Private and confidential

Power sector in Africa

Supporting sustainable economic growth

Rentia van Tonder

Head: Power, CIB

May 2016

Private and confidential

Introduction to Standard Bank

2

Universal bank

Established in 1862

Africa’s top bank (by Tier 1 capital) in the annual

ranking of 1,000 banks globally – ranked 116 and

only African bank in top 150 (2014) – The Banker

Headquartered in Johannesburg, South Africa

ICBC, the largest bank in China, is a 20.1%

shareholder in Standard Bank

– ICBC is currently ranked No.1 in The

Banker’s annual ranking of the top 1,000

banks globally (2014)

1,250 branches across the continent, supported by

8,802 ATMs

Over 42,200 banking employees

Representation in major financial centres, including

London, New York and Beijing

Standard Bank Group

Africa is our calling card

3

CountryStandard Bank

branches*ATMs

Corporate

Banking

Retail

Banking

Investor

Services

Investment

Banking

South Africa 682 7,466 ✔ ✔ ✔ ✔

Angola 27 31 ✔ ✔ ✔

Botswana 11 26 ✔ ✔ ✔ ✔

Côte d’ Ivoire - - - - - ✔

DRC 5 - ✔ ✔

Ghana 34 67 ✔ ✔ ✔ ✔

Kenya 24 43 ✔ ✔ ✔ ✔

Lesotho 17 77 ✔ ✔ ✔

Malawi 25 64 ✔ ✔ ✔ ✔

Mauritius 1 - ✔Private

clients✔ ✔

Mozambique 42 93 ✔ ✔ ✔ ✔

Namibia 47 166 ✔ ✔ ✔ ✔

Nigeria 179 390 ✔ ✔ ✔ ✔

South Sudan 1 1 ✔ ✔ ✔

Swaziland 10 62 ✔ ✔ ✔ ✔

Tanzania 10 33 ✔ ✔ ✔ ✔

Uganda 94 174 ✔ ✔ ✔ ✔

Zambia 22 82 ✔ ✔ ✔ ✔

Zimbabwe 19 27 ✔ ✔ ✔ ✔

TOTAL 1,250 8,802 ✔ ✔ ✔ ✔

Standard Bank

Local on-the-ground expertise supported by a strong retail presence

* Includes service centres and access banking centres

Standard Bank

Stanbic Bank

Stanbic IBTC Bank

CFC Stanbic Bank

Representative office

Ghana

Nigeria

South

Sudan

KenyaDRC

Angola

Namibia

South

Africa Lesotho

Swaziland

MauritiusBotswana

Zambia

ZimbabweMozambique

Malawi

Tanzania

Uganda

Côte

d’Ivoire

Private and confidential

Key sector Themes

5Key sector themes

Persistent power supply

and demand imbalance to

continue to drive sector

investment…

• Access to electricity

remains low across SSA

(est. 24%, WB)

• Overall infrastructure

spending to grow by

10% p.a. over the next

decade

• Requirements estimated

at $180bn by 2025

(PwC, 2014)

...But choice of feedstock

critical in shaping

investment needs…

• Abundance of natural

resources to help

diversify energy mix

• Hydro, coal and gas to

remain key feed stocks

in Southern Africa

• e.g. Enormous hydro

potential in countries

such as Mozambique

(12GW), Zambia

(6.1GW)

• But choice of feedstock

has an influence on: 1)

time-to-market, 2)

environment; and 3)

costs

• Generally help mobilize

financing of commercial

banks

• Many international banks

continue to lean on DFIs

to supply due diligence,

guarantees etc. in order

to participate in

transactions

...Financeability of projects key to reducing project complexity…

• Development of large power projects (>500MW) on fiscus alone to

remain challenging

• Need for SOEs to consider developing projects as a % of their

GCFs

Growing importance of

capital enhancement

products and structures…

• Structured products

backed by credit

enhancement

mechanisms such as

ECAs (and that match

long-term CFs) are

critical to de-risking

power transactions

• Also help encourage

participation of

international lenders

• Positive impact on both

credit and insurance

tenors

…DFIs’ increasing

reluctance to finance

coal-fired projects…

• Increasing challenge in

tapping into DFI sources

of liquidity for coal power

projects

• DFIs such as the World

Bank and EBRD have

agreed to either limit

financing of or scrap

most assistance for coal-

fired power plants to

“rare circumstances”.

