WAPIC Presentation

November 2011

Ije IkokuIFC Infrastructure Cluster

Presentation Outline

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IFC is a Member of the World Bank Group

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IDAInternational Development Association

Shared Mission: To Promote Economic Development and Reduce Poverty

IFC was awarded the 2010 Euromoney Project Finance Magazine “Multilateral of the

Year” award

IFC Financial Performance

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IFC FY11 HighlightsCredit Rating (S&P, Moody’s) AAAPortfolio $55.2 billionCommitted $12.2 billionMobilized $6.5 billion# of companies 1,737# of countries 102

Since 1967, IFC’s Power Group Has Committed $7.8 billion to 239 Projects in Emerging Markets

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Cumulative Commitments since 1967

Total Commitments = US$ 7.8 billion

Outstanding Portfolio, June 30 2011

Total Portfolio = US$ 4.7 billion

IFC’s Power Group is Active in All Regions…

Cumulative Commitments since 1967

Total Commitments = US$ 7.8 billion

Outstanding Portfolio, June 30 2011

Total Portfolio = US$ 4.7 billion

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Our Power Investments Span 57 Countries

Sub-Saharan Africa

# of investments

Senegal 4

Cameroon 2

Cote D’Ivore 2

Nigeria 1

Uganda 2

Djibouti 1

Kenya 1

Mali 1

Rwanda 1

Togo 1

South Asia # of investments

India 29

Sri Lanka 5

Nepal 3

Bangladesh 1

East Asia and Pacific

# of investments

Philippines 14

China 12

Indonesia 3

Thailand 3

Laos 1

Vietnam 1

Europe and Central Asia

# of investments

Czech Republic 3

Georgia 3

Tajikistan 2

Ukraine 2

Armenia 1

Hungary 1

Kazakhstan 1

Lithuania 1

Poland 1

Russia 1

L. America & Caribbean

# of investments

Chile 9

Brazil 8

Mexico 7

Jamaica 5

Colombia 4

D. Republic 4

Guatemala 4

Peru 4

Argentina 2

Bolivia 2

Nicaragua 2

Venezuela 2

Belize 1

Costa Rica 1

El Salvador 1

Haiti 1

Honduras 1

Panama 1

MENA & South Europe

# of investments

Turkey 11

Pakistan 9

Egypt 2

Moldova 2

Bulgaria 1

Jordan 1

Macedonia 1

Oman 1

Romania 1

IFC’s power committed portfolio as of June 30, 2011

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Presentation Outline

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Integrated UtilitySomewhat unbundled Single Buyer System

Generation Transmission DistributionGeneration Transmission Distribution

IPP IPPIPP

Transco Disco

IPP Customers

A bit more unbundled Single Buyer System

Customers

Customers

Customers

Transco

Unbundled

Disco

Market

High Volume CustomersIPP

System Operator

Electricity Market and its Participants

Contractual Framework

What Are You Trying to Achieve?

Why It’s Important

• Allocate the risk to the party who is best positioned to bear it

• Cash/Risk neutrality for Borrower/IPP, e.g. :

• delay liquidated damages (“LDs”)

• pass through of fuel take or pay

• back to back of Force Majeure (“FM”) provisions

• Pre-commissioning: no guarantee of being paid back (unless you have sponsor

support that covers the debt and a creditworthy sponsor – importance of EPC –

track record and contract);

• non–recourse financing (generally with the exception of sponsor support

during construction);

• PPA is often the only source of revenue.

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Why Does It Take so Long?

• Many parties with diverging interests are involved (off-taker, contractor, fuel

supplier, government, regulator, sponsors, other government agencies, groups

of lenders).

• Complex contract structure that at times has to substitute for the absence of

a bankable legal framework for private sector participation.

Contractual Framework – Typical Scheme

SponsorSupportAgreement

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General Risk Overview

� Construction Risk

� Completion on time/loss of PPA

� Completion on Budget

� Completion according to Specifications / reduction in capacity payments

� Operational Risks

� Default risk: project company/off-taker – loss of PPA - Plant

� Affecting Construction and Operational Phase

� Political risk: Government /government – owned Off-taker

� Natural disaster: insurance

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PPA Bankability Issues� Least Cost – Dispatch Order.

� Tenor of PPA vs debt.

� Off-taker Liquidity or Credit Support/ Government Guaranty —Acceptability of comfort letter as proposed substitute.

