1. Zimbabwe Mining & Infrastructure Indaba Energy Options
Presenter: Jean Madzongwe
Date: 15 October 2015

2. AGENDA Sector Overview Alternative Sources of Energy
Power trends in the Mining Sector
Options and Opportunities
SA REIPPP
Investment and Funding
Challenges for Project Implementation

3. Sector Overview Mapaka and Juana
Source: World Bank: World Development Indicators database
Mapaka and Juana
An estimated 1.6 billion people in developing countries have no access to electricity of which about 70% are in Sub-Saharan Africa (SSA)
SSA and SADC has abundant energy resources that have not been exploited
Region accounts for 13% of global population, but only 4% of its energy demand: half of this is biomass
Nearly all countries in SADC experiencing power challenges and load shedding due:
- Growing demand, high industrial growth, urbanization, etc
- Low levels of electrification (avg: 30% urban, 5-7% rural)
- No new power generation in most countries
- Limited transmission capacity
- Ageing infrastructure, low maintenance
- Poor reliability of power supply
- Tariffs that are not cost-reflective
Energy drives economic and industrial growth
Energy sector policies have fluctuated from security of supply to increasing access to self-sufficiency and now focus on increasing power supply for export and power trading 3

4. Mapaka and Juana Solar Photovoltaic (PV)
Alternative Sources of Energy
Solar Photovoltaic (PV)
Concentrated Solar Power (CSP) – Parabolic Trough, Tower, (offers storage for peak times)
Wind – Onshore, Off-shore
Large Hydro and Mini-hydro
Diesel, Heavy fuel oild (HFO), Light Crude Oil (LCO), etc
Biomass
Natural Gas – LNG, LPG, etc
Landfill Gas, Waste-Treatment, etc
Biogas
Coal, Coal-bed methane (CBM)
Mapaka and Juana 4

5. Africa is Rich in Energy Potential
GAS
COAL
OIL C
In the last 5 years, almost 30% of global oil & gas discoveries were in sub-Saharan Africa; the region has vast untapped renewables potential, notably hydro & solar 5
Source : Africa Energy Outlook, BMI

6. Power Trends in the Mining Sector
Mapaka and Juana
The mining industry is usually the largest consumer of electricity (ranges from 30-70%)
Unreliable power supply resulting in costly shut-downs
Significant investment for self-generation (not core business)
Many mines using high cost diesel/HFO as back-up power supply
Cost of power tends to be high cost component of operations
Special contractual arrangements and i.e. long-term agreements, un-interruptible supply contracts
Wholesale bulk tariff arrangements may provide lower cost
Curtailment during times of peak when to avoid/reduce load shedding (approx. 10% reduction) 6

7. Options and Opportunities
Mining companies considering alternative solutions to solve their power supply challenges
Use of diesel generation, gas generation
Renewable energy options, power stored from CSP plants
Opportunities for Demand-side management (DSM) and energy efficient measures
Consider self-build transmission capacity
Opportunities:
Mining companies can serve as ‘Anchor Customer’ or credit worthy ‘Power Off-taker’ to provide a bankable PPA
Back-to-back power supply agreements
Clubbing or group of small mines can consider special vehicle to support PPA
Can anchor imports
Source: World Bank: World Development Indicators database
Mapaka and Juana 7

8. Renewable Technologies
Limited development of alternative sources as renewable energy technologies tend to be small expensive and imported but now growing
Introduce Renewable IPP programme
REFIT or competitive tariffs
Mini and Off-grids are generally small electrical distribution systems connecting multiple customers to multiple sources of generation and storage.
Technologies vary from PV, mini and micro-hydro plants, wind, diesel gens, biomass gasification, gas engines etc.
As the price of electricity increases, and the cost of PV becomes more affordable, an increasing trend in PV installations by private households is becoming evident.
Mapaka and Juana
Electricity Costs
PV Costs 8

