 Project Cost: USD 465 M Main sponsors: KEPCO XENEL Financing Financing of the building of a 337 MW CCGT power plant PROPARCO: Senior Loan - USD 50 M, 20 years Co-financing : KEXIM, IBRD, EIB PROPARCO s role Contribution to the development of the energy sector in Jordan Financing the production capacity growth More competition in the energy production segment Increased State revenues (+ USD 28 M) Job creation: approximately 650 jobs during construction février

20 DISI: Water Supply in Jordan Disi water supply Type : Water Country : Jordan Year : 2009 Direct investment Sponsor: Gama Energy Context Region affected by water scarcity : less than 70% of the demand is met, this situation might worsen Jordan s economy and development are slowed down by poor water supply facilities Government authorities are in favour of water resources exploitation Disi aquifer resource is shared with Saudi Arabia Financing Financing of drinking water supply system for an annual 100M m3 volume Proparco direct Loan: USD 100 M AFD direct loan: USD 100 M Co-financing: EIB and OPIC PROPARCO s role Improving living conditions by supplying water to 2.5 million inhabitants Reducing the overexploitation of renewable water resources Availability of water and improving population heath conditions 50% increase of water supply availability Reallocation of others resources février

21 Veolia Water AMI Veolia Water AMI Type : Water Country : Multi-country Year : 2007 Direct investment Sponsor : CGE SFI PROPARCO Context Limited access to drinking water: 38% of urban population, 8% of rural population Strong impact on public health Need for huge investment: EUR 180 bn p.a. (twice current investments) Limited infrastructure of electricity supply Financing Equity participation in Veolia Water AMI (holding) EUR 10 M, equal to 5,4% of Veolia Water AMI capital shares IFC has also invested (13,4% of capital shares) Investment including a put option PROPARCO s role Strong leverage by investing at the holding level Veolia Water AMI priorities in line with PROPARCO goals: Supporting access to essential services Promoting social tariff conditions and fitted to customer capacities Setting technical and commercial solutions fitted to poor population needs Veolia Water AMI commitments to respect World Bank environmental standards février

22 TAV : Financing of Enfidha & Monastir Airports Context Saturation of existing international airports, especially during peak months Steady growth in traffic: +4.4% over the last 10 years Governmental willingness to support, through the Plan XI, key economic sectors (tourism & infrastructure) : 6% of GDP 10% of national employment Financing TAV (Tunisia) Type : Transportation Country : Tunisia Year : 2009 Project Cost: EUR 600 M Sponsor: TAV Financing of the construction of Enfidha new airport and rehabilitation of Monastir, totalling a global capacity of 10 million passengers per year Co-financing IFC, EIB, ADB, OFID, PROPARCO and commercial banks of 400 M EUR: A/B/C loan structure, including stand-by facility of EUR 10 M Maturities: 20,14,20 years PROPARCO Facility: EUR 30 M Senior Loan 20 years PROPARCO s role Provision of a liquidity buffer in the difficult economic context Contribution to the development of Tunisian PPP initiative: 1st BOT in the Transport sector Positive impact of the project on the country economy Development of key infrastructure Concession fees and tax revenues Significant employment creation: 7000 direct & indirect jobs Support of cross border activity between emergent countries février

23 Thank you for attention 22 février