JREC RES Finance Expert Group

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The Patient Capital Inititiave An Emerging
Innovative Public-Private Partnership with
involvement of the Eureopan Commission Moving
from Concept to Implementation EGTT Innovative
Financing Workshop, Bonn 20-21 October,
2005 Thomas VERHEYE European Commission
Thomas VERHEYE, ENV, C2 Secretariat of the
Johannesburg Renewable Energy Coalition
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Limitations of Existing (Grant-Based)
Solutions(sample)

• Risk Return mismatch (Profitability vs.
  Bankability)
• Red Tape scares SMEs and financial
  intermediaries
• Time Chasm between feasibility investment
  execution
• Ltd equity funding / hardware support
  programmes
• Small deal transaction costs (requiring
  bundling)
• Ltd emerging market technology expertise (Fin
  sector)
• Ltd finance management expertise in emerging
  markets
• Financing grid-lock for many economic
  opportunities

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Defining Patient Capital
A type of risk capital that blends public and
private sector investment requirements, i.e.
expecting a return, but on a less demanding basis
than pure commercial private equity capital as
the returns are either lower or deferred over a
longer time than commercial investors or
accept. The objective is to provide
equity-linked capital to the local entrepreneur
and project developer on a basis that is
affordable, where there was either no such
capital available before, or available only on
unaffordable terms or with damaging delay.
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Creating Patient Capital
Commercial (Public IFIs, Foundations, Investment
Funds, Banks, Corporates) Non-Commercial (Gvts,
Foundations, Private)
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Bridging the Gap through PCI/GREFF
Commercial
Profitable
Risk
Non-OECD
OECD
Non-Profit
X X X X X X
X X X
X X X
Return
Res. Dev Demonstration
Awareness Capacity Building
Commercial Debt
Commercial Equity
PCI
Feasibility Studies
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Enhanced Capital Formation Delivery through a
Global Renewable Energy Fund of Funds
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Robust Efficient PPP GovernanceAvoiding
Unworkable Burden
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Key Innovations

• Different classes of investors at the (sub) fund
  level permitting different application of
  dividends, subordination of returns and
  governance rights
• Subordination A shareholders would invest on a
  first in last out basis - they are
  subordinated in their receipt of dividends to B
  shareholders, subject to certain hurdles returns
  or other agreed parameters, and
• Governance A shareholders would have certain
  additional governance rights, board appointments
  and veto rights separate from B shareholders,
  so that policy and transparency are maintained.
• Scaled-up enterprise development focus with
  increased prospects
• for effective financing of technology
  transfer, deployment and development
• Etc.

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Sources Uses of Funds 1/3
Paid-in Capital Public funds Private
non-commercial Special Reserves (TA,)
Regional Funds
Investment Targets New Regional funds or
Existing funds with PCI mission
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Sources Uses of Funds? 2/3
PCI patient capital Commercial Equity Commercial
Debt (IFIs, regional banks,...) Other
non-commercial funds
Direct Investments National Funds Working Capital
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Sources Uses of Funds? 3/3
JREC Regional PCI Other VC Local Entrepreneur LT
ST Debt from IFIs, Intl and local Banks,
Suppliers,
Installations Inventories Working Capital
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Investment Scope (1/2)
Projects SMEs
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Investment Scope (2/2)
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Anticipated Benefits

• Streamlined SD driven financing criteria
• Stable financing source
• One stop shop (TA, guarantees, investment)
• Enhanced leverage of public funds (4X)
• Engaged private funding and execution abilities
• Alignment and co-operation of public and
  private goals
• Effective bundling to enable IFI engagement
• Move towards commercial market investment
  context
• Effective transfer of technology and know-how
• Etc

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Feasibility Study 1/3
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Feasibility Study 2/3
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Feasibility Study 3/3
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Status Next Steps

• Positive Feasibility Study Delivered (11/04)
• Expressions of Interest (2004)
• Selection of Intl Fund Manager (11/05)
• Concluding Intl co-investment arrangements
  (2006/07)
• Selection of Regional Funds (2006/07)
• First Closing and Funds on the Ground (2006/07)

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Thank You!

• For Comments or More Info, Contact
• Thomas.Verheye_at_cec.eu.int
• JREC Secretariat
• European Commission
• 32-2-295-9639 (Tel)
• 32-2-296-9970 (Fax)
• http//forum.europa.eu.int/Public/irc/env/ctf/home