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By Ahmed Bahgat, Ph. D November, 2007 A Private Equity Fund in Non-Greenfield Downstream Energy Projects in the MENA Region (An Operational and Energy.

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Presentation on theme: "By Ahmed Bahgat, Ph. D November, 2007 A Private Equity Fund in Non-Greenfield Downstream Energy Projects in the MENA Region (An Operational and Energy."— Presentation transcript:

1 By Ahmed Bahgat, Ph. D November, 2007 A Private Equity Fund in Non-Greenfield Downstream Energy Projects in the MENA Region (An Operational and Energy Efficiency Approach) Benchmark Capital Corp., SAE

2 Private Equity Funds in the MENA Region Private Equity Funds (PEFs) in the MENA region have increased tremendously in number and size over the past 7 years, especially between 2005 - 2007 As of July 2007, there are 128 PEFs in the MENA region As of mid- 2007 total capital raised by PEFs in the region reached US$9 billion compared to a mere US$78 million in 2001, representing an increase of 121 folds. The growth in PEFs in the MENA is attributable to: – The increase in liquidity in the GCC region on the back of the recent surge in oil prices – The governments’ initiatives to foster this instrument through privatizations – The efforts exerted by fund managers and investment firms to encourage private equity as an alternative means of financing Benchmark Capital Corp., SAE 2

3 Private Equity Funds in the MENA Region (Cont’d) Status of the stock of PEFs since 1994 to mid-2007 demonstrates a profile far from saturation or even maturity: 12.3% of PEFs are announced 28.3% of PEFs are in their fund-raising phase 40.6% of PEFs are in their investment stage 2.0% are fully invested PEFs 1.8% are closed funds To-date, the sectoral focus of PEFs in the MENA is on real estate, infrastructure, transportation, energy and financial services Benchmark Capital Corp., SAE 3

4 Private Equity Funds in the MENA Region (Cont’d) From mid-2006 to mid-2007, MENA private equity deals have been primarily originated in 6 countries: CountryPercentage of Total MENA Deal Flow Egypt60% UAE15.3% Saudi Arabia10.3% Bahrain4.3% Kuwait2.1% Jordan1.3% Rest of MENA6.7% Benchmark Capital Corp., SAE 4

5 Against the Current… Since the 80’s, the world has been moving towards more efficiency and productivity taking on a less energy input- intensive path The declines in energy intensity have been historically the lowest in the MENA region, due to: – Relative abundance of fossil energy resources: as of mid- 2007, the Region has 61% of the world’s proven oil reserves, and 45% of proven natural gas reserves – Sustained energy subsidies and energy intensive growth models A business case is therefore quite vivid to focus on operational and energy efficiency in downstream energy projects existing in the MENA Benchmark Capital Corp., SAE 5

6 Operational and Energy Efficiency Fund Our Fund is structured to make equity and mezzanine investments in operational and energy efficiency operations implemented in existing downstream energy projects, namely: Power Stations Refineries Petrochemicals Complexes Oil & Gas Pipelines Benchmark Capital Corp., SAE 6

7 Operational and Energy Efficiency Fund (Cont’d) The Fund offers an integrated solution for operational and energy efficiency projects The Fund has a unique approach based on: 1. Seeking efficiency investments in existing long-lived assets with established cash flows and a track record management; 2. Estimating capex requirements of operational efficiency program; 3. Co-financing program implementation in return for sharing part of consequential incremental net cash margin; and 4. Exit at an increased company value. The Fund Manager capitalizes upon the expertise of a world- renowned Technical Consultant; and A stand-by Credit Facility Provider is contracted to finance up to 75% (in debt) of large capital intensive operational efficiency initiatives Benchmark Capital Corp., SAE 7

8 Fund Concept Debt The Fund Manager Fund Operational Efficiency Project Technical Consultant Management Cooperation & Technical Services Equity / Mezzanine Credit Facility Provider Benchmark Capital Corp., SAE 8

9 A Track-Record Fund Manager The Fund Manager is responsible for: Sourcing and screening investment opportunities Conducting technical and financial due diligence Submitting investment and divestment proposals to the Investment Committee Performing on-going portfolio management duties Handling back-office and administrative fund management activities Planning and implementing exist strategies Benchmark Capital Corp., SAE 9

