Private and confidential

Financing Infrastructure Projects in Africa

22 May 2012Ntlai MosiahHead: Power & Infrastructure Advisory & Coverage SATel: +27 (0) 83 302 7744e-Mail: Ntlai.Mosiah@standardbank.co.za

1Contents

Section Page

1. Introduction to Standard Bank 2

2. Why Invest in Africa? 4

3. Power Sector PPP Issues 6

4. Infrastructure Sector PPP Issues 7

5. Examples of Contractual Arrangements in a PP P 8

6. PPP Cashflows and Unitary/Toll Fee Bid Struct ure 9

7. Potential Options & Solutions 10

8. Case Study 12

Appendix 13

2Standard Bank is the Largest African Bank

� Premier South African-based financial services group operating in Africa

� Full service bank offering:

– Corporate & Investment Banking (“CIB”)

– Personal & Business Banking

– Investment Management and Life Assurance

Relationship with ICBC (20% strategic equity interest in Standard Bank) provides further international reach and strengthens Standard Bank’s access to what may soon be the world’s largest economy

Standard Bank has expertise and specialist knowledg e to effectively partner clients in achieving their emerging market expansio n ambitions

� Largest commercial bank in China

� Assets over USD1.1 trillion

� Over 16,000 branches

� Nearly 100 international branches with representation in, Frankfurt, Hong Kong, London, Luxembourg, Macau, Moscow, New York, Seoul, Singapore

� Listed on the Hong Kong and the Shanghai Stock Exchange

Key statistics

Market capitalisation (3 Feb 2012) USD 22.77bn

Total assets (HY 2011) USD 178.04bn

Net income (HY 2011) USD 1.55bn

ROE (1H 2011) 14.5%

Employees c.40,000

� Global reach with presence in 33 countries

� Distribution capabilities in world’s leading financial centres including New York, London and Hong Kong

� CIB provides corporate and investment banking services to corporate clients, financial institutions and international counterparties focused on emerging markets around the world

Key regional offices

� Offices in key regional financial centres including London, New York, Hong Kong, Nairobi, Lagos, Sao Paolo and Dubai

Africa

� 17 countries

� 664 branches in South Africa

� 348 branches in the Rest of Africa

� 16 countries outside Africa

Rest of the World

Introduction and overview

3

Financial Advisory and/or Debt Arranging

Standard Bank – Selected Energy Credentials

� Ongoing – Biotherm Energy, South Africa

MLA to Biotherm Energy on its 4 wind farms and 2 PV projects

� Ongoing – Enel/Built Africa/Power Company, South Afr ica

FA and MLA to Enel /Built Africa/the Power Company on their multiple PV projects

� Ongoing – Scatec Solar, South Africa

Sole MLA to Scatec Solar on its various Solar PV projects in the Northern and Eastern Capes

� Ongoing - Khanyisa IPP, South Africa

Standard Bank is mandated as the Financial Advisor to Anglo American’s 450MW discard coal-fired IPP

� Ongoing – African Clean Energy Developments, South A frica

MLA for African Clean Energy Development (“ACED”) to develop 3 wind farms [300]MW in the Eastern Cape

� Ongoing – SARGE/Gestamp/Shanduka, South Africa

Project / Equity FA, MLA and Carbon Credits provider to SARGE/Gestamp/Shanduka’s 75MW wind farm

� Ongoing – SunEdison, South Africa

MLA to SunEdison in connection with the development of its [300]MW multiple solar PV projects

� Ongoing – Solar Capital, South Africa

FA and MLA for the 75MW De Aar PV project in the Northern Cape

� Ongoing – CEC, Zambia

Standard Bank mandated FA and MLA to CEC on its 40MW Kabompo Gorge Hydroelectric Power Station

� Ongoing – SARGE/Elecnor, South Africa

Project / Equity Financial Adviser, MLA and Carbon Credits provider to SARGE/Elecnor on their 27MW PV project

� Ongoing – CGNPC, South Africa

Financial Advisor to China Guangdong Nuclear Power Corporation (“CGNPC”), China’s largest Nuclear Energy company, in support of their bid to build South Africa’s potential nuclear power programme

4

10%

7%

5% 5%4%

4% 4%

2%

China India Russia Sub

Saharan

Africa

Turkey South

Africa

Brazil US

Why Invest in Africa?...It’s not “if”, it’s “when.. ..”

Strong GDP growth over last 10 years...

Significant SSA population & GDP growth...

Attractive demographics and trend...

