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Information on Key Projects Edward Farquharson 12 December 2006.

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Presentation on theme: "Information on Key Projects Edward Farquharson 12 December 2006."— Presentation transcript:

1 Information on Key Projects Edward Farquharson 12 December 2006

2 Deliverability Framework Policy/Rationale –Economic/policy justification Viability –Technically, contractually, environmentally, socially viable –Supporting infrastructure available/interfaces work/dependencies Bankability –Contractor interest –Market Capacity –Financing terms and conditions can be met –Credit issues

3 Deliverability Framework Affordability –Power affordable for end user taking into account capex, opex, cost of finance, term of contract/tenor Deliverability –Owner has capacity to manage process –Legislation/vires in place/acceptable –Statutory approvals/permits in place –Timescales –Stakeholders

4 Rehabilitation and Expansion Projects

5 Rehabilitation/Expansion Projects Key Issues Policy objectives/Rationale –Solution to existing underperforming/poorly maintained facilities, but more complex if financing is required. Viability –Operation Can be complex due to historical working practises. Transfer of existing staff. –Capex costs Environmental investment costs Unforeseen capex costs –Latent defects –Legacy liabilities –Warranties

6 Rehabilitation/Expansion Projects Key Issues cont’d Bankability –Ownership Lenders will not permit splitting electricity sales from old capacity and new = > ownership of the whole plant must transfer to the newly financed entity = > may provide for a capital receipt which can be used to enhance credit quality –Liability Transfer of existing assets requires satisfactory indemnities in respect of historical liabilities, maintenance shortfalls etc. Affordability –Affordability to end consumer allowing for capex and O&M costs. Deliverability –Owner capacity to manage process. –PPA

7 Kariba North Bank Extension Location:Zambia Project Type:360MW Hydropower expansion Estimated Capital Cost:$300m Feasibility Study Completed in 2005 by Sinohydro. PPA with ZESCO yet to be developed. ZESCO: structure of credit support for ZESCO obligations yet to be developed. Ownership of extended facility to be determined. Good potential structuring possibilities around ZESCO onward power sales, natural resource companies and stable environment.

8 Hwange Location: Zimbabwe Project Type:Thermal project rehabilitation and expansion from 320MW to 780MW Estimated Capital Cost:$500m PPA to be structured with ZESA. Terms to be agreed. ZESA credit support for long term obligations to be agreed. Fuel supply to come from Hwange Colliery operated by ZESA Joint Venture. Terms not yet agreed. Feasibility study required for colliery expansion in order to supply project est. capital cost $30m. Financing availability not yet determined. Transmission lines to Namibia for onward sales require refurbishment, estimated capital cost $20m.

9 Hydropower Projects

10 Hydropower Projects - Key Issues Policy objectives/rationale Significant underutilised natural resources by way of river flows. Attractive fundamentals in era of high/volatile oil and gas prices. Low technical risk (once built). ‘Clean energy’/Renewable. Viability –Location Logistics: construction projects requiring mass mobilisation of equipment and manpower in remote locations. Significant accompanying infrastructure requirements – roads, transmission etc. Interface risk – availability, timing, costing. –Specific Risks Geotechnical history of construction time and cost overruns – EPC rare. Climate: rain volume and regularity, water flow, historic data availability.

11 Hydropower Projects - Key Issues cont’d Viability cont’d –Social/environmental NGOs Permitting EIA scope certainty. Resettlement –Regulation clarity, structure, completeness, long term stability. water use rules. –Timing Significant development, mobilisation and construction lead times.

12 Hydropower Projects – Key Issues cont’d Bankability –Long development and construction lead time so significant interest roll up challenge. –Economics require long tenor debt unavailable in commercial markets. –Availability of multilateral funding enhancement mechanisms. –Sensitivity of lenders and investors to environmental issues. –Foreign exchange and interest rate exposure. –Bankability of owner group (if applicable). –Bankability of contractor group. –PPA terms. –Long term bankability of PPA and off-taker. –PRI cover availability. –Arbitration/dispute resolution mechanisms.

13 Hydropower Projects – Key Issues cont’d Affordability –Affordability to end consumer dependent on potentially uncertain capex and yet to be defined finance terms and costs, especially debt maturity. Deliverability –Government project team – authority, budget, experience. –Availability and suitability of advisers. –Bidding and evaluation rules and capacity in place, transparency. –Scope boundaries.

