STRATEGIES FOR FINANCING INFRASTRUCTURE: DBSA APPROACH TO PROJECT PREPARATION. Thabo Rakoloti: Project Preparation Specialist 23 November 2016

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1 STRATEGIES FOR FINANCING INFRASTRUCTURE: DBSA APPROACH TO PROJECT PREPARATION Thabo Rakoloti: Project Preparation Specialist 23 November 2016

2 Role of PPU within DBSA PPU solution offering Key achievements

3 Project preparation is one of DBSA s competitive advantages within our core sectors

4 Integrated infrastructure solution provider Early state risk taker DBSA value proposition Tenor & developmental returns Smart partnerships

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6 DBSA primary focus area 1 2 Plan Plan Prepare 3 Finance Prepare 4 Build 5 Maintain / improve Municipal assessments Infrastructure plans Advisory role infrastructure planning Project identification Feasibility assessments Technical assistance Financial structuring Project Preparation funds Lead arranger Provide vanilla and boutique financing opportunities Debt Mezzanine Finance Limited non recourse lending Managing the design and construction of key projects in the education, health and housing sectors Project Management support Supporting the maintenance and/or improvement of key infrastructure projects South Africa Under resourced municipalities South Africa Municipalities SOE PPP Private sector South Africa Municipalities SOE PPP Private sector National and provincial government departments Municipalities National and provincial government departments Municipalities R est of Africa SOE Public Private Partnerships Sovereigns R est of Africa SOE Public Private Partnerships Sovereigns It is of strategic importance because it allows the Bank to offer an Through integrating across the value chain, DBSA is able drive infrastructure delivery in an effective and timely manner 4

7 integrated value propositions along the infrastructure value chain

8 Africa has infrastructure funding needs of ~$120bn with ~95% of the initiatives still in concept & pre-feasibility development stage

9 Unknown value Known value Number and value of projects in PIDA PAP lists # ETC 1 USD Bn Concept PIDA PAP is a set of large, priority infrastructure projects across Africa 11 ( Pre) feasibility Structuring Most DFIs in Africa currently participate in later stages of the project life cycle A growing number of DFIs are increasingly expanding their scope of operations and venturing into project preparation PIDA PAP lists 139 projects, of which 95 % by value are in concept and pre - feasibility stage and 55% are so ill - defined no capital value has been estimated

10 1 Estimated total cost; extrapolated proportionately where values are unknown SOURCE: PIDA PAP list 5

11 To move potentially impactful projects to bankable stage requires increase in project preparation investments

12 Estimated project development and preparation costs 1 USD Bn per annum ~ Africa SSA SADC PIDA PAP Increased Commitments Infrastructure Commitments, USD Bn vs. 48 African priority projects require ~USD 400Mn per annum (USD 100 Mn in SADC ) yet decreased disbursements due to lack of bankable projects % of committed funds disbursed 38 Why this is not addressed at scale today Commercial vehicles focus on assets/ sectors where commercial returns are good Most PPFs only solve for one part of the equation (funding), or for only part of the project lifecycle (technical assistance) No credible/ independent entity with active long - term interest in supporting governments infrastructure development

13 1 Estimated at 5% of total estimated cost (ETC) SOURCE: McKinsey MGI; World Bank; ICA; PIDA PAP 6

14 Role of PPU within DBSA PPU solution offering Key achievements

15 The DBSA s Project Preparation Unit (PPU) was created in 2013 to identify and prepare projects to bankability stage 1 Established 2013 as a specialised and dedicated Unit within the DBSA 2 Purpose To prepare sustainable priority projects within DBSA s mandate to bankability To provide project preparation facilities and skills to prepare bankable projects 3 Services Our core services are: Funding of PP activities; Mobilising advisors to prepare bankable projects Facilitating and managing project preparation activities 4 Footprint South Africa; SADC; Selected African countries outside SADC ( Nigeria, Kenya, Tanzania, Ghana, Ethiopia and DRC) 8

