IFC: financing solutions for the Power Sector PLATTS Caribbean Energy Conference 2013
Introduction to IFC 2
Largest global multilateral for private sector in developing economies IFC Overall Power Sector Caribbean Region Provides equity, quasiequity, debt, risk mgt and advice in member countries Benefits from 103 offices worldwide and industry expertise Only focuses in emerging markets IFC FY12 Highlights S&P, Moody s AAA Portfolio Committed Syndicated # of client cies 1,825 # of countries 103 $45.2 billion $15.4 billion $3.5 billion IFC invests in generation, transmission and distribution as well as equipment supply chain 200+ power investments in 57 countries since 1967 Power represents one of IFC s largest exposures: $4.8bn committed portfolio or 10% of IFC s total as of June 2012. Close to $1.4bn commitments (including mobilization) in 38 transactions in FY12 Many 1sts: wind farms in LAC and SE Europe, solar farm in SE Asia, merchant wind farm, etc 4 Offices: T&T, Jamaica, DR, Haiti 14 Countries of Operation: Antigua & Barbuda Bahamas* Barbados* Belize Dominica Dom Rep Grenada Guyana Haiti Jamaica St Kitts & Nevis St Lucia Suriname T&T IFC Equity Initiatives Equity mobilization: IFC Asset Management Company, Global Infrastructure Fund 3
IFC is a lead financier in the power sector Cumulative commitments since 1967 $7.8 bn or 27,852 MW $4.7 bn or 14,048 MW Outstanding portfolio Robust and growing renewable business: IFC RE investments increased 3x since 2007; now 70% of new power business Increasing technology diversification: hydro and wind historically. Also, more recently, geothermal, solar, and biomass Investments in financial intermediaries and funds allow us to support smaller companies/projects In-house technical expertise allows us to appraise faster investments in new and emerging technologies / prototypes 4
Local, regional and global players as IFC Partners over the years Half our business is with global clients We have forged long-term partnerships with key clients Recent trend of partnering with renewable energy companies expanding into emerging markets We support local clients to become global clients Local power companies investing in their own country or expanding into other emerging markets Local industrials expanding into the power sector Our local clients are becoming a larger share of our business as market reform increases opportunities for private investment in the power sector We work with emerging renewable energy companies We have supported newly started local renewable energy firms, as they begin to build their first projects 5
IFC s Approach to Financing Solutions 6
Key Features of IFC s Financing IFC requires client companies to be in the effective control of the private sector IFC takes project risks, including commercial and political risks No international competitive bidding of goods & services required but transparent procurement IFC does not accept government guarantees of IFC financings IFC provides corporate or project financing. Use of proceeds of IFC financing include: capital expenditure, acquisition, reasonable development fees, interest during construction, etc. IFC Debt Financing Up to 20 yrs, typically 8-14 yrs Loans in all major currencies and several local currencies Variable or fixed interest rates Senior or subordinated IFC Equity Financing Up to 20% of company equity + AMC (49%) Minority, passive shareholder with standard minority owners rights Right to Board representation IFC Value Added LT Partnership. Tailor-made solutions. Mobilization capacity. Global sector expertise. Local authorities knowledge. Brand enhancement. In-house technical expertise (engineering, insurance, environmental/social) 7
IFC can deliver a complete financing package to clients IFC Funding Capacity for its Own Account: Greenfield & total cost<$50m Greenfield & total cost >$50m Expansion or rehabilitation (corporate finance) All projects + Up to 35% of project cost Up to 25% of project cost Up to 50% of project cost Up to 25% of client s capitalization Complemented by IFC s Mobilization Capacity: Leveraging the World Bank Group s Special Privileges and Immunities: As lender of record, IFC can share its immunity from taxation More generally: IFC can syndicate (on best efforts basis) 100% of the debt financing based on a preapproved financial plan 8
