Nigeria Electric Power Transaction & Power
Industry Reform Review Conference
World Bank PRG
in Support of
The Nigerian Privatisation Transaction
Presidential Villa, Abuja-Nigeria
Day 2, November 29, 2011
World Bank
Main Messages
 Nigeria faces a range of challenges implementing the
Roadmap for Power Sector Reform and attracting private
sector investment into its privatised power market
 World Bank supports the Government of Nigeria’s reform
process and is working with BPE to design a customized risk
mitigation solution that supports Nigeria’s power sector
reform objectives
 World Bank guarantees are designed to provide the
minimum level of support required to attract private sector
participation
2
World Bank
FEU – Financial Solutions
Key Value Chain Contracting Risks
Take-or-Pay Obligation at
Receipt (Gas Supplier)/Delivery
(Gas Transporter) point of
pipeline
Gas
Supply
Gas Supply Risks
• Gas E&P
• Gas gathering /
processing
• Gas availability
• Gas quality
Gas Pipeline Risks
• Gas transportation
• Gas quality /
pressure
• Gas availability
• Line pack
IPP
Payment & Credit Risk
• Non-payment by DISCOs
• Non-performance by GENCO
SINGLE
BUYER
TRANSCO
Generation Risks
• Construction
• Operation & Maintenance
• Technology
• Financing / interest Rate
• Labor availability and
disputes
• Equipment and spare parts
• Non-payment for gas
transportation failures
• Single Buyer payment risk
World Bank
FEU – Financial Solutions
Transmission Risk
• Operation and maintenance of
the transmission line
• Non-payment by DISCOs of
transmission charges
DISCO
Distribution Risk
• O&M of DISCO network
• Collection risk
• Technical, commercial
and non-technical losses
• Non-payment by
TRANSCO for
transmission failures
• Tariff/ regulatory risk
• Government tariff subsidy
payments risk
The Partial Risk Guarantee Instrument
Nature of Support
Political risk mitigation
Coverage
Cash flow support for investors and lenders
Amount
Flexible; depends on project needs but limited to
minimum required to make transaction bankable
Currency
Generally, will match the currency of the covered
contractual agreements
Term
Generally, will match relevant term of covered contractual
agreement
Risk Coverage
Triggered by cash flow shortfall caused by a breach of
governmental/parastatal contractual undertakings only
4
World Bank
FEU – Financial Solutions
Benefits of PRG to Private Sector
•
Mitigates critical perceived political risk
•
Supports project liquidity throughout project debt term
•
Facilitates direct access to financial markets
•
Reduces risk profile of the investment and overall capital costs
•
Provides comfort on Government governance issues
World Bank
5
FEU – Financial Solutions
Benefits of PRG to Government
•
•
•
•
•
•
•
Supports financing through market access, longer tenors and
lower financings costs
Facilitates privatization by enhancing investor interest
Accelerates pace of new investment
Sustains relatively more attractive retail tariff regimes by
significantly improving the debt profile of financings and by
leveraging the investment return of investors
Enhances potential “sale” value of existing assets
Provides for public sector risk sharing with the private sector
Transitional - can be structured to fall away
World Bank
6
FEU – Financial Solutions
Partial Risk Guarantee Process
✔
Ministry of Finance nominates projects for World Bank PRG support
✔
World Bank undertakes due diligence on environmental and social
safeguards, market reform and transaction structures
Optimal PRG structure agreed with BPE and Ministry of Finance
World Bank conducts due diligence on selected bidder and proposed
risk allocations in project agreements
World Bank negotiates PRG documentation with L/C Bank and
selected bidder; obtains Board approval to issue PRG
World Bank and Nigerian Ministry of Finance close PRG Indemnity
Agreement; World Bank issues PRG
World Bank
7
FEU – Financial Solutions
Partial Risk Guarantee using L/C Structure
Nigerian
Ministry of Finance
PPA non-payment: GENCO draws funds
directly from L/C Bank’s Standby Facility
4
PRG
Indemnity
Agreement
PPA A
World Bank
2
PRG
Standby
L/Cs
1
3
PPAs
NBET
PPA B
PPA C
5
6
PROJECTS
Vesting
Contract
Vesting
Contract
Regulatory Event non-payment: DISCO draws funds
directly from L/C Bank’s Standby Facility
World Bank
8
FEU – Financial Solutions
Partial Risk Guarantee using L/C Structure
1. Standby Liquidity Facility: L/C Bank makes Standby Letter of Credit
(L/C) available to NBET; NBET enters into L/C Reimbursement Agreement
with L/C Bank
2. Partial Risk Guarantee: WB guarantees NBET’s reimbursement to L/C
Bank; WB enters into Indemnity Agreement with FGN
3. Power Purchase Agreements: NBET enters into PPAs with GENCOs
4. GENCO Drawing Rights: Under each PPA NBET grants right to access
funds directly from L/C Bank if there is an event of non-payment under the
relevant PPA. Liquidity: In event of non-payment by NBET, GENCO draws
funds directly from L/C
5. Vesting Contracts: NBET enters into Vesting Contracts with DISCOs
6. DISCO Drawing Rights: Under each Vesting Contract, NBET grants right
to access funds directly from L/C Bank if there is a Regulatory Event of
non-payment. Liquidity: In event of non-payment by NBET, DISCO draws
funds directly from L/C
World Bank
9
FEU – Financial Solutions
Partial Risk Guarantee Fees*
*applicable to IDA PRG
Fee Type
Political Risk Guarantee
Guarantee Fee
0.75% per annum on guaranteed amount
Initiation Fee
0.15% or US $ 100,000 (whichever is higher)
Processing Fee
Up to 0.50% (for reimbursable expenses)
PRG Fees
Payable by the Investor
L/C Fees
Payable by the Investor
10
World Bank
FEU – Financial Solutions
Thank You
For more information about World Bank
Partial Risk Guarantees, please go to:
www.worldbank.org/guarantees
World Bank
11
FEU – Financial Solutions