ActisDistribution in Africa: public vs private ownership

2

Agenda

Actis’ power experiences in Africa

Distribution - private or public ownership best ?

Can the private sector deliver the whole solution ?

Next steps for Africa’s electricity distribution businesses

Appendices

• Actis

• Infrastructure

• Portfolio

• Case studies

3

Songas, Tanzania: electricity generation & gas pipeline

Description

• 190MW open-cycle, gas-fired power plant, located in Dar es Salaam. Songas also operates a gas processing facility on Songo Songo Island to the south and a 225km sub-sea and onshore gas pipeline from there to Dar es Salaam.

• Largest gas-fired power plant in east Africa. 1/3 of the electricity generated in Tanzania. Lowest cost thermal plant in the region

Investment attractions

• Well-structured landmark project, where debt is subordinated to equity

• Opportunities to expand capacity at the Ubungo site

• Opportunities to develop further the regional gas infrastructure

Value creation

• Globeleq managed the construction of the project, which included the supervision of 1,000 construction workers and seven contractors

• Globeleq completed the project on time and below budget

• Globeleq expanded the power plant, increasing capacity by 50%

$146mCash invested

Business sector Power

Investment type Expansion

Invested year 2002

4

Umeme, Uganda: electricity distribution

Description

• 20 year contract with Government of Uganda to distribute power, concentrating on the semi-urban strip from Entebbe through Kampala to Jinja.

• Regulated electricity distribution business serving over 300,000 people

• 20-year contract with government to distribute power nationwide

• Innovative concession structure and World Bank partial risk guarantee to reduce exposure to newly regulated power market

History

• Originally incorporated as joint venture between Globeleq and Eskom, South Africa’s national electricity utility, to bid for the Distribution Concession tender by the Government of Uganda

• Actis originally purchased a 56% interest in the JV and in November 2006 purchased 44% from Eskom

Actis value-add

• Environmental, Social and Governance (ESG) issues receiving specific attention and continue to improve, with safety of particular importance

• Improved efficiencies with reduction in technical and non-technical (billing, theft) losses saving money for all

5

Africa needs infrastructure investment

Africa ranks far behind other emerging markets in terms of infrastructure density

Source: World Bank, Infrastructure Journal, Project Finance International, Dealogic, UN Economic Commission for Africa

Note: Infrastructure density index is an index of paved roads, rail network, airports and telephone lines’ density

0

1

2

Industrial countries Central & East Asia Latin Americ a Africa

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Sub-Saharan Africa power distribution needs improvement

SSA electrification rate is 25% vs 68% emerging markets average rate

0%

20%

40%

60%

80%

100%

OECD Emerging Markets Latin America Asia SSA

Source: OECD, Infrastructure to 2030, AICD

7

Africa power investment required to 2030 is over $500b

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

Generation$4,607b

OECD (2,167)

CIS/CEE (287)Middle East (118)

China (883)

LatAm (317)

E. Asia (364)

S. Asia (306)

Africa (165)

Transmission$1,540b

OECD (498)

CIS/CEE (79)Middle East (48)

China (378)

LatAm (122)

E. Asia (133)

S. Asia (155)

Africa (127)

Distribution$3,654b

OECD (1,276)

CIS/CEE (287)

Middle East (107)

China (802)

LatAm (269)

E. Asia (302)

S. Asia (340)

Africa (271)

Source: OECD, Infrastructure to 2030

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$500b is a lot of money: to be funded by public or private or both ?

Limited resources increasingly force governments to turn to the private sector for capital

• Power sector has private sector models that foreign & local private investors are comfortable with

• Social infrastructure (schools, hospitals, prisons) is more challenging for the private sector in emerging markets than OECD markets where government payment risk is perceived to be lower

Different countries have different models with rega rd to private and public finance for power

• Egypt retains state ownership but leverages commercial and multilateral debt markets

• South Africa’s generation greenfield programme is all targeted at the IPP private sector

• Kenya’s generation and distribution businesses source equity through the capital markets

Customers paying for infrastructure is different to pic to private sector supplying infrastructure

• Government’s decision whether to charge its people more than taxes for essential services

• Customers have become used to paying towards water and electricity infrastructure

• Services are frequently subsidised and governments do not like to make tariffs cost-reflective

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PPP = 3P = BOT = BOOT = public/private contractual relationship

Long-term contractual relationships between public and private sector have been proven over time to deliver superior quality and efficiencies in speed and cost of delivery of infrastructure services

• Partnership whereby the Government contracts with the private sector to build finance and operate infrastructure for public services or for its own use.