14 Inga 1 and 2 Location:Democratic Republic of Congo Project Type:Hydropower rehabilitation 1775MW Estimated Capital Cost:$600m PPA with SNEL to be developed. Terms yet to be agreed. Existing scope of MOU between SNEL and Magenergy unclear. Tender process for remaining units to be clarified. Ownership post rehabilitation currently believed to remain with SNEL. SNEL onward sales to neighbouring utilities to be developed. Transmission line capital costs estimate unclear.

15 OMVG Location:Guinea Project Type:Hydropower new builds 368MW Estimated Capital Cost:Kaleta $190m; Sambangolou $300m PPA with Senegal, Gambia and Guinea-Bissau DistCos to be developed. Terms yet to be agreed. Tender process due to be launched in Jan 2007. Priority project of West African Energy Exchange (EEEOA) and CEDEA. Related transmission line of 1,677 km through four countries (West African Loop) at estimated cost of $385m to be developed.

16 Kafue Gorge (Lower) Location:Zambia Project Type:750MW Hydropower new build Estimated Capital Cost:$600m PPA with ZESCO to be developed. Terms to be agreed. Onward sales to Nampower being finalised. ZESCO credit support in respect of long term obligations yet to be agreed. Appetite of natural resource companies for power to be explored. Feasibility study required for conjunctive operation of plants on Zambezi to be completed. Tender status unclear. Status of a Chinese or Indian MOU unclear.

17 Thermal Power Projects

18 Key Issues: Thermal Power Projects Policy objectives/Rationale –Proven technologies, good investor appetite, flexibility of placement near demand, speed of implementation. Viability –Standardized/modular design and build approaches – reduced capex and time. –Power Purchase Agreement. Well understood, but term of contract and credit worthiness of offtaker critical. –Security of fuel supply. –Current oil and gas prices challenge competitiveness of new build in developing world. –De-risking any currency mismatch between fuel payments, power sales and debt repayments critical. –Proximity to mines, if coal fired (availability/quality).

19 Key Issues: Thermal Power Projects cont’d Bankability –Well established financing structures. –Relatively short construction times. –EPC contracts. –Deep and liquid market for debt placement (country risk dependent). –Proven investor appetite and established benchmarks for risk. Affordability –Exposure to volatility in delivered fuel supply costs. –Shorter construction periods and lower capex component reduce impact of finance terms. Deliverability –Planning, emissions, noise levels, environmental permits. –Emissions.

20 Kudu Location:Namibia Project Type:800MW Gas fired new build Estimated Capital Cost:$530m Plant size developed due to economics of fuel supply, Namibia demand some 80MW. PPA with Nampower to be developed dependent on ESKOM sales. Fuel supply from Kudu gas field, timing and price to be agreed. Field operator still to finalise commercial terms. Transmission line status to ESKOM to be clarified. Prioritisation by Nampower to be confirmed.

21 Transmission Line Projects

22 Key Issues: Transmission Projects Policy objectives/Rationale –Need to move power across regions due to hydropower focus, or need to oversize capacity to underpin fuel field development e.g. Kudu. –Requirement for strong government support to ensure viability. Viability –Physical security of assets over large distances is problematic: affordable insurance package will be key. Bankability –Is there a role for private sector capital? Is it an interesting asset class? –What sort of return is appropriate for a low risk business in a higher risk environment? –Cross border sovereign issues? –PPAs require structuring similar to tolling agreements. –Financial viability of customer.

23 Transmission Projects – Key Issues cont’d Affordability –Interdependency with supply and distribution. –Line capacity. Deliverability –Capacity of transnational groups. –Way leaves/land acquisition – existing routes? –Differing legislation, permits. –Tariff policy.

24 Malawi-Mozambique Transmission Line Location:Malawi-Mozambique Project Type: Regional transmission Estimated Capital Cost:$84m Complex PPA structure to be finalised, sale from HCB to Malawi ESCOM wheeled through EDM. Feasibility study status to be confirmed. Prioritisation of host governments to be confirmed. World Bank commitment in principle for $62m, terms to be clarified.

25 Zambia-Tanzania-Kenya Transmission LocationZambia-Tanzania-Kenya Project Type:Regional Transmission Estimated Capital Cost:$342m Nairobi (Kenya) - Arusha (Tanzania): to be public sector funded. Arusha (Tanzania)-Dar es Salaam: public sector. Dar es Salaam - Zambia link: funding not yet identified. Feasibility study underway by Norplan A.S., due to complete in 2007. PPA structure for sales to TANESCO/KPLC to be finalised.


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