Enabling Electricity Growth in Africa - Some experiences

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• Enabling Electricity Growth in Africa - Some
  experiences
• December 2006

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Privatising Distribution and Generating Companies

• Globeleq Brief overview
• Globeleqs Market Experience
• Power Generation
• Distribution
• Market perspective

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Global Operations- Highlights

• Operates 6 power plants in 5 countries
  representing 2,000 MW a concession to operate
  the electric power distribution system in Uganda
• Assets valued at more than 1.5 billion
• 2,500 net equity MW
• Total capacity of generation assets is 5,000 MW
• 37 of net equity MWs are in Africa 39 in Asia
  24 in Latin America
• Over 2,000 staff worldwide

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Globeleq

• Operating power company providing clean, reliable
  affordable electricity
• Emerging markets focus - Africa, the Americas,
  and Asia
• Rapid growth since 2002
• Sole shareholder - CDC Group Plc
• Established operational track record (both
  Generation and Disc)
• Main focus is on green-field development

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Globeleq Assets
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Current Africa Portfolio

• Songas, Tanzania
• Gas processing, pipe-line and 180 MW power plant
• Largest private supplier in Tanzania
• Tsavo, Kenya
• 74MW Diesel power plant, largest IPP in Kenya
• Umeme, Uganda
• Ugandas distribution system
• Key private player in Uganda
• Azito, Ivory Coast
• 288 MW open cycle gas turbine
• Sidi Krir, Egypt
• 683 MW natural gas-fired generating plant

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Globeleq Development Projects - 2006

• We are pursuing the following public/private
  sector developments
• Nigeria 185MW/500MW OCGT/CCGT IPP, Ibom Power
• Tanzania Songo Songo Island Expansion
• Egypt 200m Debt Refinancing

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Power Generation

• Participation Models
• Private Ownership and Operation (BOT, BOO, ROT,
  etc)
• Transfer of Operating Rights (TOR)
• OM with option to invest
• Others?
• Governments and Private sector must be willing to
  work together to identify most appropriate models

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Distribution

• Participation Models
• Equity ownership
• Concessions
• Management service contracts
• Others?
• Private sector must be willing to work with host
  Government to find appropriate models

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Market Structures

• Integrated utility
• Unbundling and privatisation
• Creation of IPP with single buyer
• Bilateral scheme
• Power Pools
• Concessions/others?
• Private sector must be willing to work with host
  Government to find most appropriate solutions

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Classical IPP Commercial Structure
Shareholders Shareholders Agreement
OM Contractor OM Agreement
Government Concession Agreement
EPC Contractor EPC Contract
Power Off-taker Power Purchase Agreement
IPP Project Company
Regulator Licence
Fuel Supplier Fuel Supply Agreement
Insurance Co. Insurance Agreements
Water Supplier Water Supply Agreement
Lenders Loan Agreement
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Private Investor Perspective

• Key elements
• Strong balance sheet of EPC contractor and fuel
  supplier
• Track record of operator/developer
• Appropriate contracts that correctly allocate
  risk to the party best able to assume particular
  risk
• Credit worthy power purchaser

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Typical Payment Obligations
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Is the power sector bankrupt or sustainable?
Cashfromconsumers
Distribution
Transmission
Generation

• The sector generates cash to cover all
  operations, maintenance, investments and finance
  costs etc

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What Investors need..

• Key issue for Private Investor
• Q. Provided I meet my obligations, what certainty
  do I have that I will get paid by the off-taker?
• The payment question can be broken down into two
  components
• Off-taker Liquidity
• Off-taker Security

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Sector Liquidity

• What we look for
• Payment certainty, provided by a well structured
  and regulated electricity sector
• Is the tariff cost reflective
• Is there forward tariff planning (taking into
  account performance improvements, new capacity
  obligations, impact of new customers)
• Are subsidies pre-funded and targeted
• Evidenced by fact that sector is able to meet its
  obligations when they fall due

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Liquidity Mechanisms - 1

• Short term typically credit enhancement
• PPA Escrow arrangements
• Letters of Credits
• Sovereign Support
• Advantages Relatively easy/quick to establish
• Disadvantages Not a long term solution as not
  ultimately scaleable

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Liquidity Mechanisms Long Term (ii)
Targeted Subsidies
Sector Agency
Regulator/System Operator
Disco Operating Costs
Distribution Cos
IPPs
Independent Gas Suppliers
Customers
Stranded Costs
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Nigerian Sector Arrangements
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Payment Security
Payment security risk is a measure of the extent
by which investors and debt providers are able to
recover their investment in the event of a risk
event.

• Risk Event
• Political FM
• Expropriation/Nationalisation
• Loss of Regulatory Independence
• A combination of some of the following may be
  considered
• MIGA (Multilateral Investment Guarantee)
  (available for Equity and Debt)
• ECA backed financing (Debt and sometimes Equity)
• World Bank Partial Risk Guarantees (available for
  Equity and Debt)
• Limited sovereign support

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The Partial Risk Guarantee Case study
RENT
ESCROW ACCOUNT
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Why did we need the PRG in Uganda?

• To ensure the projects long-term sustainability
  against two key risks
• Regulatory non-performance
• Non-payment of bills by Government entities
• MIGA Protection also secured on Equity

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Summary

• Most Liberalisation Models can be considered by
  the Private Sector
• but timing is key
• Payment Liquidity and Security important for
  investors
• Several options available however the
  sustainable solutions take the longest to
  implement
• WB must be appraised of the projects at an early
  stage if their products are to be considered
• One size does not fit all - Public and the
  Private Sector are able to deliver the best long
  term solutions by working together

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Summary

• No shortage of Private Sector Capital for Africa
• Significant shortage of well structured
  electricity sectors

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• Privatizing Distribution and Generating Companies
  December 2006

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Market Discussion - North Africa

• Informed/successful utilities (ONE, EEHC,
  Sonatrach/Gas)
• Strong balance sheets
• Effective Central planning
• Competitive/Low returns
• Gas producing
• Challenges to IPP model
• IPP Opportunities Very Limited
• DP Opportunities Very Limited

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Market Discussion Southern Africa

• Eskom dominance
• Single power purchaser
• Tariff expectations
• Currency risk
• Large scale coal/hydro projects
• IPP Opportunities niche play only
• DP Opportunities very limited

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Market Discussion - Sub Saharan Africa

• Less competition/higher returns
• More specialised structuring
• High transaction risk
• Greater reliance on relationships
• Bigger fish in smaller pond
• Reasonable IPP and DP opportunities

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Soft funding institutions can assistbut have
to be careful not to slow development

• Off-taker credit enhancementAvoid subsidised
  loans and free projects
• Targeted subsidisesAvoid general subsidies
• Coordination between donors Avoid competing
  grants
• Long term focus on creating a transparent power
  sectorShort term fixes can scare capital away
  and slows development