• Contract basis for private sector delivery of a project or service that has been traditionally provided by public sector

• Allocation of risk to the party which is best suited to manage the particular risk in question– Private partner undertakes to design, build, finance, operate and maintain the asset– Public partner provides stability, policy and regulatory environment for life of the partnership

• Competence of public sector resource, transparency and accountability are key

10

3 types of private participation in the power sector

74 private sector transactions in Sub-Saharan Africa

Source: World Bank private participation in infrastructure (PPI) database, AICD power sector database 2008

4,0601174Total

7Cape Verde, Kenya, South Africa, Zambia, Zimbabwe

Divestment

2,457234Angola, Burkina Faso, Republic of Congo, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Mauritius, Nigeria, Senegal, Tanzania

Independent power project

1,598516Cameroon, Comoros, Côte d’Ivoire, Gabon, Guinea, Mali, Mozambique, Nigeria, Sao Tome, Senegal, South Africa, Togo, Uganda

Concession contract

5417Chad, Gambia, Gabon, Ghana, Guinea Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Namibia, Rwanda, Sao Tome, Tanzania, Togo

Management or lease contract

Investment $mCancelled transactions

Number of transactions

CountriesPrivate participation

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Power sector and governance reforms have begun

Sub-Saharan Africa has gradually conformed to global power sector reform trends

Source: Africa Infrastructure Country Diagnostic (AICD) power sector database - May 2008, % of 24 countries surveyed

0% 20% 40% 60% 80% 100%

Vertical unbundling

IPPs operating

Regulatory oversight

SOE corporatisation

Concessions & contracts

Sector legal reform

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Sector reform reduces need for credit security products

Source: ICA meeting – May 2009

Sector Reform

Gua

rant

ees

& C

redi

t Sup

port

13

Regulated sectors appear to perform better

Generation and distribution statistics support the use of a regulator

Source: Africa Infrastructure Country Diagnostic (AICD) power sector database - May 2008

0% 20% 40% 60% 80% 100%

Gen capacity operational

Gen reserve margin

Emergency power use

T&D losses

Urban connections

Commercial efficiency

RegulatedNo regulator

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Private sector participation appears to improve performance

Generation and distribution statistics support the use of private sector finance

Source: Africa Infrastructure Country Diagnostic (AICD) power sector database - May 2008

0% 20% 40% 60% 80% 100%

Gen capacity operational

Gen reserve margin

Emergency power use

T&D losses

Urban connections

Commercial efficiency

PrivatePublic

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Umeme’s performance has improved since the private concession

75%

80%

85%

90%

95%

100%

Mar

-06

May

-06

Jul-0

6

Sep

-06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Source: AI2 Umeme collections data 2006-08

Collections increased from 76% to 93% and 90,000 new customers added

$60m invested into the network (and more to come) and 50,000 poles replaced

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What next for Africa’s electricity distribution

Each of Africa’s 53 countries and markets is different but could exhibit similar themes

• Focus on collections and losses performance

• Cost-reflective tariffs with targeted subsidies

• Public and private investment programmes

• Unbundling and transparency

• Regulation driving sustainability

• Targeted restructuring sector credit support

• Capacity building

1717

Actis

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Private equity, infrastructure & real estate: 120 professionals

London

Singapore

Sao Paolo

Johannesburg

Lagos Nairobi

Mumbai

Beijing

Cairo

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100+ investments, US$3b+ invested over last ten years

Investment by sectorInvestment by region

Consumer

Financial institutions

Healthcare & Pharmaceuticals

Industrial

Transport & Logistics

Manufacturing

MiningOil & Gas

Real Estate

Other

Electricity

Telecomms, Media & IT

Africa

Asia PacificChina

South Asia

Latin America

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Financials, industrials, consumer, business services, infrastructure

