Financing in the Energy Sector in East Africa eapic - Dar Es Salaam, 12-13 August 2009 Power Generation What can EIB offer? Kurt Simonsen EIB East & Central Africa Office European Investment Bank
Energy - high on everybody s agenda - for a number of reasons: -Volatile fuel prices -Limited energy resources -Security of supply -Climate change -Pre-requisite for economic development
June 2007: EIB Energy Paper 5 Key Areas were identified: Renewable energy Energy efficiency Research, development and innovation Security and diversification of internal supply External energy security and economic development Energy is now a particular Priority Objective in the EIB Corporate Operational Plan
EIB Priority Objectives (1) Within the European Union: Cohesion and convergence Small and medium-sized enterprises (SMEs) Environmental sustainability Innovation 2010 Initiative (i2i) Trans-European Networks (TENs) Sustainable, competitive and secure energy
EIB Priority Objectives (2) Outside the European Union: Private sector development Infrastructure development Security of energy supply Environmental sustainability Support for EU presence in Asia and Latin America via Foreign Direct Investment (FDI)
Security of energy supply -Energy and global challenge of climate change to feature prominently in EIB activities outside the EU -Improving access to internal EU energy market -In developing countries priority to support modern, efficient use of energy and to sustainable energy solutions -More emphasis on energy strategies, to support sector and tariff reforms - Finance of technical assistance
EIB LENDING TO THE ACP STATES Presence in the African, Pacific and Caribbean states since 1963 Currently the EIB operates in the ACP under the Cotonou Partnership Agreement with two sources of funds available during 2008-2013: 1) EUR 1.1 bn for its Investment Facility (IF) 2) Up to EUR 2 bn lending from its Own Resources and up to EUR 400m subsidy (of which 10% for TA) Over 40 years experience in supporting the implementation of Europe s development policies
EIB lending in 2008 (in EUR bn) Total 57.6 EUR bn
THE EIB MANDATE UNDER COTONOU PHILOSOPHY ON DEVELOPMENT The objective: Facilitating Private Sector Development through: Support for Foreign Direct Investment Support of the Local Private Sector Development of Local Financial Sector Support for commercially viable public enterprises The means: Using a wide range of financial risk-bearing instruments on terms and conditions closely aligned with market practice The constraints: Ensuring the long term financial sustainability of lending through risk pricing vs. development objectives (Poverty reduction and MDGs)
EIB PRODUCTS UNDER THE INVESTMENT FACILITY An extended range of flexible financial instruments denominated in EUR, other widely traded currencies or even local currencies LOANS: QUASI EQUITY: : Senior Subordinated Direct Indirect Ordinary or senior loans Global loans (intermediated) Junior or subordinated Quasi-equity (participating, conditional or convertible loans) EQUITY: Equity (direct and indirect) GUARANTEES Guarantees Participating Conditional Convertible loans
Finance of Technical Assistance Technical assistance for ACP promoters under Cotonou Linked to a project to be co-financed by EIB Promoter is in charge EUR 40m ---------------------------- CCTAF: Climate Change Technical Assistance Fund To help promoters prepare, register and validate a carbon credit project (CDM or JI) Linked to a project to be co-financed by EIB EUR 10m
Carbon Funds in partnership with IFIs Developing carbon markets: - Buying carbon credits (CC) on behalf of fund participants - Acting as a sales outlet for project promoters - Stimulating the private sector in the CC market Carbon Funds: Multilateral Carbon Credit Fund with EBRD EUR 190m Carbon Fund for Europe with the WB 1 st tranche EUR 50m The EIB/KfW Carbon Programme with KfW EUR 100m Post-2012 Carbon Credit Fund, with Caisse des Dépôts, ICO, KfW and NIB EUR 100m
EU-Africa Infrastructure Trust Fund (1) Grant resources from the European Commission and 11 EU member states (pledged EUR 147.7m) + Lending and technical capacity of EIB and EU development financiers Purpose: To support infrastructure projects with crossborder/regional impact (energy, transport, water & sanitation, telecom) Managed by EIB
EU-Africa Infrastructure Trust Fund (2) Examples of approved power sector operations: Félou Hydropower, EUR 9.3m, interest rate subsidy (IRS) Ethiopia-Kenya Interconnector, EUR 0.55m, TA grant West-Africa Power Interconnector, EUR 3, TA grant Caprivi Link Interconnector, EUR 15m, IRS Ruzizi Hydropower, EUR 2.8m, TA grant
The EIB project cycle
