11th African Oil and Gas, Trade and Finance Conference & Exhibition,

1. Oil & GasFinancing Opportunities in theAfrican Development BankPresentation by: Hassan H FARAHChief Investment OfficerPrivate Sector DepartmentAfrican Development Bank NOT AN OFFICIAL UNCTAD RECORD 11th African Oil and Gas, Trade and Finance Conference & Exhibition, 23 May 2007, Kenyatta International Conference Centre Nairobi, Kenya Private Sector Development

2. LEAD AGENCY FOR NEW PARTNERSHIP FOR AFRICA’S DEVELOPMENT (NEPAD) INFRASTRUCTURE PROGRAM • 35 years experience in financing infrastructure projects • Infrastructure projects make up 35% of ADB total commitments • NEPAD and ADB have aligned visions and objectives • Well positioned to promote regional integration Goals • Encouragingprivate sector involvement in infrastructure • Encouraging regional co-operation by initiating, developing and funding regional projects • Acting as a conduit for funds mobilisation and Direct Foreign Investment in Africa Roles in NEPAD • Information source on economic, market, and institutional issues • Technical adviseror to NEPAD • ADB is assisting NEPAD Steering Committee in the preparation of a programme of infrastructure projects Private Sector Development

3. Private Sector DepartmentEngine of growth, Platform for development website: www.afdb.org

4. The Bank’s Private Sector Development Strategy identifies five focus areas • Creating an Enabling Environment • Strengthening Financial Systems • Building Competitive Infrastructure • Promoting the Development of Micro- Small- and Medium-ScaleEnterprises • Promoting Trade Private Sector Development

5. PORTFOLIO OF PRIVATE SECTOR INVESTMENTS OF $300M Private Sector Development

6. AFRICA AND WORLD OIL Private Sector Development

7. AFRICA AND WORLD GAS Private Sector Development

8. SECTION 5 Risk sharing (e.g. Oil / Gas Projects) CHAIN OF PROJECTS political risk technical risk commercial risk SUBSURFACE DEVELOPMENT SHIPPING ENDUSER LIQUEFACTION, STORAGE AND LOADING SURFACE DEVELOPMENT UPSTREAM DOWNSTREAM Production Liquefaction plant Regasification plant Gas transmission and distribution Gas Treatment LNG storage LNG storage Separation Loading Unloading Gas Transport (pipeline-360km) Condensate Gas Reserves For export or local use Gas Liquids storage Private Sector Development

9. SECTION 5 RISK SHARING PARTIES Sponsor Offtaker Constructor Project Company Insurers Operator Buyer Government Lenders Private Sector Development

10. CASE 1: NLNG PROJECT, NIGERIA Private Sector Development

11. CASE 2: BGT LNG VESSELS (2003) Private Sector Development

12. Case 1: Nigeria LNG Trains 4&5 (2002) • Success Factors • Although extremely complex, well-structured to cover all creditor concerns and mitigate identified risks • Lenders took comfort from seniority over existing shareholder loans and ‘brown-field’ approach, which improved cover ratios • 59 per cent of uncovered $440 million portion provided by African sources: ADB and 6 local banks: “charity begins at home” • Project economics was sound and technology tried and tested • Underlying contracts were very bankable Private Sector Development

13. CASE 2: SASOL NATURAL GAS PROJECT Private Sector Development

14. Case 2: Sasol Natural Gas Project • Success Factors • Although extremely complex, well-structured to cover all creditor concerns and mitigate identified risks • Lenders took comfort in the strength of the sponsor • Good collaboration between Sasol and governments of Mozambique and South Africa • Environmental compatibility • Equity options to government of Mozambique and South Africa • Two separate loans • Captive markets • Project economics was sound and technology tried and tested • Underlying contracts were very bankable Private Sector Development

15. The Private Sector strategy Our products How to work together Private Sector Development

16. Loans Risk Management Products Guarantees Equity Quasi-equity LOANS AND GUARANTEES Private Sector Development

17. Lending Rate Methodology (%) • 6-month LIBOR, EURIBOR, JIBAR • Fixed swap rate corresponding to the amortization structure of the original repayment Base Rate + Lending Spread Project Specific Risk Based Spread Lending Rate Floating rates are proposed in 53% of cases Private Sector Development