The promise of AfricaEleven countries, ranked in the world’s top ten for

holding the largest mineral resources

South Africa

Democratic Republic of Congo

Namibia

Botswana

Zimbabwe

Zambia

Niger

Guinea

Ghana

Morocco

Mauritania

52% 53% 55% 57% 61% 64% 66%

48% 47% 45% 43% 40% 36% 34%

1990 2000 2010 2020E 2030E 2040E 2050E

Working Age (15-64) All Other

3% 3% 3% 3% 3% 3% 3%

2% 2% 2% 2% 2% 2% 2%1% 1% 1% 1% 1% 1% 1%

2% 2% 2% 2% 2% 2% 2%

2010 2011 2012 2013 2014 2015 2016

SUB SAHARAN AFRICA TURKEY BRICS AVG US

Source: McKinsey, Economic Intelligence Unit

A continent comprising 54 independent countriesKey points

Strong fundamentals lay the foundation for the next frontier of economic growth

5Investors focusing on Africa for growth prospects

� One of world’s fastest growing economic regions over last decade

� Observe 5.3% compound annual real GDP growth from 2000-2008, more than twice its pace in 80s and ’90s

� Telecommunications, banking, retail and construction sectors have benefited from this robust growth

� These industries continue to perform, bolstered by surging private-investment inflows

� While many of Africa’s 50-plus individual economies face serious challenges, Africa’s collective GDP reached USD1.6trn in 2008

– Roughly equal to Brazil or Russia

Average Real GDP Growth during 2010-11 2

Below 1

Between 1 and 3

Between 3 and 5

Above 5

Insufficient dataNotes 1. Countries coloured grey have been excluded from our analysis

2. IMF staff estimatesSource: “What’s driving Africa’s growth’ –McKinsey, Economic Intelligence Unit, World Economic Outlook (International Monetary Fund)

3.4%

4.9%

6.5%

5.4%

6.7%

5.7%6.1% 6.3%

5.2%

2000 2001 2002 2003 2004 2005 2006 2007 2008

CAGR: 5.3%

Key points

Africa among world’s most rapidly growing economic regions...

…Holds great potential for cement growth, given strong economic growth prospects and obvious link to GDP growth

Overview

6

� Establishing a strong legal and institutional framework for IPPs (Independent Power Projects).

– African governments often retain strategic control/influence by determining IPP “rules of the game” and through the PPA

� Issue a coherent IPP timetable and stick to it to avoid developer fatigue. E.g. South African Renewables Programme

� Cost reflective electricity tariffs and certainty of tariff path (10-20 year power plan)

– Opportunity cost to economy of black-outs (est. US$10/KWh in SA) is higher than cost of electricity production (US$0.10/KWh)

– Partial US$-denominated electricity pricing? A US$-denominated PPA will help raise cheaper finance but could lead to a currency mismatch for the offtaker (utility) unless forex changes are passed on the consumer

� Public utilities as Offtakers

– Credit enhancement options (Partial risk guarantee support from World Bank or AfDB. E.g. Morupule B project)

– Government guarantees of PPA will help raise cheaper funding. Especially Chinese funding.

� Direct IPP power sale agreements with financial robust offtakers (e.g. mines/industrial companies) will reduce financial burden on Gov, but often requires bankable ‘wheeling framework’

– E.g. Mining or industrial companies should be viewed as key partners in an integrated mining-power plan for many natural resources-rich African countries

� Transmission and distribution investment/maintenance required alongside new-build programs

� Cross-border deals and SAPP (Southern African Power Pool): Effective solution or pipe-dreams?

� Carbon Credits can enhance returns for hydro projects in many African jurisdictions

Key Issues

Power Sector PPP Issues

Key points

Establishing a strong legal and institutional framework for IPPs is a key requirement…

…Cost reflective electricity tariffs and certainty of tariff path are required…

…Direct IPP power sale agreements with financial robust offtakers need to be considered…

7

� Enabling environment for Infrastructure PPP’s needs to be present

– Legal and Institutional Capacity

– Depth in funding market

– Appropriate risk transfer

– Lender friendly termination/security provisions

– Aid & development finance should supplement - not substitute – commercial lenders

– Foreign currency funding mitigation for local currency earning projects

� Political support at ALL levels required for each project

– First and foremost a committed project champion is required that has a long term view

– State contributions/revenue support may be required

� Quality and efficiency of tender process critical

– Use of credible advisors

– Needed to attract committed sponsors

– With sufficient “bankable feasibilities” performed before approaching the market

� Create pipeline of transactions that actually come to market and opposed to promising – deal fatigue before project is launched e.g. in SA and Nigeria

� Remember the “Partnership” in PPP? Infrastructure is everybody’s business!

