Infrastructure Financing Summit Basel
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The PIDG is a consortium of nine donor organizations that facilitates private sector investment in infrastructure projects in developing countries. It has mobilized $22 billion in private financing for over 80 projects, providing access to infrastructure for 160 million people. Examples of PIDG projects include a methane gas power project in Rwanda and a wind farm in Cape Verde. The PIDG uses facilities like the Emerging Africa Infrastructure Fund and InfraCo to develop and finance infrastructure projects.
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Infrastructure Financing Summit Basel
- 1. The Sustainable Infrastructure Financing Summit Global Energy Basel Ed Farquharson Private Infrastructure Development Group 21 February 2012
- 2. Africa’s Infrastructure Needs 700m+ w/o access to electricity Shortages contain growth in SSA by up to 4%p.a. (WB) Opportunity to place Africa on a low carbon, climate resilient development and growth path Avoid carbon lock-in, increase access to clean, sustainable energy, combat deforestation
- 3. Constraints to Private Investment • Public sector capacity constraints • Lack of bankable projects • Shortage of long-term FX debt • Shortage of local debt • Limited developer capacity
- 4. Private Infrastructure Development Group (PIDG) A consortium of nine donor organisations who have joined together to help facilitate private sector investment in infrastructure in developing countries
- 5. Current Members of PIDG • Austria • Switzerland • Australia • The Netherlands • Germany • United Kingdom • Ireland • World Bank Group • Sweden (through the IFC)
- 6. PIDG – focus and impact • Underpinned with USD 500m donor funds • USD 22 billion private sector finance mobilised - $40 per $1 of donor funds • Focus on Africa and Asia (63% Africa) /45% DAC 1 and 2 • Over 80 projects • 160 million people with access to new or improved infrastructure • Private sector fund management model
- 7. PIDG Structure Austri Netherlan a ds Austra Sweden lia Switzerlan Germ d any UK IFC Irelan d EAIF GuarantCo ICF GPOBA PPIAF Debt Pool Affiliated Programmes PIDG Facilities
- 8. Example of an Emerging Africa Infrastructure Project KivuWatt Ltd, Lake Kivu, Rwanda: •Integrated Methane Gas to Power Project utilizing Lake Kivu’s methane gas resources •Gas Extraction Facility plus a 25MW power plant •Total investment: US$ 142m •Sponsor: ContourGlobal LP •Co Financiers: FMO, AfDB, BIO •EAIF Role: Co-Arranger •Additionality: Non availability of commercial funding with required tenor and limited DFI appetite •TAF financed expert international committee to monitor and provide technical advice on extraction of methane ($500k)
- 9. Example of an InfraCo Project Cape Verde Wind Farm: • 26 MW power plant, project cost €65m • 25% of national power needs replacing 8MW expensive fossil fuel generation 6MW • InfraCo began development in 2006 • InfraCo secured site, permits, PPA and finance and managed procurement • Vestas selected as EPC contractor 4MW following competitive process • All financing secured (incl. AFC, Finnfund, AfDB and EIB) • Zero public money involved • Construction started in November 2010 8MW and will be completed by late 2011 9
- 10. Green Africa Power Facility to monetise carbon for project investment Guarantee / contingent Purchase CERs facility credit support (but linked to CERs through assignment/security package) Designed to be unique & additional
- 11. Contact edward.farquharson@calegal.co.uk DD: +44 (0)20 8643 9794 Mob:+44 (0) 7990785119 www.pidg.org
Editor's Notes
- Addressing problems caused by climate change is critical to economic growth and poverty reduction and is particularly urgent in the world’s poorest countries, which will suffer the most from these problems. I will focus comments on financing sustainable infrastructure in Africa - one of the most challenging regions to mobilise long term investment but one with greatest need with an average population growth of 2.4%, rapidly expanding urban populations facing severe deficits in infrastructure 70% of the region’s 1bn pop for example have no access to electricity. Not surprising if you consider that, South Africa aside, the installed capacity of Sub-saharan Africa is equivalent to that of Spain Blessed with an abundance of untapped renewable energy and other natural resources to fund investment, the region also presents huge opportunities. It also presents the opportunity to put the region on a low carbon, climate resilient path And Avoid a legacy of carbon lock in.
