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Challenges to Cross-border Energy Transportation in Northeast Asia - Financial Aspects

Third North-East Asia Government-Business Dialogue Teruhisa Oi


23 November 2010, Moscow
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Outline
ADB Energy Policy ADB Loan Products Areas of Due Diligence Tips Samples of Regional Energy Projects Benefits of Working with ADB
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ADB Energy Policy


ADB will support: Effective regional cooperation to strengthen energy security Energy efficiency improvements and renewable energy Public-private partnerships
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Sample of Project to be Supported


ADB will support the projects such as: Energy efficiency Renewable energy Electricity transmission and distribution Refining, transportation, and distribution of petroleum products Gas transportation and distribution Coalmine and coalbed methane extraction and use Coal gasification and liquidification

Products of ADB
Public Sector Instruments: Sovereign (government guaranteed) loan Technical assistance (grant or loan) Private Sector Instruments: Non-sovereign (non-government guaranteed) loan Equity investments Guarantees (political risk and partial credit) Guarantees B-Loan/Lender of Record

Sovereign (Government Guaranteed) Loan


Maturity: Up to 26 years; repayment schedule can be modified to match project cash flows Interest rate: Variable; determined every semester and indexed to current 6-month LIBOR rate, e.g. 0.44% for USD on 9 November 2010: o Add spread: 0.30% (until June 2011) o Less rebate: currently, 0.26% o Net interest rate is 0.48% based on LIBOR rate on 9 November 2010 Commitment fee: 0.15% of undisbursed loan balance Front-end fee: 0% Currency: USD, JPY, Euro or other major currencies Required host government guarantee Borrower has to be ADBs members country
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ADB Loan Terms

ADB Loan Terms Non Sovereign or Private Sector (Non-Government Guaranteed) Loan
Maturity: Up to 15 years Interest rate: Variable or Fixed. If variable, determined every semester and indexed to current 6-month LIBOR rate, e.g. 0.44% for USD on 9 November 2010 Spread: Market based, varies based on the project risks ( 2.0%) Net interest rate will be 2.44% based on LIBOR rate on 9 November 2010 Commitment fee: 0.50 0.75% of undisbursed loan balance Front-end fee : 1.0 1.5% Repayment: Equal principal or annuity Currency: USD, JPY, Euro Borrower has to be ADBs members country
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Technical Assistance (Grant or Loan)


Project Preparatory Technical Assistance (up to $550,000) Hire consultants for conducting due diligence to prepare projects for financing by ADB. Policy Advisory Technical Assistance (up to $1 million) Hire consultants for studying sector, policy, and issues. I.E. study on policy, legal, investment environment for cross-boarder transaction in two or several countries, or in region. Capacity Development Technical Assistance (up to $ 1 million) Hire consultants for institutional and organizational capacity development and for supporting the implementation, operation and management of ADB-financed projects. I.E. financial, legal advisory services for specific cross-border transaction. Regional Technical Assistance (up to $1 million) Hire consultants for project preparation, policy advice, or capacity development in more than one ADBs development members counties. Small-Scale Technical Assistance (up to $225,500) All of above technical assistance for amount up to $225,000.
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Required Due Diligence


ADB conducts due diligence of the project in 8 aspects as below: 1. Technical 2. Financial (financial rate of return, financial analysis of project and parent companies) 3. Economic (economic rate of return) 4. Environment (impact on environment) 5. Social (impacts on land acquisition and ethic minorities, social dimensions) 6. Governance (procurement method and capacity) 7. Sector (policies and regulations) 8. Debt-servicing capacity of host counties
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Processing Schedule for Sovereign Loan (example)


Activities Loan effectiveness Loan fact-finding Implementation of Project Preparatory Technical Assistance (due diligence) Preparation of Project Preparatory Technical Assistance Agreement between the Government and ADB for inclusion of proposed project for ADB assistance in country programming meeting Target Date Jan. 2014 Feb. 2013 Apr.2012 Jan. 2013 Jan. Mar.2012 12 10 Duration (months)

Dec.2011
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Tips
Recipients of ADB products has to be developing member countries of ADB. Proposed projects for sovereign and technical assistance have to be agreed between the Government and ADB in the country programming meeting. Earlier consultation on proposed project with ADB may advance the project processing schedule thus provide financing in timely manner. 11

Samples of ADB Supported Regional Energy Projects


Loan: AFG/TAJ Regional Power Transmission Interconnection Project - $78 million (http://www.adb.org/Projects/project.asp?id=40043) Loan: Nam Theun 2 Hydropower Development Project $20 million from public sector, $100 million from private sector, $2.3 million for technical assistance (http://www.adb.org/Projects/project.asp?id=37734) TA: Central Asia Regional Economic Cooperation: Power Sector Regional Master Plan - $1.5 million (http://www.adb.org/Projects/project.asp?id=43549) TA: Development of Regional Cooperation Programs for Mongolia and the People's Republic of China - $0.9 million (http://www.adb.org/Projects/project.asp?id=44046)
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Potential Benefits Working with ADB


Lowered project financing cost Conducted thorough due diligence in all aspects Contributed on potential credit enhancement (draw interest of potential investors from public and private) Met international standard environment and social safeguards (public support can be obtained) Played potentially as the neutral broker/advisor for project transaction Mitigated political risks through sovereign loan Obtained additional services through grant based technical assistance
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Thank You
ADB Web Site for Regional Cooperation: http://www.adb.org/regional-cooperationintegration/default.asp
Teruhisa Oi teruhisaoi@adb.org Energy Specialist Energy Division, East Asia Department Asian Development Bank

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