– During the tender award and after financial close

� Keep it simple!

Key Issues (Contd...)

Infrastructure Sector PPP Issues

Key points

Enabling environment for Infrastructure PPP’s needs to be present…

…Political support at ALL levels required for each project are required…

…Need to create pipeline of transactions that actually come to market

8

Key Issues (Contd...)

Examples of Contractual Arrangements in a PPP

Key points

ShareholdersAgreement

Credit document/Security documents/

Hedging

Financing Agreements

Approvals

[Sponsor support]

Government supportconcession agreement

InsuranceContracts

Design & Construction Agreement

O&M agreement

Lenders

Insurers and reinsurers

Contractors Interface agreement O&M contractor

Government/Grantor

Project Company

Shareholders

Civils/TKC

9

Key Issues (Contd...)

PPP Cashflows and Unitary/Toll Fee Bid Structure

Key points

Special Purpose Vehicle (Borrower)

Operating Cost including Debt repayments and Debt covenants

Targeted IRR -Equity

+Costs of the Capital – Funding Requirement

+=Unitary/Toll fee payment

NPV of these cost

Equity Debt

Funding of project• Drawdown matched to the

construction programme usually monthly.

• Milestones as signed off by the Lenders’ technical Advisor (LTA)

• Waivers

• Interest Rate fully hedged during construction

• Equity fully committed but may be drawndown in porportion over construction period

• Capital grace during construction

• Revenues only start after construction

10

� Long-term, large infrastructure projects are complex to design, structure, tender and fund. Globally, there is a democratic tendency to focus more on meeting shorter term expectations

� Frequent cost overruns, specification, scope challenges and questionable purpose

– Eskom (Medupi, Kusile, RTS); ACSA /KZN Province (King Shaka); Transnet (NMPP), Coega

� There is a limit to government’s capacity borrow, given scale of funding calls

– E.g. As a % of SA GDP, Eskom’s “State supportt” is significantly larger than both the recent US and UK Government banking

bail-outs thus reducing other SOEs / public priorities’ access to funds

� Economic regulation has a mixed track record (e.g. Eskom, ACSA, TPL)

� What options does government have to fund public goods like infrastructure?

– ‘Balance sheet’: funding out of the general national budget

– Ring-fencing specific levies/taxes to fund specific infrastructure projects

– Finance/Operating Leasing: funds are raised through independent vehicles (Lessors) reducing the cash budget contribution (e.g.

ROSCOs)

– Infrastructure bonds: allowing public companies and agencies to issue infrastructure bonds, creating tax incentives and allowing

various types of local institutional investors to buy these (linked to 2)

– Public Private Partnership (PPP): creating SPVs (containing private shareholders) who build, [own] operate infrastructure assets

on behalf of the public sector, sharing risks and returns

– Privatisation of infrastructure or services, usually under a closely regulated market or under the condition that sufficient

competition will ensure the optimal service delivery to the public.

–

Introduction

Potential Options & Solutions (1/2)

Key points

African budgets are often unable to fund all infrastructure requirements…

…Many other innovative funding options exist but require supportive regulatory framework…

…Role of DoT in creating this enabling environment for additional funding sources

11

� Passenger transport:

� In many countries, private concessions or PPP-type operators are increasingly used (e.g. UK, Canada, Russia, Australia)

� If existing rail line system is working properly and regulatory framework is secure, concessionaries can fund rolling stock investments required on project finance basis.

� For major greenfield / brownfield projects (e.g. new lines), greater public support would be required within project finance structure, given the much larger costs and higher risks (e.g. Per Gautrain)

� Ring-fenced, project financed structures can similarly be applied to bus/taxi transport systems

� Moving Commodities:

� Key concept is that Government does not have to be the primary credit risk and assume all funding obligations.

� Mining companies, local manufacturers, importers and buyers of our exports all have strong interest in improved SA rail

performance and most have a bankable credit rating to support fund raising

� Mining companies or commodity buyers would be prepared to indirectly secure the future cash-flows of the project by agreeing

to long-term use contracts, thus forming basis for project finance structure

� They may indirectly also support the project through equity investment or standing as guarantees for various risks (including to

lender’s) in the project

Using innovative structures to fund new investment

Potential Options & Solutions (2/2)

Key points

Passenger transport PPPs require strong government backing…

…Financing can also be used for taxi/bus systems…

…Quality mining companies and offtakers reduce the need for government to provide credit support

12

Key Issues (Contd...)