� Award of PPA and licenses— Transparency scrutiny

� Unusual Force Majeure/Termination Provisions —mismatch among project contracts.

� No Direct Agreement.

� Short term Fuel Supply Agreements – Market disruption on the fuel.

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PPA Bankability Issues

� Stranded asset in the event of loss of PPA - Lack of market – direct sales to high volume customers – sales to neighboring countries.

� Currency mismatch –between costs in FX (ROE, debt, fuel, O&M) and revenue in local ccy.

� Tariffs do not permit reasonable return on equity (what is “reasonable” ?)

� No Inflation Adjustment: Tariff not adjusted to cover components of fixed and variable expenses which rise over time.

� Change of Law/Political Force Majeure: Tariff not adjustable to cover increased costs due to Political Force Majeure (including Change of Law).

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FSA - Certain Key Bankability Issues

� In comparing terms of different contracts (e.g., FSA, PPA and O&M) must consider

start date of term to ensure timely start of delivery obligations.

� Is supply based on an exhaustible reserve? Are reserves dedicated to the Project

Company? Alternate sources?

� Transportation?

� Security over reserves and/or transportation?

� Need for parent guarantee and/or other credit support if Fuel Supplier or Buyer not

sufficiently creditworthy.

� Price/foreign exchange rate risk and hedging/mismatch of PPA.

15

FSA - Certain Key Bankability Issues

� Conformity of fuel specifications with equipment manufacturers’

requirements, ash storage capacity, etc.

� Relationship of PPA energy charge calculations with pricing of fuel under FSA

– pass-through? Take or pays? (Sometimes comfort through market studies

in deregulated markets).

� FMs back to back with PPA

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� Mismatch with PPA: technical specifications, completion deadlines,

penalties/damages

� Mismatch with projected Project economics (plant capacity; levels

of delay or performance LDs)

� Owners scope and other work outside scope of EPC Contractor: force

majeure claims, change order claims, price adjustment claims

� “Force Majeure” definition and related risk allocations

� Interfaces between contractors/suppliers

� Change orders

� Environmental requirements

� Other

EPC – Certain key bankability issues & recurring themes

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Presentation Outline

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1997: IFC Advisory signs mandate with Cameroon for the privatization of the countries national utility (Sonel)

1997: IFC Advisory signs mandate with Cameroon for the privatization of the countries national utility (Sonel)

2001 2004 20051997 - 1998

1998: Cameroon passes new electricity law; setting up regulator, and paving the way for PPP in the power sector.

1998: Cameroon passes new electricity law; setting up regulator, and paving the way for PPP in the power sector.

2006 - 20082001 - 2003

2001: Sonel is privatized with AES Corp buying 56% of the 58 year old national utility. The new entity is called AES Sonel

2001: Sonel is privatized with AES Corp buying 56% of the 58 year old national utility. The new entity is called AES Sonel

2012

Key milestonesKey milestones

2010 - 2011

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2012: IFC expected to lead a syndicate of 6 DFIs in securing Eur193.5 Million debt package to support Kribi (Cameroon's 2nd

IPP). This will be a joint WorldBank/IFCproject, with IDA providing a guarantee to unlock local bank financing

2012: IFC expected to lead a syndicate of 6 DFIs in securing Eur193.5 Million debt package to support Kribi (Cameroon's 2nd

IPP). This will be a joint WorldBank/IFCproject, with IDA providing a guarantee to unlock local bank financing

2011: IFC leads a syndicate of 3 DFIs to close US$88 mill for Dibamba, Cameroon’s 1st IPP

2011: IFC leads a syndicate of 3 DFIs to close US$88 mill for Dibamba, Cameroon’s 1st IPP

IFC/IDA ENGAGEMENT IN CAMEROON’S ENERGY SECTOR (~15 YEARS)

2008: World Bank ESDP aims to increase access to energy, improve the planning & management of sector resources, assist with LPHP (unlock hydro potential)

2008: World Bank ESDP aims to increase access to energy, improve the planning & management of sector resources, assist with LPHP (unlock hydro potential)

2006: IFC leads a syndicate of 8 DFIs to raise Eu260 million to support AES-Sonel’s Eu380 million 5 year investment program

2006: IFC leads a syndicate of 8 DFIs to raise Eu260 million to support AES-Sonel’s Eu380 million 5 year investment program

2003: The Kribi gas power project is the trigger for the GOC to develop a comprehensive Gas Masterplan in 2003,

