world bank
DESCRIPTION
Nigeria Electric Power Transaction & Power Industry Reform Review Conference. World Bank PRG in Support of The Nigerian Privatisation Transaction. Presidential Villa, Abuja-Nigeria Day 2, November 29, 2011. World Bank. Main Messages. - PowerPoint PPT PresentationTRANSCRIPT
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
2World Bank
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
World BankFEU – Financial Solutions
Key Value Chain Contracting Risks
4World Bank
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
5World BankFEU – Financial Solutions
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
6World BankFEU – Financial Solutions
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
7World BankFEU – Financial Solutions
Partial Risk Guarantee Process
✔✔
8World BankFEU – Financial Solutions
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
9World BankFEU – Financial Solutions
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
10World Bank
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
11World BankFEU – Financial Solutions
Thank You
For more information about World Bank Partial Risk Guarantees, please
go to: www.worldbank.org/guarantees