Gas & Power The Algerian Experience in Contracted Onshore non- Recourse Financing Francois Labarthe Corporate Bank Head Citigroup, Algeria April 4, 2006 NOT AN OFFICIAL UNCTAD RECORD

Overview  Background  Traditional vs. Project Financing  African Precedent Transactions  Algerian Experience  Way Forward 1

Power Project Financing  During 2000/04, banks lent $212bn to power projects globally  Only 0.6% went to Africa $89bn North America $35.5bn Europe $25.8bn Latin America $1.3bn Africa $15.3bn Middle East $27.5bn Asia $17.7bn Australasia Source: Dealogic 3

African GDP Figures  Low African GDP figures are one reason behind small investment in gas & power infrastructure projects Source: The Economist Intelligence Unit 2

Traditional vs. Project Financing Traditional Procurement ModelProject Finance Model Payment for Inputs Overruns Construction Development Operating Costs Overruns Delay Costs Extension Time (years) Payments Construction No Payments Time (years) Payments Operational Period Output Payments Payment Against Delivery  Shorter development time  Contractor vs. Operator  Interface issues  Short-term view  Limited (LD’s) risk  Operator & Contractor  “Project Finance” discipline  Long-term view  High (Equity) risk  Longer development time 4

Key Success Factors  Successful contracted projects rely on:  “Creditworthy” offtaker  Affordable tariff  Long-term stability 5

African Precedents (sample) Hamma Water Desalination Algeria$235mmSonatrach as offtaker West Africa Gas Pipeline Nigeria, Benin, Togo & Ghana $560mmWB guarantees offtakers’ obligations AES Power BargeNigeria$120mmCredit enhancement of NEPA’s obligations Kwale IPPNigeria$450mmNNPC backstops NEPA’s obligations Mozambique-SA Gas Pipeline Mozambique & South Africa $1.2bnSasol as offtaker Port Said Power Plant Egypt$382mmCentral Bank guarantees EEA’s obligations Project CountryAmountKey Feature 6

Algerian Experience  HWD was the first onshore contracted project to raise financing in Algeria  Sonatrach offtaker made the project financeable  This template has been followed in 2 water projects since  One power project with Sonelgaz offtaker is about to reach financial close using the HWD template 7

Pipeline of Projects  PFI lists a pipeline of power projects worth $30bn for Africa  The majority of these deals involve “creditworthy” offtakers 8 Source: Project Finance International

Way Forward  Algerian Lessons  Leverage country’s highest creditworthy entity  Leverage local liquidity and international know-how  Other African Lessons  Multilateral backstop of offtakers’ obligations  Other credit enhancements  “Stapled” projects  Other Potential Sources  Pooled PPA 9