BENDING THE ARC OF HISTORY · DBSA WAS CREATED TO CATALYSE ECONOMIC GROWTH THROUGH INVESTMENT IN...
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0 BENDING THE ARC OF HISTORY ROLE OF DFIS - INFRASTRUCTURE FUNDING October 2018
Transcript of BENDING THE ARC OF HISTORY · DBSA WAS CREATED TO CATALYSE ECONOMIC GROWTH THROUGH INVESTMENT IN...
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BENDING THE ARC
OF HISTORY
ROLE OF DFIS -INFRASTRUCTURE FUNDING
October 2018
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CONTENTS
01 INTRODUCTION
DBSA infrastructure | mandate | geo-scope
02 VALUE OFFERING
Project preparation
03 VALUE OFFERING
Credit enhancements and MLA
04 PROJECTS AND KEY ACHIEVEMENTS
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INTRODUCTION
DBSA infrastructure | mandate | geo-scope
01
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DBSA WAS CREATED TO CATALYSE ECONOMIC GROWTH THROUGH INVESTMENT IN ECONOMIC & SOCIAL INFRASTRUCTURE AND SUPPORTING REGIONAL INTEGRATION
FOUNDING
YEAR
1983
SHAREHOLDING
STRUCTURE
100% owned by SA
Government through the
Ministry of Finance
VISION
A prosperous and
integrated region,
progressively free of
poverty and dependence
MISSION
To advance the
development impact in the
region by expanding access
to development finance and
effectively integrating and
implementing sustainable
development solutions
• Improve the quality of life of
people through the
development of social
infrastructure
• Support economic growth
through investment in
economic infrastructure
• Support regional integration
STRATEGIC
OBJECTIVES
• Sustained growth in
development impact
• Integrated infrastructure
solutions (NDP)
• Financial sustainability
4
ALTHOUGH DBSA’S MANDATE COVERS THE WHOLE OF AFRICA, THE BANK FOCUSES MAINLY ON SOUTH AFRICA, SADC AND PRIORITY COUNTRIES OUTSIDE OF SADC
Sectors
Primary sectors
Secondary sectors
GEOGRAPHIC FOOTPRINT
DBSA’s main focus outside of SA
DBSA’s primary market
DBSA’s secondary (and recent)
focus outside of SADC
Water and sanitation
Housing
ICT
Education
Health
Transport
Energy
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VALUE OFFERING
Project preparationCredit enhancements and MLA
02 & 03
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THE ROLE OF DFI’S IS TO ADDRESS MARKET AND COORDINATION FAILURESTO ACHIEVE SUSTAINABLE DEVELOPMENT
Market
failure
DFIs occupy an
intermediary space
between public and
private investment to
facilitate capital flows
Risk
DFIs have a higher risk
tolerance than private
sector actors
Return
DFIs have a longer
investment horizon
(up to 25 years)
while private sector has
a short term pay-back
(up to 15 years)
Institutional
failure
DFIs create an
enabling environment
and overcome
information asymmetry
between the role
players in development
Organisational
failure
DFIs can serve to
mitigate risk where
the private sector is
unwilling to operate
alone, as well as
create viable
opportunities to expand
the investor base
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TO ADDRESS THE FAILURES RELATING TO PREPARING PROJECTS AND PROGRAMME DEVELOPMENT, THE DBSA ESTABLISHED THE PROJECT PREPARATION DIVISION TO OFFER INTEGRATED SOLUTIONS ACROSS THE INFRASTRUCTURE VALUE CHAIN
Plan Prepare Finance Build Maintain/Improve
DBSA INTEGRARTED VALUE CHAIN
Create infrastructure programmes
to initiate projects
Core sectors
Utilise project prep
to feed the Bank’s financing
business project pipeline
Leveraging the financing business
to enter the build and maintain
value chain
Water and sanitationICTTransportEnergy
Secondary sectors HousingEducation Health
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Identified infrastructure projects per region (2016 – 2020) (USD billion)
64
228
42
54
68
0
50
100
150
200
250
SADC ECOWAS COMESA EAC Total
THE INFRASTRUCTURE CONSORTIUM FOR AFRICA HAS IDENTIFIED ~US$228 BILLION WORTH OF INFRASTRUCTURE INVESTMENT OPPORTUNITIES WITHIN AFRICA
Source: Assessment of African Infrastructure Project Preparation Facility, ICA December 2016
Key challenges facing project sponsors
• Based on an analysis by McKinsey & Company,
95% of these projects are still at project
preparation stage
• Assuming project preparation costs of ~5% of
the project investment value, US$11.4 billion is
required to prepare project within Africa
