public private partnerships as a funding model a discourse ... · corporate lending equity...
TRANSCRIPT
Public Private partnerships as a funding model
a Discourse at AirRail Africa
7 October 2016
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0 50 100 150 200
CARChad
Rep. CongoEritrea
DRCVenezuela
Guinea-BissauGuinea
Cote d'IvoireNiger
AfganistanBrazil
RussiaChina
South AfricaUnited States
Singapore
Doing business and investing in Africa
Source: IFC, World Bank & OECD (2013)
Economies are ranked on their ease of doing business, from 1 –185. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators such as: Starting a Business, Getting Credit and Enforcing Contracts
Countries that are the most difficult to do business in
African countries Other countries
Nine of the ten most difficult countries in the world to do business in are in
Africa
More than half of the world’s fragile economies are in Sub-Saharan Africa
Fragile economies“A fragile region or state has weak capacity to carry out basic
governance functions, and lacks the ability to develop mutually constructive relations with society. Fragile states are also more
vulnerable to internal or external shocks such as economic crises or natural disasters… Fragility and resilience should be seen as
shifting points along a spectrum” (OECD, 2012).
African Countries include: Eritrea, South Sudan, Sudan, Chad, Niger, Nigeria, Guinea, Guinea-Bissau, Sierra Leone, Liberia, Togo, Cameroon, Angola, CAR, DRC, Zimbabwe, Rwanda, Burundi, Uganda, Malawi, Kenya, Ethiopia, Comoros, Somalia,
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Therefore, within this complex environment, the DBSA has carved a niche for itself in pursuit of the national interest.
THE BANK’S FUNDAMENTAL PROBLEM STATEMENT FOR AFRICA
How do we address continent‘s catalytic infrastructure needs in such a way as to:▪ Facilitate regional integration ▪ Support commodity-led industrialisation▪ Promote inclusive economic growth ▪ Strengthen its value adding linkages into the global economy?
The DBSA needs to define the projects that matter, finance the projects that matter and
prepare the projects that matter
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IntroductionOverview Priority
Sectors• Founded in 1983• 100% owned by SA Government• Total assets of R63.8billion• Mission is to advance development
impact in the region by expanding access to development finance and effectively integrating and implementing sustainable development solutions
• Focus is on preparing, financing and implementing bulk infrastructure projects in South Africa and the rest of the African continent
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Uganda
DBSA’s Geographic Mandate
REVISED DBSA MANDATE DBSA FOCUS
Although the DBSA’s mandate allows for investment in all countries on the African continent, the DBSA will continue to primarily focus its investment activities in SADC.
A gradual approach will be pursued into the rest of Africa, by initially pursuing opportunities only in the following 6 pivot countries outside of SADC:
For continental , regional and national strategic considerations, the DBSA may consider investments outside the pivot countries identified here, on a case by case basis.
GhanaNigeria
Republic of Congo
Kenya
Rwanda
• Ghana• Nigeria
• (Ethiopia)
• Rwanda• Republic of Congo
• Kenya• Uganda
In the road sector alone addressing under-maintenance can save governments up to $1.9 billion in rehabilitation.DBSA step in to support sovereign entities and state backed companies where there is sufficient market demand and if this is absent, work with private sector partners to alleviate the burden on the state fiscus.
DBSA MANDATEPRE 2014
SADC
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DBSA loan portfolioGeographic split
Sector split
South Africa$5bn74.8%
Rest of Africa
$1.5bn
25.2%0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Billi
ons
-
5
10
15
20
25
Billi
ons
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Mapaka and Juana
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International Financing has formulated and started executing its strategy in SADC and select African countries.
