Issues in Financing Hydro Plants

Transcription

1 Issues in Financing Hydro Plants Presented By Clive Ferreira 5 March 2008 FIELDSTONE

2 Table of Contents Fieldstone Overview Case Studies Generic Project Structure Issue in financing Hydro Power plants Conclusion 2

3 Fieldstone Overview Fieldstone is an independent investment banking boutique and was founded in The firm is 100% employee-owned, and has more than 40 professionals with principal offices in New York, London, Berlin, Hyderabad and Johannesburg. The firm is focused on the Energy & Infrastructure sectors. Fieldstone is able to execute complex domestic, international and cross-border transactions based on its broad market knowledge, structuring expertise and demonstrated access to international capital markets. Completed approximately US$ 40 billion transactions globally. Additional information on the company is available on the company website 3

4 Fieldstone Activities Nigeria NGC NPDC Edo State Power River State Power Project IPC Ghana Ansaldo/Mitsui Power Barge GECAD Zambia ZTK Interconnector OPPPI ZESCO Namibia Nampower KUDU South Africa Metro Gas Kelvin Power Station IPP Pretoria West Power Station IPP Mondi Merebank Cogeneration Project IPP Cape Power Project Safika/MTN; NSB; CEIN Athlone Power Station Alstom BEE Participation EDI Exxaro National Energy Regulator GrownEnergy Eskom Sasol Promethium Swaziland Gas Power Projects Bagasse Power Project Egypt Al-Ahram Beverages Sidi Krir Uganda UEB Generation & UEB Distribution Tanzania Dar es Salaam/Mwanza Pipeline Central Corridor Road project Tanesco Kiwira Congo Inga Kinshasa Transmission Line Mozambique Cahora Bassa: Phases I & II Beira-Mutare Pipeline SADCBA PPP Capacity Building Programme Tete - Nacala Corridor Zimbabwe Zimbabwe Electric Supply Authority - Hwange 4

5 SELECTED EXPERIENCE: FIELDSTONE AFRICA Development of regulatory guidelines and qualifying principles for the National Electricity Regulator of South Africa (Nersa) Development of initial Power Purchase Agreement, Expressions of Interest and Request for Tenders for Pilot National Cogeneration Project US$500m restructuring of the 2075MW Hydro Power Cahora Bassa Dam Refinancing of non-recourse project financing facility of Sidi Krir Generating Company, Egypt Sidi Krir Power Facility A 682.5MW gas and oil-fired steam cycle power plant Purchase of a 100% interest in InterGen Egypt Holdings Ltd owner of a 61% interest in Sidi Krir Power Facility A 682.5MW gas and oil-fired steam cycle power plant Acquisition of a 20 year concession from Government of Uganda to operate the electricity distribution system Uganda Electricity Distribution Company Ltd 20 year concession to operate the 380MW Nalubaale and Kiira hydroelectric facilities Uganda Electricity Generation Company

6 Case Studies Uganda Fieldstone advised the Government of Uganda on the corporatisation and privatisation of 380 MW Uganda s electricity generation. Eskom Enterprise was selected as the preferred bidder after an international bidding process. The project reached financial closure in November

7 Case Studies Mozambique Fieldstone acted as an exclusive Financial advisor to the Government of Mozambique on the restructuring of the 2075MW hydro power Cahora Bassa dam. -10 year advisory assignment -Restructuring of $3bn historical debt; -Renegotiating PPA with Eskom; -Acquisition of majority shares from Portugal; -Advised on refinancing of the Dam. 7

8 Case Studies Zambia Kafue Gorge Lower A Consortium led by Fieldstone advised on the project preparation of the 750MW power plant located in the Kafue Gorge, about 65 km upstream of the confluence of the Kafue River and the Zambezi River. -IFC are advising Government of Zambia on transaction. -Bidding expected in 2009/10. 8

9 Case Studies Zambia Itezhi Tezhi Fieldstone together with StanChart advising the ZESCO and TATA on the development of a 120MW power station and 330km transmission line; development of the project structure and resource mobilisation for Itezhi- Tezhi. Challenges include: -Development of an integrated transmission and generation facility; -National utility is the off-taker; -Alligning interest of private sector with governments: low tariffs vs acceptable returns; -Accelerating project to meet growing power shortages. 9

