DEVELOPMENT OF INFRASTRUCTURE
PROJECTS IN ZIMBABWE AND BEYOND –
CASE STUDIES
BY
Des Matete
Director Infrastructure Projects (IDBZ)
at
Zimbabwe Mining and Infrastructure Indaba
Meikles Hotel, Harare 8-10 October 2014
CONTENTS
• ROLE OF INFRASTRUCTURE IN ECONOMIC
DEVELOPMENT
• INFRASTRUCTURE FINANCING – THE GAP
• FINANCING OPTIONS
• FUNDING REQUIREMENTS AND OPTIONS
• CONCLUSION
ROLE OF INFRASTRUCTURE IN
ECONOMIC DEVELOPMENT
• Established positive correlation between GDP growth and the
stock of infrastructure assets (Calderon & Serven, 2005)
• Income and inequality declines with higher infrastructure quantity
and quality.
• Infrastructure development - highly effective to combat poverty.
• Infrastructure - a key enabler for efficient resource allocation and
export growth.
• Studies established that improved access to safe water for instance
has an additional positive impact on income equality.
ROLE OF INFRASTRUCTURE IN
ECONOMIC DEVELOPMENT
• Infrastructure development connects domestic market of
commodities and credit to international markets (including financial
markets);
• Infrastructure development improves the country’s competitiveness
aiding local industry and attracting foreign direct investment;
• Infrastructure investments lead to mobilization of latent resources
and promotion of general economic development and growth;
• Recent emergence of China as the world factory would not be
possible without a range of new economic infrastructure services in
place.
Infrastructure Financing – The
Gap
• In 2008 Africa’s total infrastructure needs amounted to US$93bn
with only US$45bn financed (Africa Infrastructure Country
Diagnostic, 2008).
• Zimbabwe requires approx.US$33bn in the next two decades (WB,
2012). At least US$1.65bn required each year for infrastructure
development.
• If Zimbabwe were to follow a growth path more akin to that of a
middle country, estimates of the needs could be 20% higher than
the baseline scenario i.e US$40bn in total over the next 2 decades
(Lim & Pommerenke, 2012).
Infrastructure Financing – The
Gap
•
According to STERP II for the economy to recover to 1997 GDP levels,
funding of up to US$45bn is needed.
•
Estimates for the Three Year Framework (2010-2012) period, taking into
account the absorptive capacity, indicated requirements of some US$2030bn.
•
Over this period Govt. was expected to contribute between US$4bnUS$6bn – clearly an ambitious target.
•
AfDB estimated that the country requires about US$14.2bn at 2009
constant prices, including US$4.6bn of private investment in upgrade of
existing infrastructure and new capacity from 2011-2020.
FINANCING OPTIONS
Sector
National
Budget
State
Enterprises
Local
Authorities
Donors
Private
Total
Water
1050.7
305.0
100.0
1287.5
1475.0
4218.2
876.2
2076.0
4328.9
584.8
966.0
5552.5
3.0
43.4
82.4
Power
1376.7
Transport
599.8
849.9
Communication
36.0
Total
1686.5
2531.6
2652.0
2751.5
4560.4
14182
Share %
12
18
19
19
32
100
Source: African Development Bank Report
2552.0
FINANCING OPTIONS
 Global trends - increased involvement of private sector in
infrastructure provision.
 Most private sector investment channelled to ICT sector, which
received 87% of investment commitments in 2008 (OECD,
2010).
 Innovative financing sources – local & foreign currency bonds,
private equity, Sovereign wealth funds, PPPs, and emerging
South partners.
 Good examples abound - Nelspruit Water and Sanitation
Concession in South Africa helped raise access to water for
houses in Mbombela Municipality from 55% in 1999 to 94% in
2010, (Brenden & Gibson, 2010).
FINANCING OPTIONS (cont)
 Private sector participation in the infrastructure is enabled by collaborative effort between
Private and Public sector through PPPs.
 Collaborative ventures in PPPs - built around expertise and capacity of the project partners.
Founded on Contractual Agreement, which ensures appropriate and mutually agreed
allocation of resources, risks, responsibilities and returns.
 PPPs - long-term, contractual partnerships between the public & private sector agencies,
specifically targeted towards financing, designing, implementing and operating infrastructure
facilities and services traditionally provided by the public sector. Some of the essentials of a
PPP are:
 High priority, government planned project. The project must have emerged from a
government-led planning and prioritization process
 Genuine risk allocation. Shared risk allocation is a principal feature of a PPP project
 Mutually valuable. Value should be for both sides, which means Govt. should also
genuinely accept some risks and not transfer the entire risk to private sector, and vice
versa
FINANCING OPTIONS (cont)
Forms and Formats of PPPs:
The most common options are
•
•
•
•
•
•
Service Contract
Management Contract/Lease
Built Operate Transfer (BOT)
Build Own Operate Transfer (BOOT)
Concession
Joint Venture
Most contracts take the form of Concession and Design, Build,
Finance and Operate contracts to cover the finance, design,
management and maintenance obligations.
FINANCING OPTIONS (cont)
Key Success Factors for PPPs
• Enabler and Facilitative role for Government;
• Governance structure ensures consumer + public interests are
safeguarded;
• Commercial interests protected for private sector party (tariff/return);
• Domicile/Place risks to parties that are well equipped to deal with
them;
• Transparent + well conceived contracts (negotiate terms to best
advantage);
• Documentation recognizes rights and responsibilities of all parties
• Concerns of all stakeholders addressed;
• Technology + Knowledge Transfer (Capacity building for public
sector operator)
Case Studies- Africa
Case Studies
• The Nelspruit Water and Sanitation Concession in South Africa
helped raise access to water for houses in Mbombela
Municipality from 55% in 1999 to 94% in 2010, (Brenden &
Gibson, 2010).
• Infrastructure bonds - very successful in other African
economies like Kenya. Since February 2009 bonds worth
US$1bn issued, (AfDB, 2009).
• Ghana issued a sovereign bond in 2007 worth US$750mil.
Zambia in 2012 issued its inaugural sovereign bond raising
US$750mil from international investors (oversubscribed).
Case Studies - Africa
• Zambia’s inaugural sovereign bond sale follows in the footsteps
of Nigeria, Namibia and Angola. Ghana, Gabon, Senegal and
Republic of Congo have also issued Eurobonds in recent years.
• Diaspora bonds - pioneered in Ethiopia as Millennium
Corporate bonds. These targeted Ethiopians (abroad & at home)
to raise funding for the state owned Ethiopian Electric Power
Corporation.
• WB estimates that SSA countries could rise up to US$5-10bn
per year through such bonds. Diaspora bonds are a potential
source for future long term funding for infrastructure especially
in Zimbabwe given Diaspora population estimated at above
2million.
Case Studies – IDBZ Projects
• Raised a US$30mil bond for Energy – ZETDC prepaid metering project
through our instrument, the Infrastructure Development Bond (IDB
Bonds)
• Housing projects; Waneka – Phase I- 72 units; Phase II- 216 Units (Jv with
CoH); Willovale Flats; Mbizo 22 in Kwekwe;
• Government projects under IDBZ management:
 Tokwe Murkosi; Mtshabezi Pipeline; Gwai Shangani; Wenimbi & Bubi
Lupane.
 Harare International Airport + J.M Nkomo Airport
 State Universities Housing/Accommodation projects
Project Development Process
For successful infrastructure funding projects need to be
developed to bankability: Necessary steps to develop
projects to bankability:
 Project Identification
 Prefeasibility Study
 Feasibility Study
 Project Appraisal
 Project Preparation and Packaging
 Project Fundraising
 Financial Closure
Project Development Process
KEY Challenges
 Lack of funding for project development;
 Skills gap for project preparation and packaging;
 Lack of supportive specialised institutions that support
Private
Sector
Participation
in
infrastructure
development;
Project Development Funding
NEW Solution
 SADC Project Preparation & Development Facility
(PPDF)
 SADC Regional initiative to provide funding for project
development.
DBSA appointed Fund Mgr &
Implementing Agent
 Qualifying projects:
• Transport (road, rail, shipping, ports & border posts)
• Energy (generation, transmission & distribution;
renewable energy)
• ICT (including telecommunications)
• Water & Sanitation
• Tourism infrastructure (trans-frontier parks)
Project Development Funding cont/…
NEW Solution

•
•
•
•
•
•


Eligible Costs
Pre-feasibility studies
Feasibility studies
Economic & financial analysis costs
Detailed design costs
Tender preparation costs
Legal & transaction advisory services costs
Minimum grant of US$250k
Beneficiary contribution – minimum 5%of total preparatory
activity costs
 Window opened 1st September 2014 & closes on 30th
October 2014
CONCLUSION
•
•
•
•
Improvement in operating environment;
Review regulatory framework governing various infrastructure sectors;
Viable tariff setting for sustainability of infrastructure ventures;
Strengthening of PPP Framework through an enactment of
legislation
• Setting up grant funding for project preparation and packaging;
• Promote syndication arrangements among financial institutions both
domestic and international for infrastructure development (capacity).
• Adequately capitalised DFIs that focus on infrastructure so they play a
pivotal and direct lending role to infrastructure development.
References
• Calderon, C. A., & Serven, L. (2005). The Effects of Infrastructure Development on
Growth and Income Distribution in Chile. New York: World Bank. Retrieved
October
8,
2014,
from
http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/09/21/00
0012009_20040921105044/Rendered/PDF/WPS3400.pdf
• Lim, J. and K. Pommerenke, 2012: Financing and Investment in the
Aftermath of Hyperinflation, Zimbabwe Growth Recovery Notes Series,
Note V, World Bank.
• World Bank, 2012: From Economic Rebound to Sustained Growth,
Zimbabwe Growth Recovery, Note 1 Overview, November 2012,
• Ministry of Finance, 2009: Short Term Economic Recovery Programme
(STERP), Ministry of Finance, Government of Zimbabwe
• Ministry of Finance, 2010: Three Year Macroeconomic Policy and Budget
Framework 2010-2012 (STERP II), Ministry of Finance, Government of
Zimbabwe.
STATUS OF THE POWER SECTOR IN
ZIMBABWE
Current Status
Installed Capacity(Mw)
HPS
KSPS
Munyati
Bulawayo
Harare
Total
Available (Mw)
920
750
120
90
450
750
60
60
90
1,970
30
1,350
Peak Demand – 2,200 (Mw)
Generation Projects
PROJECT
DESCRIPTION
Kariba South
Extension
2 x 150 Mw generating units (7
& 8).
Hwange Expansion
Construction of 2 x 300 Mw
generating units (7 & 8)
Gairezi Hydro-Power
2 x 15 Mw generating units, on
the Gairezi River.
Batoka Hydro-Power
(Bi-lateral with
Zambia)
4 x 200 Mw generating units
along Zambezi River
COST (in USD STATUS
millions)
539
1,800
105
Under implementation.
At contracting stage
Placed on tender.
2,200 – 4,000 Bi-lateral engagements and
final reviews of feasibility
study
TARIFFS
• Our tariffs per power station:
 Hwange - USc 8.14/kWh
 Kariba - USc 2.35/kWh
 Small Thermals – USc16/kWh
 Average bulk supply tariff from ZERA Usc 5.06/kWh
 Our blended tariff USc 7.35 /kWh (may be
considered uneconomic, competitive on parity)
 Regional average Usc 9.13 /kWh
I THANK YOU