Structured and Project Finance Lessons for African Projects Name of Conference September 30, 2004

Overview: Structured & Project Finance Introduction: Overview of Ex-Im Bank Structured Finance Products History and Activity Project v. Structured Finance: Distinctions Deal Appropriateness

Products – What We Do Comprehensive guarantee Direct Loan Political risk only guarantee Role is as Senior Lender Participation limited by U.S. content

History: Where We’ve Been Late 80s, Early 90s Oil/gas finance on limited recourse basis, formal project finance considered 1993 1st formal project finance, Pagbilao 1994 Project Finance Division started 1998 Comprehensive pre-completion coverage 1999 Division renamed Structured Finance Division (SFD); scope expanded to long-term corporate/structured deals Today Current deal flow of about $2 billion/year, most of which is structured finance

Activity: What We’ve Done Structured finance has been dominating our portfolio.

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM) Together, power & oil/gas deals comprise 80% of our authorizations.

Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM) Latin America and Asia comprise over ¾ of deals, Africa only 6%

Structured & Project Finance: What is the Difference? Structured (Typical) Full recourse to sponsor Expansion of operation in existence for 3+years Analysis of historic & projected cash flows Limited “perfection of security” Project Finance Limited recourse Greenfield or project expansion Analyze project’s future cash flows Complex documentation to perfect security

Terms: Project v. Structured Finance Pay interest during construction (IDC) Maximum Repayment Term 10 years/12 years power Equal semi-annual principal 1st principal 6 months post-completion Finance for: local costs connected to export contract, ancillary fees Project Finance Capitalize IDC Repayment up to 14 years Flexible amortization Grace periods available Local costs 15% of contract value, special ancillary services

Deal Appropriateness-Structured v. Project Finance The Trade-off What Not to Do Issues Structure and Core Principles Co-finance Example

Project Finance: Trade-off Whether to use project finance is often a trade-off between: Advisory & Legal Expenses Time to close & fund Balance Sheet Considerations and

Other Considerations For Project Finance: For Structured Finance: Expertise For Structured Finance: Existing credit source For either: Existence of more than an idea and a site

What Not to Do Don’t: Use project finance due to lack of supporting balance sheet strength. Assume “micro project finance” takes as long as big deals – it takes more! Use structured finance to get lower credit standards.

Construction Contracts Operation & Maintenance Contracts Project Finance: Structure Essential structure can appear simple, but shows that a contract must support every relationship. Host Government Supply Contracts SPV “Sponsors” Sales Contracts Construction Contracts Operation & Maintenance Contracts

Core Concepts of Project Finance Reasonable Assurance of Repayment Equity at Risk Long-term investors “Real” cash equity investments Proper incentives Sound Regulatory & Legal Framework Non-interference & lenders’ rights Government support Clear regulation and transparent, enforceable contracts

Structured Finance: Structure Degree of structuring can vary Elements tend to include: Reserve & other accounts Payment priorities & cash control Funding tied to milestones Dividend release conditions

Example Structure Finance: Off-shore Trust “Externalize” risk by: Placing secure revenues off-shore In a trust for the lenders Project Company Off-Shore Buyer Product 1. Operations & Maintenance Expenses $ $ 2. Lender Debt Payments Off-shore Trust $ 3. Dividends $

Structure Finance Core Principles Same as for project finance: Reasonable Assurance of Repayment Equity at risk Sound Regulatory & Legal Framework Structured finance can save money & time, but not at the expense of credit principles.

Co-Finance Reinsurance of lead ECA by follower Used mostly for straight-forward credits Not suited for project finance Too complex for “passive” following Little cost savings Use in structured finance being considered.

Examples: Project Finance in Africa Success Stories Chad Cameroon Pipeline Jorf Lasfar Power Project Strong sponsors Good equity support Favorable economics Not Guaranteed Olkaria Geothermal Questionable off-taker Inadequate government support Under Review EBIC Ammonia Intaba Marriot Equity & other issues under review

Examples: Project Finance in Africa Success Stories Nigerian LNG Strong sponsors Good equity support Favorable economics Not Guaranteed Multilinks Econet Unclear economics Under Review Sirius Wireless Dangote Issues under review

Conclusions Structured finance increasingly an option, especially for small deals African activity has been less than hoped Project finance requires equity support & expertise Structured finance can save time & money but not at expense of credit Ex-Im Bank committed to being flexible in finding deal-specific approaches