What MIGA does Non commercial risk insurance for investors and lenders Dispute resolution services for guaranteed investments Research and knowledge services (World investment and Political Risk Report, PRI-Center) Support the multi-donor Investment Climate Advisory Services of the World Bank Group Guarantee holder can choose any combinations of these coverages MIGA at a Glance Types of Political (Country) Risk Coverages 1. Inconvertibility and Transfer Restriction protects against Inability to convert local currency into foreign exchange within the host country Transfer/excessive delays in acquiring Forex Currency depreciation is not covered What we do 2. Expropriation protects against Nationalization and confiscation Interference with ownership, control and material rights Inability to exercise collateral Discriminatory license cancellation Creeping /Partial expropriation (expropriation of funds) 3. War and Civil Disturbance protects against Damage/disappearance of tangible assets (including revolution, insurrection, coups d'état, sabotage, and terrorism) Business interruption Acts must have a primary intent of achieving a political objective 4. Breach of Contract protects against Breach or repudiation of a contract between the investor/project company and the host country authorities Non-enforcement of an arbitration/judicial award, or no recourse to judicial/arbitral forum, or decision by forum not rendered in reasonable time May cover sub-sovereign obligations and obligations from SOEs 5. Non-Honoring of Sovereign Financial Obligations For unconditional financial payment obligations No arbitration required
Supportive country environment and legal framework Well-structured and clear regulatory / contractual framework, providing for : adequate mechanism of tariff adjustment and/or strong LT PPA from creditworthy utility/off-taker Government s commitment (lenders rights and security, termination provisions, financial equilibrium) Committed and experienced investor/operator/developer Sufficient equity at risk Transparent procurement Good integrity Robust financial structure Good business case (promising market / competitiveness of power generation project in merit order/ Secured input supply - hydrology, intermittent supply risk of some RE) and realistic market expectations Construction cost control What does IFC look for in Power Investments? 10
IFC s Track Record 11
IFC s Caribbean Investments Since FY09, IFC has committed $516 million and mobilized $209 million in the Caribbean Volume $ $400 $350 $300 $250 $200 $150 $100 $50 $0 IFC Commitments in the Caribbean $73 Volume $ Project # 4 7 $38 15 $133 17 $345 FY08 FY09 FY10 FY11 (YTD) 18 16 14 12 10 8 6 4 2 0 IFC FY11 Commitments by Sector 1% 5% 4% 47% Financial Markets Oil, Gas & Mining Information Technology 43% Infrastructure Manufacturing IFC Caribbean Priorities: crisis response increased competitiveness regional integration climate change The Caribbean Energy Sector is an IFC focus Basic Energy, DR: $20m A loan in 2007 Linea Clave, DR: $5m C loan in 2010 Jamaica Energy, Jamaica: $20m A loan, $45m B loan and $8m C loan in 2005 West Kingston Power, Jamaica: $13m A loan, $33m B loan and $9m C loan in 2010 JPSCo, Jamaica: $45m A loan in 2003 and $30m A loan in 2010 E-Power, Haiti: $16.24m A loan and $11.21M B loans in 2009 and subsequently 12
IFC has strong track record in power equity investments Indonesia India MENA Region South East Europe Brazil Brazil MEDCO Energy Aura Mira Energy Creative Energy Resources South Eastern Energy Capital ENDESA Brazil CPFL Energia $25,000,000 Equity investment on IFC s own account out of $112 million equity package. $8,000,000 Equity investment on IFC s own account. $50,000,000 Equity investment on IFC s own account. $88,700,000 Equity investment on IFC s own account. $50,000,000 Equity investment / convertible loan on IFC s own account. $40,000,000 Equity investment / convertible loan on IFC s own account. March 2012 September 2010 July 2009 February 2008 July 2006 February 2004 MedcoEnergi is an integrated oil & gas exploration company with operations in Indonesia as well as the United States, the