Gas & PowerThe Algerian Experience in Contracted Onshore non-
Recourse Financing
Francois LabartheCorporate Bank Head
Citigroup, Algeria
April 4, 2006
NOT AN OFFICIAL UNCTAD RECORD
Overview Background Traditional vs. Project Financing African Precedent Transactions Algerian Experience Way Forward
1
Power Project Financing During 2000/04, banks lent $212bn to power projects globally
Only 0.6% went to Africa
$89bn
NorthAmerica
$35.5bn
Europe
$25.8bn
LatinAmerica
$1.3bn
Africa
$15.3bn
MiddleEast
$27.5bn
Asia
$17.7bn
Australasia
Source: Dealogic
3
African GDP Figures Low African GDP figures are one reason behind small
investment in gas & power infrastructure projects
Source: The Economist Intelligence Unit
2
2005 Africa GDP
S Africa $238bn
Egypt $93bn
Nigeria $97bn
Algeria $91bn
Morocco $55bn
Libya $37bn
Others $268bn
Traditional vs. Project FinancingTraditional Procurement Model Project Finance Model
Payment for Inputs
Overruns
ConstructionDevelopment
Operating Costs
Overruns
DelayCosts
Extension
0 3 10 15
Time (years)
Pay
me
nts
ConstructionNo Payments
0 3 10 15
Time (years)
Pay
me
nts
Operational PeriodOutput Payments
Payment Against Delivery
Shorter development time Contractor vs. Operator Interface issues Short-term view Limited (LD’s) risk
Operator & Contractor “Project Finance” discipline Long-term view High (Equity) risk Longer development time
4
Key Success Factors Successful contracted projects rely on:
“Creditworthy” offtaker
Affordable tariff
Long-term stability
5
African Precedents (sample)
Hamma Water Desalination
Algeria $235mm Sonatrach as offtaker
West Africa Gas Pipeline
Nigeria, Benin, Togo & Ghana
$560mm WB guarantees offtakers’ obligations
AES Power Barge Nigeria $120mm Credit enhancement of NEPA’s obligations
Kwale IPP Nigeria $450mm NNPC backstops NEPA’s obligations
Mozambique-SA Gas Pipeline
Mozambique & South Africa
$1.2bn Sasol as offtaker
Port Said Power Plant
Egypt $382mm Central Bank guarantees EEA’s obligations
Project Country Amount Key Feature
6
Algerian Experience HWD was the first onshore contracted project to raise financing
in Algeria
Sonatrach offtaker made the project financeable This template has been followed in 2 water projects since One power project with Sonelgaz offtaker is about to reach
financial close using the HWD template
7
Pipeline of Projects PFI lists a pipeline of power projects worth $30bn for Africa
The majority of these deals involve “creditworthy” offtakers
8
Source: Project Finance International
Project Pipeline
Algeria $2.95bn
Botswana $4.50bn
Namibia $4.23bn
Nigeria $2.78bnZambia
$2.53bn
Morocco US$2.40bn
Others $10.30bn
Way Forward Algerian Lessons
Leverage country’s highest creditworthy entity
Leverage local liquidity and international know-how Other African Lessons
Multilateral backstop of offtakers’ obligations
Other credit enhancements
“Stapled” projects Other Potential Sources
Pooled PPA
9