FINANCING INFRASTRUCTURE : Breaking the Barriers to Sustainable Development

1. FINANCING INFRASTRUCTURE :Breaking the Barriers to Sustainable Development

2. Introduction Infrastructure Finance Trends Breaking the Barriers to Sustainable Investment Conclusions & Recommendations Leveraging on Experience

3. Standard Chartered-Leading the Way in Africa, ME & Asia

4. 2008 Financings & Current Mandates NNPC/ExxonMobil NGL 2 Project- Nigeria-$220m SCB acted as Financial Advisor and MLA in providing the NGL II project with US$220m add-on facility that was the first substantial oil and gas sector financing to come exclusively from Nigeria�s newly consolidated local banks. ADDAX Petroleum-Gabon/Nigeria- $500m In May, Addax Petroleum entered into a two-year, US$500 million senior revolving credit facility arranged by Calyon, Standard Chartered Bank and BNP Paribas. This was a hybrid corporate deal with a greenshoe option OANDO plc- - Nigeria USD138m Financial Advisor and Arranger for up to USD 140m facility to finance acquisition and upgrade of the Oilfields. ALSCON-Rusal- - Nigeria USD130m Sole Arranger for $130m bridge facility to finance acquisition and upgrade of the ALSCON aluminium smelter. The bank has committed substantial resources to Africa . This is evidenced by the number of financial advisory and structuring mandates awarded by top tier sponsors in 2008. This includes: Lekki Port Nigeria, $1.1billion Main One Telecoms Cable Project-Nigeria, $120m Lafarge Euro 225m Expansion facility Viva Methanol Project, $1.2billion Natural Gas Liquids supplemental financing, $200m NNPC /ExxonMobil Satellite Oilfields Advisory, $680m Addax Izombe LPG Project-

5. 2008 Financings & Current Mandates NNPC/ExxonMobil NGL 2 Project- Nigeria-$220m SCB acted as Financial Advisor and MLA in providing the NGL II project with US$220m add-on facility that was the first substantial oil and gas sector financing to come exclusively from Nigeria�s newly consolidated local banks. ADDAX Petroleum-Gabon/Nigeria- $500m In May, Addax Petroleum entered into a two-year, US$500 million senior revolving credit facility arranged by Calyon, Standard Chartered Bank and BNP Paribas. This was a hybrid corporate deal with a greenshoe option OANDO plc- - Nigeria USD138m Financial Advisor and Arranger for up to USD 140m facility to finance acquisition and upgrade of the Oilfields. ALSCON-Rusal- - Nigeria USD130m Sole Arranger for $130m bridge facility to finance acquisition and upgrade of the ALSCON aluminium smelter. The bank has committed substantial resources to Africa . This is evidenced by the number of financial advisory and structuring mandates awarded by top tier sponsors in 2008. This includes:

7. Infrastructure Projects- Setting the Scene Physical Infrastructure projects are �those services without which primary, secondary, and tertiary production activities cannot function� Specifically capital-intensive facilities in: Electric power (generation and distribution) Energy (refineries, pipelines, processing facilities, etc.) Telecommunications Transportation (ports, toll roads,railways, etc.) Water / Sewerage The Input � technology, capital equipment, expertise are sourced mainly in the international markets and typically financed in international currencies. The output (e.g., electricity, petroleum products) is sold primarily in the domestic market and paid for in local currency The Debt/Bonds used to finance these projects are therefore exposed to 2 main risks Devaluation � Reduction of USD value of cashflows below debt service levels. Convertibility � Risks that local authorities may block the exchange of local currency revenues into dollars or block currency transfers from the host country

8. The Infrastructure Situation at a Glance Infrastructure investment � a 15-25+year proposition that requires insight & foresight! Governments � adopting concessions/greenfield projects , PPPs vs. asset privatisations Sector Trends Telecommunications: strong cashflow from cellular services. Currently Private sector driven Power: Poor cashflows due to sub-economic tarrifs and under-investment Historically, cross-subsidised to benefit small residential consumers, implying politically difficult adjustment process to generate sustainable cashflows. Private sector involvement without govt capacity support may be limited to independent power producer (IPP) projects servicing large customers (industrials, distributors, etc.) Transport: airports and shipping ports generate strong cashflow today. roads and rail networks generate limited revenues and may need govt transfers (shadow tolling). Water and Sewerage: limited cashflow in Emerging mkts- viewed as the ultimate �public good�.