Middle East, and North Africa. Listed on the Jakarta Stock Exchange. Renewable Energy ( RE ) focused company, currently developing 100+MW projects in Biomass, small hydro and wind. Investment holding company that will acquire, develop, build, own and operate power sector projects (i.e., generation, transmission and distribution) Joint venture promoted by ContourGlobal of the U.S. and the Public Power Corporation,Greece s state-owned power company, focused on generation, transmission and distribution. Holding of companies that work with distribution, generation, transmission and commercialization of energy. Present in four states of Brazil services around 5.1 million clients. Holding company that controls three distribution companies and has majority ownership in several generation projects. CPFL is the largest power company controlled by local investors. 189 MW Gas power projects in Indonesia) 17.5MW (two current biomass projects) 1,178 MW (mainly combined cycle projects) 2,379 MW 3,105 MW (multiple technologies) 2,379 MW (multiple technologies) 13
Selected IFC investments in renewable energy in LAC IFC has financed around 4,000 MW of hydro capacity globally and more than 1,350 MW in LAC Guatemala Dom. Republic Chile Chile Chile Colombia El Canada $27,000,000 Loan project financing and Mobilization Hydro, 43 MW Mandated Lead Arranger December 2002 Basic Energy $42,650,000 Loan financing and guarantee Wind & other Lender June 2005 / June 2007 La Higuera $160,000,000 Senior & subordinated project financing x Hydro, 155 MW Mandated Lead Arranger May 2007 Hidromaule $19,700,000 Senior & subordinated project financing Hydro, 20 MW Mandated Lead Arranger June 2007 La Confluencia $208,000,000 Senior project financing Hydro, 158 MW Mandated Lead Arranger October 2007 Caruqia and Guanaquitas $15,500,000 Senior & subordinated project financing Hydro, 20 MW Lender October 2008 Chile Mexico Panama Mexico Nicaragua Jamaica Peru Norvind Eurus Pando y Monte Lirio Eléctrica del Valle San Jacinto JPS Co Cheves $61,500,000 $375,000,000 $183,000,000 $138,000,000 $160,000,000 $30,000,000 $250,000,000 Senior project financing Wind, 50 MW Mandated Lead Arranger February 2009 Senior & subordinated project financing x Wind, 250 MW Mandated Lead Arranger June 2010 Senior & subordinated project financing xx Hydro, 85 MW Mandated Lead Arranger June 2010 Senior & subordinated project financing xx Wind, 67.5 MW Mandated Lead Arranger August 2010 Senior & subordinated project financing xx Geoth., 72 MW Mandated Lead Arranger November 2010 Senior project financing Wind, 3 MW / Hydro 6 MW Lender November 2010 Senior project financing Hydro, 168 MW Mandated Lead Arranger December 2010 14
KEY CONTACTS FOR INFRASTRUCTURE Gabriel Goldschmidt Senior Manager, Infrastructure, Latin America & Caribbean ggoldschmidt@ifc.org Tel: 1 (202) 473 7732 Miguel Toledo Principal Investment Officer, Infrastructure, Latin America & Caribbean mtoledo@ifc.org Tel: 1 (202) 473 4185 Catherine Gourdin Senior Investment Officer Infrastructure, Caribbean cgourdin@ifc.org Tel: 1 (868) 628 5074 Judith Green Senior Investment Officer Jamaica Country Office jgreen2@ifc.org Tel: 1 (876) 960 0459 Omar Zacarías Investment Analyst Infrastructure, Caribbean ozacarias@ifc.org Tel: 1 (809) 566 6815 15
Annexes 16
Major Investor in Thermal Generation Long track-record in all thermal sub-sectors Most recent investments include Cameroon, Chile, Colombia, Haiti, India, Jamaica, Pakistan, Turkey, Togo To date, IFC Financed more than 70 thermal projects totaling 21,000 MW of capacity Is more selective in its thermal investments: Increased focus on natural gas Climate friendly measures, e.x. energy efficiency, gas flaring reduction Diesel and heavy fuel oil where limited generation alternatives exist Project finance and/or corporate holding company finance, equity and/or debt 17
IFC s Long Standing Experience in Hydro IFC has financed key private sector hydro projects in Chile, Guatemala, Nepal, India, Philippines, Uganda, Turkey and Pakistan, among others IFC has made over 40 hydro investments totaling more than 4,500 MW of capacity IFC supports hydro projects by: Providing long maturities to match asset life Taking on full or partial merchant risk Assisting with managing E&S issues Taking construction risk Creating innovative bundling for small hydros 18
