Issue #11 IFC's quarterly journal on public-private partnerships ( . DONORS: Aid vs. trade WATER: Sanitation solutions FIRST PERSON: African Development Bank President * *0 * * e 3 . 3. * 6* +@ * * A ARC ( International V Finance Corporation ILMANINCWorld Bank Group IN PARTNERSHIP WITH Australia * Austria * Brazil * Canada * Catalonia (Spain) * Flanders (Belgium) * France * Ireland * Italy Japan * Kuwait * Netherlands * Norway * Sweden * Switzerland * United Kingdom * United States * Public-Private Infrastructure Advisory Facility (PPIAF) * Global Partnership for Output-Based Aid (GPOBA) * Private Infrastructure Development Group (PIDG) * African Development Bank * Asian Development Bank * Brazilian Development Bank (BNDES) * Caribbean Development Bank * Central American Bank for Economic Integration * European Investment Bank * European Bank for Reconstruction and Development * Inter-American Development Bank * Infrastructure Consortium for Africa * Islamic Development Bank handshake Issue #11 -October 2013 IFC's quarterly journal on public-private partnerships IFC Advisory Services in Public-Private Partnerships 2121 Pennsylvania Avenue, NW * Washington, D.C. 20433, USA +1 (202) 458 5326/7 * ifc.org/ppp * handshake@ifc.org Editorial Tanya Scobie Oliveira * Alison Buckholtz Art &Design Victoria Adams-Kotsch Digital Strategy Jeanine Delay Disclaimer This journal was commissioned by IFC, a member of the World Bank Group, through its Advisory Services in Public-Private Partnerships department, which helps governments improve access to basic public services through public-private partnerships in infrastructure, health and education. The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo @ Eric Kidwell, Lagos, Nigeria "The problem with stereotypes isn't that they aren't true," Nigerian author Chimamanda Ngozi Adichie told the audi- ence at a TED talk in Oxford, England several years ago. "It's that they are incomplete." Throughout the lecture, and in her award-winning books set in Africa, she warns of what she calls "the danger of a single story"-the risk of critically mis- understanding entire cultures by ignoring the more nuanced, complicated elements that may not fit into a straightforward O narrative. Many have been lured into the trap of the single African story. But this issue of Handshake presents readers with a more accurate-and more exciting-narrative of African progress. This is the progress that attracts investors by emphasizing partnerships between the private sector and African govern- ments committed to the best for their citizens. The stories in this issue show how public-private partner- ships (PPPs) are already lighting roads, powering homes, and keeping people healthy. As important as these existing PPPs are, the promise of PPPs in Africa is even greater, and it's tied to changes in aid and investment structures that are already taking place. "The time is ripe for 'smart aid,"' writes Donald Kaberuka, President of the African Development Bank, as he calls on the world to "rise above the tendency to answer modern problems by asking old questions and using old tools." As these articles and interviews demonstrate, when govern- ments and investors forge partnerships to advance progress, they erase Africa's "single story." The stories that take its place-and the improvements introduced to people's lives- will be told for generations. Laurence Carter, Director Tanya Scobie Oliveira, Editor IFC Advisory Services in Public-Private Partnerships Features Governance Africa demands perspective 16 Game changer | 24 Investors Smart investing in Africa | 26 Sovereign wealth funds 32 Donors The road ahead 34 Smart aid | 42 32 Power The outlook is electric 46 Hydro heats up 50 Risk & reward 54 Powering Africa 56 A "greener grid" 58 In this issue 2| IFC.ORG/HANDSHAKE Columns Water Sanitation solutions 162 PERSPECTIVE : Insights & opinions Healh :The hopeful continent 106 Health- - Results build relationships | 70 1 INSIGHT Prescription: PPP 172 Cornentary on current events : The usual suspects 110 - COMPASS 2 0 .Surveim the PPP landscape . Steady as she grows 112 1 \ .MONEY TALKS . Financing & Funding PPPs Matchmaker, . matchmaker 130 : LEGALEASE , Law & legislation, decoded * Legal lessons from ;Burkina Faso 66 Interviews : Michael Elliott: Open budgets, open minds | 20 Liyel Imoke: Crossing off healthcare needs in Cross River State 74 IFC | 3 Contributors 0 Donald Kaberuka Radhika Dil Andrew Alli Andrew Alli Radhika Dil is the President and CEO of the Africa Finance is a Private Sector Advisor for the U.K. Depart- Corporation, founded in 2007 to catalyze infra- ment for International Development, based in structure investments across Africa. Uganda. Thomas Clement Anton Eberhard is an associate in the French law firm of Alard leads the Management Programme in Infrastruc- Guiramand Allemand Moussy and was formerly ture Reform and Regulation at the Graduate an associate at Gide Loyrette Nouel specializing School of Business at the University of Cape in PPPs in the developing world. Town. Ananda Covindassamy Richard Eckrich is Managing Director of Sequoia Energy is an executive with the Russian Direct Invest- Markets Finance. ment fund, a $10 billion sovereign wealth fund. John Crothers He has worked in infrastructure investment in is a partner in the international law firm of Africa and the Commonwealth of Independent Gide Loyrette Nouel who specializes in PPPs States throughout his career. and Project Finance in the developing world, Robbert van Eerd advising governments, developers, and financing is an infrastructure analyst with the Transport, institutions. Water, Information, and Communication Jeff Delmon Technologys Infrastructure Policy Unit at is a Senior PPP Specialist in the Finance and the World Bank. Private Sector Department of the Africa Region for the World Bank, based in Tanzania. 