service delivery in the energy sector: increasing private sector investment in generation &...
TRANSCRIPT
Service delivery in the energy sector: Increasing private sector investment in generation & access
PPPs in energy sector in Africa: Best practices and emerging trends
Addis Ababa, June 30-July 1, 2011
UNECA-KEEI High Level Workshop
Summary
Presentation discusses approaches and instruments to support significantly increased private sector investment in generation and access.
For delivering generation Project preparation issues Project structuring and risk mitigation
Delivering access Funding/risk mitigation mechanism
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Delivering generation: key issues
Project leadership Sector and project preparation Project structuring/risk mitigation
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Preparing bankable project packages requires significant preparation activities/funds
Policy & regulatory support Project specific preparation
Definition of project package goals Project design Feasibility studies: social, economic, financial,
technical, environmental and administrative. Cost benefit analysis selection of sponsor transaction advisors – legal, financial, technical (to
help deliver fair & equitable deal)
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Currently significant fragmentation in project preparation funding sources For key projects in Africa, estimated need
for c. USD 1.3bn (ranging from USD10-200m per project).
Size limits of preparation funds from each facility tend to be low in comparison with project needs.
Need for significant extra funds. Need for coordination and consolidation
between sources of project preparation funds.
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MDBs work to deliver financial closure and project implementation
Specific financing instruments to support transaction: Loan to government creating government
equity contribution to PPPs Loans to private sector Partial Risk Guarantees Political Risk Insurance
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Partial Risk Guarantee structure
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Partial Risk Guarantee
Indemnity agreement
LoanAgreement
Implementation Agreement
Government
Commercial Lender
Government Utility
PPA payments
Project Company
ProjectAgreement
PRGs are instrumental for leveraging in private sector on large projects For the Lao PDR Hydropower project (Nam Theun 2):
private sector indicated that project only possible with a risk mitigation package backed by the World Bank.
Package needed to mitigate the political and regulatory risks of investing in the power sector in Laos and dependency on revenues from neighboring Thailand (due to exports of power).
The World Bank provided an IDA PRG of USD42m, a MIGA debt guarantee of USD91m and a MIGA equity guarantee of USD150m.
USD1.17bn of private capital was mobilized.
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Delivering access: key issues Institutional arrangements Funding/risk mitigation mechanism
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Mechanism to encourage private sector Service Providers: Output-based Aid10
Municipality
Provider
Poor Communities not yet connected
OBA FundFinancial
Intermediary
Subsidy (4)
Output Delivered = Connections
Installed, service delivered
(2)
Greenfield or Incumbent Provider (private or public)
Water, Sanitation, Electricity, Telecoms or Transport Services
Concession contract or other form of Legal mandate
Verification Agent
(3)
One-off connection subsidyConsumption Transitional subsidyConsumption subsidy
Pre-finance (1)
OBA supports the delivery of access
Determine the service to be provided (the output) End recipients are targeted (low income) Subsidies set at an efficient level
Designed on case-by-case basis with sustainability in mind. Process for determining what the level of subsidy should be.
Based on competitive process or efficient unit price discovery – not actual cost.
Design appropriate institutional arrangements – independent verification
Projects continually monitored and regularly improved upon. Everything is designed up front & can be monitored
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Significant experience with OBA 2002: 32 projects identified - $1.5 billion WBG
funding 2010: 131 projects identified - $3.5 billion WBG
funding (excl. $2.8 bn government financing) 66 projects identified outside the WBG 51 Global Partnership on Output-Based Aid
(GPOBA) projects, mainly in water, health and energy, of US$153 m value (committed)
Evidence base is increasing (34 projects closed, 78 under implementation) So far $1 of subsidy has leveraged $2 of private
financing; varies by sector and region
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Mustafa Zakir Hussain
Senior Infrastructure Finance Specialist
The World Bank
More info on Guarantees:
www.worldbank.org/guarantees
More info on Output-based Aid:
www.gpoba.org
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