© Africa Finance Corporation, 2012Confidential. Not for further reproduction or distribution

Infrastructure Financing in Africa

Enhancing Regional Trade and Investment

Presentation By:

Andrew AlliChief Executive Officer

AFRICA FINANCE CORPORATION

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1.Introduction to the Africa Finance Corporation

2. Problem Definition and Presentation Outline

3. Key Issues, Case Studies and Recommendations Integrated Strategy for Extractive Sectors Developing Credible Projects to Access Financing Strong Sponsors to Close Deals Government’s Capacity to Structure Projects Implementation of Regional Integration

4. Success Stories and Conclusion

Contents

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Introduction to the Africa Finance Corporation

Founded 2007 as JV between public-private investors

International organization established by treaty

Private majority shareholders include leading banks

US$1.3bn in total assets

Multiple award winning principal investment franchise

US$1.4bn in approved financing transactions since 2007

US1.0bn committed and US$0.7bn disbursed to date

Growing debt, equity and mezzanine franchise

Leading regional public sector adviser on infrastructure

Strong expertise as project developer in Africa

Oil, Gas, Power, Transport, Industry are key focus sectors

About 60 staff operating on pan-African basis

Summary Overview

Angola

Nigeria

South Africa

Mozambique

Tanzania

Kenya

GhanaCIV

Guinea

Cameroon

Zambia

Gabon

Ethiopia

Malawi

Uganda

Senegal

Rwanda

Equatorial Guinea

North Africa***

*Project reviewed or investment closed**No detailed project reviewed***Not actively seeking deals

An international institution established to help address Africa’s infrastructure development needs, while seeking a competitive

return on capital for its shareholders

Project Footprint*

Limited Coverage**

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Problem Definition and Presentation Outline

Africa Needs

US$93.0bnPer

Annum

2006 – 2015

Current Average Annual

Spending US$62.0bn

2009 Actual Private

Investment

2006 – 2015 2006 – 2015

Theoretical Annual

DemandUS$31.0bn

US$1.4bn

Private Sector

PotentialUS$29.6

2006 – 2015

Total Current

Financing Available

Africa Infrastructure Finance Market Overview

Source: World Bank (Africa Infrastructure Country Diagnostic), 2009 data refers to Q3

KeyIssues

Case Study

Policy Import

African Infrastructure Finance Market Opportunity is Sizeable, with nearly US$30.0bn in Potential Annual Deal

Flow

Yet, Actual Annual Private Investment Flows Struggle to Match the Potential, Due to Several Commercial

and Policy Issues This presentation will highlight some of the key issues and challenges faced by private sector developers and financiers of infrastructure assets across various sectors in Africa

A few case studies of actual projects (typically AFC investments and current or past mandates) will be utilized to illustrate more practically the nature of the key issues

Some ideas on the policy implications and potential reform suggestions to address the issues and catalyze greater volumes of private investment will be presented

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Issue 2: Developing Credible Projects to Access Finance

KeyIssue

Case Study

Policy Import

Source: Thomson Reuters, Roland Berger

Only 17.0% on Average of “Announced” Projects for Development Reached Financial Close across Infrastructure Sectors in Africa between

2000 and 2010

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340MW Greenfield IPP in Ghana: Cenpower

KeyIssues

Case Study

Policy Import

Opportunity Ghana is a fast-growing economy with significant electric power

supply deficits forecasted based on current pace of growth 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 enjoys support at the highest levels of local and national government in Ghana, as well as strong private sector supportProject Highlights

Work is concluded regarding necessary permits, agreements, approvals and licenses, as well as early stage project development planning

Financial close now planned for late 2012, with key contracts in final stages of documentation, particularly around government support

Project co-sponsors include local entrepreneurs, international DFIs and international power companies

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KeyIssue

Case Study

Policy Import

New Policy Approach to Support Project Development

Centralized coordination of negotiations and approvals across Government agencies for key infrastructure transactions, as very often conflicting and contradictory objectives stall developers and lenders ability to close projects. For example: Power: Offtaker (PPA); Regulator (Licenses); Min. of Finance/Energy (Guarantees/Fuel

Supply) Transport: Regulator (Concession); Min. of Finance/Works (Guarantees/Operations) Other Sectors: Min. of Trade, Investment, Justice, Infrastructure, PPP offices

Establish (and adhere to) clear rules and processes within Government for specific kinds of transactions. For example: Power: Established guidelines and processes for going from PPA through GSPA, EIA,

permits, etc Transport: Adhere to clear rules for bidding out projects and securing concessions Oil & Gas: Transparent process for license or operatorship award, renewal and assignment

Develop better understanding of Project Development and Project Finance within Government and Agencies by appointing experienced advisers and personnel into key interfacing roles with private sector

Key Policy Recommendations

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Issue 3: Strong Sponsors Required to Close Deals