41 IFC.ORG/HANDSHAKE Katharine Gratwick Julius Ngonga is an independent energy analyst specializing in is a Transaction Advisory Services Partner with Sub-Saharan electricity policy and IPPs. Ernst & Young based in Nairobi, Kenya. Maximilian Heyde Emmanuel Nyirinkindi is a Project Manager for Environment and is a Senior Manager for IFC Advisory Services Energy projects in Sub-Saharan Africa at KfW in Public-Private Partnerships. Jane Jamieson Catherine O'Farrell is a Senior Water Specialist for IFC Advisory is a Principal Investment Officer for IFC Advi- Services in Public-Private Partnerships. sory Services in Public-Private Partnerships. Donald Kaberuka Frederic Pia has been President of the African Development is an associate in the international law firm of Bank Group since 2005. He was Rwanda's Min- Gide Loyrette Nouel who specializes in PPPs in ister of Finance and Economic Planning from the developing world, advising governments and 1997 to 2005. developers. Ryan T. Ketchum Jean Philippe Prosper is a Partner in the Energy and Infras- is IFCs Vice President for Latin America and tructure team at Hunton & Williams the Caribbean and Sub-Saharan Africa. LLP, based in London. Jemima Sy John Kjorstad is the global business leader for private sector is the Editor of Infrastructure Journal, a global development for the Water and Sanitation Pro- online news and data resource providing infor- gram, a multi-donor partnership administered mation and analysis across key sectors within by the World Bank. project and infrastructure finance. John Leber INTERVIEWEES is an Investment Officer for IFC Advisory Services in Public-Private Partnerships. is the President and Chief Executive Officer of Jason Zhengrong Lu ONE and Vice Chair of the World Economic is a Senior Underwriter at the Multilateral Forums Global Agenda Council on Poverty Investment Guarantee Agency (MIGA), the and Sustainable Development. political risk insurance arm of the World Bank Group. Liyel lmoke Marieis Governor of Cross River State, Nigeria. He is a manager at Castalia Strategic Advisors asely anaer iniser oftPower in W ashington, D.C. Anad vir y serie PStere Ea nuSteelNi is~ ~ ~ ~ ~~~~~~F a1eirMngrfrIF5dioySrie IBy Jean Philippe Prosper IFC &-Emmanuel Nyirinkindi, IFC KAndrew Ashton PERSPECTIVE More than a decade ago, The Economist christened Africa "the hopeless continent," lamenting its prospects for growth and change. Today, the tide has turned. In 2013, the very same magazine lauded the improvement in lives in Africa over the past decade, and declared that the next decade will be even better. Many of Africa's economies are among the world's fastest growing. At least a dozen have grown by more than 6.0 percent annually for six or more years. But success gives rise to new challenges. Although private investment is no longer novel in Africa, it does not yet meet growing needs. A younger population and expand- ing middle class have new demands. Infrastructure bottlenecks threaten sustained development. Public-private partnerships (PPPs) are an important vehicle to help Africa confront these challenges. A widely cited World Bank Group study from 2009, "Africa's Infrastructure: A Time for Transformation," found that infra- structure has been responsible for more than half of Africa's recent growth and has the potential to contribute more-but at a cost. Africa's conventional infrastructure, which includes roads, electric- ity, and water, requires $93 billion in new investment annually. Some of this can be financed domestically, but the report esti- mates that the annual infrastructure funding gap is likely to reach over $30 billion. THE INFRASTRUCTURE FUNDING GAP Private investors have a growing interest in Africa, and enormous financial capacity relative to Africa's needs. By creating PPP structures, public service needs can be met through incentives to private investors that need to receive fair and attractive risk- adjusted returns on investments. IFC | 7 PPPs are already familiar to Africa and gaining HEALTH traction. From just $1 million in PPP activity Healthcare is a sector where a new PPP model is in 1993, private investment of $13 billion was being channeled into infrastructure by 2008. at tract ore ann Su ies hve The global financial crisis slowed the flow, but a be crate outeandrnewbildin gs lve recovering global economy, coupled with Africas rive inveso whilen srviesh bright growth prospects, positions PPP models to be the wave of the future. As a previous issue of Handshake described in detail, a groundbreaking healthcare PPP in Lesotho paved the way for further successful The p f P si A partnerships in Africa. In 2006, the government seeminglyof Lesotho launched a project to ensure the 6 long-term improvement in healthcare with a current l N op PPP to build a state-of-the-art 425-bed National will arise as PPPs expand further Referral Hospital. e Queen Mamohato into n s s a Memorial Hospital, as it is known, now serves a services, tailor themselves to small wide population. and large projects, and appeal to TheQueenMamohatoMemorialHospital local o r i s along- project is only the beginning for healthcare PPPs sidein Africa. Following a tour by officials of Cross * * River State in Nigeria, officials engaged IFC to advise on structuring a PPP for the design, con- struction, equipping, and operation of a 105-bed The range and size of PPP projects has been greenfield hospital in the state capital of Calabar. changing as new countries and types of inves- In June 2013, an agreement was signed for the tors have become involved. Until recently, development of a new hospital on a design- infrastructure PPP projects were concentrated in build-operate-transfer basis with an estimated sectors such as power and telecoms and usually capital cost of $37 million. involved large investments with foreign spon- More on this groundbreaking PPP, including an sors taking the lead. More recently, the range of interview with the governor of Cross River State, sectors in which PPPs have been implemented can be found in the following pages. These and has expanded, more innovative projects have other examples demonstrate how PPPs can assist been undertaken, and local and regional inves- in efficiently delivering better healthcare services tors have become involved across a wider range to Africa's people. of countries. 