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NOT AN OFFICIAL UNCTAD RECORD
Financing Projects in Africa Requirements from
a Banks Perspective Maputo, 3 June 2005 9th
Africa Oil Gas, Trade Finance
Conference Dirk Sindermann Vice
President Natural Resources
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Agenda

1. KfW Group/ KfW IPEX-Bank
2. Status Quo of African Oil Gas Sector
3. Oil Gas Projects Risk Analysis
4. How to obtain finance
5. Case Study

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

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Agenda

1. KfW Group/ KfW IPEX-Bank
2. Status Quo of African Oil Gas Sector
3. Oil Gas Projects Risk Analysis
4. How to obtain finance
5. Case Study

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Financing Projects in AfricaStatus Quo of
African Oil Gas Sector
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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 worlds total)
• 5 countries dominate Africas upstream oil
  production accounting for 85 of the continents
  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

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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?

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Agenda

1. KfW Group/ KfW IPEX-Bank
2. Status Quo of African Oil Gas Sector
3. Oil Gas Projects Risk Analysis
4. How to obtain finance
5. Case Study

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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

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Financing Projects in AfricaOil Gas Projects
Risk Analysis

• Risks banks will and will not take

Risk YES NO SOMETIMES
Political v
Price v
Construction v
Performance Operating v
Technology v
Environmental v
Partner Funding v
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Agenda

1. KfW Group/ KfW IPEX-Bank
2. Status Quo of African Oil Gas Sectorl
3. Oil Gas Projects Risk Analysis
4. How to obtain finance
5. Case Study

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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)
• ? Intl loan market able to provide fitting
  structure if project is well prepared

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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
  

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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

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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)

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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
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Agenda

1. KfW Group/ KfW IPEX-Bank
2. Status Quo of African Oil Gas Sectorl
3. Oil Gas Projects Risk Analysis
4. How to obtain finance
5. Case Study

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Case Study

• Moma Titanium Minerals Project(Nampula
  province, Mozambique)

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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
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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)

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Financing Projects in AfricaContact

• Thank you!
• KfW IPEX-Bank
• Dirk Sindermann
• Phone [phone]
• Fax [phone]
• dirk.sindermann_at_kfw.de