Starting point = the project promoter s request (EIB does not create projects) BUT we can support promoters, if needed, with TA to develop projects to make them bankable We select eligible, high priority, profitable projects - in close dialogue with promoters
Benefits of an EIB Loan Benefits of low cost of funding passed on to clients: Large amounts (typically > EUR 50m) Broad range of currencies Long maturities Attractive interest rates Catalytic effect on participation of other banking or financial partners
Project Requirements Projects must: Correspond to at least one of the EIB objectives Be technically sound Be financially viable Show an acceptable economic rate of return Comply with social and environmental EU standards Apply best-practice international procurement regulation (fair, transparent, economic)
EIB s focus when appraising a project - Project justification / profitability (least-cost, EIRR, FIRR) - Promoter s planning and decision making capacity - Assessment of need for technical assistance - Promoter s management capacity - and its independence - Tariffs, adjustment mechanism, regulation - System loss reduction level, plans and priorities - Efficiency of billing and collection systems - Environmental and social policies, procedures and capacity - Willingness and capacity to inform the public - Transparent and fair procurement procedures Overall target: Adding Value
Typical recent energy projects in Africa co-financed by EIB - Hydropower plants - Fuel-fired power plants - Geothermal power plant - Power transmission and distribution - Natural gas fields and pipelines - SCADA Up to 50% of finance can come from EIB, but 75% for renewable energy and energy efficiency if justified. The rest from own funds and other banks
Recent energy projects in Sub-Saharan Africa co-financed by EIB ACP Energy Projects (mio. EUR) Signed Country Project name Description EIB Loan Total Costs 2005 Zambia ZESCO Kariba North 2 Rehabilitation of a hydropower plant 8 24 2005 Kenya Expansion of Olkaria 2 A 35 MW geothermal power plant 32 68 2005 Kenya KPLC Grid Development Upgrading Kenya's power distribution grid 43 121 2005 Ethiopia Gilgel Gibe 2 A 428 MW hydropower plant 50 490 2006 Mali Felou Hydropower A 60 MW run-of-river power plant 11 103 2006 West Africa West African Gas Pipeline Multinational natural gas pipeline system 75 570 2006 Cameroun AES Sonel Electricity Supply Modernisation and expansion of national power system 65 380 2006 South Africa ESKOM Power Transmission Interconnecting Joburg and Cape Town 300 688 2007 Uganda Bujagali Hydropower A 250 MW run-of-river power plant 136 634 Total 720 3078
Case: Bujagali Hydropower Project (1) (African Power Deal of the Year, PF Magazine)
Case: Bujagali Hydropower Project (2) Uganda: - has one of the lowest electrification rates in the world - faces serious energy crisis (depends on the Nile, low flow, load shedding, severe disruptions to the economy) - emergency measures: expensive oilfired generators - high power tariffs > affordability issue
Case: Bujagali Hydropower Project (3) A Public Private Partnership (PPP) between the Government, the power transmission company UETCL and a private sponsor consortium: The Aga Khan Group and World Power Holdings = Bujagali Energy Limited (BEL) Lenders: EIB, IFC, ADB, Proparco, FMO, DEG, KfW and commercial banks, partly guaranteed by MIGA and IDA Lenders Engineer: Colenco EPC Contractor: Salini Costruttori
Case: Bujagali Hydropower Project (4) 250 MW run-of-river power station re-using the water released from existing upstream power stations Enhances reliability of power supply for a fast growing demand, reduces fuel costs and air pollution The least-cost solution for Uganda Costs: about USD 786m - EIB loan: USD 136m Preparation: 2004-2007 - Implementation: 2007-2011 Studies: Economic Least-Cost: PPA Consultants (UK) ESIA: Burnside International (CAN)
Case: Bujagali Hydropower Project (5) EIB funding of USD 136m being 16.5% of the overall total project cost Senior loan to the project s Special Purpose Vehicle, Bujagali Energy Limited - Interest rate included a mark-up for perceived commercial risk - Maturity of up to 20 years - Grace period of 5 years Security package shared with other senior lenders comprised: GOU guarantee for power purchase under the PPA, step-in rights and termination rights under the main project agreements, assignment over the main project agreements, pledge on insurance proceeds, assignment over Borrower s shares and security over the project assets and accounts
Asante Sana! For more information: www.eib.org info@eib.org simonsen@eib.org East & Central Africa Regional Representation