81 IFC.ORG/HANDSHAKE WATER The rebuilding of the electricity system in Water has traditionally been a sector where PPa good example of PPPs' potential. In Watr hs tadiionll ben asecor her PPs 2008, just five years after a civil war destroyed have been used to deliver services. Previous proj- the power infrastructure, the government ects have tended to be large-scale investments engaged IFC to attract a private operator. With aimed at providing bulk water supplies to urban the assistance of donors, they worked toward centers. More recently, the focus of PPPs in the reconstructing the power system in the capital, water sector has turned toward encouraging the Monrovia. In 2010, Manitoba Hydro Inter- private sector to provide water to smaller rural national commenced a five-year management centers. contract. By 2012, over 12,000 new connections In 2007, IFC signed a mandate with Uganda's had been made, revenue increased by 160 per- government to implement the Small Scale Infra- cent, and losses decreased by 21 percent. Earlier structure Provider Program. The program helped this year, the contract was extended and its scope local investors provide water in some towns increased. while also helping municipalities to manage Liberia is not the only country considering PPPs these contracts and improve access to finance for to support the rebuilding of critical infrastruc- the service providers. The first five-year contract ture. Burundi, Democratic Republic of Congo, was awarded to a local company in 2010 to Sierra Leone, and South Sudan are all actively provide services in Busembatia. In its first two considering or pursuing PPP programs. years it added 400 new connections, double the previous number, and added 17 standpipes If Africa is to continue to grow-and maintain where none existed before. All the improvements its promise as "the hopeful continent"-it must added no increase to the tariff. The operator was leap forward in developing its infrastructure. funded by a $100,000 loan from a local bank. Resources from governments and donors are As with Lesotho's Queen Mamohato Memorial insufficient to meet this challenge. Smart, well- Hospital, the example of Busembatia is now designed PPPs can make a significant contribu- being used as a model. South Sudan is looking tion to fill this gap. to roll out a similar program in several of its The potential for PPPs in Africa is seemingly smaller urban centers. limitless relative to its current level. New oppor- tunities will arise as PPPs expand further into INFRASTRUCTURE new sectors such as social services, tailor them- selves to small and large projects, and appeal Wars and civil conflict have had a devastating to local or regional investors alongside larger, impact on African infrastructure, and increas- international players. In Africa, as in the rest ingly private investment has become part of of the world, PPPs can step in to help where the solution. the need is greatest. h eFC Wi9 oU O By John Kjorstad, Infrastructure Journal I~4 , 9 Every infrastructure development project has its i oetclyfnne,wt h eta oen Casablanca moment, when the authority shows mn ugtbigtemi rvro net up and asks his men to "round up the usual mn.Hwvr oenet ntergo r suspects." nraigysen h edt rn e ore Instead of launching into a murder investigation, o udn otetbe n hyudrtn h project managers are identifying and pricing wiebeftspvaecialmgtdiernis risks-those dramatic complications that range pbi evcs from mildly annoying construction delays to theFolwnthreucebmofhepsdca, kind of catastrophic financial disasters that can thrsoudbsficetapalnArcao destroy companies and ruin reputations. These suprcomcilnfatcueivs- unsavory characters keep managers, financiers, met.Mncotrsinheegnhaeen and consultants up at night, because they know ti oeta nraeadofrivsosa that their entire careers might rest on seeing the atrciepelnofgwhopruiisfr unforeseen and managing it appropriately. dvlpn ulcpiaeprnrhp PP) THE NEWEST GENRE sgiiattakrcr.Mr onre prt Mitigating risk is a key challenge in any country, igpiaeyondpoet n ocsin but across the African continent-with several arneddtisilcofecenduimey rapidly emerging markets for infrastructure atatcepr oecnevtv nentoa investment among its countries-it requires a cptl heightened sense of awareness. Private invest- Altig en qa,ArcnPP aet menit in Africa's public infrastructure is grow- wokhretoeahfncillsehnsmlr ing, but it still has significant maturing to do. prjcsiotepasofhewldWiete Curenty lage hae o Afics ifratrctue gpmetHweergonntin the mrmauearein Are- 10 1 IF.OG/ANSHK inrasnl seigtene o rn eore offnigt*h al, n hyudrtn h wie enft4piae aialmgt eieri0t pubicsevies Folwn*h esuc0omo teps eae thee soul besfiin aitli fiat suppor comria nrstutr inet met.MnIonre ntergo aese thsptnia nrae n fe0ivsosa attrctiv pieln of grwt opotnte fo deeoigpulcpiat ateshpIPP) Crtcly hoevr mos conre 0lolc sinfcn rc eod.Mr onre prt in prvtl-we rjet0n ocsin ar0eee toistl cofdec an 0limtl attract chae,m r osai veine ato l Curnl ag hr fAfrc' infrasructur gaAewe hemr auemaktAnAs U INSIGHT tralia, Europe, and North America and those of Sdel CsadDI eei h ptih emerging markets is narrowing-and probably agi,ndevlprhodteycudep is not as great as people might think-it clearly filteincegpetbyheolasofom still exists for many investors seeking long-term mecadbtartsT[iten,logwhte certainty. eegneo oelclcptlfnig sa h POLITICAL RISK IS THE VILLAIN thinentoalwfrmBkr&MKze TIhis is where development finance institutions hv utpbihd and foreign export credit agencies have a huge role to play in progressing African infrastructure.TH PLTHIKN In a line-up of the usual suspects, the more A h er ftesoyi fia olne sinister looking character is always political risk. pugdi oehCna' akes h While Development Finance Institutions (DFIs)cotntiselvgsoftthtxerafnne and Export Credit Agencies (ECAs) offer a vari- poesoascntke p codn oIC ety of wider benefits (and often cheaper capital), PP nSbShrnArc aeicesdfo no product or aspect of their involvement is ahl rjc erbten19-01t w perhaps more important to foreign private inves-prjcsayrfom2021;aoudevnt tors than their ability to mitigate political risk.0 Investors do not want to be left on their own if Praseulya eln stemgaino things go wrong. TIhey want to know that these poesoas rdtoal,Atcsidgnu important political institutions will stand behind tln ih aelf h otnn ekn them and facilitate a reasonable resolution with atrcieoptutesnthmreaue the local government or authority