• By December 2016, the available resources
(uncommitted capital) for project preparation
within Africa amounted to US$800 million
This therefore leaves a project preparation
financing gap of US$10.6 billion across Africa
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1. Includes multilateral, bilateral, and private sources to fund infrastructure projects in Africa
Source: Infrastructure Consortium for Africa (ICA), Infrastructure Financing Trends in Africa – 2016
DESPITE HUGE INFRASTRUCTURE NEEDS, COMMITMENTS FOR INFRASTRUCTURE PROJECTS HAVE DECLINED BY MORE THAN 25% OF THE LAST THREE YEARS
Project preparation funds allocated to infrastructure development is less than 1% of the identified infrastructure needs
There has been a 25% decline in the amount of
funding committed for infrastructure projects in
Africa …
5950
16
7
8
6
0
20
40
60
80
100
2013 2016
Rest of Africa SADC excl South AfricaSouth Africa
Funding committed to African infrastructure¹ (US$bn)
… although funding is available, one of the main
drivers of the decline has been due to gaps in
project development and preparation
238 245
0
50
100
150
200
250
2013 2016
Project preparation commitments have been flat (US$m)
-25%
+3% What investors say:
“ Lack of adequate project
preparation, and failure to use
effective risk mitigation
strategies ”
“ Finding projects that are
sufficiently well-developed in
order to benefit from our
expertise to raise funding ”
“ Non alignment on the
understanding about project
bankability ”
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BROAD
PRINCIPLE
PRODUCT / SERVICE
EXISTING
PRODUCT /
SERVICE
DEFINING DBSA CATALYTIC ROLE AND LEVERAGING OTHER FUNDS
Value of projects committed for funding by third parties due to DBSA activities:
• Mandate lead arranger. To qualify for MLA DBSA must be the contractually appointed mandate lead arranger
• Project preparation
• Credit enhancement structure (i.e. due to the risk structuring and involvement in of DBSA in the project as sub-ordinated and
mezzanine funder, the project would not have happened)
• Other opportunities, that enable 3rd party funding of infrastructure projects e.g. LUCI
• Reached Financial Close: February 2015
• Under Construction
DETAIL DIVISION
• SAF
• IF
• Preparing projects to be funded by 3rd parties (private sector and other DFIs)
• Planning and delivering infrastructure projects within the M2/M3 space
(unlock funds from the RSA govt fiscus)
• DBSA B/S
• IIPSA, PPDF
Provide credit guarantee, mezzanine structure, longer tenor, etc.
to enable 3rd party funders participation in infrastructure projects
• IC and BCIC to approve catalytic projects
• SAF
• IF
MLA
PROJECT PREP
(CROWDING IN
3RD PARTIES)
CREDIT
ENHANCEMENTS
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THE DBSA PROVIDES SOLUTIONS LINKED TO THIRD PARTY FUNDS
TYPE
OF FUNDING
FUNDING
PARTNERS
Funding partners
DBSA
sponsored
DBSA
sponsored1
3rd party
funding
3rd party
funding
2
Type of funding
Quasi equity solutions
based on cost recovery and
commensurate commercial
return (self-sustaining
model)
Project sponsors
Joint funding with other
partners
Other strategic partners
Project preparation grants KfW
European UnionPPDFPPDFa
IIPSAIIPSAb
Project preparation grants
Interest rate subsidies
Capital grants
Guarantees
European Union
Participating DFIs: KfW, DBSA,
AFD, EIB
Global
Environment
Facility (GEF)
Global
Environment
Facility (GEF)
d Project preparation grants
Capital grants
Concession loans
Interest rate subsidies
GuaranteesGreen Climate
Fund (GCF)
Green Climate
Fund (GCF)e
R100m p.a
R100m
R1.4bn
Variable1
Other Project
Prep facilities
Other Project
Prep facilitiesf
On project by project basis:
‒ Equity
‒ Mezzanine
‒ Grants
Electra, Africa50, InfraCo,Variable1
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OUR FUNDING IS BASED ON THE FOLLOWING PRINCIPLES
Co-funding: DBSA requires that the project sponsor co-fund the project preparation phase
For non-grant funding, recovery of project preparation funds at financial close:
• If the project is feasible, then at financial close, the sponsor pays back DBSA its project preparation funds plus a commensurate
rate of return
• If the project is not feasible, then the project sponsor is not obligated to pay back the project preparation funds