Alexander ForbesOne of the largest MBOs in South Africa

Deal size: US$1.2bn

Nilgiri’sComplex MBI of one of South India’s best-known food retail chains

Deal size: US$63m

Diamond BankPIPE financial services investment in Nigeria

Deal size: US$134m

TaizinaiChina’s top yoghurt drink manufacturer

Deal size: US$72m

UnzaMalaysia’s largest MBO – a regional personal care products firm

Deal size: US$100m

ShundaVertically integrating Chinese photo voltaic silicon wafer supplier

Deal size: US$82m

GlobeleqGlobal buy and build -operating power assets in corporate vehicle

Deal size: US$1.3bn

El RashidiFirst MBO in EgyptBest Food subsidiary

Deal size: US$20m

Punjab TractorsFirst PE-backed privatisation in India

Deal size:US$61m2003

2006 20072007

2002

2006 2004 2006

2002

2121

Infrastructure

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Infrastructure: what we do and how we add value

Equity investments into infrastructure assets and companies in the emerging markets

• $50m to $150m cheques from Actis ($1b+ fund) as leader or member of a consortium

• Power and transport infrastructure sectors

• Appetite for greenfield / new build projects

• Early stage development costs investment

• Long-term investment vision (15 year fund)

Value-add partnership with stakeholders - backing sponsors to develop and acquire projects

• 60 years of infrastructure experience in emerging markets

• Extensive networks and on the ground presence

• Strong governance and responsible investment

• Unique power sector positioning with Globeleq, Empower and Umeme development vehicles

• Proactive development (investment pre financial close) and investment management

• Team with mix of project development, operations and finance experience

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Strategy: backing proven teams to build and/or buy assets

Value Curve

Acquisition

Acquiring sponsor or other shareholder interests after

operations commence

1. D

evel

opm

ent p

erio

d

2. F

inan

cial

clo

se

4. P

rove

n

Risk Curve

Ris

k an

d V

alue

Time

3. O

pera

tiona

l

Kallpa Orascom

Algeria

FortunaSidi KrirMozal

SAGT

Development

Early risk capital alongside sponsors

Project Finance

Backing experienced sponsors in the development of

greenfield projects

TRAC

Project development stage is one of several risk : reward factors to take into account

Other key risk factors

• Sovereign / political

• Regulatory

• Revenues

• Costs

• Technology

• Environmental / social

• Governance

• Financing

• Management

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TRACDeveloped 500km toll road between SA and

MozambiqueExited in 2006

Investment: $25m

YVRASBacked experienced

owner/operator of international airports

Exited in 2006

Investment: $27m

FortunaAcquisition of minority

interest in 300MW hydro plant in Panama

Exited in 2007

Investment: $72m

South Asia GatewayDevelopment of port terminal in Sri Lanka.

Exited 2006

Investment: $14m

Sidi KrirAcquisition of 683MW gas-fired power project

in EgyptExited in 2007

Investment: $118m

KallpaDevelopment of

168MW gas-fired power project in Peru

Exited in 2007

Investment: $20m

UmemeDevelopment of an

electricity distribution business in Uganda

Investment: $40m

Grain Bulk HandlersDevelopment of grain

port in KenyaExited in 2006

Investment: $10m

SongasGas pipeline and

power plant development in

Tanzania

Investment: $125m

Infrastructure transactions

2002

2001 20071998

2002

2006 2004 2006

2003

2525

Portfolio

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Globeleq: power generation developer

• History– Created from Actis’s existing portfolio, Globeleq purchased power assets from

international companies withdrawing from the market and built new assets– Retained majority control in most existing power projects– 16 Asia, Latin America and North Africa power assets were sold in 2007

• Strategy– Globeleq is a premier emerging markets developer of power assets– Pipeline of c projects in Africa, Latin America and India

• Existing Operational Assets– Songas

• 190MW gas-fired power project located in Dar es Salaam, Tanzania• Gas processing facility on Songo Songo Island and a 225 km subsea and

onshore gas pipeline from the island to Dar es Salaam • 100% owned by Globeleq

– Tsavo• 74MW oil-fired power project located near Mombassa, Kenya• 30% owned by Globeleq

– Azito• 288MW power project located 8 km to the west of Abidjan in Cote d’Ivoire • 11% owned by Globeleq

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Umeme: electricity distribution

• Description of the Project– 20 year contract with Gov’t of Uganda to distribute power throughout the country,

concentrating on the semi-urban strip from Entebbe through Kampala to Jinja– Umeme is required to refurbish and strengthen the old and dilapidated distribution

system, including replacing a substantial proportion of the distribution infrastructure, and procuring necessary equipment such as a new billing system and new vehicles.