should a chal- fnnilmreso uoeadNrhAeia lenge need to be overcome. Hwvr epeitriwdfrIfatutr TIhis increased emphasis on having DFIs and Junl eothv omne narvra ECAs involved in international projects isthtsenoolyArcnxcuisrtrig important in the current banking climate. DFIs t h otnn,btas aieErpa n and ECAs have been supporting infrastructure NotAmrcnpfesnastrcedoth investment for decades, but they've not always wievrtyodvlpmnopruiisad been seen as essential. Eight years ago, interna- threinlogemgowhpeta. tional project finance banks aggressively operated Wa sufligi fiai rmtc in a competitive and liquid market where it was Atog ti tl o ihu ublne ee widely believed that if a deal could be done, it hatecoint'furesmdsobgtad could be sold on. However, as the market tight- otmsi.Piaeivsmn shpeigi ened and syndication slowed, banksinrsrcueaditlosikthbgnig becamemercialrdebtnmarkets.e.Thisatrendtialongrwithsthe hejust ptoubsed.setsicek T TI PPP in Su-Saaa Afrc hav inraedfo nien 011 an- oeta 0. i212 Perhaps* eqalstligistemgaino prfssoal.Trdtinll,Afiasndgou taet ihthvelf th-otnn seein atrctv 0prunte i0hemr mtr fiaca0mreso E0p n Not Amria Hoeer 0pl ntriwe*orIfsruue foras eot aecomnedo 0rvra thtse0o nyArcneeuie eunn totecotnnt u ls aiv uopa0n Not meia prfsinl0ttatdt h wievreyoIeeomn potnte n the egin's ongtermgroth ptenial Whti nfligi Arc0s rmtc Although it isstl no 0ihu ublneee ha*te otien' fuuesee0obih n optmisic Prvt0 netet shpeigi inrsrcueSn tloslk h einn IFC0|11 COMPASS STEADY as she bbert van Eerd, World Bank 1I 12 IFC.ORG/HANDSHAKE INVESTMENT IN AFRICAN INFRASTRUCTURE (1990-2012) 2012 US$ billions* Number of projects 30 60 25 50 20 40 15 30 10 20 5 10 00 1990 1995 2000 2005 2010 2012 U Energy N Telecom Transport U Water & sewage + Number of projects Source World Bank & PP/AF PP Project Database *Adjusted by US CP/ ENERGY subscribers-providers receiving investment in 2012 had over 700 million subscribers. Three Private investment in the energy sector reached new mobile providers emerged in 2012: Haatif $8.3 billion in 2012, reflecting financial close Telecom (Somalia), Smile Communications of 25 new projects, including those in C6te d'Ivoire, Ghana, Kenya (2), Morocco, South (UgnD) Africa (18), Uganda, and Zambia. Together they added a total of 3312 MW to the African energy grid (1076 MW in South Africa alone), at an TRANSPORT average cost of $2.5 million per megawatt. Close to $20 billion of private investment flowed into Africa's transport sector since 1990: $14.5 TELECOM billion in seaport projects, $3.3 billion in rail- Telecomroad projects, and the rest split between airports Teleco tha s seebiln uge g rw t l acro stfrca ($1.5 billion) and roads ($0.7 billion). Reflecting More than $50 billion was privately invested adces ic 06 nyoetasotda between 1990 and 2012 through fixed, mobile, cse in 20 te l Dne trntioal and multi-service providers. The average Arort, a managem e contractnaa telecom provider in Africa has 4.4 million S ga.aat TFeal o (Uganda), ~ ~ ~ ~ ~ IF an1fiel1DmcrtcRpulco WATER & SEWERAGE Water and sewerage in Arica has received $3.3 billion TOP C R in investments since 1990. Activity was slow in the early ING I 1990s, at its pea uring the oom years 2007-2008, but INVESTMENTS then slowed as the global financial crisis settled in. Two large concessions closed in Egypt in 20 10 and Algeria in 2009, worth $475 million and $468 million in invest- SOUTHments respectively. Of the total 44 projects, there were 28 GDP-$555 management and lease contracts, 13 greenfield projects, Populaion-53 and two concessions. Investment-$47.6 billion TOP DEALS BY COUNTRY EGYPT(1990-2012) GDP-$519 b The largest African countries, measured by their gross Populaion-85 domestic output, have attracted the lion's share of invest- Investment-$26.7ments in private participation in inrastructure. Sou NIGERIAAfrica, Egypt, Nigeria, and Algeria attracted 65 percent of investments in infrastructure since 1990-a combined GDP-$413 bontotal of$158 billion. Populaion-177 It is useful to note that population does not drive invest- Investment-$34.1ment: Population-rich countries such as Ethiopia (87 ALGERIA million people), DRC (75 million), and Tanzania (46 million) have received little investment-$4 Million, GDP-$237 $2.6 billion, and $5.1 billion respectively. Population-38 million Investment-$17.3 bonTHE SPOILS MOROCCO Africa's investment levels have remained fairly stable since GDP-$163 the global financial crisis, although investment in energy Populaion-33 projects as pic up in recent years. Investments are largely concentrated in a handful of countries, namely South Africa, Nigeria, and the large North African coun- tries. The other 48 countries received the remaining 35 percent o investment. h 141I IFC.ORG/HANDSHAKE BY SUBREGION (1990-2012) Total investments: 35% Number of projects: 9% E Total investments: 14% Number of projects: 31% w Total investments: 23% Number of projects: 32% Total investments: 4% *0 Number of projects: 12 % Total investments: 24% Afrc * Number of projects: 16% North Africa Central Africa Southern Afnca West Africa East Africa Africa is an obvious public-private partnership Africa, only about $25 billion is being spent, (PPP) opportunity-in-waiting-the continent leaving a lot of opportunity. Public finance will boasts high demand, global goodwill, and strong resolve only a small part of this need. PPPs must government support. Money seems freely avail- play their part. able. The facts speak for themselves: SO MUCH GOOD WILL. SO M U CH N E ED. While aid budgets are contracting globally, there Africa boasts 12 percent of the world population is increasing support to Sub-Saharan Africa. The and staggering riches in natural resources, yet G20, G8, World Economic Forum, and others produces only 1 percent of global GDP and 2 cry out for more investment in Africa generally percent of global trade. The lack of good infra- and more PPP initiatives specifically. structure hurts, increasing the cost of imports by 40 percent and reducing business productivity SO MUCH RHETORIC. by 40 percent. Of the $93 billion needed annu- ally for infrastructure investment in Sub-Saharan Every development conference and private investment forum seems to focus on Africa as the 161I IFC.ORG/HANDSHAKE place aid money should be spent and the next ect, like a good marriage, takes time and effort, dollar can be made. Heads of state and develop- trying to do things quickly and easily tends to ment institutions give lip service to the role of lead to failure. PPPs in solving every woe: lagging growth, insuf- ficient jobs, and poor infrastructure. SO MUCH GOOD W I L L. SO MUCH CAPITAL. Donors and companies both chase projects, tripping over each other to "support" promising Aid money isn't the only asset being drawn to initiatives, as each vow to show (often unrealis- the continent. As one of the world's fastest grow- tic) results. Government officials tend to buy the ing economic hubs, as money flees from Europe pitch, but the high sticker price, or the demands and continues to stagnate in the U.S., Africa is for a blanket guarantee, lack of financing, or just getting more and more attention. inability to deliver overwhelms those hopes. And Each of the elements listed above, which should in chasing the smoke and mirrors, governments spell success for PPP in Africa, also work against often sow confusion-contracting agencies don't it. Here's the flip side: know whether to develop projects or wait for the illusory promises to bear fruit. Real oppor- tunities are left to wither on the vine, and good SO MUCH NEED. investors watch in dismay, unwilling to enter the The investment requirements are massive. This fray, or frustrated by real projects taken away at leads governments to expect too much from a late hour by governments wanting to go faster. PPPs and at the same time to seek something fast The lure of "standard gauge railways" in East and easy. But PPPs are neither. A good PPP proj- Africa is a case in point. Somehow governments 1FC 117 were convinced that the meter-gauge rail that temptation to spend future revenues, under- they currently have is backwards, even though mines the good work done to focus on efficiency Japan, most of India, and much of Australia run through PPPs. on meter gauge. Instead of investing in improv- ing and expanding their existing rail system, and But this "disappointment" should be seen rela- investing in standard gauge only down the line tive to the circumstances. PPPs have been used (pun intended), these governments are looking in different countries to do some good things: to to invest many times the amount in develop- attract investment and efficiencies, for example, ing new standard gauge rail for questionable and to help guide public sector reforms. Where benefits to the detriment of other solutions. Real PPP solutions have flourished, governments investors and government staff dare not propose have invested time and effort. It has never been anything else. a quick fix or an easy solution. Chile spent 30 But governments should know better, as these years developing its PPP program; the U.K. took fanciful promises rarely work out; and the a decade just to get things moving; and India private sector should know better, for a project struggled through a number of failures, over- obtained in such a manner is intrinsically vulner- priced projects, and frustrations before gaining able to claims of bias or corruption, to questions momentum in PPPs. of legitimacy. And yet we look to Sub-Saharan Africa, where resources and skills are most limited, and expect SO MUCH RHETORIC. PPPs to blossom overnight. Maybe our expecta- tions need to be realigned. The shoots of progress Governments love to talk big about PPPs, but emerging in Ghana, Ivory Coast, Kenya, Nigeria, without much willingness to spend. Rarely do Senegal, and Tanzania should give us hope for they take the time to do it well, and as a result, the future. We should quit looking backwards at misunderstandings about the mechanics of PPPs unrealized and unrealistic expectations, and put persist. our hands back to the plow. There is work to be done. h SO MUCH CAPITAL. The money spent chasing investments in Africa, and the capital chasing commodities, is a vicious distraction. This promise of easy money (in par- ticular in new oil and gas countries like Ghana, Mozambique, Tanzania, and Uganda), and the 18 1IFC.ORG/HANDSHAKE Look at what is happening to Africa in the midst of global uncertainty It's not a fluke. For almost a decade, the con- tinent's economy has been growing at close to 5 percent at a time of real global fragility African policyakers, finaly, are putting in place good economic policies and sound macroeconomic management. And throughout the crisis, they did not roll back these policies. The lessons have been learned. Excerpted from Foreign Policy's "Epiphanies from Ngozi Okonjo-lweala," March/April 2013. In this CNN interview, Ngozi Okonjo-Iweala, Nigeria's Minister of Finance, outlines what the government must do to support expansion of the power sector and make access to power achievable for all Nigerians. Photo (D Jori Klein/Acumeni Fund ONE's push for budget transparency to transform II & tAa rcasre Photo (D Stuart Isett/Fortune Brainstorm Grcen Michael Elliott is the President and Chief Executive Officer of ONE. He also serves as Vice Chair of the World Economic Forum's GlobalAgenda Council on Pov- erty and Sustainable Development. Prior to joining ONE, Elliott served as Editor of TIME International and was on staffat 1 The Economist, where he served as Politi- cal Editor, Washington Bureau Chief and founding author of both the "Bagehot" and "Lexington" columns. Here, he talks to Handshake about how open budgets in Afica shape socialprogress and can transform civil and business engagement. Interview by Alison Buckholtz 20 IFC.ORG/HANDSHAKE INTERVIEW tries produce are not made public. Making For African citizens who are not public eight key budget documents, including following their government's the Executive's Budget Proposal, the Enacted activities, what can be gained by Budget, an audit report, and a citizens budget, would provide a solid base for increasing budget greater engagement with their transparency, and allow citizens to get involved. country's budget? What form should this engagement take? An informed citizenry A country's budget not only accounts for its important resources, but also outlines its priorities. When citizens engage