• If the project is feasible, but the sponsor for whatever reason decides not to proceed with the project implementation,
then the sponsor will be liable to pay back DBSA its project preparation funds plus a commensurate rate of return
Mandate Leader Arranger: Should DBSA provide project preparation funding, then the Bank would have pre-emptive rights:
• To act as a co-mandate lead arranger for the debt portion;
• To provide a percentage of the debt funding at market clearing price
Project steering committee: the DBSA also requires a seat on the project steering committee with equal voting powers
as the project sponsor
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DBSA HAS A STRONG PIPELINE OF INFRASTRUCTURE PROJECTSIN DIFFERENT SECTORS ACROSS DIFFERENT GEOGRAPHIES
PPU portfolio mix
WaterTransportEnergy ICTSocial
PROJECT
FUNNEL
SECTOR
MIX
GEOGRAPHICAL
MIX
R182bn R90bn R8bn R5bn R1bn
South Africa
R152bn
SADC
R96bn
Rest of Africa excl. SADC
R38bn
ERR stage
27
R68bn
Appraisal stage
17
R34bn
Active preparation
21
R184bn
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THE DBSA’S STRATEGY FOCUSES ON AUGMENTING DISBURSEMENTS WITH“INFRASTRUCTURE UNLOCKED”; AND HAS AN ASPIRATIONAL GOAL OF R100BN BY 2019-20
Deliver R100 bn annually in infrastructure unlocked by 2019-20, while maintaining ROE at 4.7%+
Continue core long-term
infrastructure lending
activities
Strategic
partnerships
Strategic
Ambition
Paths to
victoryDe-risk project finance
structures to crowd-in
third party funding
Greater investment in
early-stage programme
and project development
Develop structured
products and funding
structures to unlock
infrastructure and
crowd-in third parties
Establish project
management offices and
focus on maintenance
of public infrastructure
Greater risk-return
trade-off
and tenor
Integrated
infrastructure solutions,
including early-stage risk
and delivery capability
Access to
concessionary financing
Sources of
competitive
advantage
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THERE ARE A NUMBER OF GLOBAL, REGIONAL AND NATIONAL PLANSAND INITIATIVES WHICH GUIDE THE DBSA’S DEVELOPMENT ACTIVITIES
1. Infrastructure Vision 2027
2. Regional Infrastructure Development Master Plan
INTERNATIONAL
1
REGIONAL
2
NATIONAL
3
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WE WORK IN PARTNERSHIP WITH A NUMBER OF DEVELOPMENT FINANCE ENTITIES
MULTI-
LATERAL
1
REGIONAL
(AFRICA)
2
NATIONAL
(RSA)
3
1717
PROJECTS AND KEY ACHIEVEMENTS
04
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ENERGY – DBSA HELPED LAUNCH THE HIGHLY SUCCESSFUL REIPPP PROGRAMME
The DBSA played a significant role in the establishment
of the REIPPP Programme
• Renewable energy play a significant role in the nation’s power
generation mix
• The REIPPP, has successfully channeled substantial private
sector expertise and investment into grid-connected renewable
energy in South Africa at competitive prices
• Finally, there have been notable improvements in the economic
development commitments, primarily benefiting rural communities
Major debt providers in REIPPP Rounds 1, 2, & 3
Source: PPIAF, “South Africa’s Renewable Energy IPP Procurement Program:
Success Factors and Lessons“ (2014)
0
5
10
15
20
25
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ark
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Nu
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DBSA signed an MOU with NT & DoE in 2010 and served as the payment
gateway for the programme and provided local debt funding to the projects
(mainly for BEE and community participation in the deals)
“The most successful public-private partnership in Africa
in the last 20 years”
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ENERGY – DBSA PROJECTS IN SOUTH AFRICA
• 100 MW concentrated solar power (CSP) plant,
with a capacity to store energy for 4.5 hours
• Developers/Shareholders:
Emvelo Holdings alongside the Industrial
Development Corporation, DBSA, ACS Cobra and
Local Community Trust
• 94 MW wind power plant
• Developers/Shareholders:
Engie (ex GDF Suez) alongside Investec,
Kagiso Tiso and a Local Community Trust
• 75 MW Solar PV power project
• Developers/shareholders:
SolarReserve alongside the Public Investment
Corporation, Google, Kensani and a Local
Community Trust
ILANGA CSP1
• Reached Financial
Close: February 2015
• Under Construction
• Operational
• Operational
