Afghanistan Power Auction Series (APAS) Public Webinar INVEST - - PowerPoint PPT Presentation

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Afghanistan Power Auction Series (APAS)

Public Webinar INVEST Afghanistan: Office of Infrastructure workstream

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Agenda

Introduction to APAS Overview of Hisar-e-Shahi solar PV project Traditional Approach vs. The APAS approach Overview of Da Afghanistan Breshna Sherkat Introduction to project documents Next Steps Q&A 1 3 2 4 5 6

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USAID is committed to helping the Nation of Afghanistan develop its renewables energy sector

• USAID is particularly interested in attracting private sector investors to participate

in Afghanistan’s renewables energy sector to create lasting impact

• USAID supported the 10MW Kandahar solar project.
• Afghanistan Power Series Auction (“APAS”) is designed to take lessons learnt from

the Kandahar pilot and create a vehicle for Da Afghanistan Breshna Sherkat (“DABS”) to develop the country’s renewable energy market 1 2 3 PPA is drafted after Commercial Principles (“CP”) are pre-negotiated through direct engagement with the private sector, with transaction advisor support Pre-arranging of project financing from multiple Development Finance Institutions (“DFI”) to be made available to auction round winners Pre-arranging of guarantees, credit enhancements, and liquidity facilities KEY FEATURES OF APAS – allow for submission of firm tariff proposals 4 Smart structuring of Viability Gap Funding (“VGF”) to de-risk project and enhance asset performance – CPs are negotiated through an iterative process between the off-taker, private sector developers interested in participating in the auction, and the ultimate DFI project lenders – CPs are foundational points of risk allocation based on international best practice, whilst proactively incorporating local market nuances, to ensure ultimate bankability

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APAS is a multi-round auction series designed to create a pathway for private sector engagement and investment into Afghanistan’s energy sector

• While increasing the project’s financial

feasibility, these funds are also intended to compensate good performance by the plant (in the form of success-based revenue pay-outs, bulk-dividends, or similar)

• Good performance may be measured by

comparing a variety of estimated results with actual outcomes like:

• Actual energy generated
• Debt covenants
• Plant availability
• As the market is de-risked, available VGF

decreases and additional generation technologies (wind, hydro, etc.) will be included in subsequent auction rounds 40 80 250 Round II Round I Round III

Requirement for VGF decreases as market is de-risked in each subsequent round

Hisar-e-Shahi (solar PV) Likely to include other technologies

New capacity target (MW by round)

Current feasibility assumptions indicate a required tariff higher than the current off-taker ceiling for purchasing power, therefore the Transaction Advisory Team is working with donors to raise viability gap funding

VGF used to de-risk project

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The 40MW Solar PV project at Hisar-e-Shahi will represent APAS round 1

Hisar-e- Shahi

• Hisar-e-Shahi is a 207 hectares industrial park

22KM southeast of Jalalabad City in Nangarhar province

• The site was selected due to I) RE resource

availability, ii) security, iii) potential power load availability, iv) land availability, v) level of commercial activity, vi) consumer ability to pay.

• The land is currently owned by the government.

There are 295 plots for industries, of which none are currently established due to the lack of electricity

• Initial estimates believe that the project will

directly lead to the creation of 12,000 new jobs, as each factory is likely to employ between 30 to 50 people

Project Location

Hisar-e-Shahi

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Afghanistan Power Auction Series – Roadmap to execution

• Drafting of documents using a four way collaboration

between the developers, government, lenders and donors: – Commercial principles of risk allocation between the investor and the Government of Afghanistan – Drafting of power purchase agreement – Drafting of implementation agreement

• Collaboration will be primarily done through webinars,

investor conferences and coordination meetings through an open and transparent forum

• Pre-arrangement of financing from multiple

Development Finance Institutions to be made available to auction round winners

• Pre-arrangement of guarantees, credit enhancements

and liquidity facilities

• VGF determination and structuring to enhance

performance Auction preparation and market engagement Auction Execution

• Evaluation and announcement of qualified

bidders

• Auction
• Shortlisting of preferred bidders
• Final PPA
• Generation license issued
• Land-lease agreement signed
• Final lenders negotiations

2019 2020

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Da Afghanistan Breshna Sherkat background

• DABS is an independent 100% state owned corporation
• Ministry of finance is the only shareholder

Overview of market

• Around 40% of the households have access to grid power, most of which are in urban areas
• 80% of the total available power in Afghanistan is imported from the neighbouring countries such as Iran,

Turkmenistan, Tajikistan and Uzbekistan though power purchase agreements

• Currently a maximum of 1,300MW of energy is available in Afghanistan’s network, out of which 300MW is

domestically generated. The rest is imported

• Domestic generation capacity is currently modest and largely hydroelectric

Electricity Network System

• The electricity network is categorized into four networks which supply seven different power grids or “islands”

Source: DABS

• North East Power System (NEPS): Connects 17 load centers (Kabul, Mazar-

e-Shariff, Jalalabad, etc) with Uzbekistan and Tajikistan through 220kV, 110kV and 35kV lines

• South East Power System (SEPS): Connects Kandahar with Kajaki hydro

power plant through 110kV line

• Herat System: connects the Herat Zone with Iran and Turkmenistan

through 132kV and 110kV lines.

