Service delivery in the energy sector:
Increasing private sector investment in generation & access
PPPs in energy sector in Africa:
Best practices and emerging trends
UNECA-KEEI High Level Workshop
Addis Ababa, June 30-July 1, 2011
Summary
2


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
Delivering generation: key issues
3



Project leadership
Sector and project preparation
Project structuring/risk mitigation
Preparing bankable project packages requires
significant preparation activities/funds
4


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)

Currently significant fragmentation in
project preparation funding sources
5




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.
6
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

Partial Risk Guarantee structure
7
Partial Risk
Guarantee
Commercial
Lender
Project
Agreement
Loan
Agreement
Indemnity
agreement
Implementation
Agreement
Project
Company
Government
PPA payments
Government Utility
PRGs are instrumental for leveraging in
private sector on large projects
8

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.
Delivering access: key issues
9


Institutional arrangements
Funding/risk mitigation mechanism
Mechanism to encourage private sector
Service Providers: Output-based Aid
10
Municipality
Concession contract or
other form of Legal
mandate
Greenfield or
Incumbent
Provider (private
or public)
One-off connection subsidy
Consumption Transitional subsidy
Consumption subsidy
Financial
Intermediary
OBA Fund
Subsidy
(4)
Provider
Pre-finance (1)
Output Delivered =
Connections Installed,
service delivered
(2)
Water, Sanitation,
Electricity, Telecoms
or Transport Services
Poor Communities
not yet connected
Verification
Agent
(3)
OBA supports the delivery of access
11

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
Significant experience with OBA
12




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
13
Mustafa Zakir Hussain
Senior Infrastructure Finance Specialist
The World Bank
[email protected]
More info on Guarantees:
www.worldbank.org/guarantees
More info on Output-based Aid:
www.gpoba.org
14