• Project Preparation funding for
development of a bankable feasibility study
• Mandated Lead Arranger/Underwriter for
Senior Debt alongside South African
commercial banks
• BEE & Local Community Trust funding
• Senior Debt alongside South African
commercial banks
• BEE & Local Community Trust funding
• Senior Debt alongside South African
commercial banks
WEST COAST 1
WIND PROJECT
JASPER PV PROJECT
DESCRIPTION STATUS DBSA OFFERINGS
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ENERGY – DBSA PROJECTS OUTSIDE SOUTH AFRICA
• 120 MW Hydropower Generation project
• 300MW Maamba Coal Power Plant
• 340MW Cobnied cycle gas/liquids power plant
DESCRIPTION STATUS DBSA OFFERINGS
ITHEZI-THEZI
ZAMBIA
• Operational
• Operational
• Operational
• Project preparation funding for
development of a bankable feasibility study
• Co-financier
• Co-financier
• Co-financier
MAAMBA COAL
ZAMBIA
CENPOWER
GHANA
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TRANSPORT – THE DBSA HAS PLAYED A CATALYTIC ROLEIN PROMOTING THE NORTH-SOUTH AND BEIRA CORRIDORS
Key insights and observations
NSC will be one of the largest transnational corridors and has regional importance
• NSC will connect 8 countries, 252m people and $458bn of collective GDP
• NSC integrates regions from Durban to Dar via Gaborone, Harare, Lusaka and
Lilongwe
NSC has a significant investment need
• Total cost of NSC at ~$10.9bn
• Majority of investment need is aimed towards rehabilitation of dilapidated
infrastructure
The scale of the programme requires a structured approach to avoid technical
complexities
• Many stakeholders involved
• Complexity can be managed by staggering the programme with prioritised
cornerstone projects
• Major risks can be effectively mitigated with proven transnational management
measures
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TRANSPORT SECTOR PROJECTS
• The construction, operation and financing of
approximately 80 km railway lines with 10 stations,
between Johannesburg and Pretoria, and Sandton
and OR Tambo International Airport
• Integrated Mass Rapid Public Transport Network
which includes rail, taxi and bus services
• Rehabilitation, upgrade, expansion, operation
and maintenance of the two largest airports in
Madagascar: the Ivato Airport serving the capital
city of Antananarivo and the Fascene airport
located on the island of Nosy Be
GAUTRAIN
PHASE 1 EXPANSION
• Operational
• Operational
• Rehabilitation and
upgrade in progress
• DBSA was appointed as mandated lead
arranger (“MLA”)
• DBSA approved a facility of R3.5 billion
to meet the full debt requirement of the
project
• DBSA provided funding for 40 Mercedes
Benz Compressed Natural Gas (CNG)
buses
• DBSA participated in providing 16 year
senior debt € financing in conjunction with
the IFC, Proparco, OFID and EAIF
TSHWANE BUS RAPID
TRANSIT PROJECT
RAVINALA AIRPORT
DESCRIPTION STATUS DBSA OFFERINGS
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WATER, ICT AND STUDENT HOUSING
• A bulk potable water pipeline to connect
eThekwini’s Western and Northern supply areas to
Umgeni Water’s inland bulk supply system from the
Midmar Water Treatment Works
• The development of student housing programme
for the DHET to provide an average of 12000
student housing beds by 2020
• Infrastructure Programme Office to roll-out 300 000
student housing beds by 2027
• A regional project which spans across Tanzania, the
Democratic Republic of Congo (DRC), Uganda and
Nigeria
• The project involves a three- to four-year LTE network
roll out programme which provides affordable high
quality broadband and voice services to consumers
via Internet Protocol technology
ETHEKWINI METRO- NORTHERN AND
WESTERN AQUEDUCTS PROGRAMME
• Under Construction
• 5 projects under
Feasibility Study and 1
project in Procurement
Stage (RFQ, RFP)
• Under Construction
• Co-funded by DBSA and AfD including an
interest rate subsidy from IIPSA
• Project preparation funding for
development of a bankable feasibility study
• The DBSA has the First Right of Refusal to
provide debt financing to the projects
• Co-funded by DBSA, PIC and IDC in non-
ECA facilities
STUDENT HOUSING
PROGRAMME
SMILE
DESCRIPTION STATUS DBSA OFFERINGS
2424
CONTACT DETAILS
05Cyprian Marowa
Head: Infrastructure Finance
Transport, Logistics and Water Coverage Division
(+27) 11 313 3873
