Oil

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Oil Gas Financing Opportunities in theAfrican
Development BankPresentation by Hassan H
FARAHChief Investment OfficerPrivate Sector
DepartmentAfrican Development Bank
NOT AN OFFICIAL UNCTAD RECORD

• 11th African Oil and Gas, Trade and Finance
  Conference Exhibition,
• 23 May 2007, Kenyatta International Conference
  Centre Nairobi, Kenya

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LEAD AGENCY FOR NEW PARTNERSHIP FOR AFRICAS
DEVELOPMENT (NEPAD) INFRASTRUCTURE PROGRAM

• 35 years experience in financing infrastructure
  projects
• Infrastructure projects make up 35 of ADB total
  commitments
• NEPAD and ADB have aligned visions and objectives
• Well positioned to promote regional integration

• Goals
• Encouraging private sector involvement in
  infrastructure
• Encouraging regional co-operation by initiating,
  developing and funding regional projects
• Acting as a conduit for funds mobilisation and
  Direct Foreign Investment in Africa

• Roles in NEPAD
• Information source on economic, market, and
  institutional issues
• Technical adviseror to NEPAD
• ADB is assisting NEPAD Steering Committee in the
  preparation of a programme of infrastructure
  projects

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Private Sector Department Engine of growth,
Platform for development

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The Banks Private Sector Development Strategy
identifies five focus areas

• Creating an Enabling Environment
• Strengthening Financial Systems
• Building Competitive Infrastructure
• Promoting the Development of Micro- Small- and
  Medium-Scale Enterprises
• Promoting Trade

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PORTFOLIO OF PRIVATE SECTOR INVESTMENTS OF 300M
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AFRICA AND WORLD OIL
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AFRICA AND WORLD GAS
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SECTION 5
Risk sharing (e.g. Oil / Gas Projects)
CHAIN OF PROJECTS
political risk
technical risk
commercial risk
SUBSURFACE DEVELOPMENT
LIQUEFACTION, STORAGE AND LOADING
SHIPPING
ENDUSER
SURFACE DEVELOPMENT
UPSTREAM
DOWNSTREAM
Production
Liquefaction plant
Regasification plant
Gas transmission and distribution
Gas Treatment
LNG storage
LNG storage
Separation
Loading
Unloading
Gas Transport (pipeline-360km)
Condensate
Gas Reserves
For export or local use
Gas Liquids storage
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SECTION 5
RISK SHARING PARTIES
Sponsor
Offtaker
Constructor
Project Company
Operator
Insurers
Buyer
Government
Lenders
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CASE 1 NLNG PROJECT, NIGERIA
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CASE 2 BGT LNG
VESSELS (2003)
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Case 1 Nigeria LNG Trains 45 (2002)

• Success Factors
• Although extremely complex, well-structured to
  cover all creditor concerns and mitigate
  identified risks
• Lenders took comfort from seniority over existing
  shareholder loans and brown-field approach,
  which improved cover ratios
• 59 per cent of uncovered 440 million portion
  provided by African sources ADB and 6 local
  banks charity begins at home
• Project economics was sound and technology tried
  and tested
• Underlying contracts were very bankable

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CASE 2 SASOL NATURAL GAS PROJECT
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Case 2 Sasol Natural Gas Project

• Success Factors
• Although extremely complex, well-structured to
  cover all creditor concerns and mitigate
  identified risks
• Lenders took comfort in the strength of the
  sponsor
• Good collaboration between Sasol and governments
  of Mozambique and South Africa
• Environmental compatibility
• Equity options to government of Mozambique and
  South Africa
• Two separate loans
• Captive markets
• Project economics was sound and technology tried
  and tested
• Underlying contracts were very bankable

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The Private Sector strategy
Our products
How to work together
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LOANS AND
GUARANTEES
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Floating rates are proposed in
53 of cases
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Local currency loans can now be
proposed

• Currency specific
• Maturities
• Pricing based on cost of funds plus lending
  spread
• Interest rate bases
• Front-end and commitment fees
• Pre-payment premium

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Risk Management Products reduce client risk
Borrower s credit risk rests with the Bank
B O R R O W E R
Loans
A D B
C O U N T E R P A R T Y
Interest Rate, Commodity, Currency Risk
Risk Management Products Interest rate
swap Currency swap Commodity swap Interest rate
cap and floor
Interest rate swap Currency swap Commodity
swap Interest rate cap/floor
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Risk Management Products

• Bank is intermediary in all these transactions
• Available for existing or new AfDB loans, not
  stand-alone
• Market based products
• Carried out on a cost pass through basis
• Transaction fees between 1/8 - 3/8

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Guarantees are designed to help borrowers enhance
financing possibilities
Loans Risk Management Products
Guarantees
Equity Quasi-equity

• Hard currency denominated
• Available for both hard-currency and
  local-currency denominated obligations
• Available for
• Loans
• Debt instruments

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Several types of Guarantees can be proposed
Guarantee terms are similar to Loan terms
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Default zone
No default zone
Guarantee of third party loan Guarantee of bond
issue, notes, etc Partial risk and credit
guarantee
Counter-guarantor (may be required)
Counter-guarantee Agreement
Bond or Loan Proceeds

Borrower
ADB
Lender
ADB payments as per the guarantee agreement
Debt Services
Guarantee contract
Guarantee Fees
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Equity is considered the primary responsibility
of the sponsor but can be also proposed
Loans Risk Management Products
Guarantees
Equity Quasi-equity

• Never the largest shareholder
• Maximum of 25 of issued capital
• Exit scheme required
• Mostly through dedicated investment funds

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The Private Sector strategy
Our products
How to work together
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The Banks competitive advantage can make a
difference for your projects

• Competitive, flexible and tailor-made financial
  products.
• Can help open new markets through joint ventures
  and information sharing
• Leader in financing infrastructure in Africa
• Nepad leading agency
• A safety umbrella for private investors

Working with the African Development Bank is more
than a financial decision. It is a strategic
decision.
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Process
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A comprehensive business plan is necessary for
application

• Projects objectives and rationale
• Review the sector and how the project fits in the
  countrys development objectives

BACKGROUND
MARKET

• Detailed marketing strategy, analysis of
  competition

TECHNICAL ASPECTS

• Describe technical aspects, related risks

• Describe procurement process
• The bank has specific procurement guidelines
• Supplies must come from member countries

PROCUREMENT
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A comprehensive business plan is necessary for
application

• Describe the environmental impact, including the
  possible resettlement of communities
• Describe mitigation strategies

ENVIRONMENTAL ASPECTS

• Describe the proposed or existing company, its
  capital structure
• Give information on management background,
  project supervision processes and schedule

CAPITAL STRUCTURE AND MANAGEMENT

• Provide details on cost estimates, financing
  needs from different partners
• Provide a complete financial evaluation,
  detailing the set of assumptions
• Carry out an economic evaluation, stating the
  assumptions used

FINANCIAL AND ECONOMIC EVALUATION

• Discuss risks involved as well as mitigation
  strategies

RISK ANALYSIS
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Contact us!
Mr. Alassane BA Manager Direct Lending
Division Private Sector Department African
Development Bank BP 323 1002 Tunis Belvédère
TUNISIA http//www.afdb.org