World Bank

Presidential Villa, Presidential Villa, Abuja-NigeriaAbuja-Nigeria

Day 2, November 29, Day 2, November 29, 20112011

Nigeria Electric Power Transaction Nigeria Electric Power Transaction & Power Industry Reform Review & Power Industry Reform Review

ConferenceConference

World Bank PRG in Support of

The Nigerian Privatisation Transaction

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Main Messages

Nigeria faces a range of challenges implementing the Roadmap for Power Sector Reform and attracting private sector investment into its privatised power market

World Bank supports the Government of Nigeria’s reform process and is working with BPE to design a customized risk mitigation solution that supports Nigeria’s power sector reform objectives

World Bank guarantees are designed to provide the minimum level of support required to attract private sector participation

FEU – Financial Solutions

Gas Supply

IPPSINGLE BUYER TRANSCO DISCO

Gas Pipeline Risks•Gas transportation•Gas quality / pressure•Gas availability•Line pack

Take-or-Pay Obligation at Receipt (Gas Supplier)/Delivery (Gas Transporter) point of pipeline

Generation Risks•Construction•Operation & Maintenance•Technology•Financing / interest Rate•Labor availability and disputes•Equipment and spare parts •Non-payment for gas transportation failures

•Single Buyer payment risk

Gas Supply Risks•Gas E&P•Gas gathering / processing•Gas availability•Gas quality

Payment & Credit Risk•Non-payment by DISCOs•Non-performance by GENCO

Transmission Risk•Operation and maintenance of the transmission line•Non-payment by DISCOs of transmission charges

Distribution Risk•O&M of DISCO network•Collection risk•Technical, commercial and non-technical losses•Non-payment by TRANSCO for transmission failures

•Tariff/ regulatory risk•Government tariff subsidy payments risk

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Key Value Chain Contracting Risks

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Nature of Support Political risk mitigation

Coverage Cash flow support for investors and lenders

Amount Flexible; depends on project needs but limited to minimum required to make transaction bankable

Currency Generally, will match the currency of the covered contractual agreements

Term Generally, will match relevant term of covered contractual agreement

Risk Coverage Triggered by cash flow shortfall caused by a breach of governmental/parastatal contractual undertakings only

The Partial Risk Guarantee Instrument

FEU – Financial Solutions

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Benefits of PRG to Private Sector

• Mitigates critical perceived political risk

• Supports project liquidity throughout project debt term

• Facilitates direct access to financial markets

• Reduces risk profile of the investment and overall capital costs

• Provides comfort on Government governance issues

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Benefits of PRG to Government

• Supports financing through market access, longer tenors and lower financings costs

• Facilitates privatization by enhancing investor interest • Accelerates pace of new investment • Sustains relatively more attractive retail tariff regimes by

significantly improving the debt profile of financings and by leveraging the investment return of investors

• Enhances potential “sale” value of existing assets• Provides for public sector risk sharing with the private sector• Transitional - can be structured to fall away

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Partial Risk Guarantee Process

✔✔

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Partial Risk Guarantee using L/C Structure

Standby L/Cs

PPA A

PPA B

PPA C

Vesting Contract

PROJECTS

PPA non-payment: GENCO draws funds directly from L/C Bank’s Standby Facility

1

6

PRG NBET

PRG Indemnity Agreement

5

2

4

Nigerian Ministry of Finance

3

Regulatory Event non-payment: DISCO draws funds directly from L/C Bank’s Standby Facility

PPAs World Bank

Vesting Contract

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1. Standby Liquidity Facility: L/C Bank makes Standby Letter of Credit (L/C) available to NBET; NBET enters into L/C Reimbursement Agreement with L/C Bank

2. Partial Risk Guarantee: WB guarantees NBET’s reimbursement to L/C Bank; WB enters into Indemnity Agreement with FGN

3. Power Purchase Agreements: NBET enters into PPAs with GENCOs

4. GENCO Drawing Rights: Under each PPA NBET grants right to access funds directly from L/C Bank if there is an event of non-payment under the relevant PPA. Liquidity: In event of non-payment by NBET, GENCO draws funds directly from L/C

5. Vesting Contracts: NBET enters into Vesting Contracts with DISCOs

6. DISCO Drawing Rights: Under each Vesting Contract, NBET grants right to access funds directly from L/C Bank if there is a Regulatory Event of non-payment. Liquidity: In event of non-payment by NBET, DISCO draws funds directly from L/C

Partial Risk Guarantee using L/C Structure

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Fee Type Political Risk Guarantee

Guarantee Fee 0.75% per annum on guaranteed amount

Initiation Fee 0.15% or US $ 100,000 (whichever is higher)

Processing Fee Up to 0.50% (for reimbursable expenses)

PRG Fees Payable by the Investor

L/C Fees Payable by the Investor

Partial Risk Guarantee Fees*

FEU – Financial Solutions

*applicable to IDA PRG

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Thank You

For more information about World Bank Partial Risk Guarantees, please

go to: www.worldbank.org/guarantees