2003: The Kribi gas power project is the trigger for the GOC to develop a comprehensive Gas Masterplan in 2003,

2005: World Bank commences support to strengthen public sector capacity

2005: World Bank commences support to strengthen public sector capacity

IFCIFC

World BankWorld Bank

Cameroon – Country HighlightsEconomy Facts (2005)

• Population: 16 million

• GDP Per Capita (2005): US$ 800 (proj. growth ~5%)

• Currency: CFA Francs (XAF)

• Key Sectors: agriculture (20%), industry (31%), services (49%)

• Oil/gas sector: Cameroon produces about 32 million barrels per year of crude oil; extractive industries account for only 8-10% of Cameroon’s GDP.

• Governance: key impediment to growth/investment; Corruption is prevalent at all levels of society

• Commodity dependent economy: ~34% of GDP (of which oil is less than 5%).

• Major exports: crude oil, cocoa, coffee, cotton, timber

• Surface Area: 475,000 km2

• Vision 2035: GoC aims to reduce poverty, spur growth & create jobs through increased industrialization, improved competitiveness & better governance

• Commercial Center/City: Douala

• Political & Administrative capital – Yaounde

Economy Facts (2005)

• Population: 16 million

• GDP Per Capita (2005): US$ 800 (proj. growth ~5%)

• Currency: CFA Francs (XAF)

• Key Sectors: agriculture (20%), industry (31%), services (49%)

• Oil/gas sector: Cameroon produces about 32 million barrels per year of crude oil; extractive industries account for only 8-10% of Cameroon’s GDP.

• Governance: key impediment to growth/investment; Corruption is prevalent at all levels of society

• Commodity dependent economy: ~34% of GDP (of which oil is less than 5%).

• Major exports: crude oil, cocoa, coffee, cotton, timber

• Surface Area: 475,000 km2

• Vision 2035: GoC aims to reduce poverty, spur growth & create jobs through increased industrialization, improved competitiveness & better governance

• Commercial Center/City: Douala

• Political & Administrative capital – Yaounde

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Key Project Highlights

• AES Sonel is the privatized integrated national

power utility of Cameroon:

� Privatized in 2001 with advice from IFC advisory

� Acquired by The AES Corp. of the US (56%); Republic of Cameroon retained shareholding of 44%

� Operates under a 20-year concession terminating in 2021

� Holds generation, transmission, & distribution assets in northern & southern grids of Cameroon;

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• In 2006, IFC led the coordination of EUR 260 million financing of the EUR 380 million five year

Investment Plan being implemented by the Company to renew and refurbish their

generation/transmission/distribution assets in order to improve the quality of service & increase

electrification rates. Syndicate of 8 DFI lenders included IFC, AfDB, EIB, Proparco, FMO, DEG,

EAiF, BDEAC.

Cameroon – Electricity Market Highlights (2005)

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• Electrification Rates: 31% of urban households & 11% of rural

• Hydro Potential/Dependence: 2nd highest hydro potential in the region(after DRC);

• Installed Capacity: 933 MW with 77% based on hydro, specifically from the Sanaga basin, which is seasonal

• Population Dispersion: highly dispersed population (31% in large towns, and 31% in small towns) makes it expensive to serve the entire population

• Alucam: More than 40% is consumed by a single customer – Alucam – the country’s aluminum smelter

• Tariff Classes/Levels: LV/MV – retail clients with tariffs of EUR 0.9 c/kWh and EUR 9.3 c/kWh respectively; HV – Industrial clients (Alucam) with tariffs of EUR 1.1 c/kWh

• Electrification Rates: 31% of urban households & 11% of rural

• Hydro Potential/Dependence: 2nd highest hydro potential in the region(after DRC);

• Installed Capacity: 933 MW with 77% based on hydro, specifically from the Sanaga basin, which is seasonal

• Population Dispersion: highly dispersed population (31% in large towns, and 31% in small towns) makes it expensive to serve the entire population

• Alucam: More than 40% is consumed by a single customer – Alucam – the country’s aluminum smelter

• Tariff Classes/Levels: LV/MV – retail clients with tariffs of EUR 0.9 c/kWh and EUR 9.3 c/kWh respectively; HV – Industrial clients (Alucam) with tariffs of EUR 1.1 c/kWh