KeyIssue

Case Study

Policy Import

Historically, sectors with foreign currency denominated revenues have attracted the strongest international sponsors and seen heaviest private sector participation Telecoms has emerged as a major local currency sector which has seen significant deal volumes following liberalization across the continent Potential for power, industry and transport to follow suit, if market opening reforms well managed to attract high quality sponsors

Source: Thomson Reuters, Roland Berger

Private Infrastructure Financing: Sector Distribution (2000 to 2010)

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Nigeria Oil and Gas Maritime Operator: Seatrucks

KeyIssues

Case Study

Policy Import

Opportunity Seatrucks Group is a US$1.0bn company established in Nigeria in

1977 with operations across West Africa, the Middle East, and Asia Pacific

The company is a leading oil & gas marine services operator, with a fleet of nearly 200 offshore, inland and state-of-the-art heavy-lift marine support vessels providing critical upstream infrastructure support

Opportunity existed to provide US$200m in long-term expansion financing to grow its fleet, by way of a convertible bond investmentInvestment Highlights

AFC was the lead African anchor participant on the transaction, working alongside a number of international financial investors

Transaction provided a healthy capital infusion for a strong operator to consolidate on recent growth and explore expansion opportunities

Ongoing support and partnership is expected to transform the company into an internationally competitive operator

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KeyIssue

Case Study

Policy Import

Local-Foreign Partnerships Work to Close Transactions

Strategic objective should be to award projects and concessions to credible sponsors, local or international, to ensure high quality capital raising capacity. For example Telecoms: Spectrum award to high quality names [like MTN in Nigeria] played major role in

success story, as sponsor had strong capacity to raise financing, and credible team to execute

Transport: Road and port concessions require particularly strong sponsors (local or international, or in JV), given pioneer status in Africa [e.g AIIM, Old Mutual, etc in Lekki and Bakwena; and Maersk, Dangote, etc in Lagos Ports; Bouygues in Cote d’Ivoire]

Flexibility in application of indigenous content legislation to allow for partnerships, recognizing learning curve of local sponsors in the development of complex projects. For example: Oil & Gas: JVs in local content contract and concession awards Other Sectors: Partnerships with foreign sponsors to undertake national infrastructure

projects

Strong efforts to avoid “tainted” or “compromised” awards as private infrastructure financing relies heavily on presumption of long-term sustainability of contracts

Key Policy Recommendations

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Issue 4: Government Capacity to Structure Projects

KeyIssue

Case Study

Policy Import

Source: Thomson Reuters, Roland Berger

Private Infrastructure Financing Relative Market Share (2000 to 2010)

Nigeria, South Africa and Angola are all high target markets for private infrastructure in Africa, albeit with natural resources being the major driver of flows Going forward, greater efforts will be required to both increase quantum of private flows and channel into non-extractive sectors Key areas of capacity development include: technical expertise (legal, engineering and financial) as well as closer inter-agency coordination

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Nigeria Government Advisory: Ministry of Finance

KeyIssues

Case Study

Policy Import

Opportunity Nigeria has one of Africa’s largest infrastructure deficits, relative

to its size, in terms of GDP, population and geography Realizing that public sector financing alone would be insufficient

to bridge the funding gap that existed for large-scale critical infrastructure in the country, the Ministry of Finance sought to catalyze new sources including private sector and concessional funding

Ministry required technical expertise to quantify, inventory, and prioritize the critical infrastructure projects in the country, and determine which would be viable for commercial funding

Federal Ministry of Finance

Critical Infrastructure Project Financing

2010 - 2011

Adviser

Project Highlights AFC acted as Adviser to the Ministry on this assignment,

developing a detailed report which listed the key projects but also performed preliminary analysis to ascertain viability as private sector projects

Assignment provided Ministry with a strong pipeline of transactions to base its capital raising strategy and plans, with a view to accessing the necessary funding for channeling into specific projects

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KeyIssue

Case Study

Policy Import

Develop or Procure Capacity to Deal with Private Sector

Secure strong external advice on transaction structuring and execution, to ensure favorable terms for taxpayers on all negotiations, as well as creation of successful projects which meet government development objectives. Willingness to pay for high quality technical advice cannot be over-emphasized, across various areas: Feasibility studies, technical and environmental assessments Legal advice Financial advisory

Create internal special teams or task forces within government with specialized capacity to manage private sector interface, and provide funding/capacity for such teams to operate across projects

Training and development of senior civil service personnel to understand the opportunities offered by private infrastructure developers, as well as the implementation challenges

Key Policy Recommendations

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Issue 5: Implementation of Regional Integration

KeyIssue

Case Study

Policy Import

Public Sector-led Regional Integration Efforts Not Leading to Completed Projects

Project* Key Outstanding Issues

Trans-Sahara Highway Project Funding and ownershipPolitical acceptance by Govt. of Niger