- Currently around 65% of infra is still public sector financed (loans/taxes). About 15% is funded by ODA. 20% from private sector and given the constraints on public sources of funding and of ODA, it means that tapping sources of private sector finance is a crucial to funding expanded infrastructure services This means partnerships with the public sector and in order for public partners to play their role effectively they need the capacity to establish the right policies and regulations, be able to define clearly the sustainable infrastructure needs and about how risks are best allocated between the public and private sector, and in many cases the ability to manage the project preparation cycle to deliver projects that are both bankable and value for money is critical. But this is one of the most difficult challenges for the public sector: infrastructre PPPs are complex and they require specialist skills often absent or difficult to mobilise in the public sector. The ability for public authorities to enter into long term payment obligations that are bankable is often limited. The irony is that Africa’s rapidly growing urban consumers are often willing and able to pay for public services as long as they are good – they pay around twice as much for basic services than rest of the world as it is: a prepaid phone package typically costs $12/mth vav $2 in S Asia, and power typically costs around 18 c kwh, far higher than most other parts of the world. On the supply side long term finance limited – the current credit crisis and Basel capital requirements have further impacted this. Many infrastructure projects are also better financed in local currency but local capital markets are only just beginning to develop and other sources of debt are scarce Capacity of infra project developers is also limited – long lead times and heavy breaucracy discourage engagement with governments that are struggling with technical capacity to approve or partner projects. Unsurprisingly there are only about 10 reasonably sized power developers outside SA. Many of these are foreign. Many developers also struggle to pass interface risks to EPC contractors to make their projects bankable, especially in the renewables sectors
- It was in response to these issues that a coalition of PIDG donor agencies got together 10 years ago to establish the Private infrastructure development group with a specific focus on mobilising private sector investment in infrastructure in developing countries They did tis because they realised that better and more sustainable infrastructure was critical to boosting economic development and in so doing combatting poverty.
- The current PIDG members are government donor agencies and development finance institutions from 8 countries with the IFC of the World Bank as a member. The Asian Development Bank holds special observer status in the PIDG as does AECID of Spain.
- So far PIDG donors have contributed $500 m between them And this has in turn mobilised approximately $22bn of private sector investment in developing countries The focus of the PIDG is on the poorer countries in Asia and Africa with Africa representing two thirds of PIDG investment. Over 80 infrastructure projects have now reached financial close Of these, around 14 projects in the renewables energy sector are under active development or have achieved financial close mobilising over $1bn of private sector investment in this sector alone One of the key performance criteria we track is the number of people who benefit from the provision of new or enhanced infrastructure: in 10 years this has risen to over 160m people.
- PIDG delivers its support to infrastructure through 7 distinct facilities, 5 of which are managed by specialist private sector fund managers. In effect PIDG itself is a form of PPP delivering its support using strong private sector disciplines. PIDG is project focussed – it works from the project level up. Our largest facility is the Emerging Africa Infrastructure Fund which has provided $775m to 37 projects so far. This facility is designed to address the lack of availability of long term foreign currency debt. In its ten years it has not had a single credit loss. Guarantco provides long term guarantees that enable local currency finance to be mobilised – its portfolio now comprises $200m in 16 projects. And the ICF debt Pool is a Euro500 facility designed to provide senior debt quickly to projects that are close to financial close but where liquidity constraints among sources of financing are preventing these projects from closing. To address the reluctance of project developers to take development risk due to long lead times and poorly resourced public procuring authorities, we have 2 project development facilities that provide early stage high risk development equity and project development support – around $45m invested to date And finally we have 2 technical assistance funds, one of which is managed by the IFC and provides supports to public authorities seeking to prepare projects for private investment. As you can see, each one of these facilities has evolved in response to specific conditions within the infrastructure markets of developing countries. At the same time the projects we fund are rigorously assessed against economic, social and environmental criteria recognizing that we are using public payers money so strong governance is key feature of the PIDG model. We also work closely with 2 affiliated programmes managed by the World Bank: the global partnerships for output based aid and public private infrastructre advisory facility that uniquely provide upstream support to public authorities on PPPs. You will hear more about this later in the day from Adriana who runs this facility
- What sort of projects does PIDG support: This was a pioneering project by EAIF that utilises the vast methane beds under lake Kivu in Rwanda to generate power Adding 25MW base load power at a cost lower than diesel Target late 2012 for operations Because of the high risks, there was limited long term finance available. Another PIDG facility supported the research needed to enable safe extraction of methane from the lake bed
- 26 MW wind farm recently established in Cape Verde Providing 25% of national power needs replacing expensive fossil fuel generation InfraCo began development in 2006 It worked with government to secure site, permits, establish the PPA, mobilise the finance and manage procurement Vestas selected as EPC contractor following competitive process All financing successfully secured (incl. AFC, Finnfund, AfDB and EIB) Zero public money involved Construction started in November 2010 and is now being completed
- PIDG is continually evolving and from time to time will develop new facilities to address identified issues that are obstacles to infrastructure investment. We are currently developing a facility that will monetise carbon credits – either by the upfront purchase of CERs or through the provision of guarantee or contingent credit support backed by the assignment of CERs. This facility essentially seeks to enable projects to use future delivery of CERs to support upfront investment – GAP would ascribe a higher than current market value to CERs which are currently trading at hugely depressed values with a view to realising the value of these CERS at a future date if and when the markets recover. In essence GAP would address a current gap in the functioning of the CER market that is not allowing it to support investment in renewables in developing countries for which the CER Market mechanism was partly designed. Watch this space!