ifc - advisory and financial instruments by nebojsa arsenijevic at gib summit
DESCRIPTION
Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014. Read more about the world leading platform for Sustainable Infrastructure Finance at www.gib-foundation.org. Next Summit: 27 & 28 May 2015 in SwitzerlandTRANSCRIPT
IFC's Advisory and Financial Instruments RE Market Development and Risk Management- example of activities in the Western Balkans -
Nebojsa Arsenijevic International Finance Corporation
Global Infrastructure BaselBasel, May 22, 2014
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IFC: Part of the World Bank Group
IBRDInternational Bank for
Reconstruction and Development
IDAInternational Development Association
IFCInternational Finance
Corporation
MIGAMultilateral Investment and Guarantee Agency
Est. 1945 Est. 1960 Est. 1956 Est. 1998
Role To promote institutional, legal and regulatory reform
To promote institutional, legal and regulatory reform
To promote private sector development
To reduce political investment risk
Clients Governments of member countries with per capita income between $1,025 and $6,055
Governments of poorest countries with per capita income of less than $1,025
Private companies in member countries
Foreign investors in member countries
Products • Technical Assistance• Loans• Policy Advice
• Technical Assistance• Interest Free Loans• Policy Advice
• Equity/Loans• Risk Management• Advisory Services
• Political Risk Insurance
IFC is a Leading Investor in Emerging Markets Power
• 300+ power investments in 67 countries since 1967• We typically invest in utility-scale projects/companies:
Generation – Financed 30,000+ MW across wide range of technologies Transmission – Selected investments in transmission assets Distribution - Current power portfolio of ~160 million customers around the world
• We can also invest in: Early stage start ups in the renewable energy space Smaller assets/companies through financial intermediaries (banks, PE funds) We often invest in first-in-kind projects in markets under reform
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Key Trends in IFC Power Business
IFC Investment
Services
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• Commitment volume has been steadily growing; renewable energy investments increased 5x since 2007; 65% to 75% of power business, up from ~25% 5 years ago
• Mobilization has been an increasingly important part of our business; we mobilized $1.7 billion in B-loans and other parallel loans in FY2011
• We have been developing locally based teams with market expertise
• Greater technology diversification: not just hydro and wind, but also geothermal, solar, and biomass
• In-house technical expertise allows us to better appraise investments in new and emerging technologies / prototypes
• Investments through financial intermediaries (e.g. private equity funds, holding companies) an increasing share of our business; allow us to support smaller companies / projects
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Identified ObstaclesPolitical Obstacles
• Incomplete legal framework• Lack of institutional capacity•High political risk
RE Developers/Sponsors• Technical capacity• Financial capacity• Proper market assessment
Local Banks• Capacity relating to RE project• Experience in Project Finance• Long-term funding
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AS - Balkans Renewable Energy Program (BREP)
Component ActivitiesC1 Regulatory framework improvements
C2 Support to renewable energy sponsors (Market and company level)
C3 Support to financial institutions (Market and bank level)
BREP Countries
ALB Albania*
BIH Bosnia and Herzegovina*
MAC Macedonia**
MNE Montenegro***
KOS Kosovo***
SRB Serbia***
MDA Moldova*** (limited scope)
* Started FY10; ** Started FY12; *** Started FY13
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BREP’s Key Results – Legal Framework
Country Legal Document EnactedSRB Decree on Feed-in Tariffs
Decree on Privileged StatusDecree on End-User Fee CalculationPreliminary PPAs (below and above 5 MW)
Jan, 2013
Jun, 2013
ALB Law on Renewable Energy May, 2013BIH(RS)
Law on Renewable Energy and Efficient CogenerationLaw on Concessions
May, 2013Jun, 2013
BIH (FBIH) Law on Renewable Energy and Efficient Cogeneration Sep, 2013
Targets:• Align national regulation with EU; Fulfill obligations in accordance to EC Treaty of SEE;
• Design appropriate incentive mechanisms;
• Increase transparency of concessions granting procedure (credibility);
• Design investment promotion tools and mechanisms for SHPPs;
• Decrease collateral requirements;
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BREP’s Key Results – Support to Sponsors
Country Activity TypeALB B2B – Linking international and local SHPP companies