with their country's budget pro- tool for social progress. cess, their participation can ensure that country budgets are aligned with their preferences. Citizens' budgets-a budget document created In the longer term, making budget information specifically for the public-simplify the com- available online in open, accessible databases will plex bureaucratic process, and make it easier not only provide data about what governments for citizens to understand how much money is are spending, but will enable citizens' groups to going to, for example, healthcare in their district. track what resources are available, how they are This naturally brings the conversation around to spent, and what results they contribute to. the results the government achieves. What are Armed with that data, citizens will be able to citizens getting for the money their government follow the money and hold governments to invests on their behalfP account for the results they see (or don't see) in their communities. Which fiscal transparency reforms in Africa do you find the most What sort of business opportuni-l promtising in the short-term? ies may come to Africa if there Which longer-term reforms do you is an enhanced degree of budget hold out hope for? transparency? There is a very simple way to make African The availability of basic budget information budgets more transparent, quickly and cheaply. is important not only to citizens, but also to Many of the key budget documents that coun- companies that want to conduct business. 1FC 1 21 Opening up the budget process is an important Citizens are notified via SMS about upcoming part of improving governance and making coun- budget meetings, and the results of the meet- tries more attractive to business, and increasing ing afterward. In lbanda, this increase in civic investor confidence. participation resulted in a 16-fold increase in tax compliance. South Kivu is also experiment- ing with voting via mobile, which is preferred CC What are citizens get- by 100 percent of citizens to in-person voting. ting for the money Mobile access is not a silver bullet. More their government broadly, while technology can boost transpar- ency and transparency can empower people invests on their behalf? with information, political change is often slow and unpredictable. Businesses are more likely to invest in countries they know to be financially stable, and their How do the priorities outlined in a investment can provide countries with necessary goen ntbd tshp acu- tax revenue, increasing investment in key sec-u sape n- tors including health, agriculture, and poverty try's social progress? Can you give alleviation. an example of this interplay? T1he budget is the document through which a How will wider access to mobile government's priorities are funded and imple- mented, and should take into account the needs technology push budget transpar- of citizens. However, sometimes the priorities of ency forward in Africa in the corn- citizens are ignored. In these cases, citizens need ing years? data to advocate for change and ensure that their government's budget reflects their needs. We all know access to mobile technology is An example is South Africs HIV/AIDS budget. growing in Africa at an exponential rate. the When the South African government refused to resulting innovations are changing the way we increase funding for HnV/AeDS treatment, the think about participation. For example, in South Treatment Action Campaign took them to court Kivu, a province in the Democratic Republic of and proved that health departments had under- Congo, a pilot participatory budgeting program spent their budgets. Courts ruled that based is giving citizens a voice in government, result- on budget documents, resources were available ing in increased tax revenues and compliance. 22 1IFC.ORG/HANDSHAKE for the programs and changes were made to the budget. South Africa now has the world's most comprehensive HIV/AIDS treatment and pre- vention program, providing free anti-retroviral drugs to over 2 million people. An informed citizenry is the most important tool for social progress. Opening budget processes gives citizens the information they need to hold their governments to account for the decisions that are made on their behalf. h *** * *** 0 * *.- S S6 . * S .6, -* - **- * **S 6** ** * * *0 S 5 QUESTIONS IN 5 MINUTES: Ir ervieww W,hO *** * *** * **S - - - - '.e- - .0*. -* *** S *** . - 0 - - .0** - Michael Elliot IFC 23 GOVERNANCE qameCHANGER Mo Ibrahim's Index redefines leadership in Africa Established in 2007, the Ibrahim Index of African Governance (/AG) assesses governance performance in Africa. Consisting of 94 indicators calculated using data from 32 independent sources, the annual IIAG is the most comprehensive collection of data on African governance. The IIAG aims to provide: * A framework for stakeholders to assess the delivery of public goods and services, and policy outcomes, in every African country. * A tool with which to govern, highlighting continental, regional, national, and thematic Photo DMo Ibrahim Foundation governance results. CWe are looking not just for a job done... we are looking for people changing the course of the country. -Mo Ibrahim, founder of the Ibrahim Index of African Governance 241 IFC.ORG/HANDSHAKE IBRAHIM INDEX OF AFRICAN GOVERNANCE THE DATA ARE CLASSIFIED WITHIN FOUR CATEGORIES: (NUMBER OF COUNTRIES WITH IMPROVED SCORES 2006-2013) SAFETY & SUSTAINABLE RULE OF LAW 19 ECONOMIC Includes rule of law, OPPORTUNITY accountability, personal countries Includes public man- countries safety, and national improved agement, business improved security. environment, infra- structure, and rural sector. * HUMAN PARTICIPATION & T DEVELOPMENT (47 as* HUMAN RIGHTS 28 Ail Includes welfare, Includes participation, education, and countries rights, and gender countries health. improved equity improved 2013 IIAG, COUNTRY & RANK I SCORES/100 MAURITIUS I lsT/52 Safety & Rule of Law 186.8 82.9) Participation & Human Rights | 76.7 Sustainable Economic Opportunity | 79.7 A eadersNp,gth Human Development 188.5 - f a and SWAZILAND | 26TH/52 Safety & Rule of Law 159.5 50.8 Participation & Human Rights | 30.1 Sustainable Economic Opportunity | 49.3 Human Development 