Nigeria-Algeria Gas Pipeline and Fibre-Optic Network Firm commitment from all states involvedCommon Feasibility Studies

Dakar-Djibouti Road and Rail Project Funding and coordinationOwnership of certain project components

North-South Corridor Road and Rail Project Funding and coordinationOwnership and management

Kinshasa-Brazzaville Bridge Road and Rail Project Funding and coordinationOwnership and management

East Africa Terrestrial Broadband Cable Projects Financial support for enabling environmentObtaining permits from individual countries Source: NEPAD Presidential Infrastructure Champion Initiative (PICI)

Below are the major AU-NEPAD led regional infrastructure integration projects under development

*Selected success stories do exist, including the East Africa Submarine Cable System, which has been completed and is operational

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West Africa Sub-Marine Cable Company: Main One

KeyIssues

Case Study

Policy Import

Opportunity Main One set up to own and operate a sub-marine fibre optic

cable from Portugal to South Africa, landing in Nigeria Consists of 12,378km long cabling, with landing stations in key

markets across Northern, Western and Southern Africa Capacity is 10x the current size of SAT-3, Nigeria’s monopoly

cable Strong revenues from leases/capacity sales to leading local

telecoms operators Cable completed to cost and on-time, now live and operational

Transaction Highlights Project cost: US$240.0m AFC is co-largest equity investor with up to US$37.0m committed Sponsors are local African entrepreneurs and institutions Financing partners include: AfDB, DEG, PAIDF & Nigerian banks Project has dramatically improved regional connectivity and access Significant technology/broadband cost reductions to local

businesses

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KeyIssue

Case Study

Policy Import

Private Projects Should Drive Regional Integration

Private sector appetite and leadership should be a major gauge for determining whether to invest in any regional integration projects, right from the onset as: Projects will ultimately have to demonstrate commercial viability to be financed Risk allocation typically better managed by private developers and investors Execution capacity and incentive higher in privately developed projects

Political support should be channeled towards fully implementing and expanding existing privately-led regional integration success stories. For example: West Africa Gas Pipeline Main One Cable Company Bakwena Toll Road

Public sector regional integration focus could focus more on policy harmonization and advocacy within Governments for support to private-sector ventures under development. Selective commercial interventions may be contemplated

Key Policy Recommendations

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Conclusion: Success Stories Point to Future Potential

In summary, a number of key success factors stand-out in evaluating private infrastructure financing across Africa, including: Relatively favorable macroeconomic and political conditions Explicit and well-understood policy framework, with credible implementation Strong, commercially minded project sponsors Expertise and financial capacity of project developers Well coordinated and committed support from relevant public sector agencies Willingness to focus on targeted interventions on a case-by-case basis vs. broad sector

reforms

In addition to aiming for the above, countries seeking private sector infrastructure finance in Africa will need to address some of the issues raised in this presentation, including: Strategic approach to link extractive industries to domestic infrastructure development Improving the business climate to facilitate shorter and less painful project preparation Supporting high quality local or foreign sponsors in concession awards, as a strategic

imperative Enhancing capacity of public sector officials to deal with private transactions Promoting stability in policy environment to provide comfort to long-term investors and

lenders

Key Success Factors

KeyIssue

Case Study

Policy Import

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Cape Verde Operational Wind Farm: Cabeolica

KeyIssues

Case Study

Policy Import

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 worked with leading international developers, InfraCo, and local electricity company, Electra, to deliver the project

Project Highlights Project is now partially operational and delivering power to the

national utility in Cape Verde Construction being concluded as planned, in two phases over a

40 to 60 weeks period from commencement AFC’s c.40.0% ownership interest in a €61.0m innovative

renewable energy project underscores commitment to this sub-sector in Africa

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South Africa Operational Toll Road: Bakwena

KeyIssues

Case Study

Policy Import Opportunity

Bakwena Road consists of a 95km section of the N1 highway running from Pretoria northwards, and a 290km section of the N4 highway running from Pretoria westwards, to the Botswana border

Route designed as part of intercontinental axis to stimulate agriculture, manufacturing, mining and tourism traffic, with combined urban and intercity tolling

Early maturity stage toll-road, fully operational since December 2004, with proven traffic charactersitics and blended annual average growth rate from 2004 to 2009 of more than 9.0%

Strong investor group and management team, including leading local and international financiers and operators Transaction Highlights

AFC US$20.0m equity investment as part of US$160.0m post-completion acquisition transaction

Financing partners include: Macquarie, Old Mutual, Kagiso (a BEE fund) and PIC, the South African pension fund manager

Significant decrease in transportation costs since inception, reducing travel times and vehicle operating costs through improved road surfaces

Africa Finance Corporation A: 3A Osborne Road,

Ikoyi, LagosNigeria

T: +234 279 9600E: contact@africafc.org

Contact Information

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Andrew Alli T: +234 279 9605Chief Executive Officer E: andrew.alli@africafc.org