6 distribution+and+generation+ppps+in+the+power+sector+ +uganda+...

7/31/2019 6 Distribution+and+Generation+PPPs+in+the+Power+Sector+ +Uganda+ +a+Case+Study+on+Risk+Mitigation+Through+PPP+Structuring+ +

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UGANDA:Bujagali Hydropower

Project

A CASE STUDY ON RISKMITIGATION THROUGH

PPP STRUCTURING

November 15, 2011


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Bujagali Project Brief

250 MW hydropower project to double Ugandas generation capacity

US$900 million non-recourse/largest IPP project financing in SSA

US$700 million long-term debt:

16-year facility from EIB, AfDB, DEG & IDA PROG Covered:Barclays/Absa & Standard Charted

20-year facility from IFC, Proparco & FMO

US$180 million private equity (Blackstone & Aga Khan Foundation) &

US$20 million public equity investment

cont


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Bujagali Project Brief

30 year BOT concession with availability-based PPA - full & capped

pass-through elements within PPA tariff

Comprehensive government guarantees of the obligations of

government agencies within the concession arrangements

Multi-competency government team negotiated the deal with the

private sector and DFI lenders

cont.


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Ugandas Project Crisis in 2005

Installed capacity 380 MW, effective output 120 MW and peak demand 260 MW -

40% power shortage

Nearly 100% hydro-power system subject to river hydrology variations andregional drought risks

Power shortage addressed through 100 MW expensive emergency power with anadditional 50 MW on tap - short-term fix at best

Power sector in a weak operational and financial state only 55% of theelectricity generated is commercialized

Average retail electricity tariffs doubled to 17 /kWh despite a large annualtariff subsidy by the government

Unsustainable economic trend if the country is to continue have rapid economicdevelopment and attract foreign direct investments

Are there similarities to the current Nigerian power sector?


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Similarities between 2005 Ugandan& Current Nigerian Power Sectors

Uganda Nigeria

Regulatory Risk High High

Operational Strength of Sector Weak Weak

Sustainability of Power Tariffs Weak Weak

Unmet Electricity Demand Very High Very High

Level of Investments Low Low

Hydrology (Uganda)/Gas (Nigeria) Risk High High

Fuel Risk Diversification None None

Implementation (Largely Political) Risk High High

Private Sector Equity Interest Low ModerateCommercial Bank Lender Interest None Moderate

Government Commitment High High

World Bank Group & DFI Commitment High High


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Similarities between 2005 Ugandan& Current Nigerian Power Sectors

Uganda Nigeria

Unmet Electricity Demand Very High Very High

Regulatory Risk High High

Hydrology (Uganda)/Gas (Nigeria) Risk High High

Implementation (Largely Political) Risk High High

Government Commitment High High

World Bank Group & DFI Commitment High High

Private Sector Equity Interest Low Moderate

Commercial Bank Lender Interest None Moderate

Level of Investments Low LowOperational Strength of Sector Weak Weak

Sustainability of Power Tariffs Weak Weak

Fuel Risk Diversification None None


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Ugandas Privatized Power Sector Structure in 2005

Electricity Regulatory Authority

Electricity RegulatoryAuthority

Uganda ElectricityGeneration Company

Nalubaale & Kira StationsConcessioning

Private Generation IPP(Aggreko, others)


Uganda ElectricityTransmission Company

Transmission operator

System operator

Single buyer


Uganda ElectricityDistribution Company

Generation Sector

Distribution & SupplyConcession (UMEME)

Transmission Sector Distribution Sector

CUST

OMERS


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Bujagali PPT Contractual Structure

Blackstone

Aga Khan Foundation

GOU

Commercial Lenders:

(Barclays/Standard Bank)

DFI Lenders:

(IFC, EIB, AFDB, Proparco, DEG,FMO, KfW)

IDA PRG

BUJAGALI ENERGY Ltd

Operator:

(Union Fenosa)

EPC Contractor:

Salini/Alstom

Offtaker:

UETCL

GOU Guarantee

(market risk, hydrology, FX,Political risk, subsurface)

EPC O&M

PPA

MIGA

GOU Guarantee


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Broad PPP Remedies Sought by Uganda to Mitigate Risks

Risks Approach

Regulatory RiskHigh level of sustained commitment byGovernment to sector reform, privatizationand independent regulations

Operational Strength of Sector

Sustainability of Power Tariffs

Unmet Electricity Demand Transparent and politically acceptabledecision on next priority investment

Level of InvestmentsHydrology (Uganda)/Gas (Nigeria) Risk

Comprehensive & unambiguous Governmentunderwriting of certain risks which cannotbe borne by the private sector