64.3 SOMALIA | 52ND/52 2 2 Safety & Rule of Law 14.9 Participation & Human Rights 111.5 Sustainable Economic Opportunity | 2.3 Human Development 113.1 IFC 2025 By Andrew Alli, Africa Finance Corporation Photo © Cedric Favero Azito Power Plant, Côte d'Ivoire 261 FC.ORG/HANDSHAKE INVESTORS Investors worldwide recognize the potential for investments in Africa, especially through public-private partnership (PPP) structures. But taking advantage of these opportunities requires a proper understanding of the risks-and how they can be mitigated-to optimize the project's invest- ment return and development impact. The Africa Finance Corporation (AFC), through its active involvement on the continent as a project investor financier and developer has participated in a number of notable PPP projects and learned valuable lessons along the way. "TOO GOOD TO BE TRUE" contracts all across the continent have been rene- gotiated. These "creeping expropriations" often PROBABLY IS arise because governments are not as skilled or as For many investors, especially those new to the experienced in negotiating such agreements as dynamics of working in Africa, political risk their counterparts and cannot afford the advisors remains a big cause for concern. With many that will best assist them. Corruption is also the politically fragile states on the continent, the culprit in some cases. apprehension is often justified. But the reality is Investors can mitigate this risk by avoiding that the most worrisome political risks do not projects with concessions that are too good relate to political violence or forced expropria- to be true-especially those that have either tion, which concern many people, but rather emerged from less than transparent processes, to unfavorable renegotiation of contract terms or were awarded on a discretionary basis. The ("creeping expropriation"). downside to such one-sided concessions is that For example, during the decade of civil unrest they are often scrutinized after the fact, and in C6te d'Ivoire, well balanced and structured withdrawn or renegotiated by new governments projects such as the Azito power project contin- or administrations. ued to perform well. In contrast, many mining 1FC 1 27 IMMATURE MARKETS to be, while not properly accounting for real REQUIRE STRONG PARTNER S risks that could affect the project's outcome. Pairing a young country with mature advisors RISK PROFILES ARE AS VARIED and experienced private sector partners makes all the difference to a successful project. C6te AS BORDERS d'Ivoire's Henri Konan Bedie Bridge reached New investors and analysts outside the continent financial close in 2012 after 14 years under often see Africa as one country, making the mis- development, surviving two periods of civil take of thinking that the same risk profile applies unrest. In this case, the government partnered throughout the continent and across projects. with Bouygues S.A., funded by international This is not the case. financiers and partly arranged by AFC. Having Risks differ from one country to another and a strong sponsor to navigate the local environ- from one project to another, given the differ- ment was crucial to the project's success. Strong partners and financiers can also withstand of reforms and development, and physical and the financial ups and downs that sometimes human capacity. It is important to develop occur in the African business environment, and different structures and solutions to mitigate the experience gives them a nuanced understanding specific risks identified in each market and for of real project risks. Lacking this understand- every project. ing, projects may be over-engineered to protect There is also often a temptation to adopt foreign against risks that are very unlikely to crystallize. templates and assumptions that are not realistic This makes them more expensive than they need in the local environment and to apply those templates across all African markets and proj- ects. For example, while it may be acceptable to apply higher leverage ratios (80:20/90: 10) in Avoid projects with concessions more mature and advanced countries, this may that are too good to be true- not necessarily be sensible in the local environ- especially those that have either ment, where larger equity cushions may improve emerged from less than transpar- project outcomes. ent processes, or those awarded In evaluating project assumptions, it is impor- on a discretionary basis. tant to ensure that project fundamentals are clear to all. For example, in a power project, the off-taker and fuel supplier should be known in 28 1IFC.ORG/HANDSHAKE advance and their ability to meet their obliga- tions under the agreements be well established. Projects are often over-engi- Valuation and cost competitiveness is also critical, neered to protect against risks as overpaying for an asset is a painful and that are very unlikely to crystal- usually irreversible error. lize, making them more expen- KEEP NNOV TINGsive than they need to be. KEEP INNOVATING The uniqueness of the challenges and risks on the continent requires innovation in approach- ing and evaluating PPP projects. This is particu- cost. In addressing this problem, AFC and the larly true with respect to financial products. For Dutch DFI, FMO, recently launched a $15 example, while AFC is focused on a few key sec- million project development facility aimed at tors (natural resources, transport infrastructure, providing early stage capital to projects in order telecoms, power, and heavy industries), it offers for them to become bankable. a broad range of financial products and services In addition, AFC provides tenor extension facili- that allows participation across the spectrum ties aimed at providing longer tenored financing of the capital structure. Other financiers with a for projects that most domestic banking institu- more limited set of offerings can find it difficult tions are unable to provide due to statutory and to meet the needs of these varied projects. regulatory requirements. These products-in addition to other key services like technical and STAY FLEXIBLE financial advisory, mezzanine, and acquisition There are over 20 development finance institu- finance-have been central