GENERATION ASSETS AND STORAGE DAMS

Lagdo 72 MW

4.5 bn m3

Mbakaou 2.2 bn m3

Mapé 3.6 bn m3

Bamendjin 1.8 bn m3

Total 7.7 bn m3

Song Loulou 384 MW

Edéa 265 MW

Total - Hydro 721 MW 77%

Thermal GRID

HFO 122 MW 13%

Diesel 66 MW 7%

Isolated 24 MW 3%

Total - Generation 932.7 MW 100%

Sanaga River Water Flow Fluctuation

Generation – Strong Hydro Dependence

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Makary

GoulféFo tokol

A fade

KousseriMaltam

Logone B irni

D jilbe

Ndiguina

W aza

Ko lo fata

M ora

Tokom béré

MeriM okolo

M arouaM indif

M outouroua

Kaélé

Guider

Figuil

LagdoNgong

Bidzar

Pitoa

G aroua

Poli

Tcholliré

Rey Bouba

Touboro

N gaoundéré

LEGENGE

Poste THT/HT 225/90 KV

Poste THT/HT 110/90 KV

Poste HT/M T 90/30/15 KV

Centrale Hydroélectrique

Centrale Thermique

Barrage de retenue

Ligne TH T 225 KV ou 110 KV

Lignes H T 90 KV

C entres AES-SONEL

ENSEM BLE DES INFRASTRUCTURES PERTINENTES AES-SONEL

Lignes M T 30 KV

Yagoua

Réseau Cam rail

Routes nationales

Power infrastructure in CameroonRegional Demand Breakdown

• South grid 850 km 90 kV and 480 km 225 kV T-lines

• 2 components : Alucam and Public Sector

• North grid (9%) - 350 km 110 kV and 200 km 90 kV T-

lines

• Isolated centers (1%) - 30 isolated localities supplied

by LFO small gensets

Regional Demand Breakdown

• South grid 850 km 90 kV and 480 km 225 kV T-lines

• 2 components : Alucam and Public Sector

• North grid (9%) - 350 km 110 kV and 200 km 90 kV T-

lines

• Isolated centers (1%) - 30 isolated localities supplied

by LFO small gensets

Cameroon – Electricity Market Highlights (2005)

• Northern Region - 8.5% of revenues, 4.6% of energy delivery

• Western Region – 12.1% of revenues, 8.3% of energy delivery

• Coastal / Littoral Region –53.7% of revenues, 68.3% of energy delivery

• Center Region – 25.7% of revenues, 18.8% of energy delivery

Cameroon’s Electricity Market

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Historically, retail demand growth in line with GDP..

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

MW

h/yr

-

500

1,000

1,500

2,000

2,500

3,000

Bn

FC

FA

(co

nsta

nt)

MT BT GDP WB

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

MW

h

LV sales (MWh) MV sales (MWh) Total energy requirements (MWh) LV+MV sales (MWh)

..and projections illustrate healthy demand growth…

0

200

400

600

800

1000

1200

1400

1600

1800

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

MW

Kribi

Existing capacity

Alucam load

MV/LV load

But also a looming supply deficit

• Significant investment for additional

generation capacity will be needed to

avoid load shedding; This is expected

to come from IPPs – such as Kribi

Cameroon’s Electricity Market

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Client Base

• Public sector: including low-voltage (domestic, professional and street-lighting), medium

voltage (small businesses, other retail) accounts for 54% of sales & nearly 90% of the

total revenue

• Industrial clients: mainly Alucam and four other large customers, accounts for 44% of

sales & 10% of revenue

Regulatory Framework

• Since 1998, the GoC has initiated a series of policy & structural reforms to improve

efficiency & governance in the power sector and increase private sector participation.

• Electricity law introduced in 1998 sets out basis for a competitive market.

• GoC is a member of the Central African Power Pool (CAPP), which aspires to connect the

electricity grids of all members of the Central Africa Economic Community (CEEAC); GoC

wants to position itself as a key power supplier in the CAPP

Key Stakeholders include:

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WORST POWER OUTAGES IN CAMEROON’S HISTORY

WORST POWER OUTAGES IN CAMEROON’S HISTORY

MINIMAL PERFORMANCE IMPROVEMENTS

MINIMAL PERFORMANCE IMPROVEMENTS

• Downturn in global infrastructure market immediately following privatization led to inability to fund post privatization program

• AES Corp narrowly escapes bankruptcy due to rapid expansion, crash in energy prices & distress in Latin America where it had significant exposure

• Downturn in global infrastructure market immediately following privatization led to inability to fund post privatization program

