World Bank Presidential Villa, Abuja-Nigeria Day 2, November 29, 2011 Nigeria Electric Power Transaction & Power Industry Reform Review Conference Nigeria Electric Power Transaction & Power Industry Reform Review Conference World Bank PRG in Support of The Nigerian Privatisation Transaction

2 World 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 IPP SINGLE 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 Bank FEU – Financial Solutions Key Value Chain Contracting Risks

4 World Bank Nature of SupportPolitical risk mitigation CoverageCash flow support for investors and lenders AmountFlexible; depends on project needs but limited to minimum required to make transaction bankable CurrencyGenerally, will match the currency of the covered contractual agreements TermGenerally, will match relevant term of covered contractual agreement Risk CoverageTriggered by cash flow shortfall caused by a breach of governmental/parastatal contractual undertakings only The Partial Risk Guarantee Instrument FEU – Financial Solutions

5 World Bank FEU – 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

6 World Bank FEU – 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

7 World Bank FEU – Financial Solutions Partial Risk Guarantee Process World Bank and Nigerian Ministry of Finance close PRG Indemnity Agreement; World Bank issues PRG World Bank negotiates PRG documentation with L/C Bank and selected bidder; obtains Board approval to issue PRG World Bank conducts due diligence on selected bidder and proposed risk allocations in project agreements Optimal PRG structure agreed with BPE and Ministry of Finance World Bank undertakes due diligence on environmental and social safeguards, market reform and transaction structures Ministry of Finance nominates projects for World Bank PRG support ✔ ✔

8 World Bank FEU – 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 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

9 World Bank FEU – 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

10 World Bank Fee TypePolitical Risk Guarantee Guarantee Fee0.75% per annum on guaranteed amount Initiation Fee0.15% or US $ 100,000 (whichever is higher) Processing FeeUp to 0.50% (for reimbursable expenses) PRG FeesPayable by the Investor L/C FeesPayable by the Investor Partial Risk Guarantee Fees* FEU – Financial Solutions *applicable to IDA PRG

11 World Bank FEU – Financial Solutions Thank You For more information about World Bank Partial Risk Guarantees, please go to: