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Financing Projects in Africa – Requirements from a Bank’s Perspective Maputo, 3 June 2005

NOT AN OFFICIAL UNCTAD RECORD. Financing Projects in Africa – Requirements from a Bank’s Perspective Maputo, 3 June 2005 9th Africa Oil & Gas, Trade & Finance Conference Dirk Sindermann Vice President Natural Resources. Agenda. KfW Group/ KfW IPEX-Bank

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Financing Projects in Africa – Requirements from a Bank’s Perspective Maputo, 3 June 2005

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  1. NOT AN OFFICIAL UNCTAD RECORD Financing Projects in Africa – Requirements from a Bank’s Perspective Maputo, 3 June 2005 9th Africa Oil & Gas, Trade & Finance Conference Dirk Sindermann Vice President Natural Resources

  2. Agenda • KfW Group/ KfW IPEX-Bank • Status Quo of African Oil & Gas Sector • Oil & Gas Projects – Risk Analysis • How to obtain finance • Case Study

  3. KfW Group ChartNew Brand Structure Promotion of developing and transition countries Investment Finance (promotional lending Germany and Europe) Export and Project Finance incl. Corporate Finance

  4. KfW GroupValue Proposition ● Promotion of export and project finance in critical markets ● Long-term partnership with our customers also in difficult times and throughout the project cycle ● Technical expertise (approx. 50 in-house engineers) ● Local presence (offices in Maputo, Jo’burg, Cairo, Dakar, Accra, Nairobi, Daressalaam / envisaged offices in Ethopia, Malawi and Uganda) ● Leading credit institution specialized in long-term export and project finance with flexible, tailor-made solutions ● Strong underwriting capacity (on average EUR 10 bn p.a.)

  5. Agenda • KfW Group/ KfW IPEX-Bank • Status Quo of African Oil & Gas Sector • Oil & Gas Projects – Risk Analysis • How to obtain finance • Case Study

  6. Financing Projects in AfricaStatus Quo of African Oil & Gas Sector

  7. Financing Projects in AfricaStatus Quo of African Oil & Gas Sector • Upstream oil industry is key to the continent of Africa with proven reserves of approx. 76 billion barrels (7 % of the world’s total) • 5 countries dominate Africa’s upstream oil production accounting for 85 % of the continent’s oil production: Nigeria, Libya, Algeria, Egypt and Angola • Oil & gas exploration in a number of other African countries to increase output or become first time producers(west African coastline, Mozambique and other countries) • Political instability and civil war have adversely affected a number of countries in the region. Nevertheless: Oil & gas exploration and production continues amidst these conditions

  8. Financing Projects in AfricaStatus Quo of African Oil & Gas Sector • North Africa established oil & gas producer with large reserves • West Africa dominates the international deepwater market and will see over 40 % of the US$ 48 billion in deepwater exploration spending in 2005 - 2009 • Oil & gas sectors are very capital-intensive = huge investment required • Growing power of NOCs + domestic private sector companies demanding greater participation in the value chain • Becoming a petroleum producer – an easy path to riches?

  9. Agenda • KfW Group/ KfW IPEX-Bank • Status Quo of African Oil & Gas Sector • Oil & Gas Projects – Risk Analysis • How to obtain finance • Case Study

  10. Financing Projects in AfricaOil & Gas Projects – Risk Analysis ● Political risk / legal and regulatory framework  clear and concise legal framework required (e.g. concessions, royalties, taxes, permits) based on strong and widespread political support / acceptance ● Construction risk ● Performance & operating risk ● Environmental risk  Environmental studies + EMP / “Equator Principles” ● Price risk

  11. Financing Projects in AfricaOil & Gas Projects – Risk Analysis Risks banks will and will not take:

  12. Agenda • KfW Group/ KfW IPEX-Bank • Status Quo of African Oil & Gas Sectorl • Oil & Gas Projects – Risk Analysis • How to obtain finance • Case Study

  13. Financing Projects in AfricaHow to obtain finance ● Adequate risk allocation  party best placed to manage a risk should take it (e.g. construction risk  EPC contractor or sponsor) ● Political Risk  involve: ECAs, Mulitlaterals (EIB, MIGA ect.), PRI , DFIs (e.g. DEG) ● Int’l loan market able to provide fitting structure if project is well prepared

  14. Financing Projects in AfricaHow to obtain finance PROJECT FINANCE  Recourse: To sponsors and/or EPC Contractor pre-completion None or limited post-completion  Relies on projected cash flows – extensive analysis required  Complex contracts and detailed due diligence (legal, technical, environmental, market)  Sources: banks, ECAs, Multilaterals (AfDB, EIB, IFC ect.)  Advantage: large amounts, long tenors, accommodate complex risks  Disadvantage: complex structure, slow execution

  15. Financing Projects in AfricaHow to obtain finance PRE-EXPORT FINANCE  Finances existing export production from quality assets  Corporate recourse secured by off-shore payments from international buyer  Borrowers typically not rated to BBB+  International buyer requires a minimum rating  Sources: banks, ECAs Advantage: simple structure, limited due diligence, quick execution, available for non investment grade countries Disadvantage: relatively short tenors, finances existing production only

  16. Financing Projects in AfricaHow to obtain finance STRUCTURED FINANCING for OILFIELD SERVICES COMPANIES  Finances FPSOs, drill ships, oil rigs and other services  Corporate recourse secured by the assignment of the hard currency receivables from an oil major under a multi-year services contract  Ability of operator to correctly perform its contractual obligations  Borrowers typically not rated to BBB+  Sources: banks  Advantage: simple structure, limited due diligence, quick execution, available for non investment grade countries  Disadvantage: oil services provider to demonstrate track record (performance risk)

  17. Financing Projects in AfricaStructure (Oilfield Services) 1. Fix day rate for operation of drill ship Operator/Sponsor 4. Release of excess afterdebt service & funding of DRA Offshore Accounts (USD) Financiers 2. Debt Service Management Contract 3. Funding Debt Reserve Account (USD) USD Payment USD Loan Drilling Contract Drill ship Oil Company Offshore Angola

  18. Agenda • KfW Group/ KfW IPEX-Bank • Status Quo of African Oil & Gas Sectorl • Oil & Gas Projects – Risk Analysis • How to obtain finance • Case Study

  19. Case Study Moma Titanium Minerals Project(Nampula province, Mozambique)

  20. Case Study Main Features of the Project (I) • KfW IPEX-Bank, AfDB, ABSA, EIB and FMO were mandated to structure, arrange and underwrite a US$ 270 million long term financing. EAIF joined as lender. • ● Project cost: approx. US$ 350 million + US$ 30 million CRA • ● Construction time: 27 months (08/2004 – 11/2006) • ● Sponsor: Kenmare Resources plc, Dublin • ● EPC Contractor: Joint Venture of Multiplex, Australia and Bateman, South Africa

  21. Case Study Main Features of the Project (II) • SPC established to build and operate the project, comprising a mineral sands deposit plus related infrastructure (roads, power ect.) • Low cost producer • High quality investment agreement with Mozambican government conferring tenure and regulatory certainty (“positive investment climate“) • Political risk mitigated through the involvement of Multilaterals (AfDB, EIB, MIGA) and ECAs (ECIC, Euler Hermes) • Fixed price EPC Contract • International offtakers (hard currency proceeds offshore)

  22. Financing Projects in AfricaContact Thank you! KfW IPEX-Bank Dirk Sindermann Phone +49 69 7431 2257 Fax +49 69 7431 2016 dirk.sindermann@kfw.de

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