1. TECHNICAL WORKSHOP ON NIGERIAN POWER REFORM
Key Issues for Transaction Bankability and Financial Close
Presentation by:
Andrew Alli
Chief Executive Officer
AFRICA FINANCE CORPORATION
May 25th 2011

2. Requirements for Bankable Power Projects
There are a number of requirements for banks and private investors to finance power projects in Nigeria across the value-chain, including but not limited to:
Fuel Supply
Legally binding long-term GSPA with credible supplier
Gas pricing pass-through to power off-taker in PPA
Credible gas processing, transportation and supply infrastructure
Appropriate guarantees and credit enhancement for gas payments
Construction or Rehab: Competitive lump sum, turn-key EPC contracts
Fixed delivery dates, liquidated damages, performance guarantees
Operations and Maintenance: Performance-based term O&M contracts
Proven technology, competitive procurement, credible operator
Environmental & Social Impact Assessment (Equator Principles)
Generation
Transmission
Long-term concession contract with world-class technical partners
Long-term capex investment and operations funding availability
Independence and capacity implement system operator role
Efficient, market-based system of rules for power contracts
Customer base and mix: demographics, creditworthiness, retail/wholesale
Operator: High technical capacity and operational experience
Network operations and customer relationship management
Capacity to invest in new technology and long-term business plan
Towards reduction of aggregate collection losses
Expansion of distribution network penetration
Distribution 2

3. Private Power Finance: Key Structuring Considerations
Project Development Phase
Construction Phase
Operations Phase
Early stage risk capital for:
Environmental Studies
Feasibility/Demand Studies
Consulting/Tendering Costs
Legal and Technical Fees
Often comes up to 10.0% of total project costs
Construction finance to take project to completion:
Financing Mix: Debt/Equity typically 70/30
Normal Viability Metrics:
Debt Service Coverage Ratios (DSCR)
Project & Equity IRRs
Requires long term (>10 yrs), low interest rate loans
Equity funding usually required prior to debt availability
Early Stage Risk Capital:
May be provided by:
Private Funds
Developmental Grants
Private Sponsors
Government Grants
Vendor Risk Participation
This is a crucial stage in project financing as decisions here will determine project bankability
Could take up to 5 years from here to financial close
Equity Investment:
Requires patient investors (public sector, specialized funds, operating companies, pension funds)
Equipment contractors also typical anchor investors
IRRs typically in the 15.0% to 18.0% range
Strong sponsors critical to catalyze debt financing
Debt Financing:
DSCRs of up to 1.5x - 2.0x may be required depending on position in value chain
EXIM and Multilateral financing typical
Debt Service Reserve Account (DSRA) typical
Interest During Construction (IDC), fees and expenses typically rolled-up into cost 3

4. Private Power Finance: Key Risk Issues…/1 Licensing & Pricing Risk
License for bankable period (15-25 years, with ease of renewal)
Tariff commercially viable, cost reflective, FX flexible, no reversals
Fuel supply: commercial pricing to ensure availability and quality
Bankable PPA (firm tenor, viable price, FX flexible)
Credible off-taker: Strong Disco with systems, management and track-record of good collections & payment (can be SOE or POE)
If Disco not credit-worthy, need sovereign guarantee for overall project risk, and payment guarantee via LCs to mitigate delayed payment
Even with sovereign guarantee, must have strong Disco operationally, to ensure collections and system sustainability
Off-Take Risk
Bankable FSA: fixed price long term contract matching tenor of PPA with credible fuel provider
Fuel availability and guarantee of supply and quality
Liquidated damages in event of lack of supply linked with liquidated damages and payments on PPA
Alternative fuel, dual fuel projects also mitigate risk
Fuel Supply Risk 4

5. Private Power Finance: Key Risk Issues…/2
Revenue formula & frequency of regulatory review
License or concession?
Tariff policy: simplify multiple tariff structures
Subsidy program that places no risk on the Disco
Ability for Disco to pass though uncontrollable costs
Regulatory Issues
Customer demand study
Price sensitivity and willingness to pay
Demand /willingness to pay studies conducted by credible technical consultants
Financiers will usually require a third party validation
Market Risk
Technical losses addressed via investment plan (ongoing capex)
Commercial losses and collections rate addressed via competent management and incentives, prepaid meter roll out
Collections , domiciliation of payments into specified accounts as part of payment security
Operations and Technology Risk 5

6. Sample Project: Greenfield IPP in Ghana
Opportunity
Ghana is a fast-growing economy with significant electric power supply deficits forecasted based on current pace of growth
Recently discovered commercial quantity oil & gas resources, expected to start yielding revenues in 2010, with significant local gas utilization potential
AFC (in conjunction with major local and international partners) is working to develop a 340MW combined cycle thermal IPP to meet existing demand, and potentially utilize discovered gas resources
The Project is appropriately structured and has widespread support at the highest levels of local and national government in Ghana, as well as strong private sector support
Project Highlights
Work is concluded regarding necessary permits, agreements, approvals and licenses, as well as early stage project development planning
Financial close is planned for early 2012, with development plan now moving into concluding phases
AFC co-sponsors will include local entrepreneurs, international DFIs and international power companies 6

7. Sample Project: Cape Verde Greenfield Wind-Farm
Opportunity
Cape Verde is an archipelago country with outstanding wind resources, a heavy reliance on expensive imported fossil fuel for energy generation and a strong growth economy with one of the better credit ratings in Sub-Saharan Africa
The Project comprises the development, construction, ownership and operation of 30 wind turbines on 4 islands for an approximate 28 MW of installed capacity for Cape Verde
AFC is working with leading international developers, InfraCo, and local electricity company, Electra, to deliver the project
The Project is appropriately structured and enjoys widespread support at the highest levels of government in Cape Verde
Project Highlights
Project development work is near conclusion with all major contracts and agreements (PPA, EPC, O&M) in place, as well as €30.0m debt capital commitments from AfDB and EIB
Construction expected to be concluded in two phases each completed within 40 to 60 weeks of commencement
AFC’s c.40.0% ownership interest in a €61.0m innovative renewable energy project underscores commitment to this sub-sector in Africa 7

8. AFC Power Sector Financial Services Offerings
The Africa Finance Corporation offers specialized advisory expertise and principal investment capabilities across the power sector value chain
Upstream
Gas
Production
Fuel
Supply
Infrastructure
Power
Generation
Distribution
Advisory, Capital Raising, Principal Investing
Oil & Gas Fields
Tanks, Ships, Pipelines
Greenfield IPPs, Captive Industrial Plants
Discos, Services
Upstream Gas Production
Fuel Supply Infrastructure
Near production oil & gas asset development
Post production asset enhancement and refinancing
Gas gathering, processing, and transmission
Gas-to-power for domestic IPPs, utilities and industrial users
Power Generation
Electricity Distribution
Greenfield Independent Power Plants (IPPs), with both public and private partners
Captive plants for industrials
Independent distribution networks, Privatization advisory
Post-privatization financing 8

9. For AFC Power Sector Financial Services, Contact:
Andrew Alli T:
President & Chief Executive Officer E:
Solomon Asamoah T:
Deputy CEO & Chief Investment Officer E:
Oliver Andrews T:
Director & Chief Coverage Officer E:
Africa Finance Corporation
A: 3A Osborne Road,
Ikoyi, Lagos
Nigeria T: E: