Key Issues for Transaction Bankability and Financial Close
Download
Report
Transcript Key Issues for Transaction Bankability and Financial Close
TECHNICAL WORKSHOP ON NIGERIAN POWER REFORM
Key Issues for Transaction Bankability and Financial Close
Presentation by:
Andrew Alli
Chief Executive Officer
AFRICA FINANCE CORPORATION
May 25th 2011
Requirements for Bankable Power Projects
There are a number of requirements for banks and private investors to finance
power projects in Nigeria across the value-chain, including but not limited to:
Legally binding long-term GSPA with credible supplier
Gas pricing pass-through to power off-taker in PPA
Credible gas processing, transportation and supply infrastructure
Appropriate guarantees and credit enhancement for gas payments
Fuel Supply
Generation
Construction or Rehab: Competitive lump sum, turn-key EPC contracts
o Fixed delivery dates, liquidated damages, performance guarantees
Operations and Maintenance: Performance-based term O&M contracts
o Proven technology, competitive procurement, credible operator
Environmental & Social Impact Assessment (Equator Principles)
Transmission
Long-term concession contract with world-class technical partners
o Long-term capex investment and operations funding availability
Independence and capacity implement system operator role
Efficient, market-based system of rules for power contracts
Distribution
Customer base and mix: demographics, creditworthiness, retail/wholesale
Operator: High technical capacity and operational experience
o Network operations and customer relationship management
Capacity to invest in new technology and long-term business plan
o Towards reduction of aggregate collection losses
o Expansion of distribution network penetration
2
Private Power Finance: Key Structuring Considerations
Project Development Phase
Early stage risk capital for:
o
o
o
o
Environmental Studies
Feasibility/Demand Studies
Consulting/Tendering Costs
Legal and Technical Fees
Often comes up to 10.0% of
total project costs
Construction Phase
Operations Phase
Construction finance to take project to completion:
Financing Mix: Debt/Equity typically 70/30
Normal Viability Metrics:
o Debt Service Coverage Ratios (DSCR)
o Project & Equity IRRs
Requires long term (>10 yrs), low interest rate loans
Equity funding usually required prior to debt availability
Early Stage Risk Capital:
Equity Investment:
Debt Financing:
May be provided by:
o Private Funds
o Developmental Grants
o Private Sponsors
o Government Grants
o Vendor Risk Participation
Requires patient investors
(public sector, specialized
funds, operating companies,
pension funds)
DSCRs of up to 1.5x - 2.0x
may be required depending
on position in value chain
This is a crucial stage in project
financing as decisions here will
determine project bankability
Could take up to 5 years from
here to financial close
Equipment contractors also
typical anchor investors
IRRs typically in the 15.0% to
18.0% range
Strong sponsors critical to
catalyze debt financing
• EXIM and Multilateral
financing typical
• Debt Service Reserve
Account (DSRA) typical
• Interest During Construction
(IDC), fees and expenses
typically rolled-up into cost
3
Private Power Finance: Key Risk Issues…/1
Licensing &
Pricing Risk
License for bankable period (15-25 years, with ease of renewal)
Tariff commercially viable, cost reflective, FX flexible, no reversals
Fuel supply: commercial pricing to ensure availability and quality
Bankable PPA (firm tenor, viable price, FX flexible)
Off-Take
Risk
Credible off-taker: Strong Disco with systems, management and trackrecord of good collections & payment (can be SOE or POE)
If Disco not credit-worthy, need sovereign guarantee for overall project
risk, and payment guarantee via LCs to mitigate delayed payment
Even with sovereign guarantee, must have strong Disco operationally,
to ensure collections and system sustainability
Fuel Supply
Risk
Bankable FSA: fixed price long term contract matching tenor of PPA
with credible fuel provider
Fuel availability and guarantee of supply and quality
Liquidated damages in event of lack of supply linked with liquidated
damages and payments on PPA
Alternative fuel, dual fuel projects also mitigate risk
4
Private Power Finance: Key Risk Issues…/2
Revenue formula & frequency of regulatory review
Regulatory
Issues
License or concession?
