DBDP: Experience of Similar Hydropower Projects in Developing

Countries

Presentation at the U.S.-Pakistan Diamer Basha Dam Project (DBDP)Business Opportunities Meeting

October 8, 2014

Washington, DC

by:

Mr. Suman Babbar, Senior Advisor, Finance and

Mr. Norman A. Bishop, Senior Advisor, Hydro

USAID/Energy Policy Program – Pakistan

USAID/EPP Implementing Partner:

Advanced Engineering Associates International, Inc. – AEAI

• A Look at Similar Large Hydro Projects Constructed and under Construction: Financing Features

• Case Studies: Nam Theun 2, Bujagali, Others

• Financing of Large Hydro – Key Takeaways

• Conclusions and Recommendations: The Way Forward for DBDP

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Presentation Topics

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Features of World’s Largest Hydro ProjectsThe world’s largest hydro projects (> 4,000 MW) were publicly funded.

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DBDP & Hydro Projects >3,000 MW under Construction Name Country River Installed MW Est. Completion Yr.

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Some Recent Hydro Projects with PPP Structure

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Private Sector

• Nam Theun 2 Hydropower Project (PDR of Laos) -1070 MW

• Bujagali Hydropower Project (Uganda) – 250 MW

Others

World Energy Council, 2014: Based on public information not validated by the entities.

Case Studies

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Nam Theun 2

• US$ 1.45 billion, 1070 MW project in Lao PDR• NT2 primarily exports electricity to EGAT of Thailand,

with about 5% for domestic use• Original concession awarded in 1993• Asian financial crisis: project put on hold (1997-2000)• Preparation resumed in 2001• Due diligence undertaken• About 4 years’ preparation time (2001-2005) • Financial close: June 15, 2005• Project completed on budget and schedule• Operational since 2010

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NT2 - Financial StructureThe finance plan comprises 27 financial institutions:• 5 MLAs• 4 ECAs• 2 BLAs • 7 Thai banks• 9 international banks

Debt Tenor• USD 16.5 yrs, repayment in 12 yrs• THB 15 yrs, repayment in 10.5 yrs

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• BOOT project on the Nile River in Uganda

• Run-of-the-river

• Project cost at approval: US$798 million

• Debt: Equity ratio of 78:22 leverage

• Equity: Sithe Global Power - 58%; IPS (Kenya) - 31.5%;

Government of Uganda - 10.5%

• WBG investment:

− IFC: $100 million A Loan and up to $30 million C Loan

− IDA: $115 million Partial Risk Guarantee (PRG)

− MIGA: Up to $115 million MIGA Guarantee

• Other lenders: EIB, AfDB, Proparco, AFD, DEG, KfW, FMO; commercial

banks (Absa Capital, Standard Chartered Bank) under IDA PRG

• Transmission line: Financed by AfDB and JBIC

• Formal inauguration: October 8, 2012

Bujagali Hydropower Project (250 MW)

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• 11,233 MW hydro project in Brazil• Limited recourse financing• Energy auction April 2010 – concession

awarded to consortium led by Norte Energia• Eletrobras (state-owned utility holding company)

the largest shareholder • Financing structure Equity: 20%, Debt: 80%• Equity to be provided by winning consortium• Debt – BNDES loan of $10.8 billion• Completion guarantee by the consortium

Other: Belo Monte – Salient Financing Aspects

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• 1993 –China Three Gorges Corporation created

• 1996 - China State Development Bank loan of $3.6 billion

• Support from Three Gorges Construction Fund and revenue from Gezhouba Hydro

• 2002 – China Yangtze Power Company created

• 2003 – IPO by CYPC

• ECA support from most of the developed countries and Brazil

• Revenue levy dedicated to Three Gorges

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Other: Three Gorges - Salient Financing Aspects

Objective• Use Value Engineering (VE) to improve DBDP’s best value for least cost

without changing project function (# MW and projected energy):− Reduce costs, schedule and construction risk− Seek project revenues at earliest date to reduce escalation and IDC− Reduce financing cost− Obtain the best overall value for the money spent − Minimize possibility of project budget cost increases

Methodology• Analyze each element of the project: VE analysis conducted on each

element and its relationship to the precedent element• Cost basis critical path method scheduling: to analyze the cost for each

schedule task • A risk assessment performed: to understand how each element or task

affects others over time until final project commissioning

DBDP: Best Value Analysis

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Financing of Large Hydros: Key Takeaways

• In most cases an anchor financier: e.g., ₋ BNDES (Brazilian Development Bank) for large

private hydros₋ World Bank for Dasu

• Long tenor funding mobilized• Key role played by Export Credit Agencies• Varied approaches to equity financing• Effective management of social and environmental

aspects critical

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• GOP fully committed • Strong economic rationale –

− Power generation, flood control and irrigation− Improved downstream generation

• Ongoing infrastructure development• Existing framework for private sector participation in power

generation• GOP open to flexible approach to attract private sector

participation during dam construction

Key Supporting Factors for Development

Diamer Basha Dam Project: The Way Forward

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Needs:

• A dedicated, qualified implementation team, preferably via a separate corporate entity

• Excellent project and construction management team capabilities, experienced in large hydro projects

• Compliance with international social & environmental standards

Conclusions and Recommendations: The Way Forward for DBDP

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Needs, cont.:• A clear national financing strategy defined,

prioritizing all national infrastructure projects competing with DBDP

• Financing advisors with international experience hired

• An anchor financier identified• A clearly articulated incentive framework

implemented to encourage private participation

Conclusions and Recommendations: The Way Forward for DBDP

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Thank you!17

Financing of Large Hydros - Main Financing Instruments for Different Project Structures

Source: The Financing of Water Infrastructure - A Review of Case Studies by Chris Head for The World Bank, 2005

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