Financing in the Energy Sector in East Africaeapic - Dar Es Salaam, 12-13 August 2009

Power Generation – What can EIB offer?

Kurt SimonsenEIB East & Central Africa Office

European Investment Bank

“Energy”- high on everybody’s agenda

- for a number of reasons:

-Volatile fuel prices-Limited energy resources

-Security of supply-Climate change

-Pre-requisite for economic development

June 2007: EIB Energy Paper

5 Key Areas were identified:Renewable energyEnergy efficiency

Research, development and innovationSecurity and diversification of internal supply

External energy security and economic development

Energy is now a particular Priority Objective in the EIB Corporate Operational Plan

EIB Priority Objectives (1)

Within the European Union:• Cohesion and convergence • Small and medium-sized enterprises (SMEs)• Environmental sustainability• Innovation 2010 Initiative (i2i)• Trans-European Networks (TENs) • Sustainable, competitive and secure energy

EIB Priority Objectives (2)

Outside the European Union:• Private sector development• Infrastructure development• Security of energy supply• Environmental sustainability• Support for EU presence in Asia and Latin America via

Foreign Direct Investment (FDI)

Security of energy supply

-Energy and global challenge of climate change to feature prominently in EIB activities outside the E U

-Improving access to internal EU energy market

-In developing countries priority to support modern, efficient use of energy and to sustainable energy

solutions

-More emphasis on energy strategies, to support sect or and tariff reforms

- Finance of technical assistance

EIB LENDING TO THE ACP STATES

� Presence in the African, Pacific and Caribbean states since 1963

� Currently the EIB operates in the ACP under the

Cotonou Partnership Agreement

with two sources of funds available during 2008-2013:

1) EUR 1.1 bn for its Investment Facility (IF)

2) Up to EUR 2 bn lending from its Own Resources and

up to EUR 400m subsidy (of which 10% for TA)

Over 40 years’ experience in supporting the implementation of Europe’s development policies

EIB lending in 2008 (in EUR bn) – Total 57.6 EUR bn

THE EIB MANDATE UNDER COTONOU PHILOSOPHY ON DEVELOPMENT

� The objective: Facilitating Private Sector Development through:

� Support for Foreign Direct Investment

� Support of the Local Private Sector

� Development of Local Financial Sector

� Support for commercially viable public enterprises

� The means :

Using a wide range of financial risk-bearing instruments on terms and conditions closely aligned with market practice

� The constraints :

Ensuring the long term financial sustainability of lending through risk pricing vs. development objectives (Poverty reduction and MDGs)

� Ordinary or senior loans� Junior or subordinated� Quasi-equity (participating, conditional or convertible

loans)� Equity (direct and indirect)� Guarantees

An extended range of flexible financial instrumentsdenominated in EUR, other widely traded currencies or even local currencies :

EIB PRODUCTS UNDER THE INVESTMENT FACILITY

GUARANTEESEQUITY:

� Direct� Indirect

QUASI EQUITY:� Participating� Conditional� Convertible loans

LOANS:

� Senior� Subordinated� Global loans (intermediated)

Finance of Technical AssistanceTechnical assistance for ACP promoters under Cotono u

Linked to a project to be co-financed by EIBPromoter is in charge

EUR 40m

----------------------------

CCTAF: Climate Change Technical Assistance FundTo help promoters prepare, register and validate a carbon

credit project (CDM or JI)Linked to a project to be co-financed by EIB

EUR 10m

Developing carbon markets:- Buying carbon credits (CC) on behalf of fund participants- Acting as a sales outlet for project promoters- Stimulating the private sector in the CC market

Carbon Funds:• Multilateral Carbon Credit Fund with EBRD – EUR 190m• Carbon Fund for Europe with the WB – 1st tranche EUR 50m• The EIB/KfW Carbon Programme with KfW – EUR 100m• Post-2012 Carbon Credit Fund, with Caisse des Dépôts,

ICO, KfW and NIB – EUR 100m

Carbon Funds in partnership with IFIs

EU-Africa Infrastructure Trust Fund (1)

Grant resources from the European Commission and 11 E U member states (pledged EUR 147.7m)

+ Lending and technical capacity of EIB and EU develop mentfinanciers

Purpose: To support infrastructure projects with cros s-border/regional impact (energy, transport, water & sanitation, telecom)

Managed by EIB

EU-Africa Infrastructure Trust Fund (2)

Examples of approved power sector operations:

� Félou Hydropower, EUR 9.3m, interest rate subsidy (IRS )� Ethiopia-Kenya Interconnector, EUR 0.55m, TA grant� West-Africa Power Interconnector, EUR 3, TA grant� Caprivi Link Interconnector, EUR 15m, IRS� Ruzizi Hydropower, EUR 2.8m, TA grant

