1Private Sector Development Oil & Gas Financing Opportunities in the African Development Bank Presentation by: Hassan H FARAH Chief Investment Officer.

1Private Sector Development

Oil & Gas Financing Opportunities in the

African Development Bank

Presentation by: Hassan H FARAHChief Investment Officer

Private Sector DepartmentAfrican 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 RECORDNOT AN OFFICIAL UNCTAD RECORD


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: www.afdb.org

Private Sector Department Engine of growth, Platform for 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


PORTFOLIO OF PRIVATE SECTOR INVESTMENTS OF $300M

Oil & Gas, 14%

Mining, 6%

Agribusiness, 1%

Manufacturing, 1%

Health, 0.20%

Tourism, 2%

Financial Intermediation, 55%

Infrastructure, 12%

Infrastructure Funds, 9%


AFRICA AND WORLD OIL

Africa accounts for 27.5 per cent of 171 billion barrels net increase in

world oil reserves in decade to 2004

Africa27%

Rest of world73%

1.57

0.3

0.35

0.99

1.61

1.93

2.51

0 0.5 1 1.5 2 2.5 3

Million bpd

Others

Sudan

Eq Guinea

Angola

Libya

Algeria

Nigeria

Africa Oil Production 2004


AFRICA AND WORLD GAS

176160

6553

42

020

40

60

80100

120

140160

180

Trillion cu ft

Nigeria Algeria Egypt Libya Others

Africa: Natural Gas Reserves 2004World LNG Suppliers 2004

Indonesia18%

Malaysia15%

Qatar13%

Algeria13%

Nigeria7%

Trinidad8%

UAE7%

Others12%Australia

7%


Risk sharing (e.g. Oil / Gas Projects)

Production

Gas Reserves

SeparationGas Treatment

Gas Transport(pipeline-360km)

Condensate

Gas Liquidsstorage

For export or local use

Liquefaction plant

LNG storageLoading Unloading

LNG storage

Regasification plant

Gas transmissionand distribution

SUBSURFACE DEVELOPMENT

SURFACE DEVELOPMENT

LIQUEFACTION, STORAGE AND LOADING

SHIPPING ENDUSER

UPSTREAM DOWNSTREAM

political risk

technical risk

commercialrisk

CHAIN OF PROJECTS

SECTION 5


RISK SHARING PARTIES

Project Company

Sponsor

Operator

Lenders

Insurers

Offtaker Constructor

Buyer Government

SECTION 5


CASE 1: NLNG PROJECT, NIGERIA


CASE 2: BGT LNG VESSELS (2003)


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


CASE 2: SASOL NATURAL GAS PROJECT


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


The Private Sector strategy

Our products

How to work together


LoansRisk Management

ProductsGuarantees

EquityQuasi-equity

LOANS AND GUARANTEES


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

Loans Guarantees EquityQuasi-equity


Currency specific

Maturities Pricing based on cost of funds plus lending spread Interest rate bases Front-end and commitment fees Pre-payment premium

Loans Guarantees EquityQuasi-equity Local currency loans can now be proposed


Risk Management Products reduce client risk Loans Guarantees EquityQuasi-equity

AA

DD

BB

AA

DD

BB

BBOORRRROOWWEERR

BBOORRRROOWWEERR

CCOOUUNNTTEERRPPAARRTTYY

CCOOUUNNTTEERRPPAARRTTYY

Loans

Risk ManagementProductsInterest rate swapCurrency swapCommodity swapInterest rate cap and floor

Interest Rate,Commodity, Currency Risk

Interest rate swapCurrency swapCommodity swapInterest rate cap/floor

Borrower ’s credit risk rests with the Bank


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%



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


ProductsGuarantees

EquityQuasi-equity


Loans Guarantees EquityQuasi-equitySeveral 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


Default zoneNo default zone

Borrower Lender

Bond or Loan Proceeds

Debt Services

Counter-guarantor(may be required)

Counter-guaranteeAgreement

ADB

Guarantee FeesGuarantee contract

ADB payments as per the guarantee agreement

Guarantee of third party loanGuarantee of bond issue, notes, etcPartial risk and credit guarantee



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

GuaranteesEquity

Quasi-equity


Products


The Private Sector strategy

Our products

How to work together


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


ProcessConcept review• Review of information

memorandum

• Analysis of project context

Letter of Interest

Operations Committee

Investment 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


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


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


Contact us!Mr. Alassane BAManager

Direct Lending DivisionPrivate Sector DepartmentAfrican Development Bank

BP 323 1002 Tunis Belvédère TUNISIA

http://www.afdb.org

1Private Sector Development Oil & Gas Financing Opportunities in the African Development Bank Presentation by: Hassan H FARAH Chief Investment Officer.

Documents

development slide

private sector involvement

world gas slide

nigeria slide

trade slide

development of micro

bankable slide

world oil slide