Universal Access Roadmap and Investment Prospectus Initial Results for the Investment Prospectus

1. Universal Access Roadmap and Investment Prospectus Initial Results for the Investment Prospectus Peter Hoogland, March 2014

2. PRESENTATION outline • What is an Investment Prospectus? • The Financial Model that underpins the Investment Prospectus • Interim Output from Chin and Kayin States

3. What is an Investment Prospectus? • It isthe basis for raising fundsto achieve a reliable financing flow so that the entire electrification rollout can be achieved in a single co-ordinated, least cost program • It gives donors, government and investors a coherent plan that identifies their role and contribution. • It will accelerate the current rate of connections by ensuring full alignment between the least cost plan, its implementation and the funding and financing • It will show stakeholders how their development objectiveswill be achieved.

4. Grid Rollout Plan for Kayin and Chin States Source: interim results of geospatial analysis by Earth Institute Initial assumption of equal number of connections in each year…

5. Overview of the financial model… • Forecasts and Assumptions • Number of connections pa • Average consumption • Growth rates in connections and consumption • Existing Infrastructure (Cash Costs) • Generation • Transmission • Distribution Financial Model • Distribution Rollout (All costs) • Capital cost/connection • Operating cost/connection • Return on capital (financing cost)—interest rate • Return of capital (depreciation)—useful life • New Infrastructure (full economic costs) • Generation &Transmission • Total Annual Costs • Generation • Transmission • Distribution • Costs are for total sector = • Cost/kWh • Additional Distribution Infrastructure (full economic costs) • 33kV lines

6. Costs are a blend of cash costs with full economic costs… Existing Infrastructure Cash costs only Replicates current practice Generation: + Transmission: New Build Infrastructure Full economic costs including financing and amortisation of loans Ensures sector is financially sustainable over time Distribution:

7. Initial Investment Needs for Rollout in Chin and Kayin • Initial Investment needs for the distribution rollout for Kayin and Chin for the first 5 years is:

8. Total Sector-wide Unit Costs Assuming all distribution rollout investment needs are financed by concessional loans at 3.5% interest and 30 year term

9. Revenue • These annual costs must be funded by matching annual revenue • Revenue comes from: • Customers through tariffs • Customers through connection charges • Any difference—the Funding Gap—must be met by subsidies or grants • To estimate revenue in our Financial Model we have developed two tariff scenarios: • The Government Proposed tariff; and • The Benchmark tariff

10. Initial tariff scenarios using for funding gap analysis • Benchmark tariff scenario is used for modeling purpose only.

11. Benchmark residential tariff against neighboring countries

12. Benchmark business tariff against neighboring countries

13. Funding Gap for the First 5 Years: Interim Results

14. Funding gap using concessional finance: Kayin

15. Funding gap using concessional finance: Chin Chin 2015-2020

16. The Cost of Financing Matters…. • If the distribution rollout was financed by grants—with no interest cost and no obligation to repay—then unit costs would be around 30 % lower than using concessional loans • If the distribution rollout was financed by commercial loans—high interest rate and short tenor—then unit costs could be double that of concessional loans • The funding gap is sensitive to the cost of financing

17. Next steps… We will gather data for the remaining states and refine cost information We will fill the funding gap (Budget funds and grants) Syndicate the concessional finance Sources include World Bank, ADB The Prospectus Final Prospectus for entire country

18. Peter Hoogland 36-38 Young Street Sydney, NSW 2000 Australia Peter.Hoogland@castalia-advisors.com www.castalia-advisors.com Contact Us