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World Bank

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.

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World Bank

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  1. 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

  2. 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 World Bank FEU – Financial Solutions

  3. Key Value Chain Contracting Risks • Transmission Risk • Operation and maintenance of the transmission line • Non-payment by DISCOs of transmission charges Take-or-Pay Obligation at Receipt (Gas Supplier)/Delivery (Gas Transporter) point of pipeline • Payment & Credit Risk • Non-payment by DISCOs • Non-performance by GENCO SINGLE BUYER Gas Supply IPP TRANSCO DISCO • Gas Supply Risks • Gas E&P • Gas gathering / processing • Gas availability • Gas quality • 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 • 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 • Gas Pipeline Risks • Gas transportation • Gas quality / pressure • Gas availability • Line pack World Bank FEU – Financial Solutions

  4. The Partial Risk Guarantee Instrument World Bank FEU – Financial Solutions

  5. 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 Benefits of PRG to Private Sector World Bank FEU – Financial Solutions

  6. 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 Benefits of PRG to Government World Bank FEU – Financial Solutions

  7. Partial Risk Guarantee Process ✔ ✔ World Bank FEU – Financial Solutions

  8. 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 PROJECTS 2 Standby L/Cs NBET PPAs 3 PPA B 1 PRG PPA C 5 Vesting Contract World Bank 6 Regulatory Event non-payment: DISCO draws funds directly from L/C Bank’s Standby Facility Vesting Contract World Bank FEU – Financial Solutions

  9. Partial Risk Guarantee using L/C Structure 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 Partial Risk Guarantee: WB guarantees NBET’s reimbursement to L/C Bank; WB enters into Indemnity Agreement with FGN Power Purchase Agreements: NBET enters into PPAs with GENCOs 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 Vesting Contracts: NBET enters into Vesting Contracts with DISCOs 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 FEU – Financial Solutions

  10. Partial Risk Guarantee Fees* *applicable to IDA PRG World Bank FEU – Financial Solutions

  11. Thank You For more information about World Bank Partial Risk Guarantees, please go to: www.worldbank.org/guarantees World Bank FEU – Financial Solutions

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