– Customer base of 260,000 (approximate demand growth of 4%)– Headquartered in Kampala with 32 district offices spread around the region– State-of-the-art call centre recently set up in Kampala– Insurance for the project provided by MIGA

• Strategy– Existing distribution platform replicable in other developing economies– Actis currently in discussions with other African governments to roll-out platform

• History– Originally incorporated as joint venture between Globeleq and Eskom Enterprises (‘Eskom’), South Africa’s national

electricity utility, to bid for the Distribution Concession (‘DC’) tender by the Government of Uganda– Actis originally purchase a 56% interest in the JV and in November 2006 purchase the remaining 44% from Eskom

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Empower: provider of mobile power

• Concept

– Many countries in Sub Saharan Africa are suffering from acute shortage of power which is aggravated even further at times of low rainfall due to high reliance on hydro

– Investment in conventional large scale plant has a long lead time (long construction times and long planning times) but the capacity shortage is immediate

– Provide a medium-term Heavy Fuel Oil (‘HFO’) fired generation solution based on modular 4MW generation units

– Generation units are containerised to enable quick transportation and installation

– Short lead-time: Empower offers the customer flexibility similar to that of an emergency generation project

• Strategy

– Empower has purchased and constructed 15x4MW MAN units

– Enter new markets by establishing an anchor project large enough to justify an operational and commercial presence

– Use anchor projects as platforms for expansion either by growing the anchor projects by adding capacity, or by using them as springboards to identify new customers in the country or region

2929

Case studies

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Trans African Concessions (TRAC) toll road, South Africa

Description

• 500km N4 Maputo corridor toll road linking Pretoria to Maputo was the first road concession jointly undertaken by governments of South Africa and Mozambique

• TRAC comprised the rehabilitation and tolling of the existing national route and building of new extension to Maputo

Investment attractions

• Received strong support and favourable terms, being the first road concession in these countries

• Existing road with robust historical traffic pattern

• Upside from traffic growth due to economic development of South Africa and Mozambique, increase in vehicle ownership and development along the corridor

Value creation

• Road was extended to suburbs of Pretoria, fully financed by debt, to increase revenues by 15%

• TRAC kept the operation in-house, leading to quicker implementation of toll changes, new IT and road management system and cost controls

• Actis refinanced TRAC to realise early cash distribution

$25mCash invested

Business sector Transport

Investment type Expansion

Invested year 1998-2003

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Sidi Krir power plant, Egypt

Description

• Sidi Krir is a 683 MW natural gas-fired power station

• It provides power to the Egyptian Electricity Holding Company under a 20-year US$-denominated contract

• Fund 1 purchased in two tranches - Intergen (2004) and Edison (2005)

Investment attractions

• Attractive purchase price because of motivated sellers, divesting for strategic reasons, and bi-lateral negotiation process

• Stable cash flows ensured by access to low cost gas, US$-denominated contract, long-term fuel supply agreement and off-taker’s strong payment history

• Comfort around technology and operational issues due to the plant being newly constructed by reputable international firms

Value creation

• Globeleq led US$250 million refinancing in 2006 to accelerate returns

• Implemented high standards of health and safety leading to improved dependability (2005 and 2006 availability exceeded 95%)

$118mCash invested

Business sector Power generation

Investment type Acquisition

Invested years 2004-5

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South Asia Gateway Terminals (SAGT) port, Sri Lanka

Description

• South Asia Gateway Terminal is a multi-faceted container handling facility constructed by John Keells on Queen Elizabeth Quay in the Port of Colombo

• Capacity of one million twenty-foot equivalent units that can operate 24/7

• Managed by P&O Ports with a 35-year concession

Investment attractions

• Addressed existing gap for efficient container terminal in south Asia

• Facility was an existing operating asset that generated cash during development

• Existing shareholders had right combination of development and operating skills

Value creation

• Project was developed US$50 million below budget

• Actis advised management to improve marketing, relationships with Sri Lanka Port Authority and corporate governance, driving traffic growth from 240,000 to 1.3 million containers annually while maintaining one of the best EBITDA margins in the industry

1999Invested year

$14mCash invested

Business sector Transport

Investment type Expansion

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Contacts

Actis

2 More London Riverside

London SE1 2JT

United Kingdom

www.act.is

Alasdair Maclay

Director

+44 20 7234 5052

amaclay@act.is