Country
Mode of operation
Sectors
Client type
Return requirement
•Preparing for financing (limited)•Financing
•Strategic considerations(Financing only)
(authorized by Board)
•Kenya, Uganda, Rwanda, Republic of Congo, Ghana, Nigeria
•Strategic considerations(Regional priority / integration)(authorized by Board)
•All SADC countries
• Developmental – RoE > 12%• Commercial – RoE >16%
(subject to refinement by DBSA Finance)
•Developing•Preparing for financing•Financing
SADC COUNTRIES 6 SELECTED NON SADC COUNTRIES
REST OF AFRICA
LOW HANGING
FRUITBLOSSO
MSSEEDLIN
GSLOW
HANGING FRUIT
• Strategic considerations(Primarily Energy)(authorized by Board)
•Sovereigns • Infrastructure guarantee• Project see-through• Utilities• PPP
•Private sector• PPP
•Strategic considerations(Sovereign linked only)(authorized by Board)
•Sovereigns • Infrastructure guarantee• Project see-through• Utilities• PPP
•Private sector• PPP
•RoE >16%•Sustainability P&L range
(subject to refinement by DBSA Finance)
BLOSSOMS
LOW HANGING
FRUIT
BLOSSOMS
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In SADC(over the past 15 years)
• 4,383 km of road rehabilitation
• US$350m towards the development of telecommunications infrastructure
• 2,960MW energy generation capacity
• 9,000,000 m³ bulk water storage volume
• 865km of gas pipelines• 183m GJ pa of gas
production capacity• 75,000t of petroleum product
transportation capacity• US$200m in support of
growing regional development banks
The DBSA’s contribution to core economic infrastructure (e.g. energy, roads, water and sanitation and ICT) development in SADC has been far reaching.
Examples of DBSA’s contributions over the past several years
In South Africa (over the past 5 years)
• Contributed 0.2% (average) to national GDP per year
• Created 25,700 (average) jobs per year
• 2,800 km of road rehabilitation
• 3 Ports projects• US$614m towards the
development of transport infrastructure
• 330,000,000 m³ bulk water storage volume
• US$2.4 billion committed to energy projects
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Rail PPP infrastructure projects in Africa:DFI Financing structures
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Public sector owns and operates assets
Public-Private Partnerships (PPPs)
Private sector owns and operates assets
Government funded Mix of public and private finance All private finance
Extent of Private Sector ParticipationLow High
Municipalities, Agencies, State-Owned Enterprises
(SOEs)
Economic sectors –balance sheets financing
Social & Economic sectors –Concessions, BOT, DBO
Zero-low financial returns
Low-high blended financial returns
High financial returns sought
Fiscal finance spectrum DFI/Commercial finance spectrum
THE CASE FOR INVESTING IN PPP’s
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Avenues of Funding
DBSA and other DFI’s can provide various financial products to support both private and publicsector clients across various stages of the project development lifecycleTypes of services for roads infrastructure financing include: underwriting, arranging, lending,syndication and transaction managementKey clients include local authorities, state owned enterprises (SOEs), public private partnerships(“PPPs”) and private sector clients
Project Financing
Debt Mezzanine Equity Limited/non-
recourse lending Development
Funding Technical
assistance Guarantees
Corporate Lending Equity Investing
Private Equity DBSA Investments Empowerment
Financing
Debt Mezzanine Equity Development
Funding Technical
assistance
Project Identification and Scoping
Feasibility Assessment
Technical Assistance
Development Funding
Institutional Modeling
Financial Structuring
Project Development Advisory
Underwriting Arranging Lending Syndication Transaction Management
PRODUCTS
SERVICES
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PP Opportunities
Incomplete PIM – A project
submitted to the Lending
Divisions for funding and fails
to meet all requirements for
funding (as identified from
the PAT)
Greenfield Projects – A sponsor
approaches DFI for participation in a new
project
Brownfield Projects –A sponsor approaches DBSA for participation
in the subsequent phase or upgrading of
an existing project
Project Preparation (PP) support canbe defined as financial and nonfinancial / capacity support to projectsponsors, to prepare projects tobankability. This support includesamongst other things feasibility studies,modeling, designs and related activitiesto prepare a Project InformationMemorandum (PIM) to enable the DFIto appraise and consider the project forlending;
Preparation of projects for lending isdone with the objective to ensure agood quality pipeline of projects and issupplementary to prepared projectspresented to DFI lending divisions;
DBSA will not only use its own sourcesto fund the preparation activities but willmobilise funding from national andinternational donors / funders