• Implications for debt

tenor and risk covers for

future coal-fired plants

12

6

4

5

A number of

significant trends

can be observed in

the African power

market…

…DFIs continue to play a

pivotal role in African

power development…

3

What do we see in the market? Key points

China, Europe, Americas, Middle East KENYA

An international darling for investment

Solid pipeline (Geothermal, wind, coal)

Internal stakeholder management inline

with current portfolio

Strong Chinese EPC involvement in

deals

TANZANIA

Decreasing power generation costs with

commission of Gas power plants

Clean up of govt related receivables is

a priority

Growth of Off-grid solar market

UGANDA

GETFIT- RE power projects (1-20 MW)

To be developed by IPPs for a total

installed capacity of 170 MW

Offgrid

ETHIOPIA

Renewables and Transmission

East Africa

GHANA

Sector reform: Towards cost

reflective tariffs

IPPs:Gas to power

RE Programme

Privatisation of ECG

NIGERIA

IPPs: Gas to power & Renewables (REFiT

Programme)

Distributed Power & solar city concept

Sector regulatory reform

Restructuring of DISCOs

West Africa

COTE D’IVOIRE

IPPs (Gas, hydro & Coal)

Well-adopted user pay principles

Need for strong anchor investors

South Africa

Slow economic growth, depreciating currency

Low FDI, possible downgrade

Increased focus on IPPs

Eskom B/S challenges – Increasing tariffs

IPP programs

REIPPP- 92 projects (6328MW) R192bn

- low RE tariffs (<60c/kwh)

Coal Baseload - 2 projects (900MW)

- Liquidity issues – delayed

Cogen – low uptake

Gas to power – RFQ

Potential Off-grid opportunities

Mining & industrial companies

ANGOLA

Increase generation capacity

Power sector strongly tied to

government

BOTSWANA

Coal IPPs & Renewables

MOZAMBIQUE

IPPs across technologies

Strategic support for e.g. EDM

& HCB

MALAWI

Coal IPPs, Off-grid

MCC Compact

South & Central Africa

NAMIBIA

• Implementation challenges

• Wind, Solar & Gas to power

ZAMBIA

• Rocky road to cost reflective

tariffs

• Emergency power

• Diversifying generation mix

• World Bank Scaling solar

program

• Elections

ZIMBABWE

Captive power

Renewables & Coal

Chinese interest

The Power Landscape & Key Themes We Are Seeing

Themes

summarized:

The Opportunities:

Power shortages resulting

in an increased need for

generation capacity and

grid improvement

Diversifying power

generation mix

Renewables on the rise

Improving grid

connectivity

Development of off-grid

and smart solutions

The Challenges

Tariff cost reflectiveness

Creditworthiness of the

utilities

Lower commodity prices

affecting government

revenues

Availability of government

support and level to which

SB can rely on such given

economic headwinds in

most countries

Potential impact of

elections in SB presence

countries in:

‘16 - Uganda, Ghana,

Possibility of Power Trading

Key strategies for the power sector

Enhance and grow

client base

Bank the full value

chain

Stimulate

innovative funding

solutions

African footprint China &

international

connectivity

• Existing and core

clients

• Targeted new clients

• Power transactions can

unlock further

opportunities to bank

• Proactive risk mitigation

structured solutions

• Leverage off in-country

teams

• Build strong knowledge

base of local regulatory

environment

• Actively brand

Standard Bank’s China

connectivity

2 3 4 51

Formulation of IPP

policy

Electricity

Resource plan

(appropriate

energy mix)

Increasing

electricity access

Support and

targeted programs

Treasury Policy

thought leadership

Tariff cost

reflectiveness & grid

strengthening

Creditworthiness

Pre-paid metering

Rehabilitation of

existing assets

New generation

Lending against ring

fenced security/cash

Focus on financially

strong and experienced

Understanding

vertically integrated

companies

Targeting minimum

Hurdle IRRs

Seeking local partners

Growth into ROA

Off-grid distributed

power

Acquisition of operating

assets

Seek innovative

financing to reduce

cost (esp SA)

