1Private Sector Development Oil & Gas Financing Opportunities in the African Development Bank Presentation by: Hassan H FARAH Chief Investment Officer Private Sector Department African Development Bank 11th African Oil and Gas, Trade and Finance Conference & Exhibition, 23 May 2007, Kenyatta International Conference Centre Nairobi, Kenya NOT AN OFFICIAL UNCTAD RECORD

2Private Sector Development LEAD AGENCY FOR NEW PARTNERSHIP FOR AFRICA’S DEVELOPMENT (NEPAD) INFRASTRUCTURE PROGRAM  35 years experience in financing infrastructure projects  Infrastructure projects make up 35% of ADB total commitments  NEPAD and ADB have aligned visions and objectives  Well positioned to promote regional integration Goals   Encouraging private sector involvement in infrastructure   Encouraging regional co-operation by initiating, developing and funding regional projects   Acting as a conduit for funds mobilisation and Direct Foreign Investment in Africa Roles in NEPAD   Information source on economic, market, and institutional issues   Technical adviseror to NEPAD   ADB is assisting NEPAD Steering Committee in the preparation of a programme of infrastructure projects

website: Private Sector Department Engine of growth, Platform for development

4Private Sector Development The Bank’s Private Sector Development Strategy identifies five focus areas  Creating an Enabling Environment  Strengthening Financial Systems  Building Competitive Infrastructure  Promoting the Development of Micro- Small- and Medium-Scale Enterprises  Promoting Trade

5Private Sector Development PORTFOLIO OF PRIVATE SECTOR INVESTMENTS OF $300M

6Private Sector Development AFRICA AND WORLD OIL

7Private Sector Development AFRICA AND WORLD GAS

8Private Sector Development Risk sharing (e.g. Oil / Gas Projects) Production Gas Reserves Separation Gas Treatment Gas Transport (pipeline-360km) Condensate Gas Liquids storage For export or local use Liquefaction plant LNG storage Loading Unloading LNG storage Regasification plant Gas transmission and distribution SUBSURFACE DEVELOPMENT SURFACE DEVELOPMENT LIQUEFACTION, STORAGE AND LOADING SHIPPINGENDUSER UPSTREAMDOWNSTREAM political risk technical risk commercial risk CHAIN OF PROJECTS SECTION 5

9Private Sector Development RISK SHARING PARTIES Project Company Sponsor Operator Lenders Insurers OfftakerConstructor BuyerGovernment SECTION 5

10Private Sector Development CASE 1: NLNG PROJECT, NIGERIA

11Private Sector Development CASE 2: BGT LNG VESSELS (2003)

12Private Sector Development Case 1: Nigeria LNG Trains 4&5 (2002)  Success Factors  Although extremely complex, well-structured to cover all creditor concerns and mitigate identified risks  Lenders took comfort from seniority over existing shareholder loans and ‘brown-field’ approach, which improved cover ratios  59 per cent of uncovered $440 million portion provided by African sources: ADB and 6 local banks: “charity begins at home”  Project economics was sound and technology tried and tested  Underlying contracts were very bankable

13Private Sector Development CASE 2: SASOL NATURAL GAS PROJECT

14Private Sector Development Case 2: Sasol Natural Gas Project  Success Factors  Although extremely complex, well-structured to cover all creditor concerns and mitigate identified risks  Lenders took comfort in the strength of the sponsor  Good collaboration between Sasol and governments of Mozambique and South Africa  Environmental compatibility  Equity options to government of Mozambique and South Africa  Two separate loans  Captive markets  Project economics was sound and technology tried and tested  Underlying contracts were very bankable

15Private Sector Development The Private Sector strategy Our products How to work together

16Private Sector Development Loans Risk Management Products Guarantees Equity Quasi-equity LOANS AND GUARANTEES

17Private Sector Development Floating rates are proposed in 53% of cases Base Rate 6-month LIBOR, EURIBOR, JIBAR Fixed swap rate corresponding to the amortization structure of the original repayment Lending Rate Methodology (%) Project Specific Risk Based SpreadLending Spread + Lending Rate