9. Global Infrastructure Coverage & the Africa Situation

10. Infrastructure Finance Trends Traditionally financed out of general government revenues Trend in recent years for infrastructure to be financed on a project basis or for infrastructure projects to be purchased or developed by the private sector. Given the high initial capital costs of infrastructure projects, long-term financing is essential for privately-owned infrastructure projects to be financially viable Financing is now available from the private sector � in many instances with foreign private investors and creditors playing a major role Key Growth Drivers Privatisation- Govts adopting concessions/ PPP greenfield projects vs. asset privatisations Commodity related infrastructure e.g. Mining, �Infrastructure enablers� offered by Resource players Improving Governance e.g. Pension fund and Policy reforms Private Equity Funds looking for higher yields (Reducing margins in Europe & Middle East Markets) Technology leverage

11. Evolution of Private Infrastructure Investment in Africa (1990 � 2007)

13. Macro & Regional Barriers The prevalence of inefficient monopoly providers (state owned) Scarcity of investment spend because prices have been held below cost Inadequate local expertise to structure long term Project financing Lack of depth and defined yield curves in local debt and capital markets Absence of incentive mechanism (fiscal tax etc) to encourage infrastructure financing Governance and Management Barriers Public Sector as equity holder is problematic. ( often essential to get other parties involved) Appointment of concession holder due to political considerations which may not have right management experience for difficult initial stages of the project May undertake project location and or management decisions on political considerations Increase perceived commercial risks for debt finance Sovereign and Cross-Border risks

14. CASHFLOW Regulatory Framework and Macro Stability Tariffs / Fees / Tolls Govt Supplements (MYTO?)

15. Sponsors: Local parties to improve credit worthiness, corporate governance and management capacity Banks: Innovative structures to project, corporate, and sovereign financings, with the aim of improving credit ratings for transactions: Structures to mitigate the risk of devaluation, and Structure to facilitate the use of local debt and capital markets, which can provide financing denominated in the currency in which the project earns its revenues Structure to breach the sovereign ceiling, which therefore permit the transaction�s (global scale) local currency rating to become its foreign currency rating Governments: Strong institutional framework for protecting creditors rights and improved access to legal enforcement and remedy Development Finance Institutions and ECAs: Country risk mitigation instruments (PRI & Gtees) Deepen depth of Africa capital markets (Credit enhancement for Debts & Bonds, risk participations etc)

16. The Art of the Possible - Nigeria Homework is key Generation Mix: existing capacity, existing IPPs,New IPPs Comprehensive policy for greenfield IPPs and privatisations Sector-wide Payment security mechanism and Nature of Sovereign Support Enabling Legislation, Permits and Approvals Ensure sector and tariff reforms lead to reduced reliance on payment support mechanisms Tie-in with Distribution Privatisation Process & Packaging Investor and Lender Roadshows Engage Advisors Comprehensive and transparent RFP Package Adherence to timeframe and deadlines Don�t expect too much from the very first deals Need to attract international investors and lenders Progressive shift in risk allocation There is also a need to look beyond the very next deal i.e. long term forecasts and planning. And then there also needs to be a clear roadmap to sector reforms and tariff rationalisation. This is key, because this is the story that the lenders and the developers will need to be able to buy into! The next step is to determine the IPP programme framework e.g. whether to have a single-buyer model or a bilateral contract network or a combination of both. What is more important to the country � secured supply at a slightly higher capacity payments or competitive markets with lesser security of supply There is also a need to look beyond the very next deal i.e. long term forecasts and planning. And then there also needs to be a clear roadmap to sector reforms and tariff rationalisation. This is key, because this is the story that the lenders and the developers will need to be able to buy into! The next step is to determine the IPP programme framework e.g. whether to have a single-buyer model or a bilateral contract network or a combination of both. What is more important to the country � secured supply at a slightly higher capacity payments or competitive markets with lesser security of supply

17. How Can We Help? Project Finance Advisory Financial Modeling & Evaluation Structuring multi-sourced and multi-phase financing plan Managing Due Diligence Process Risk Allocation and Project Agreements review / mark up Preparation of Proposal Negotiations with Offtakers and Financiers Commercial Debt, Export Credits, B Loans, Debt Capital Markets Underwriting, Lead Arranging and Financial Close Privatisation Advisory Sector Strategy Risk Allocation RFP Preparation and Packaging Roadshows in Europe , Middle East and Asia Bid Evaluation, Negotiation and Selection Monitoring Financial Close

18. We believe that Nigeria has a huge scope for value creating investment in infrastructure But most African markets do not have sufficient tax and government revenues for pure public sector funding Funding is not the critical barrier Project finance remains available for well structured projects Credit markets can dealing with currency and political risks, for bankable projects Revenue is not generally the critical barrier The Governments in Nigeria have started the broad policies and regulatory changes to support stable revenue streams There are greater challenges associated with revenue transfer arrangements e.g. in water & sewerage, roads