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Project Definition
• Project identification and scoping
• Project concept notes
• ToR for pre-feasibility
• Project and Program management expertise
• Establish enabling environment, legal/regulatory/institutional and other issues for consideration
Pre-feasibility
• Development of ToR for the full feasibility
• Procurement of Advisors and sector analyses
• Provision of sector specialist expertise on the project
Full Project Feasibility
• Technical / Engineering assessment
• Institutional capacity
• Financial assessment and modeling
• Environmental Impact Assessment
• Social impact assessment
Project Structuring
• Provision of a financial, legal and technical advisor to provide project structuring inputs to enable the project
PP ACTIVITIES WITHIN THE PROJECT CYCLE
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Financing categoriesPROJECT PREPARATION FUNDS
INVESTMENTSPrimarily senior debt lender
• Up to 15 years US$ funding• Local currency funding possible• No Basel related tenor restrictions
Public sector involvement• Sovereign lending with project see-
through• Sub-sovereign lending (utilities)• PPPs / IPPs
PPFS
INFRASTRUCTURE INVESTMENT
PROGRAMME FOR SOUTH AFRICA
AFD – DBSA PROJECT PREPARATION AND FEASIBILITY STUDY
FUND
SADC PROJECT PREPARATION
DEVELOPMENT FUND
PAN AFRICAN CAPACITY BUILDING
PLATFORM
Enabling the implementation of NEPAD projects
Co-funding of EU grants with loans from DFIs to support national and regional infrastructure projects
Assist SADC to address implementation of SADC Regional Infrastructure Development Master Plan (RIDMP)
Build African capacity for infrastructure development
Provide catalytic finance to facilitate investment in green initiatives
THE GREEN FUND
Political risk mostly taken on balance sheet• No need for ECA backing in most instances
Development impact and monitoring• Regional integration• Corridor developments• Environmental and social
monitoring
www.dbsa.org
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Other potential sources of funds
• State departments
• Local authorities
• IDC• PIC• NSC Initiative• PDF• Transnet• ESKOM
• Private Companies• Developers• Consulting
Engineers, etc
• DBSA• KwF• EIB• AFD• AfDB• FMO• WB• IFC• BRICS DFIs
DFIsPrivate Sector
Governments /
Municipalities
Other South
African Companies / Institution
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• Offer a singular approach
– from project identification,
– Facilitate project preparation within a C-capital structure towards bankability
– Assist in working towards a gearing and lead arranger services to attract other financiers
– Lead arrange debt financing
– Creating and developing financial vehicles with local partners.
Ability to finance projects that matter
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Considerations for bankability
Source: Africa Strategic Infrastructure InitiativeProject Finance in Africa: A commercial perspective on financing rail projects
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DFI Financing options
Source: Africa Strategic Infrastructure InitiativeProject Finance in Africa: A commercial perspective on financing rail projects
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Financing structures
Source: Africa Strategic Infrastructure InitiativeProject Finance in Africa: A commercial perspective on financing rail projects
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Alternative revenue sources to secure market and demand risk
User-based fees (e.g. tolls)Beneficiary fees and taxesEnterprise revenues
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Types of alternative revenue sources*Beneficiary fees and taxes
▪ Value capture▪ TIF▪ Development impact fees▪ Hotel taxes
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Types of alternative revenue sources*Beneficiary fees and taxes▪ Development fees▪ Joint development▪ Air rights▪ Advertising and sponsorship
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CONCLUSIONS• DFIs willing to facilitate participation in PPPs Structures to deliver
core infrastructure to relieve public sector balance sheet limitations • The Optimality in PPPs is a must, to balance demand risk, user fee
distortions and opportunity cost of public funds implies min revenue guarantee and a revenue cap
• Economics of value add (ROIC > Cost of Capital) at a project/programme level must be considered to justify the economic rationale
• Select equity/Mezzanine participation can be considered in projects to create capacity ahead of demand and where risk-return profile justify a share in the upside
• Financial Sustainability of PPPs via SPCs, Project finance manner, Credit risk, Gearing , Collateral and Contracts mandatory
• Partnerships with Sponsors/funders should be mutually beneficial, to access new funding opportunities