Tariff policy: simplify multiple tariff structures
Subsidy program that places no risk on the Disco
Ability for Disco to pass though uncontrollable costs
Customer demand study
Market Risk
Price sensitivity and willingness to pay
Demand /willingness to pay studies conducted by credible technical
consultants
Financiers will usually require a third party validation
Operations
and
Technology
Risk
Technical losses addressed via investment plan (ongoing capex)
Commercial losses and collections rate addressed via competent
management and incentives, prepaid meter roll out
Collections , domiciliation of payments into specified accounts as part
of payment security
5
Sample Project: Greenfield IPP in Ghana
•
Opportunity
•
Ghana is a fast-growing economy with significant electric power
supply deficits forecasted based on current pace of growth
Recently discovered commercial quantity oil & gas resources,
expected to start yielding revenues in 2010, with significant local gas
utilization potential
AFC (in conjunction with major local and international partners) is
working to develop a 340MW combined cycle thermal IPP to meet
existing demand, and potentially utilize discovered gas resources
The Project is appropriately structured and has widespread support
at the highest levels of local and national government in Ghana, as
well as strong private sector support
Project Highlights
Work is concluded regarding necessary permits, agreements,
approvals and licenses, as well as early stage project development
planning
Financial close is planned for early 2012, with development plan
now moving into concluding phases
AFC co-sponsors will include local entrepreneurs, international DFIs
and international power companies
6
Sample Project: Cape Verde Greenfield Wind-Farm
•
Opportunity
•
Cape Verde is an archipelago country with outstanding wind
resources, a heavy reliance on expensive imported fossil fuel for
energy generation and a strong growth economy with one of the
better credit ratings in Sub-Saharan Africa
The Project comprises the development, construction, ownership
and operation of 30 wind turbines on 4 islands for an approximate
28 MW of installed capacity for Cape Verde
AFC is working with leading international developers, InfraCo, and
local electricity company, Electra, to deliver the project
The Project is appropriately structured and enjoys widespread
support at the highest levels of government in Cape Verde
Project Highlights
Project development work is near conclusion with all major
contracts and agreements (PPA, EPC, O&M) in place, as well as
€30.0m debt capital commitments from AfDB and EIB
Construction expected to be concluded in two phases each
completed within 40 to 60 weeks of commencement
AFC’s c.40.0% ownership interest in a €61.0m innovative renewable
energy project underscores commitment to this sub-sector in Africa
7
AFC Power Sector Financial Services Offerings
The Africa Finance Corporation offers specialized advisory expertise and principal
investment capabilities across the power sector value chain
Upstream
Gas
Production
Fuel
Supply
Infrastructure
Power
Generation
Distribution
Advisory, Capital Raising, Principal Investing
Oil & Gas Fields Tanks, Ships, Pipelines Greenfield IPPs, Captive Industrial Plants Discos, Services
Upstream Gas Production
Fuel Supply Infrastructure
Near production oil & gas
asset development
Gas gathering, processing,
and transmission
Post production asset
enhancement and refinancing
Gas-to-power for domestic
IPPs, utilities and industrial users
Power Generation
Greenfield Independent
Power Plants (IPPs), with both
public and private partners
Captive plants for industrials
Electricity Distribution
Independent distribution
networks, Privatization advisory
Post-privatization financing
8
For AFC Power Sector Financial Services, Contact:
Andrew Alli
President & Chief Executive Officer
Solomon Asamoah
Deputy CEO & Chief Investment Officer
Oliver Andrews
Director & Chief Coverage Officer
T: +234 279 9605
E: [email protected]
T: +234 279 9620
E: [email protected]
T: +234 279 9617
E: [email protected]
Africa Finance Corporation
A: 3A Osborne Road,
Ikoyi, Lagos
Nigeria
T: +234 279 9600
E: [email protected]