9. SA Renewable Energy Programme
SA REIPP introduced in 2011 and designed to procure 12,825MW of renewable energy from Independent Power producers (IPPS)
To date, 6,388MW procured in less than 4 years
Total committed private sector investment approximately ZAR170 billion
37 projects connected with a capacity of 1,827MW
Eskom provided 30 year PPA with Government guarantee for power off-take and obligations of Eskom
Bid Windows and technologies are determined by the Minister of Energy
A total 64 out of 223 Bidders have ben selected in 3 Rounds
Tariff has dropped over time for all technologies, started with tariff cap in BW 1 and subsequently dropped to competitive tariffs from BW 2 onwards
Wind: from R1,143 – R519/MWh
Solar PV: from R2,738 – R659/MWh
Solar CSP: from R2, R1.460/MWh
Only BW3 had 3 preferred bidders for Landfill gas
No preferred bidders have been announced for biogas
Financing structures have been through a bond, corporate and project finance illustrative of a maturing market
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10. DBSA Role & Strategy in the Energy Sector
Invest in sustainable infrastructure for economic growth in Sub-Saharan Africa
Increase regional co-operation and interconnectivity
Assist to alleviate power shortfall through investments in power generation, transmission & distribution projects
Provide funding for project preparation & development
Support delivery of access to basic energy services in an environmentally friendly manner
Support diversification of regional power supply by exploiting available energy resources
Capacity building in key energy institutions
Ensure job creation during and after construction
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11. DBSA Products and Services
Mapaka and Juana
Direct investment in projects through term loans, subordinated debt and equity
Credit enhancement through innovative structures, risk assumption and guarantees
Invests in the development, rehabilitation and expansion of economic infrastructure
Flexible and competitive lending terms and conditions
Offers a variety of products including co-financing arrangements and loan syndication
Advocates maximum development impact
Mobilisation of funds from third parties
Provision of technical assistance and institutional capacity building
Support for black economic empowerment (BEE) initiatives and indigenisation
Development of local capital markets in order to provide access to local currency to offset exchange rate risk, access to long-term capital and increase investment alternatives 11

12. Project Due Diligence Institutional
Capacity to plan, implement, and manage project
Corporate structure and governance
Legal and Regulatory environment
Technical
State of infrastructure
Country and regional market fit
Reliability and affordability
Procurement and pricing policy
Identification and mitigation of risks
Financial
Commercial viability
Sponsor support during construction
Realistic assumptions
Economic
Economic Cost-Benefit
Development Impact
Environmental
Risk assessment and management
Policy compliance
Social
Contribute to socio-economic development
Consultation
Sustainability

13. Mapaka and Juana Issue Comment Political Will / Commitment
Challenges in Project Implementation
Issue
Comment
Political Will / Commitment
Government Policies, Sector Reforms, Sector Planning, Decision-making, bureaucracy, need for government guarantees, letters of support/comfort, Concession award,
Regulatory Environment
Predictable environment, Conducive and Regulatory framework, Independent Regulator, Cost Reflective Tariffs, Transparent Procurement Process
Institutional
Project structure (SPV, BOT, BOOT, BOO) Strong Sponsor, Capacity to implement and operate, skills, Asset management and Monitoring, Strong Sponsor, Transaction Advisors
Technical
Commercially viable technology, Feasibility studies, Hydrological and geological status, Availability of data, Reliable off-taker, Experienced contractors (EPC and O&M), Power evacuation,
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14. Challenges Cont’d Mapaka and Juana Environmental & Social
Environmental compliance, EIA Studies, Resettlement Action Plan, Compensation, Water Use License, Occupational safety and health, increased ux of people from other areas bring in social ills into the area and dilution of culture, Benefits of jobs, socio-economic benefits
Financial
Optimal structuring at project level
Term of loan
Proposed guarantee framework for EPC and O&M contracts
Hedging to manage currency mismatch
Transparent financial structures 14

15. THANK YOU