Registration of Programmatic CDM for SHPPsReview of the Feasibility study for a cascade of seven SHPPs
MarketCompanyCompany
SRB Analysis of biogas plants costs and incomes in Serbia MarketBIH Support in SHPP tender preparation
Review of the Preliminary design for a cascade of three SHPPsMarket
CompanyMAC Pre-feasibility study preparation for biomass plant Company
Market Level
Interventions
Company Level
Interventions
• B2B workshops
• Support to Associations
• Knowledge sharing
• Promotion of new technologies
• Designs cross-check and review
• Business plan preparation
• E&S assessment
• CDM projects registration
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BREP’s Key Results – Support to Banks
Country Activity TypeALB Country level workshop
Training and support to Credins BankTraining and support to Intesa Bank
MarketCompanyCompany
BIH Country level workshop MarketKOS Country level workshop MarketMAC Country level workshop MarketMNE Country level workshop MarketSRB Country level workshop Market
Market Level
Interventions
Bank Level
Interventions
• Training material development
• Integration of Regulatory/ Budgeting/ Engineering and Risk in the Finance Manual
• Country level workshops
• In-depth training focused on SHPPs and project finance
• Support in SHPP assessment
• Portfolio analysis and recommendations
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IFC’s Infra Venture (IV)
Objectives
$ 150 MM Global Infra
Fund
20-30% of dev. costs (up to $ 8
MM)
IFC IV equity at
fin. close
Eligibility Activities
PPP or private infrastructure (IDA or MIC)
Early stages of development
Type of projects:
•Agreement with Gvt •Tendered by the Gvt•Need of surrogate sponsor at initial stages
feasibility studies and pilot tests
economic, social, technical and
environmental studies
Financial modelling
Obtaining required permits
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Objectives
Catalyze investments
Address market barriers
Achieve demonstrati
on effect
Approach FY13 Results
Blend donor funds alongside IFC investments
Disciplined, targeted, & strategic
Examples:
•Lower interest •Longer tenor•Contractually subordinated loan alongside IFC
To support
total project
size $2.5BBlended with
$600M IFC
financing
$130M concession. funds
Blended Finance for Climate Projects
Concessional funds take higher risk than IFC’s own funds
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World Bank Group’s facilities (IBRD, MIGA)
IBRD/IDAPartial Risk Guarantees (PRG)
MIGAPartial Risk Guarantee
Main Objectives: • Back Government obligations • Cover private debt against a Gvt’s
obligations to private or public prj• Improve overall credit quality of
project-partial use of AAA mitigant• Enable viability and bankability
through strong risk mitigation
Risks Covered:• Gvt’s contractual payment
obligations: payments, termination, subsidies, etc.
• Regulatory Risk: change in law, negation of license, tariff adjustment
• Currency Risk• Political Force Majeure:
expropriation, war & civil disturbance
• Frustration of arbitration
Main Objectives: • Focusing on sustainable
development • Difficult or frontier markets• Investments in poorest countries• Supporting infrastructure projects -
both the sovereign and sub-sovereign
• Promoting cross-border investments between developing countries
Risks Covered:• Currency Transfer Restriction and
Inconvertibility• Expropriation• War and Civil Disturbance• Breach of Contract• Non-Honoring of Sovereign
Financial Obligations
Appendix
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Legal Docs DraftingC1 – Regulatory
Level
Business to Business
C2 – Market LevelProgrammatic CDMC2 – Company Level
Equity InvestmentIFC IS C3N
Country Level Workshop
C3 – Market LevelIn-depth +
AssessmentC3 – FI Level
Dedicated RE LoanIFC IS FM
AS
ISExample:
ENSO HYDROExample:
CREDINS BANK
Approach in transforming the market
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Selection of IFC’s Recent Regional RE Investments
• SHPPs in Albania owned by the Austrian enso G.m.b.H Installed power up to 50 MW Investment value up to EUR 100 million IFC equity investment EUR 6 million
• Wind power plant Sibenik in Croatia owned by the Austrian RP Global Holding Installed power 44 MW Investment value EUR 84 million IFC loan EUR 20 million; mobilized additional EUR 35 million
• Wind power plant Jelinak in Croatia owned by the Spanish Acciona S.A. Installed power 30 MW Investment value EUR 55 million IFC loan EUR 20 million; mobilization of additional EUR 25 million
• HPP privatization in Albania by the Turkish Kurum International Installed power 77 MW Investment value EUR 120 million IFC loan EUR 30 million; mobilization of additional EUR 66 million
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Challenges in RE (SHPP) Development
Design vs. Operation (or estimated vs. actual generation)