MAKING PRIVATE SECTOR INFRASTRUCTURE INVESTMENT HAPPEN IN AFRICA

Keith PalmerChairman, InfraCo

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• Enormous unmet infrastructure need in Africa

• Infrastructure shortages are holding back growth (e.g. electricity shortages in East,

West and Southern Africa)

• Africa’s response to the global food crises – held back by poor access to agriculture-

supporting infrastructure (e.g. irrigation)

• Need for private sector investment in Africa recognised (e.g. by NEPAD)

• Wholly inadequate response so far – except mobile telephones

The Infrastructure Challenge

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• It is not because of a lack of finance

• It is due to a shortage of profitable investment opportunities

Investment Constraints

• Few developers are willing to take on the “front-end” costs and risks of identifying new project opportunities and bringing them to market:

– Lack of credit-worthy counter-parties

– Regulatory risks re. pricing of outputs

– Small project size reduces payoff of success

– Affordability of services, especially in rural areas

– Scarcity of good project developers

Many infrastructure projects become attractive to private investors at financial close if properly designed and structured

Why has private sector infrastructure investment been so weak?

Why is there a shortage of infrastructure investment opportunities?

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• Infraco is a publicly-funded, privately-managed infrastructure development company

• What does InfraCo do?

– Identifies ‘green field’ opportunities – creates local subsidiary

– Develops projects to financial close at own cost and risk

– Secures debt financing and sells majority stake in local company to (domestic and foreign) equity investors

– Reinvests proceeds from successful sales in more development activity

– Uses targeted subsidiaries to make services affordable for the poorest

• Works with local and foreign partners when appropriate (e.g. leveraging mining infrastructure)

InfraCo – a Public / Private Response

InfraCo makes infrastructure projects happen in situations where the private sector would otherwise be unwilling or unable to invest

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Examples of InfraCo Activities

Uganda: integrated

infrastructure services

(Kalangala)

Ghana: combined

cycle power

generation (KPONE)

Cape Verde: wind

power

Guinea: power and rail

Zambia: irrigation

project

Rwanda: small hydro

Mozambique:

agricultural

infrastructure

Uganda: waste water

and sanitation

(Kampala)

Nigeria: combined

cycle power

generation

Madagascar: water

supply

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Project Examples: A Closer Look

Kalangala, Uganda

•US$40 million infrastructure services initiative on Bugala Island, Lake Victoria

•Existing infrastructure dilapidated or non-existent

•Project will provide a power supply for the island, a ferry service, a main island road and a potable water supply.

•Affordability for the poor is ensured through project structuring and output based aid

•Debt and equity funding being raised from domestic and international sources

KPONE Power, Ghana

•C. $300m gas-fired power plant in

Tema•Will provide an additional 300-

400MW of generating capacity -

substituting for existing diesel

generation•Utilise capacity from West African

gas pipeline•Completed PPA negotiations with

main off-taker (ECG) and now

moving into other project

agreements, procurement and

capital raising activities

Wind Power, Cape Verde

•30MW wind power project c. $75m capital cost

•Replaces substantial portion of current diesel generation with lower cost, clean energy

•PPA term-sheet agreed with power utility, Electra

•Wind turbines procurement process underway

•Strong investor interest from banks and multilateral institutions

InfraCo business model is working. $20 invested by private sector for every $1 invested by InfraCo

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• Africa needs action on the ground not words

• InfraCo is an innovative, successful approach to leveraging private investment into

infrastructure in Africa

• There is great potential to extend the approach into agriculture / agribusiness to

ensure a strong response to the global food crisis

Conclusions