• AES Corp narrowly escapes bankruptcy due to rapid expansion, crash in energy prices & distress in Latin America where it had significant exposure

INABILITY TO ATTRACT FDI

INABILITY TO ATTRACT FDI

• …. Leading to strained relationship between AES Sonel & Govt. of Cameroon

• Perceived lack of sensitivity to local culture

• …. Leading to strained relationship between AES Sonel & Govt. of Cameroon

• Perceived lack of sensitivity to local culture

STRAINED RELATIONSHIP

STRAINED RELATIONSHIP

• Cameroon experiences its 4th driest year in 60 years; • 90% of installed capacity is hydro • Severe drought coupled with an uptick in economic growth • Situation exacerbated by poor communication by AES Sonel to its customers• Alucam arbitration against AES Sonel due to inappropriate rationing of power & poor management of the situation

• Cameroon experiences its 4th driest year in 60 years; • 90% of installed capacity is hydro • Severe drought coupled with an uptick in economic growth • Situation exacerbated by poor communication by AES Sonel to its customers• Alucam arbitration against AES Sonel due to inappropriate rationing of power & poor management of the situation

• Electricity losses remained high; collection levels low; E&S standards lacking –

reflecting deferral of significant investments in the sector since 1992

• Substantially below concession targets, particularly new connections, many concession objectives set with unrealistic expectations & were unattainable

• Management & technical team, unable to deal with crisis

• Electricity losses remained high; collection levels low; E&S standards lacking –

reflecting deferral of significant investments in the sector since 1992

• Substantially below concession targets, particularly new connections, many concession objectives set with unrealistic expectations & were unattainable

• Management & technical team, unable to deal with crisis

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AES Sonel – In crisis in years following privatization…

ADDRESSING SUPLY DEFICIT &

CUSTOMER RELATIONS

ADDRESSING SUPLY DEFICIT &

CUSTOMER RELATIONS

NEW AES SONEL MANAGEMENT

TEAM

NEW AES SONEL MANAGEMENT

TEAM

• Increase in distribution & transmission efficiencies

• Improvement of business processes & organizational structure

• Increase in distribution & transmission efficiencies

• Improvement of business processes & organizational structureSIGNS OF

OPERATIONAL/ FINANCIAL

IMPROVEMENT

SIGNS OF OPERATIONAL/ FINANCIAL

IMPROVEMENT

• All resulting in a more constructive dialogue between AES Sonel & RoC

• Allowing for the re-negotiation of the concession with more realistic targets

• All resulting in a more constructive dialogue between AES Sonel & RoC

• Allowing for the re-negotiation of the concession with more realistic targets

RELATIONSHIP ON THE MEND

RELATIONSHIP ON THE MEND

• Construction of new thermal capacity & good hydrology• 85MW HFO plant at Limbe in 2004, plus another 48MW of thermal capacity• Settlement with Alucam, leading to AES Sonel providing free energy credits

• Construction of new thermal capacity & good hydrology• 85MW HFO plant at Limbe in 2004, plus another 48MW of thermal capacity• Settlement with Alucam, leading to AES Sonel providing free energy credits

• After two rounds of management changes, Jean David Bile was hired as DG,

• Able to take steps to re-build relationship with RoC & demonstrate better

performance through hiring of qualified staff

• After two rounds of management changes, Jean David Bile was hired as DG,

• Able to take steps to re-build relationship with RoC & demonstrate better

performance through hiring of qualified staff

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…signs of tide turning at time of IFC’s investment

• In parallel, sector institutional capacity strengthened particularly in the Ministry of

Energy with the help of the WB

• Better long term planning in place evidenced by development of a country-wide least cost generation expansion plan

• In parallel, sector institutional capacity strengthened particularly in the Ministry of

Energy with the help of the WB

• Better long term planning in place evidenced by development of a country-wide least cost generation expansion plan

CAPACITY STRENGTHENED WITHIN THE

GOVT

CAPACITY STRENGTHENED WITHIN THE

GOVT

Key Project Strengths – Why we did it

Macro Considerations

Experienced, Capable Sponsor

Strong World Bank Engagement

• Cameroon has enjoyed economic growth and political stability; economic situation

had improved considerably. The growth rate of GDP had risen to a steady 5% per

year; inflation remained low, and the current account deficit turned slightly positive

in 2005

• Strong Sponsor with technical capabilities, global track record in emerging markets

power; After a some problems in 2002, AES Corp had regained its position as a

global power player

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Government Support

• Although many aspects remain to be developed, the GoC had lent its support to on-

going reform of the sector and privatization of Sonel, authorized tariff increases.