The EIB project cycle

Starting point = the project promoter’s request(EIB does not create projects)

BUT we can support promoters, if needed, with TA to develop projects to make them bankable

We select eligible, high priority, profitable proje cts - in close dialogue with promoters

Benefits of low cost of funding passed on to client s:

• Large amounts (typically > EUR 50m)

• Broad range of currencies

• Long maturities

• Attractive interest rates

• Catalytic effect on participation of other banking or financial partners

Benefits of an EIB Loan

Projects must:• Correspond to at least one of the EIB

objectives

• Be technically sound• Be financially viable• Show an acceptable economic rate of return

• Comply with social and environmental EU standards

• Apply best-practice international procurement regulation (fair, transparent, economic)

Project Requirements

EIB’s focus when appraising a project- Project justification / profitability (least-cost, EIRR, FIRR)- Promoter’s planning and decision making capacity- Assessment of need for technical assistance- Promoter’s management capacity - and its independen ce- Tariffs, adjustment mechanism, regulation- System loss reduction – level, plans and priorities- Efficiency of billing and collection systems- Environmental and social policies, procedures and capacity- Willingness and capacity to inform the public- Transparent and fair procurement procedures

Overall target: Adding Value

Typical recent energy projects in Africaco-financed by EIB

- Hydropower plants- Fuel-fired power plants- Geothermal power plant- Power transmission and distribution- Natural gas fields and pipelines- SCADA

Up to 50% of finance can come from EIB, but 75% for renewable energy and energy efficiency – if justifie d.The rest from own funds and other banks

Recent energy projects in Sub-Saharan Africaco-financed by EIB

3078720Total

634136A 250 MW run-of-river power plantBujagali HydropowerUganda2007

688300Interconnecting Joburg and Cape Town

ESKOM Power Transmission

South Africa2006

38065Modernisation and expansion of national power system

AES Sonel ElectricitySupplyCameroun2006

57075Multinational natural gas pipeline system

West African GasPipeline

West Africa2006

10311A 60 MW run-of-river power plantFelou HydropowerMali2006

49050A 428 MW hydropower plantGilgel Gibe 2Ethiopia2005

12143Upgrading Kenya's power distribution grid

KPLC GridDevelopmentKenya2005

6832A 35 MW geothermal power plantExpansion of Olkaria 2Kenya2005

248Rehabilitation of a hydropowerplantZESCO Kariba North 2Zambia2005

Total Costs

EIB LoanDescriptionProject nameCountrySigned

ACP Energy Projects (mio. EUR)

Case: Bujagali Hydropower Project (1)(African Power Deal of the Year, PF Magazine)

Uganda:- has one of the lowest electrificationrates in the world

- faces serious energy crisis (depends on the Nile, low flow, load shedding, severe disruptions to the economy)

- emergency measures: expensive oil-fired generators

- high power tariffs > affordability issue

Case: Bujagali Hydropower Project (2)

A Public Private Partnership (PPP) between the Government, the power transmission company UETCL

and a private sponsor consortium:The Aga Khan Group and World Power Holdings

= Bujagali Energy Limited (BEL)

Lenders: EIB, IFC, ADB, Proparco, FMO, DEG, KfW and commercial banks, partly guaranteed by MIGA and IDA

Lenders’ Engineer: ColencoEPC Contractor: Salini Costruttori

Case: Bujagali Hydropower Project (3)

250 MW run-of-river power station re-using the wate r released from existing upstream power stations

Enhances reliability of power supply for a fast gro wing demand, reduces fuel costs and air pollution

The least-cost solution for Uganda

Costs: about USD 786m - EIB loan: USD 136m

Preparation: 2004-2007 - Implementation: 2007- 2011

Studies:Economic Least-Cost: PPA Consultants (UK)

ESIA: Burnside International (CAN)

Case: Bujagali Hydropower Project (4)

EIB funding of USD 136m being 16.5% of the overall total projectEIB funding of USD 136m being 16.5% of the overall total project costcost

Senior loan to the project’s Special Purpose Vehicle, Bujagali Energy Limited

- Interest rate included a mark-up for perceived commercial risk

- Maturity of up to 20 years

- Grace period of 5 years

Security package shared with other senior lenders c omprisedSecurity package shared with other senior lenders c omprised :

GOU guarantee for power purchase under the PPA, step-in rights and termination rights under the main project agreements, assignment over the main project agreements, pledge on insurance proceeds, assignment over Borrower’s shares and security over the project assets and accounts

Case: Bujagali Hydropower Project (5)

Asante Sana!

For more information:www.eib.orginfo@eib.org

simonsen@eib.orgEast & Central Africa Regional Representation