18Private Sector Development  Currency specific Maturities Pricing based on cost of funds plus lending spread Interest rate bases Front-end and commitment fees Pre-payment premium Local currency loans can now be proposed

19Private Sector Development Risk Management Products reduce client risk ADBADBBORROWERBORROWERCOUNTERPARTYCOUNTERPARTY Loans Risk Management Products Interest rate swap Currency swap Commodity swap Interest rate cap and floor Interest Rate, Commodity, Currency Risk Interest rate swap Currency swap Commodity swap Interest rate cap/floor Borrower ’s credit risk rests with the Bank

20Private Sector Development Risk Management Products  Bank is intermediary in all these transactions  Available for existing or new AfDB loans, not stand-alone  Market based products  Carried out on a cost pass through basis  Transaction fees between 1/8 - 3/8%

21Private Sector Development Guarantees are designed to help borrowers enhance financing possibilities   Hard currency denominated   Available for both hard-currency and local-currency denominated obligations   Available for   Loans   Debt instruments Loans Risk Management Products Guarantees Equity Quasi-equity

22Private Sector Development Several types of Guarantees can be proposed   covers non–repayment of all maturities of an underlying debt instrument for all risks Full guarantee   covers only a portion of the underlying debt instrument against all risks. Used to extend/reinforce credit on longer maturities Partial credit guarantee   offers protection against selected political risks. Typical risks covered are monetary convertibility risk, currency transfer risk, regulatory risk, expropriation risk, and the non-performance of contractual commitments by government or government agencies Partial risk guarantee Guarantee terms are similar to Loan terms

23Private Sector Development Default zoneNo default zone Borrower Lender Bond or Loan Proceeds Debt Services Counter-guarantor (may be required) Counter-guarantee Agreement ADB Guarantee Fees Guarantee contract ADB payments as per the guarantee agreement Guarantee of third party loan Guarantee of bond issue, notes, etc Partial risk and credit guarantee

24Private Sector Development Equity is considered the primary responsibility of the sponsor but can be also proposed   Never the largest shareholder   Maximum of 25% of issued capital   Exit scheme required   Mostly through dedicated investment funds Guarantees Equity Quasi-equity Loans Risk Management Products

25Private Sector Development The Private Sector strategy Our products How to work together

26Private Sector Development The Bank’s competitive advantage can make a difference for your projects Working with the African Development Bank is more than a financial decision. It is a strategic decision.   Competitive, flexible and tailor-made financial products.   Can help open new markets through joint ventures and information sharing   Leader in financing infrastructure in Africa   Nepad leading agency   A safety umbrella for private investors

27Private Sector Development Process Concept review Review of information memorandum Analysis of project context Letter of Interest Operations CommitteeInvestment Committee Negotiation Legal review (advisor) Term – sheet negotiation: milestones, security package Term sheet Approval Final presentation to the board Board approval Loan agreement Project Appraisal Detailed review of project Technical review Risk assessment Investment proposal

28Private Sector Development A comprehensive business plan is necessary for application MARKET   Detailed marketing strategy, analysis of competition TECHNICAL ASPECTS   Describe technical aspects, related risks PROCUREMENT   Describe procurement process   The bank has specific procurement guidelines   Supplies must come from member countries BACKGROUND   Project’s objectives and rationale   Review the sector and how the project fits in the country’s development objectives

29Private Sector Development A comprehensive business plan is necessary for application ENVIRONMENTAL ASPECTS   Describe the environmental impact, including the possible resettlement of communities   Describe mitigation strategies CAPITAL STRUCTURE AND MANAGEMENT   Describe the proposed or existing company, its capital structure   Give information on management background, project supervision processes and schedule FINANCIAL AND ECONOMIC EVALUATION   Provide details on cost estimates, financing needs from different partners   Provide a complete financial evaluation, detailing the set of assumptions   Carry out an economic evaluation, stating the assumptions used RISK ANALYSIS   Discuss risks involved as well as mitigation strategies

30Private Sector Development Contact us! Mr. Alassane BA Manager Direct Lending Division Private Sector Department African Development Bank BP Tunis Belvédère TUNISIA