10 Case Studies Zambia Kariba North Bank Extension Fieldstone currently advising ZESCO on the development of 360MW extension to the existing Kariba North Bank. Challenges include: -Single sourcing contractors vs International Competition Board; -Use of ECA facilities; -China Eximbank insisting on corporate finance; -Breaking new ground in peaking power; -Regional transmission to be reinforced; -Development of carbon credits for cross border deal. 10

11 Case Studies Zambia Kalungwishi Fieldstone is mandated by OPPPI to act as advisor to the government during the construction of a 300 MW hydro power station on the Kalungwishi River. The developer has been selected and negotiations are currently underway to complete signing of the Implementation Agreement. The total project cost is estimated at US$ 700 million, with funds to be raised through traditional project financing methods. 11

12 Typical Hydro IPP Structure Although a typical IPP structure as set out looks simple at first glance, understanding the finer nuances of risk and reward is critical to successful project execution. NB: Creditworthiness of Off-taker and Proven technology is critical for financing of the new IPP. Concession Water rights Equity: Genco: Independent Power Producer Operation and Maintenance Debt Power Purchase Agreement Off-Taker (s) Operator FIELDSTONE 12 12

13 Typical Hydro IPP Structure IPP Structure Outlining Some Complexities Shareholders Agreements Risk Analysis & Mitigation Inter-Creditor Agreements PROJECT DEVELOPERS AND SPONSORS Dividends Debt Service PROJECT LENDERS Licensing Environmental Permit FUEL SUPPLY Government Exxaro Concession Equity Investment Payment for Fuel Hydrology GENCO Generation Company Long Term Loans Grid Connection Electricity Payments for Electricity OFF-TAKER Eskom SAPP Other? Credibility Offtaker Insurance Cover: Operations OPERATOR O&M Services Bonuses & Penalties EPC CONSORTIUM EPC Services Equipment Supply Contracts; Shipment Issues Insurance Cover: Construction Fieldstone to advise and assist in managing all complexities in FIELDSTONE 1 the IPP structure 13

14 Typical Funding of IPP s Equity (20-30%) Developer/Owner/Operat or Infrastructure funds Utilities Contractor and equipment suppliers Debt (70-80%) Export Credit Agencies (ECA s) Multi-lateral and bilateral banks Commercial Banks Bond Markets Projects evaluated on Internal Rate of Return ( IRR ) and Net Present Value ( NPV ) Projects evaluated on credit quality of the operator and the off-taker Debt service coverage ratios 14

15 Some Issues in Financing Hydro Plants Investment Climate; Regulatory environment; Quality of Potential Off-taker; Applicable Electricity Tariffs; Hydrological Risk; Transmission for cross border deals; Mitigating political risks by creating off shore structures; Carbon Credits. 15

16 Some specific issues Water Rights; Hydrological Risk; What level of firm power Who takes risk EPC Risk issues Geophysical Size of Project Aggregate Environmental Considerations Grave yards Rare species Abutments Siltation Fish 16

17 Project Risks & Mitigation Construction Operational Water supply Risk Geophysical Reduced output Late completion Inefficient Environmental compliance Low availability High operating cost Reliable water rights Firm hydrology Mitigation Risk can be shared Turnkey, lump sum, date certain contract Liquidated damages for performance failure Fixed fee contract with performance bonuses Operational guidelines and penalties/termination for performance failure Concession royalties Agree level with investors and lenders 17

18 Project Risks & Mitigation (Cont.) Revenue Creditworthiness of Power Purchaser Utility Risk Industrial User Municipality Demand for electricity Mitigation Long term power purchase agreements (fixed) Escrow accounts Government Gurantees Force Majeure Force Majeure for unforeseen circumstances Usually insurable Strikes and labour disputes usually contentious issue Parties to receive payments from power purchaser under Force Majeure 18

19 Conclusion Hydros can be a wonderful clean source of energy Run of river is better than large reservoir lakes Other environmental problems can however cancel out benefits Geophysical risk can be very significant Resolution of Hydrological risk is key Project size has become a major issue Carbon credits development has potential to enhance projects Transmission infrastructure for cross border deals. 19