• Turkmenistan System: Connects Herat, Faryab, JawzJan, Sar-e-Pul and

Andkhoy districts through 110kV line.

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Recent IPPs signed by DABS

Source: DABS

No # Projects Capacity (MW) Private Sector Companies Status 1 Kandahar Solar (USAID Subsidy) 10 Jaguar Overseas Ltd., India Under construction (August 2019) 2 Kandahar Solar (government subsidy) 15 77 Construction, Turkish (15 MW) Commissioning completed (May 2019) Current DABS is buying electricity from the IPP 3 Kandahar Solar (government subsidy) 15 Zularistan, Afghanistan (15 MW) 90% completed (June 2019) 4 Kajaki Hydro Power upgrade Project 100 77 Construction, Turkish Under construction (early 2021) Current DABS is buying electricity from IPP 5 Bayat Power – 1, Gas Based Project, Sheberghan, Jowzjan Province 40 Bayat Power, Afghanistan Under construction (end of 2019) 6 Mazar Gas Project 50 Ghazanfar and IFC Under construction (end of 2020)

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Available, planned and completed solar and wind projects as well as available substations in Afghanistan

Source: DABS

Link to access: https://drive.google.com/open?id=1LDkPEXv1FwK9lNC0vyje1yH6-7BxJQ6u&usp=sharing

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Afghanistan current and future power systems

Source: DABS

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Traditional approaches to project development often result in loosely defined projects that require significant negotiation to achieve financial close

Bilateral negotiations – Single firm participation

Start of the project PPA and commercial docs template Award Negotiations Financing

Project closure

A C B D Project award to financial close; Inefficient multi-year engagement can often result in one counterparty walking away from the transaction altogether

Barrier Description Implications

• Commercial documents and PPA based on few or

limited precedent

• Oftentimes the documents are drafted by a

consultant with minimal engagement with the private sector

• The commercial documents and PPA may not be financeable as

lender requirements are not well understood

• Private sector feedback is not incorporated. Buy-in is not

achieved

• Loosely defined project. Government awards projects

knowing significant negotiations are necessary

• Top developers are crowded out, less capable developers create

uncertainty and risk to project timing and closure

• Lack of government experience and quality of

developers

• Government often feel political pressure to move

quickly

• Lengthy negotiations to reach alignment
• Hard to discern if the developer is being opportunistic or if its

proposed risk allocation is market

• Lenders are not engaged early enough in the process
• Risk appetite of only one firm known
• Risk profile of the rest of the market may not be understood

A B C D One firm negotiating bilaterally with the Government, who has limited capacity and experience; the process is cumbersome due to a lack of reference precedents

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APAS is designed to obtain early market alignment through an open and transparent forum, thereby achieving quicker close upon project award

Start of the project Creation of commercial principles Creation of PPA/term sheets

Four way collaboration Arrangement

• f financing

Award Financial Close

Multilateral negotiations - Whole of market participation

1 1

• Four way collaboration between the Government, Transaction Advisor, Lenders and project

developers ensures alignment on the commercial documents, while enhancing capacity building and knowledge transfer to government

2 2

• Project has higher likelihood of reaching bankability, and doing so efficiently, as lenders are

involved from the beginning of the commercial documents and qualification criteria drafting

• Risk profile of the market is well understood

This new approach to project development is designed to efficiently create transaction precedents for nascent stage energy markets to develop with strong private sector participation

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• The project awarded is well defined and bankable; timeline to financial close significantly

reduced

• Project is awarded with indicative term sheets available from project financier

Well defined project

Much more holistic view of private sector’s perception of risk and investment criteria is obtained by engaging the market early, in an open and transparent forum

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The Team, acting as a proxy for the private sector, and working with DABS has compiled a list of Commercial Principles of risk allocation

Investors GoA DABS

Construction Company Environmental Financial Market Operational Technology Political and regulatory Climate and weather Sabotage, Terrorism, and theft

RISKS

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We invite you to provide your comments, feedback and highlight any gaps to be addressed in the CPs to satisfy your due diligence checklist

• Below is a screenshot of the “Afghan INVEST - APAS Commercial Principles” document uploaded on the APAS

website, https://apasinfo.com/. Please review the document and provide your comments, feedback and highlight any gaps in the “Feedback” column.

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As well as the commercial principles, the team has uploaded indicative input assumptions that will form the basis of a project financial model

• Again, we invite you to review the input parameters and provide your feedback and comments. Below is a

screenshot of the “Afghan INVEST - Project Final Model Input Sheet” document uploaded on the APAS website, https://apasinfo.com/.

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Immediate next steps

• Please provide your feedback on the both the commercial principles and input sheet to the financial model no

later than 14th June, 2019

• The Transaction Advisory team will aggregate and synthesise the feedback
• The Transaction Advisory Team will relay the findings from the webinar to DABS and Government of

Afghanistan in a workshop to be held in the second half of June

• The Transaction Advisory Team will work with DABS and Government of Afghanistan to refine the commercial

principles based on webinar feedback

• The refined commercial principles will be shared with the webinar participants in early July
• If you haven’t already done so, please register on the official APAS website (https://apasinfo.com) to be kept

up to date and informed of future webinars

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Thank you