• A least cost generation expansion plan was being developed with all relevant parties

in the sector.

• GoC and AES Corp appointed senior management members/officials to the Board as

a sign of their commitment.

• The World Bank had played a key role in Cameroon by engaging all stakeholders in a

constructive policy dialogue, clearing the way for revision of the Concession and

development of the least cost generation expansion program.

• The Bank also provided capacity building of sector entities;

Strong Earnings Potential

• In spite of recent challenges, revenues had doubled & EBITDA had quadrupled since

privatization; the Company was projected to generate an EBITDA of US$173 million

and net income of US$54 million by the end of the 5 year investment program in

2009; This would have been adequate to service a substantial debt levels

Tariffs

Collections

Reducing network losses

• Accurate & timely billing; timely disconnection of customers for non-payment

• Develop a culture of paying for power – political support important

• Keeping tariffs at reasonable levels helps in maintaining good collection rates

• Aggressively tackling non-technical losses (theft) with effective programs –

understanding of local context & consistent approach are key

• Targeted investments in network to reduce technical losses

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… so how does AES Sonel make money?

Demand growth & new connections

• New connections an important concession target. However, increasing access

is not always a high payback investment for AES Sonel, particularly in remote

areas. Least cost supply additions needed to keep up with demand growth.

• Good track record of implementing mostly cost reflective tariffs with appropriate

& timely pass-through of costs [& any tariff subsidy];

• Meet concession targets – to avoid incurring penalties

• Tax schemes & tax rates impact tariff levels which can impact tariff affordability

Planning & Investment

• Continuous system planning & productive (high NPV) investments which

improve efficiency & are approved in the regulated asset base

• Concession is structured to bring efficiency & competition into the power sector

• Tariff (& its regulation) is designed to promote efficiency & investment while providing a fair return for

investors & reasonable cost of power for end-users

KEY DRIVERS

Key terms of the AES Sonel Concession (1)

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Exclusivity: • AES Sonel has exclusive right to provide transmission services & distribute and sell electricity to MV, LV & HV customers fro 20 years. After 1st 5 years: • AES Sonel is to set up a subsidiary to manage the transmission network

Regulated monopoly on distribution , steps towards complete unbundling

Generation cap to promote competition

Improving access a key priority for RoC

Main obligations of AES Sonel *:• Connect 51,000 new customers on average every year during the concession;• Meet performance standards incl. specific targets for un-served energy, • Pay an annual fee to the Regulator of 1% of revenue;• Submit to ARSEL for approval, a 5-year program and financial plan;• Respect principles of equality of treatment, non-discrimination &continuity of power supply;• Link, upon request, any new IPP to the transmission network.

Maximum installed generation capacity: AES Sonel has the exclusive right to install generation capacity in the country up to a cap of 1000 MW

AES Sonel – Tariff Structure

32

• Correct the lack of tariff increases in the years preceding privatization despite the currency devaluation and higher levels of inflation;

• Mitigate external risks to AES Sonel (inflation, hydrology, fuel costs, etc.);

• Provide an incentive to AES Sonel & any other power sector participant to become more efficient in their operations;

• Provide for a sustainable revenue stream, which includes a reasonable rate of return on investment, given efficient, operating and maintenance practices;

• Create an environment which fosters an efficient level of investment within the sector;

• Correct the lack of tariff increases in the years preceding privatization despite the currency devaluation and higher levels of inflation;

• Mitigate external risks to AES Sonel (inflation, hydrology, fuel costs, etc.);

• Provide an incentive to AES Sonel & any other power sector participant to become more efficient in their operations;

• Provide for a sustainable revenue stream, which includes a reasonable rate of return on investment, given efficient, operating and maintenance practices;

• Create an environment which fosters an efficient level of investment within the sector;

• Tariff methodology:

• Different tariff evaluation phases split over 20 year period with a 3 yr grace period for all penalties for unmet obligations

• Price Cap: (1st 10 years) specific formula for average tariffs with pre-agreed increases in tariff levels

• Revenue Cap: (2nd 10 year period) (i) a cap on AES Sonel’s revenues; & (ii) a guaranteed rate of return on AES Sonel’s regulated asset base (requires regulator approval)

• Tariff methodology:

• Different tariff evaluation phases split over 20 year period with a 3 yr grace period for all penalties for unmet obligations

• Price Cap: (1st 10 years) specific formula for average tariffs with pre-agreed increases in tariff levels

• Revenue Cap: (2nd 10 year period) (i) a cap on AES Sonel’s revenues; & (ii) a guaranteed rate of return on AES Sonel’s regulated asset base (requires regulator approval)

What Happened? - AES Sonel Performance vs Projections

33

• Catching up on connections targets,

which have been historically low,

still falls short of cumulative target

• Maintains strong collections rates…

• unserved energy has improved, but

still falls short of targets

• total system losses have historically been &

are still high at 24.9%, in part due to a high

prevalence of fraud.

Operational Performance has been mediocre, falling short of most of the concession targets

34

• Poor operational performance relative to targets has had an impact on the bottom line

• They continue to meet their revenue targets, but underperform on earnings & net income

What Happened? - AES Sonel Performance vs Projections

So, was the privatization successful?

• Cameroon’s electrification

rate of 49% is almost twice

the SSA average & up from

31% at time of IFC

investment

• Cameroon’s end-user tariff of

US$16.5 cents / kWh

consumers are in line with SSA

tariffs

• Although cost reflective, end

user tariffs are relatively high

considering hydro potential

• High system losses & more

expensive thermal capacity

have had pressure on tariff

levels.

35

So, was the privatization successful?

• Despite its ongoing challenges, AES Sonel has succeeded in tripling revenue, growing EBITDA by

6X since privatization & transforming the former govt entity from a loss making utility (with

negative net margin of Euro35 million) to an income generating asset today.

• AES Sonel continues to attract the most capital out of the four privately operated electricity

concessionaires in Sub-Saharan Africa, and represents one of the strongest credits among

power companies in region.

• Private capital flowing to Cameroon’s power sector continues with market opening up to IPP

models, initially Dibamba followed shortly by Kribi.

AES SONEL today generates and distributes power to over 712,000 customers in Cameroon.

36

Designing concession targets / Practical financing covenants

• Need to set realistic & attainable targets at the outset… also important when

managing expectations with government & general population

• Need to ensure that contract is structured with sufficient incentive for appropriate

levels of investment throughout life of concession;

• Revision of priorities should be expected in a financing of a large utility

First Impressions Die Hard

• Being able to show tangible results early on is critical

• AES Sonel was slow to show improvements in performance…due in part to high

management turn-over & poor understanding of local operating / political

environment; The lost credibility has been difficult to regain

The Elusive Loss Reduction …

• Loss reduction can be challenging to achieve & sustainable improvements require a

long-term commitment from a qualified management team; There are few

examples where this has been done successfully

• Proper planning for medium/long term investments is required

• Large investments at early stage of sector reform require intensive supervision

• Broad DFI support, as well as coordinated sector engagement across WBG & DFI

community, is key for managing an effective dialogue with government & the

Sponsor, especially when faced with difficult issues.

Stakeholder Engagement is Not Optional

• Proactive management of stakeholders including government, employees, and

customers is critical; AES could have better managed customers during load

shedding period to avoid arbitration/brand erosion

• Perceived lack of sensitivity to cultural/language differences made relations with

stakeholders more contentious

LOOKING BACK – LESSONS LEARNED

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Building a sustainable energy sector program is a long-term commitment

Presentation Outline

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Kribi Power Development Corporation (KPDC)

� Kribi Project: 216MW gas-fired power plant & 100km transmission line

� Technology:

• Wartsila engines: 13 x 18V50DF- gas reciprocating engines of 16.6MW gross capacity each

• Siemens-KEC JV: 100km 225kV double circuit transmission line; step-up 11/225kV sub-station

� Fuel type: gas to be provided from off-shore Sanaga Gas field

� Location: near coastal city of Kribi, in the South Province of Cameroon

� Target COD: early 2013, in time for dry season

� Off-taker: AES Sonel, integrated power utility for Cameroon

� KPDC is owned by The AES Corporation (56%); Republic of Cameroon (44%)

IPP using PPP Framework

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Kribi: Project Highlights

Kribi confirmed as the next least cost investment in the power sector

The Kribi Project will:� significantly expand the country’s energy generation capacity

� help bridge the period before further hydropower developments

� provides much needed low-carbon thermal complement to hydro-based system

� catalyze the first commercical development of Cameroon's gas reserves

� benefit 163,000 households (equivalent)