10 A World-Renowned Technical Consultant The Technical Consultant is a performance improvement company specialized in downstream energy industries, and is responsible for: Providing benchmarking, and profitability improvement services Adopting a Net Cash Margin (NCM) Program to identify facility performance gaps between client facilities and its comparables in the industry and plans improvements resulting in improved net cash margins Through the NCM activities, identifying no & low capital initiatives as well as larger more capital intensive initiatives Benchmark Capital Corp., SAE 10

11 The Incremental NCM Program NCM unfolds in four phases over a 2-year period NCM is designed to measure, manage, and maximize operational efficiency Target Incremental NCM is reached sooner with sustainable results IV – Sustaining the Improvements III – Implementation Assess Performance Action Plan Development II I I 123456789101112131415161718192021222324 Timeline, months 3 months Each phase is designed to accelerate change and profit improvement. Benchmark Capital Corp., SAE 11

12 Incremental NCM Program (Cont’d) Set Performance Targets Plant Assessment Identify Improvement Initiatives 4 Benchmarking 5 1 Auditing Work Practices 32 NCM starts with benchmarking study NCM starts with benchmarking study On­site audit work practices – completion of scorecards On­site audit work practices – completion of scorecards Plant assessment for physical asset capability Plant assessment for physical asset capability Drill-down gap analysis and target setting Drill-down gap analysis and target setting Recommendations Recommendations Phase 1: Assess Performance Benchmark Capital Corp., SAE 12

13 Incremental NCM Program (Cont’d) Phase 2: Action Plan Development Prioritize All Initiatives Set Goals, Strategies, & Targets Form & Train Best Practices Teams 34 Analyze Execution Risks Form Change Management Teams 6 Develop Action Plan 12 7 Create CMT & BPT Charters 5 Typically generates 100–200 recommendations The Technical Consultant transforms recommendations into an implementation plan Looking for response to two key questions like: - Do we agree on what “good” looks like? - Do we agree client performance is not as good as it could be? Benchmark Capital Corp., SAE 13

14 Incremental NCM Program (Cont’d) Phase 3: Implementation The Technical Consultant is the overall Implementation Manager Implementation strategy Scoping and subcontractor selection Scheduling Capital Projects Execute Action Plan 34 Organizational Effectiveness Training Organization Workshop 6 On-Site Technical Support & Assistance 12 Measure Results 5 Benchmark Capital Corp., SAE 14

15 Incremental NCM Program (Cont’d) Phase 4: Sustaining the Improvements Ongoing Operations & Maintenance Re-Audit Work Practices 34 Re-Benchmark Sustainability Assurance Plan 12 Benchmark Capital Corp., SAE The Technical Consultant develops sustainability assurance plan to preserve operational improvements Re-benchmarking and re-auditing 15

16 Case Study: A Refinery Upon engaging the Technical Consultant to conduct a performance improvement analysis, the company’s Canadian refining assets were compared to 1 st & 2 nd quartile performers to benchmark the performance of the company to industry “Pacesetters” (data of over 85% of world refining capacity is captured in the Technical Consultant’s data base). C$150M in EBIT improvements for the downstream business per year (sustainable) were identified based upon which teams were formed to close the gaps in: - Planning and Optimization - Operations Driven Reliability - Operator Effectiveness - Automation Benchmark Capital Corp., SAE 16

17 Case Study: A Refinery (Cont’d) Requirements to achieve C$150M EBIT improvements for the downstream business were: No people were added while some people were re-assigned but everybody was expected to contribute to the improvement initiatives in addition to their regular jobs Little or no capital was spent Increased expenses were handled within existing budgets Benchmark Capital Corp., SAE 17

18 To Sum Up With its energy intensive growth models and its lesser productive downstream energy assets, the MENA is a prominent candidate for operational and energy efficiency initiatives The up-side for bridging operational efficiency gaps is sizable in-terms of sustainable incremental cash margin A Private Equity Fund is an effective financial instrument to put operational efficiency into action for the benefit of investors and equally so for the environment. Benchmark Capital Corp., SAE 18

19 Thank you Ahmed Bahgat, Ph. D November, 2007 Benchmark Capital Corp., SAE 19


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