IFC is a Leading Investor in Emerging Markets Wind IFC has made 15 wind investments in more than 1,200 MW of capacity Key transactions in Chile, Mexico, Bulgaria, Turkey, Romania, China, Sri Lanka, and India Experience with both equity and debt financing Can mobilize donor financing where appropriate IFC leverages its strong expertise to appraise/support wind projects Relationships with top technical consultants Experience with a wide range of turbine manufacturers/models Innovative structuring to optimize leverage, e.x. flexible subordinated tranches that can absorb wind variability Understanding of regulatory support mechanisms 19
IFC Investment in Solar Generation IFC has made 9 solar generation investments in Thailand, Philippines, India and China Projects in new markets/regulatory regimes Experience with both equity and debt financing Can mobilize donor financing where appropriate IFC invests in technology and scale to reduce cost of solar energy: Financing utility-scale solar plants in emerging markets Investing in best-in-class start up developers Developing relationships with suppliers Following emerging solar technologies to be ready for first opportunity Investing in solar power development private equity funds 20
IFC Invests in Geothermal Companies and Projects IFC has made geothermal investments in Guatemala, Nicaragua, and Philippines Experience with corporate finance, as well as project finance of both integrated (steam+plant) and plantonly projects Experience with both equity and debt financing IFC supports this difficult but promising sector through: Innovative structuring allowing for stage disbursement to full resource completion In-house technical expertise allowing for greater comfort with resource-related issues Understanding of sector-specific challenges related to resource risk and long project cycle 21
IFC Experience in Distribution and Transmission IFC has made over 35 distribution and transmission investments Recently invested in distribution companies in Albania, Brazil, Jordan, Macedonia, Turkey and Uganda Investments in transmission in Argentina, Bolivia, Chile, India and Peru IFC works with clients to tailor investment to capital needs and regulatory environment IFC has been able to deliver several first of a kind transactions: Providing financing to for capital expenditure programs for distribution companies, including recently privatized companies e.g. Sedas (Turkey), Umeme (Uganda) and rural electrification concessions e.g. Comasel (Senegal) Supporting financing of greenfield private transmission assets e.g. Powerlink (India) and privatized transmission assets (e.g. TDE, Bolivia) 22
IFC Caribbean Example: West Kingston Power Partners (Jamaica) Merits of the Project Risk Assessment Background - 66MW power generation tender awarded pre-crisis on a BOO basis by the independent regulator to Jamaica Energy Partners (JEP), an IFC IPP client - Project developed as greenfield land-based HFO diesel IPP - Objective: Provide severely needed upgrade to Jamaica s aging generation capacity Issues Project financed greenfield (construction risk) with no recourse to owners Vulnerable macroeconomic environment in the crisis, making $77m syndication challenging No long-term commercial bank financing alternative available Successful mobilization Power Efficiency Diversifying Power Sources Mitigants Sector well regulated (price cap method and fuel cost passed through) Project undertaken by JEP, an experienced IPP $1.3bn IMF Stand-by-Agreement in early 2010 facilitated syndication IFC provided $22m for its own account and mobilized $77m from other financial institutions: Bank of Nova Scotia Jamaica, First Caribbean International Bank, CAF, CIFI, Finnvera, as well as CJAP Partners: FMO and DEG Plant is 75% more efficient than the old existing generation plants it displaces. It reduces the sector s overall fuel imports, saving annually: 0.18m tons of CO2 emissions and net costs of $35m Plant can be run, at a marginal investment cost, on natural gas, once supply becomes available in Jamaica Employment Provides 60 full time jobs near impoverished downtown Kingston neighborhood 23