Case Study: Lagos Infrastructure Project: LCC

Key points

• LCC is a Special Purpose Vehicle, set up specifically to execute the Lagos Infrastructure Project

• The project is designed to deliver essential road infrastructure and services along the Lekki

Peninsular of Lagos

• The newly refurbished/constructed 49.4km of the Lekki-Epe Expressway (Phase I), and the

20km of the Coastal Road (Phase II), will be operated and maintained by LCC throughout the

30-year concession term

• Hidden costs of ‘go slow’ and bad roads have adverse economic, social, psychological and

health impacts, on Nigeria’s citizenry

• PPPs are a globally accepted model for financing and delivering essential infrastructure using

the private sector, and can help bridge the gap where government resources are insufficient.

• The project takes the cooperation of all road users to ensure that they derive the optimum

benefits from the new road systems being implemented by LCC

• Standard Bank was the joint financial advisor and mandated lead arranger with an injection of

US$ 430 million

• This project is the first toll road PPP in West Africa

• The base layer of the newly constructed road is designed to last 30 years. The original asphalt

layer is designed to last 10 years which will be replaced several times over the 30-year

concession term

Private and confidentialAppendix:

Selected Credentials

14

Financial Advisory and/or Debt Arranging

Standard Bank – Selected Energy Credentials

� Ongoing – Mphanda Nkuwa Hydropower Project, Mozambique

Standard Bank is mandated as the Financial Advisor to the Mphanda Nkuwa consortium (consisting of Electricidade de Moçambique, Camargo Corrêa Moçambique lda and Energia Capital) on the development of 1,500MW hydro electric project in Mozambique

� Ongoing – Forest Petroleum, South Africa

Standard Bank is mandated as Financial Adviser to Forest Petroleum on the development and financing of a 545MW CCGT IPP using natural gas from the offshore Ibhubesi gas field

� 2009 – Morupule B Power Project, Botswana

The US$1.6bn coal-fired Morupule B Power Project in Botswana. Standard Bank was mandated as Joint Lead Arrangers (with ICBC) and Hedge Provider for 20 year USD 825m Term Loan Facility and US$140m Bridge Facility

� 2009 – Eskom Kusile Project (6*800MW), South Africa

Standard Bank acted as the Mandated Lead Arranger in the Kusile Boilers contract. Standard Bank acted with 4 international banks in funding the €705m contract over 12 years. Export Credit was also arranged with Euler Hermes (German ECA) over the foreign content of the contract with Hitachi Power Europe

� Ongoing – Just Energy, South Africa

Financial Advisor to Oxfam’s energy subsidiary, Just Energy, to develop [37]MW of wind farms in the Eastern Cape

� Ongoing – CGNPC, South Africa

Financial Advisor to China Guangdong Nuclear Power Corporation (“CGNPC”), China’s largest Nuclear Energy company, in support of their bid to build South Africa’s potential nuclear power programme

� Ongoing - Khanyisa IPP, South Africa

Standard Bank is mandated as the Financial Advisor to Anglo American’s 450MW discard coal-fired IPP

15

� Ongoing – SARGE, South Africa

FA, MLA and Carbon Credits provider to SARGE’s 140MW wind and 75MW PV projects

�Ongoing – Solar Reserve, South Africa

FA to Solar Reserve on its multiple Solar CSP plants, using molten salt storage technology, each totalling [80-100]MW, in South Africa

�Ongoing – Gitson Energy, Kenya

MLA and FA to Gitson Energy’s [300MW] Wind Power Project in Bubisa, Kenya

� Ongoing – Aeolus, Kenya

MLA to Aeolus Kenya Ltd on a 60MW wind farm project

�Ongoing – Aldwych International, Kenya

Joint Lead Arranger for long-term financing to Aldwych International for the 300MW Lake Turkana Wind Project valued at US$760m

�Ongoing – Basil Read Energy, South Africa

Mandated as MLA to BRE and Metrowind’s [27]MW wind farm near Port Elizabeth in the Eastern Cape

�Ongoing – Astrum Energy & Basil Read Energy, South Af rica

Standard Bank has been mandated as MLA to Astrum Energy and Basil Read Energy’s [60]MW solar PV in the Western Cape

�Ongoing – Lanco, South Africa

MLA to Lanco on its 3 PV power projects [combined 130]MW

�Ongoing – Renova, South Africa

MLA to Renova on its 5 PV projects [combined 35]MW

Financial Advisory and/or Debt Arranging

Standard Bank – Selected Energy Credentials (contd...)

16Disclaimer

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