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