Mobilizing Private

Sector Finance

Regional Expert Meetings – Climate Change and Enhanced Renewable Energy Deployment in Central Africa

31st May to 1st June 2016 – Libreville, Gabon

Things to Cover

1. Set the Context

2. Actual Investments vs. Future Needs

3. The Role of the Public Sector

4. The Expectations of the Private Sector

5. Risks and Barriers

6. Financial Instruments

7. Examples and Conclusions

645 million Africanshave no access to electricity

40%implied electrification rate in the continent

USD 22.5 billion2015 Investments in the energy sector

USD 55 billionInvestment needed per year

USD 300 billionTotal required from the Private Sector

Main Investor in Power

Infrastructure

Capacity

Impediments

Regulatory

Impediments

Others

Financial

Impediments

Public Sector

What is Central to Private

Sector Investments

1. Private Investment decisions are based on project’s

commercial viability

2. Proper enabling environment is crucial

3. Leverage their equity

A plethora of risks exist which can undermine the commercial

viability of a project. Addressing these risks is fundamental for

success, in particular where financial leverage is required.

Financial Instruments can contribute to

mitigate a myriad of risks and therefore

enhance private investments

Grants

Sovereign Bonds

Senior Debt

Subordinated debt

Equity

Return

Ris

k / P

rice

Guarantees

Successful Examples

Lake Turkana Project

∎ Partial Risk GuaranteeCovered government’s performance linked to possible delays in theconstruction of auxiliary infrastructure∎ Subordinated DebtImproved the risk profile of more averse commercial financiers

Africa Renewable

Energy Fund

∎ Reimbursable GrantsIt aims at addressing technology risk in the earlier phase of theproject cycle∎ SEFA’s Junior EquityStimulated the participation of other investors in the fund byrewarding their return

Conclusions

1. Nation, Regional and Continent wide Coordination is

Imperative

2. There isn’t a ”one solution fits all”

3. Risks can be properly Mitigated and Allocated

4. Governments should dedicate more time to Sector

Planning and in establishing Investment

Priorities

5. Investor-friendly Policies are crucial

Thank You

Contacts

Leandro Azevedo

Climate Finance

Officer

l.azevedo@afdb.org

Needs Small

Contribution

Proper Planning

Readiness to Access

Climate Finance

Funds (e.g. Green

Climate Fund)

Project/Program

Feasibility &

Structuring

- MDBs

- Climate Investment

Funds

- Development

Partners

Insurance

Products

- Partial Risk

Guarantees

- Partial Credit

Guarantees

- First-Loss

Guarantees

- Second-Loss

Guarantees

- Commercial

Insurance

Sources

- Commercial

Insurers

- MDBs

- DFIs

- MIGA

- ECAs

- Others

∎ Examining guarantee mechanisms available for

infrastructure development is key to establish

alternatives in terms of addressing risks

∎ Decrease in private investment flows are intimately

linked with loss of confidence on the part of the investors

due to frequent crises in emerging markets and fear that

governments may not fulfill contractual obligations

∎ Can effectively mitigate risks such as:

(i) portion of a scheduled loan repayment

(ii) currency inconvertibility

(iii) political force majeure

(iv) breach of contractual payment obligations

(e.g. PPA)

∎ Pricing depends on the probability that a guarantee will

effectively be called. It therefore requires historical data

∎ Imperative that incentives are well established among

a project’s stakeholders