Experience and track

record key

COP21 impacts on

technologies

supported

Focus on projects

with realistic size

Diversifying in project

sponsors / developer

SA Consolidation

Drive towards African

projects

Asset financing

Leveraging

Focus on monitoring

performance

Become primary

banker

Key growth across

Africa

Selling off operating

assets (M&A activity

in SA)

Bankable PPAs

applicable to

technology

KEY

THEMES

AND FOCUS

AREAS

Our Strategy Along the Power Sector Value Chain

Generation Distribution

GOVERNMENT

Transmission

UTILITIES SPONSORS EPC/O&M/OEM IPP

8

Low level of electricity tariffs inhibits investment in the sector

Current average electricity tariffs in Southern Africa varies

between $4.8-11.5 cents/KWh

Development of any power plant for commercial purposes likely

to result in higher/cost reflective tariff or significant cost savings

for the Sponsor (assuming own-use objectives)

High AT&C losses

Many African electricity markets have a level

of AT&C losses that can be considered high

sometimes up to [40]%

The combination of increasing electricity load

and growing demand-supply gap is resulting

in frequent outages and blackouts

Need to construct the associated

transmission system that will allow for the

evacuation of the extra capacity expected to

be generated

Lack of effective domestic wheeling framework

Framework must be standardised and transparent for all

arrangements

Pricing and risk sharing should facilitate wheeling not

prevent it

Key points

Low level of

electricity tariffs has

inhibited investment

in many African

electricity markets…

…Lack of

standardised

domestic wheeling

framework remains an

issue in many African

markets…

…There is a need for

an appropriate risk

allocation between the

private sector and the

buyers

2 Key commercial considerations

Commercial

Credit quality of the offtakers

In many African jurisdictions, public utilities are the primary

offtakers

Yet the universe of financially solid offtakers is shrinking

As a result, Government support is often required to stand

behind buyer, in order to provide comfort to private sector

(developers, equity participants, lenders, etc.) that PPA

availability payments will be made accordingly and

termination provisions are fair (and termination payments

will be funded)

The market requires a bankable PPA

The need for an appropriate risk allocation

between the private sector and the buyers is

even more paramount than ever in many

African jurisdictions

Investors typically want to see a balanced

liability regime, appropriate protections for the

generation companies for risks not within

their control, a stablisation clause for changes

of law, fair termination events for both buyers

and sellers etc.

9

Long-term (12-15 years) financing in many African jurisdictions

without PRI

This is typically not available from the international commercial

banking market.

However, long-term ECA solution + DFI tranche could provide

tenors of up to 15 years in some instances

PRI cover will be required to support long-term commercial debt

(non-DFI or ECA) providers.

Shorter term (up to 7 years) local commercial bank funding

usually available without PRI.

DFI to provide larger tranches than that expected to be provided

by commercial banks.

Likely high local cost component in some

markets (e.g. SA, Mozambique etc.)

Impact on level of support from ECAs

Consider contractor selection in conjunction

with ECA support maximisation

Appetite from local banks for shorter dated tenor

structures usually high

Market knowledge and no PRI requirements

Typical debt tenors of up to 7 years per bank

View of banks on sovereign country risks critical

Negative or non-existent sovereign notes typically have a negative impact on both the debt tenors and financing terms power

projects will be expected to secure in the market.

