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 Switzerland
IFC - Advisory and Financial Instruments by Nebojsa Arsenijevic at GIB Summit
1. 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 Basel
Basel, May 22, 2014
2. 2
IFC: Part of the World Bank Group
IBRD
International Bank for
Reconstruction and
Development
IDA
International
Development
Association
IFC
International Finance
Corporation
MIGA
Multilateral 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
3. 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
3
4. Key Trends in IFC Power Business
IFC
Investment
Services
4
• 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
5. 5
Identified Obstacles
Political 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
6. 6
AS - Balkans Renewable Energy Program (BREP)
Component Activities
C1 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
7. 7
BREP’s Key Results – Legal Framework
Country Legal Document Enacted
SRB Decree on Feed-in Tariffs
Decree on Privileged Status
Decree on End-User Fee Calculation
Preliminary PPAs (below and above 5 MW)
Jan, 2013
Jun, 2013
ALB Law on Renewable Energy May, 2013
BIH
(RS)
Law on Renewable Energy and Efficient Cogeneration
Law on Concessions
May, 2013
Jun, 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;
8. 8
BREP’s Key Results – Support to Sponsors
Country Activity Type
ALB B2B – Linking international and local SHPP companies
Registration of Programmatic CDM for SHPPs
Review of the Feasibility study for a cascade of seven SHPPs
Market
Company
Company
SRB Analysis of biogas plants costs and incomes in Serbia Market
BIH Support in SHPP tender preparation
Review of the Preliminary design for a cascade of three SHPPs
Market
Company
MAC 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
9. 9
BREP’s Key Results – Support to Banks
Country Activity Type
ALB Country level workshop
Training and support to Credins Bank
Training and support to Intesa Bank
Market
Company
Company
BIH Country level workshop Market
KOS Country level workshop Market
MAC Country level workshop Market
MNE Country level workshop Market
SRB 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
10. 10
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
12. 12
World Bank Group’s facilities (IBRD, MIGA)
IBRD/IDA
Partial Risk Guarantees (PRG)
MIGA
Partial 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
14. 14
Legal Docs Drafting
C1 – Regulatory Level
Business to Business
C2 – Market Level
Programmatic CDM
C2 – Company Level
Equity Investment
IFC IS C3N
Country Level Workshop
C3 – Market Level
In-depth + Assessment
C3 – FI Level
Dedicated RE Loan
IFC IS FM
AS
ISExample:
ENSO HYDRO
Example:
CREDINS BANK
Approach in transforming the market
15. 15
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
16. 16
Challenges in RE (SHPP) Development
Design vs. Operation (or estimated vs. actual generation)