18. Local currency loans can now be proposed • Currency specific • Maturities • Pricing based on cost of funds plus lending spread • Interest rate bases • Front-end and commitment fees • Pre-payment premium Private Sector Development

19. Risk Management Products reduce client risk Borrower ’s credit risk rests with the Bank Loans B O R R O W E R C O U N T E R P A R T Y A D B Interest Rate, Commodity, Currency Risk Risk Management Products Interest rate swap Currency swap Commodity swap Interest rate cap and floor Interest rate swap Currency swap Commodity swap Interest rate cap/floor Private Sector Development

20. Risk Management Products • Bank is intermediary in all these transactions • Available for existing or new AfDB loans, not stand-alone • Market based products • Carried out on a cost pass through basis • Transaction fees between 1/8 - 3/8% Private Sector Development

21. Guarantees are designed to help borrowers enhance financing possibilities Loans Risk Management Products Guarantees Equity Quasi-equity • Hard currency denominated • Available for both hard-currency and local-currency denominated obligations • Available for • Loans • Debt instruments Private Sector Development

22. Full guarantee • covers non–repayment of all maturities of an underlying debt instrument for all risks Partial credit guarantee • covers only a portion of the underlying debt instrument against all risks. Used to extend/reinforce credit on longer maturities Partial risk guarantee • offers protection against selected political risks. Typical risks covered are monetary convertibility risk, currency transfer risk, regulatory risk, expropriation risk, and the non-performance of contractual commitments by government or government agencies Several types of Guarantees can be proposed Guarantee terms are similar to Loan terms Private Sector Development

23. No default zone Default zone Guarantee of third party loan Guarantee of bond issue, notes, etc Partial risk and credit guarantee Counter-guarantor (may be required) Counter-guarantee Agreement Bond or Loan Proceeds Borrower ADB Lender ADB payments as per the guarantee agreement Debt Services Guarantee contract Guarantee Fees Private Sector Development

24. Equity is considered the primary responsibility of the sponsor but can be also proposed Loans Risk Management Products Guarantees Equity Quasi-equity • Never the largest shareholder • Maximum of 25% of issued capital • Exit scheme required • Mostly through dedicated investment funds Private Sector Development

25. The Private Sector strategy Our products How to work together Private Sector Development

26. The Bank’s competitive advantage can make a difference for your projects • Competitive, flexible and tailor-made financial products. • Can help open new markets through joint ventures and information sharing • Leader in financing infrastructure in Africa • Nepad leading agency • A safety umbrella for private investors Working with the African Development Bank is more than a financial decision. It is a strategic decision. Private Sector Development

27. Concept review • Review of information memorandum • Analysis of project context • Project Appraisal • Detailed review of project • Technical review • Risk assessment Letter of Interest • Negotiation • Legal review (advisor) • Term – sheet negotiation: milestones, security package Operations Committee Investment proposal Investment Committee Term sheet • Approval • Final presentation to the board Board approval Loan agreement Process Private Sector Development

28. A comprehensive business plan is necessary for application • Project’s objectives and rationale • Review the sector and how the project fits in the country’s development objectives BACKGROUND MARKET • Detailed marketing strategy, analysis of competition TECHNICAL ASPECTS • Describe technical aspects, related risks • Describe procurement process • The bank has specific procurement guidelines • Supplies must come from member countries PROCUREMENT Private Sector Development

29. A comprehensive business plan is necessary for application • Describe the environmental impact, including the possible resettlement of communities • Describe mitigation strategies ENVIRONMENTAL ASPECTS • Describe the proposed or existing company, its capital structure • Give information on management background, project supervision processes and schedule CAPITAL STRUCTURE AND MANAGEMENT • Provide details on cost estimates, financing needs from different partners • Provide a complete financial evaluation, detailing the set of assumptions • Carry out an economic evaluation, stating the assumptions used FINANCIAL AND ECONOMIC EVALUATION • Discuss risks involved as well as mitigation strategies RISK ANALYSIS Private Sector Development

30. Contact us! • Mr. Alassane BA • Manager • Direct Lending Division • Private Sector Department • African Development Bank • BP 323 • 1002 Tunis Belvédère TUNISIA • http://www.afdb.org Private Sector Development