Significant FX and convertibility risks also affect many African markets

As a result, projects with revenues denominated in $ dollar are important as they help mitigate risks

Key points

Long-term (12-15

year) financing in

many African

jurisdictions without

PRI is usually not

available from

international

commercial banking

market…

…Negative or non-

existent sovereign

notes typically have a

negative impact on

both the debt tenors

and financing terms

power…

…Consideration for

contractor selection in

conjunction with ECA

support maximisation

will be key

3 Key funding considerations

Funding

10

On grid: REIPPP On grid: Other

Programs

BD1-3: Portfolio

SBSA significant underwrite

17 projects

BD3.5:

1 CSP project

BD4:

SBSA successful with 5 projects (3 PV & 2 Wind)

Accelerated round announced for 1800MW (Nov’15)

Matured Market – further 6300MW

BD5: New RfP expected 2016

Small IPPs (1-5MWs)

Co-generation

RfP released first bidding August 2015

High energy intensive

users, Paper & Sugar

Base load

Bid submission Nov’15 for 2500MW

Imported Hydro

RfP expected 2017

Gas IPP RFI:

Announced RFQ expected end 2016

Off grid RE Solutions

Power security (reliability

of supply)

Growing demandfrom industry to findself generationsolutions

Opportunities:

Rooftop applications

PV/hybrid plants for

industry

Rural electrification

Challenges:

Off take risk

Finance model – On BSor project finance

Ring fenced programs backed by government

(PPAs signed by Eskom)

Estimatedmarket:

Base load: R100-150bn

Co-gen: R 60 -80bn

IRP 2020 RE: R100-150bn

RE: Current: R192bn

Further Determination

(6300MW): R 160bn

Base load: R100-150bn

Co-gen: R 60 -80bn

Gas IPP: R45bn (3100MW)

IRP 2020: R100-150bn

Announced

Currently running

SBSA’s RE

portfolio:

17 Projects

14 connected

Over 700MW

South African landscape:

Various IPP programs…

Key challenges & threats:

• Grid capacity;

• Reduced IRRs;

• Internal communication & coordination

between govn. Dept. and SOEs;

• Gas infrastructure;

• BEE funding;

• Slipping timelines;

• Investor confidence.

11

Thank you

Rentia van TonderHead: Power

Corporate and Investment Banking

The Standard Bank of South Africa Limited

Tel: +27 11 721 4614

Cell: +27 83 257 0805

rentia.vantonder@standardbank.co.za

12

Mozambique: Gigawatt

Based on an appropriately structured risk profile, the table below

indicated indicative terms for the Gigawatt deal for commercial

debt:

Key terms of debt financingOverview of the project

Overview of the company/ies

Gigawatt is a 118 MW gas fired power station situated at Ressano

Garcia, Mozambique

The project reached financial close in June 2014. Total project

cost is approximately US$212m, with US$ 170m of debt

Gigawatt’s main sponsor is Gigajoule International who partly

owns and operates a gas pipeline from Ressano Garcia to Matola

in Mozambique known as Matola Gas Company (“MGC”)

The off-taker is Electricidade de Moçambique (“EDM”)

The project will be set up as a base load plant and will connect to

the substation at Ressano Garcia which is close to the site

The project will make use of the gas that is allocated for use in

Mozambique by the Mozambican government from the Pande and

Temane gas fields.

Gas supplied for the Project is secured through a 20 year GSA

with MGC, underpinned by a 20 year GSA between Sasol and

MGC.

Borrower Gigawatt

Standard Bank Role Sole Lead Arranger

Industry Power (Gas Fired)

Purpose

Fund the development of

approximately US$ 200 million,

118 MW gas fired power station

in Mozambique

Currency US$ 220m

FacilitySenior debt

Subordinated debt

Tenor 12 years door-to-door

Status

Financial Close reached in

June 2014, construction has

started

Security (Risk Cover)

PRI Cover on US$ Debt

ECIC Cover on SA Content is

likely

Capital Grace 18 Months

Gearing Ratio 75:5:20

Minimum DSCR 1.40x

The Gigajoule Group invests in, develops and operates energy

projects

The Group was founded in 2001 after an initial approach by the

Mozambican government to the founder shareholders to assist

with the development of a domestic gas industry in Mozambique.

Matola Gas Company (“MGC”), which is owned 49.6% by

Gigajoule was created and has the concession rights to transport

and distribute natural gas in the Maputo Province

Additional key shareholders in Gigajoule Power (Subsidiary of

Gigajoule International and the holding company for Gigawatt)

include OMLACSA (Old Mutual Group) and WBHO (SA

Contractor)