As second IPP in Cameroon & one of few IPPs in Africa, the Project: � serves to demonstrate a replicable IPP model

� successful example of a Public Private Partnership in the power sector

Broad and diverse lender group� Prospective DFI lenders include IFC, African Development Bank (AfDB), European Development Bank (EIB), FMO, Proparco, BDEAC

� Standard Chartered Bank led local bank syndicate backed by WB partial risk guarantee

� First private long-term local currency project finance for an infrastructure project

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KPDC: Contractual Structure

� EPC Procurement: Fixed price EPCs Wärtsilä& Siemens T&D /KEC International (KEC) -selected on a competitive basis

� Power Purchase Agreement / Connection Installation Agreement: 20-year off-take with AES-Sonel for 100% of the power;

� Licenses: 20-year sales & generation licenses issued by Minister of Energy upon recommendation of ARSEL;

� Gas Supply Agreement: With SNH (National Petroleum Agency), with Perenco as the upstream operator;

� Government Commitment Agreement:Agreement through which RoC commits its support to the Project

TSA

GSA 2

LICENCES

DIRECT AGREEMENT

AES (56%) GoC (44%)

Power Plant EPC

Kribi Power

Development

Company

(KPDC)

T-Line/CI EPCs

SHA

AES (56%) GoC (44%)

AES SONEL

AES ENGINEERING

SNH

MINEE/ARSEL

LENDERS

Wärtsilä Siemens/KEC T&D

GCA

Loan CTA

PPA

CIA

ASA

GSA 1

WITH: GoC, SNH, [Perenco], AES Sonel, AES Engineering, EPC

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Kribi: Key Project Risks & Mitigants

Sector-related: new electricity law, capacity� Government commitment to reform� WBG active sector dialogue; WB partial risk guarantee (PRG)� Broad DFI support through financing of bankable projects

Timely construction of power plant, transmission line, gas supply facilities� Choice of proven technology & relatively standard design� Competitively bid fixed price contracts with reputable companies� Contractual alignment of construction schedules� Appropriately sized penalties for contractor under-performance

Balanced contractual structure� In line with good industry practice� RoC had international advisors for project structuring & negotiations� Regulator reviewed & provides its non-objection on contracts

Off-taker credit-worthiness� One of the strongest credits among power companies in SSA; � AES Sonel is profitable with EBITDA of US$100M in 2010� End user tariffs are cost recovery with respect to costs of IPPs

There are risks but with appropriate allocation among stakeholders they can be adequately mitigated

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Role & Risk Allocation for Project Sponsor: AES Corporation

� Shareholder / Equity contribution• Strong financial capacity

� Project Development• Experienced Sponsor with track record in emerging markets power

� Arranging financial close• Experience in structuring bankable project documents for project finance lending

• Global relationships with DFI & commercial lenders

� Over-seeing construction & operation of the Project• Technical capability to develop the Project

• Active in Cameroon’s electricity sector since 2001:

• 56% owner of AES Sonel (national integrated utility) – concession awarded in 2001

• 56% owner of Dibamba Power Plant (88MW HFO plant) - COD achieved 2009

• Able to leverage existing in-country platform & expertise of local staff working at AES affiliate companies

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Role & Risk Allocation for Government: Republic of Cameroon

Role

� Shareholder /Equity contribution

� Back-stops bulk of payments in

connection with early termination

of power purchase agreement (PPA)

or gas supply agreement (GSA)

� Maturity enhancement of local

tranche

� Guarantee support for bridge loans

Key Risks

• Sizable contingent obligations vis-à-vis the Project

• Obligations not unusual given early stage of development of country’s energy sector

• Most RoC undertakings are covering risks which are within RoC’s control

• ROC assisted by international advisors

• Commitment to sustainable sector reform

• Non-performance of private participant• Selection of strong & experienced operator

• Performance based incentives / penalties

• Close monitoring by regulator

• Striking right balance between constructive engagement and negative interference

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Key Success Factors for IPPs

• Political commitment to implement IPPs & government support for its

obligations

• Meets a need competitively and efficiently

• Adequate tariffs, good adjustments, payment discipline

• Regulatory framework independent & transparent

• Contractual arrangements balanced & fair

• Good legal documentation: this is contract-based financing

• An appropriate financial structure

• Strong and creditworthy participants

• Government and Private participants advised by experienced firms

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THANK YOU FOR YOUR ATTENTION

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