Fuel Risk Diversification

Implementation (Largely Political) Risk

Private Sector Equity Interest (a) Clear, inclusive & transparent decision

making by Government,(b) concession & contractual structures that

have been successfully implementedbefore, and

(c) equitable risk allocation to all stake-holders

Commercial Bank Lender Interest

Government Commitment

World Bank Group & DFI Commitment


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Broad PPP Remedies Sought by Uganda to Mitigate Risks

Risks Approach

Regulatory Risk High level of sustained commitment byGovernment to sector reform, privatization andindependent regulations

Operational Strength of Sector

Sustainability of Power Tariffs

Unmet Electricity Demand Transparent and politically acceptable decision onnext priority investment

Level of InvestmentsHydrology (Uganda)/Gas (Nigeria) Risk

Comprehensive & unambiguous Governmentunderwriting of certain risks which cannot beborne by the private sector

Fuel Risk Diversification

Implementation (Largely Political) Risk

Private Sector Equity Interest

(a) Clear, inclusive & transparent decision makingby Government,(b) concession & contractual structures that have

been successfully implemented before, and(c) equitable risk allocation to all stake-holders

Commercial Bank Lender Interest

Government Commitment

World Bank Group & DFI Commitment


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1. Clear & Practical

Policies

2. Sector &RegulatoryFramework

3. SustainedApplication ofRegulations

4. Fuel Supply/Hydrology

5. Power Off-Taker &Demand

8. Procurement &Construction

9. Operations &Maintenance

7. Financing ofInvestments

10. Long-TermImplementation

6. Bankability

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Evolution of Risk Apportioning in PPP

Public

Private


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Bujagali: Contractual Structure

O & M contractor:Union Fenosa

EPC Contractor:Salini/Alstom

UETCL

GoU

GuaranteeAgreement

Aga Khan Foundation Blackstone

Implementation

Agreement

Power PurchaseAgreement

O&M Contract

CommercialLenders

Loans

Project AgreementPRG

Other DFIs

7. Financing/Investments8. Procurement/Construction9. Operations/Maintenance10. Long-Term Implementation

7. Financing8. Construction9. Operations/Maintenance10. Long-Term

Implementation

8. Construction Operations/Maintenance

Government ofUganda (GoU)

EPC Contract

Indemnity Agreement

Shareholders Financing

Bujagali Energy Ltd.

1. Policies2. Sector Framework

3. Regulations4. Hydrology5. Off-Taker/Market6. Bankability


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Was it Worth the Effort ?

Benefits to the country through Governments commitment to PPP

Doubling of Ugandas electricity supply first power in late-2011

Sustainable boost to economic development of a land-locked countrywith limited alternative energy sources

Dedication to sector reform and the BOT structure paid off

Demonstration of private sector development of large scalehydropower investment is possible in riskier investment climate

cont


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Was it Worth the Effort ?

Private sector investors commitment on the strength of the PPP

Investment of US$20 million pre-financing development capital as part ofUS$180 million in long-term equity investment

US$700 million in ultra long-term debt investment

Nearly on-schedule delivery of the project within expected cost

Proven track record paves the way for other private sector involvement inriskier markets on the basis of a suitable PPP structure

Bold power expansion programs in riskier market places with limited track record are

at least initially going to require a proactive PPP structure to achieve the objectives

cont


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PPP Implications for Large-ScalePrivate Power Expansion in Nigeria

Public Sector Focus

The next 2 years a cr it ical phase for Nigeria Power

Pros: Large under-served demand, high willingness to pay, ample gas resources to base a large-scale

expansion & significant equity & debt interest for new investments

Cons: Regulatory concerns lead to bankability issues, poorly commercialized sector, weaktransmission network undermines power trading potential & unreliable gas supply chain

Deal with policy implications that the privatization of power sector will end up absorbing significant part of the

limited private sector capacity for power investments in Nigeria privatization will not add significant newgeneration

Specifically target limited number of MW for development in the next 3-5 years

Clearly define contractual & regulatory framework for new private power investments (including FDI). Bujagali-type

PPP contractual structure a must given investment risk vs. generation needs of Nigeria. Next phase could possibly

evolve into a less regimented PPP scheme

Continue rapid strengthening of transmission network in the public sector enable power trade

Guarantee bankability of gas value chain through rapid public (and private) sector investments in key midstream

gas infrastructure and contractual guarantees for the IPPs

Credit guarantees from DFIs not an alternative for implementation of bankable concrete measures by Government of

Nigeria


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Thank You

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