16 PPU unit provides a comprehensive project developing solution to its clients

17 Enabling environment Project Definition Pre - feasibility Bankable Feasibility Project structuring Deal origination PPU covers the entire cycle of project preparation It maintains a balanced portfolio of projects at different stages of preparation Key activities Actively originating deals by: - Identifying project opportunities from a project developer/sponsor perspective - Define project concept and scope Engage with clients and obtain a mandate to act as project developer / sponsor / owner Programmatic approach in developing projects to be role - out for more than one client 9

18 Where the Project Preparation Unit plays is guided by the DBSA mandate Geographic South Africa: NDP and sectoral plans e.g. IRP SADC: Regional Infrastructure Master Plan Africa: PIDA

19 Sectors Core sectors Transport Water and sanitation Energy ICT Secondary sectors (SA only) Social

20 Customers Municipalities SOCs Government Departments Private companies (projects with a public good) 15

21 PPU s project preparation principles are guided by the DBSA s strategic objectives

22 1. The principle of co - funding shall apply sponsors are required to contribute towards the funding of the PP activities and stages 2. The DBSA s PP funding is provided on commercial terms expect recovery of PP funding invested as well as a return for the risk taken (PP funding provided is not a grant) Key project preparation principles 3. The DBSA would aim to obtain a Mandated Lead Arranger role on a competitive basis 4. The DBSA would aim to participate in the debt funding of the project on a competitive basis 11

23 PPU leverage DBSA s strategic partners to sources 3 rd party funding for project preparation

24 Type of funding Funding partners 1 DBSA sponsored Project preparation own funding Based on cost recovery and return (self - sustaining model) Joint funding with other partners (e.g. Meridiam Capital) Gautrain and Transnet (only in relation to their own projects) R100m p.a a PPDF Project preparation funding Grants KfW European Union R200m b IIPSA Project preparation grants & direct capital grants with loans Grants European Union ( participating DFIs: KfW, DBSA, AFD, EIB) R1.8bn 2 3 rd party funding c d e PPFS Global Environment Facility (GEF) Green Climate Fund (GCF) Project preparation funding Grants P roject preparation grants Capital grants Concession loans Interest rate subsidies Guarantees AFD R50m Variable 1 f Other Project Prep facilities On project by project basis: Equity Mezzanine Grants Electra, Africa50, InfraCo, Harith Progeny 2 Variable 1

25 1 Based on individual projects, 2 DBSA is assisting with mobilizing seed capital from KfW 6

26 PPU project selection criteria 1 Sector / strategic fit 7 Potential Investment Value 2 Development Impact 6 Cost recovery and return 3 National / regional priority 5 Institutional capacity of the project sponsor 4 Co - funding 13

27 PPU is working on a number of initiatives with strategic partners Independent Power Producer Program RE IPP Expedited Bid Window Small IPP Coal baseload IPP Gas IPP Gautrain extension and expansions IIPSA R1.7 bn fund value SADC PPDF R100 m fund value Develop Student Accommodation Funding Models

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29 Role of PPU within DBSA PPU solution offering Key achievements

30 PPU s pipeline projects has grown significantly over the last 12 months to a potential investment value of ~R213 billion Investment values per sector

31 Value, R billion Rest of Africa South Africa 61 Energy Water Transport ICT Social Total # of projects in active preparation

32 1 Total investment values for projects outside of South Africa assumed a R15/US$ exchange rate 8

33 Regional composition of PPU projects 72% of the potential funding opportunities are within South Africa Assessment of Regional Split Potential DBSA Participation (R x million) Regional % Split Regional Split (%) 9 % Within South Africa % ERRs Approved - Due Diligence Stage % Appraisals Approved - Active Preparation Stage / Handed over to Lending Within SADC (Excl SA) % 67% ERRs Approved - Due Diligence Stage % Appraisals Approved - Active Preparation Stage / Handed over to Lending Outside SADC % ERRs Approved - Due Diligence Stage Appraisals Approved - Active Preparation Stage / Handed over to Lending 243 Within South Africa Within SADC (Excl SA) Outside SADC TOTAL

34 Number of projects by sector and regional location Water Transport Energy ICT Social Total Inside SA Rest of Africa TOTAL

35 CONTACT DETAILS Mohale Rakgate General Manager: Project Preparation Unit (+ 27)