to AFCs success on tions (DFIs) operating in Africa, and the evolu- the continent. h tion of the banking sector and financial markets has made debt financing relatively easily acces- sible. However, two things are lacking. There is a paucity of well-structured projects that are bankable, and too little access to long tenored financing. Sponsors very often underestimate the resources required to develop their projects, which can be as high as five to ten percent of the total project cFC d 29 matchmaker, By Jeff Delmon, World Bank I still remember my first break-up. Flash back donasmcaspsili-hueSbShrn to eighth grade, where Katie, a cute strawberry Arc ufr rmadsic ako nesad blonde with dimples, utters the classic break- inabuwhtttketorngaodpblc up line in the school hallway: "It's not you, it's piaeprnrhp(P)poett akt me"-followed by some explanation about how she is not ready for a relationship, blah, blah, blah. How is this supposed to help me? Flash forward thirty years (give or take a decade) T opiaemtes u-aaa fia as I attend meetings where lenders to infrastruc-goenntficasreveaosatsramf ture in Sub-Saharan Africa insist that the moneyvst rmfringoenet n opn is there, the capital is available, but the projects degainprmsgfstch prsusifhy are not. Tlhe government is not doing its part. cudol aea xlsvt gemn o TIhey say, "It's not me, it's you!" Ouch, that is sm ag nrsrcuepoet Ieerrl an even worse break-up line. wr u,btte emt efrtotmtn But is it true? Is the capital really there?tieadcs.T adtohem cr,nw eet First, to agree with the lenders, the projects are nau lreo cefdsivroscutis(n there, but they are not well prepared. There are patclrGn,MombqeTnzi,ad a number of reasons for this, which are discussed Uad)dsrc vnfrhrfo h cnm in more detail in the article "Africa demands anefiecysuhfrmP. transparency' on page 16. Basically, governments Nwt h usino vial aia.-hr around the world tend to look for the fast, cheap se ob ubro hlegsrmiig way~~~~~~~~~~~~rvt patnrsi (PPP) project to market. hc en n tmyb itl al odcaeajbwl 30~~~ 1 F.R/ADHK Tocopictemttr,0ubShaanAria goenetofcasrcieacntn temo viisfo0oringvr mnt0n o pn dlto nspo iigfs,cha eut fte coud0olyhav a exlsvtSgemn o som 0ag inrsrutr prjc.T eerrl wokot0u hyse t efrtotmtn fo*u-aarnArcn oenetssoto tieadcs.T0d otemsr,nwrcn natra reouc 00d nvros onre i patclrGan,Mzmiu,-azna n 30 IC.RGHADSAK MONEY TALKS done. Local currency markets are anemic and epr rdtaece lk SEi n hn distracted by property development at the riskier Ei) h edfrhaysrcuigi o end of the spectrum, and treasuries at the safe seii oSbShrnArc,nri taciia end. The interest rates on local debt tend to be prbe .Btitanlesnogetrtm,cs, high, tenors short, grace periods elusive, and ancopeiynvsdinmblzgcptl.I capacity limited. Except in a few key countries aloipssamjrcvtonhelimhtte (for example, Kenya and Nigeria), attracting 1cptliavlbe. local finance for PPP can be an arduous affair. Foegexhners.Tiisapblmnay But then when lenders claim that capital is avail- cutyweelclfnnilmreso eg able, they are probably not talking about local inmaktcnotovethelalurny currency. Capital in the global currencies has rvne nofrincptlt ea et h many of the characteristics needed for financing detxpsranetnivfsclosritsn PPPs: long tenors (12 years plus), grace periods, mc fSbSltrnArc mee h blt high liquidity, and bankers thoroughly experi- tomngfrenexhgeisepsu.(Wt enced in PPP and limited recourse financing. Arc,wt t omncrec egdt h There are also significant challenges to making inAtcousdofomdteseaswh this match, such as:hihrpoisfoereeu,anlwrrsk Risk aversity. Like it or not, global capital delhaebndoeiSu-hrnAfc.Bt marches to a different tune. Compared with fligbnesnfrmEopadthU.- local financial markets, it is generally more bakrwihepincindvledoutes familiar with investment grade lending into rte hni fiaisl-rae t w countries with reliable legal systems and rela- chlegs tively robust secondary markets for those assets. M on ssml:tesaeet"h aia In Sub-Saharan Africa, government credit i vial,bttepoet r o, hl ratings are low (below investment grade), and dipangnimrsvebvdoisotniel subsovereign, public utilities that act as project acu tean noatllh pf.Wellavalt counterparts are often insolvent. Credit concerns o okt ot e fia Psmvn,fo can be addressed through financial engineering bohplianprvtsde.Trewlbeim (including escrow accounts, letters of credit, fopinngigesltrocehejbsdn. stand-by capital, and natural resource rights), lending from development financiers (like IFC, AdKte fyuaeottee o eewog FMO, and DBSA), and credit enhancement I a e expor crdiFaenis (like US Exim an and Chinaan E T e r s u i spcii oSbShrnArc,nri taciia prbem u ittasae0t rae ie ot anIopeiyivse nmblzn aia.I also imposes a -ao caeto0h camtah "cptliIvial. Foeg*xcag is.Ti0i rblmi0n conr*weeloa-ianilmaktIo eg igmrescno'ovettelclcrec reeusitofrincpia orpa et h debt exposur an 0xesv iclcntansi muchof Sb-Shara Afica mpeds te ablit to- maag frin exhag ris exoueWs Afic,wihit omo crrny ege o0h Euro, esae much of thscmlxt. GlblbnsIakeprinei nfatutr in frcaoutid o comoites eas it ie prfis,foe reeus- n o e ik Thi isfrtevrI odrao htfwsc del*aebe oei u-aaa fia u flin bnkr info uoe n h .. banker wit exeinei-evlpdcutis, rahrta i fiaitef cete t w chalenes MypitiIipe h saeet"h aia isaalal,bu h-roet aent,Ihl dipaiga0mrsiebaao sntetrl acuae0 n o talhlfl ealhv o ofwrIod ogtAria Psmvn,fo bot pulican prvt0ie.Teewl etm foIonigfnesltr netejbi oe And Ktie,if yu areout here yo0eewog It0asme fromIFI (lie te Wrld ankand IGA an 0IFC | 3 SOVEREIGN WEALTH FUNDS From an investor's point of view the big- areas such as transport, healthcare, and educa- gest risk in PPP bid participation is often not tion. This is part of a growing trend in emerging competing bidders, but rather the process markets to expand social benefits, as there is a failing to reach a conclusion. For this reason, recognition that these benefits are vital to sup- investment committees sometimes regard port economic growth. Some SWFs are taking PPP bid participation as a form of venture leadership roles in the development of these new capital investing. With sovereign wealth capital structures. funds now investing directly in infrastruc- In Russia, this trend is supported by the Russian ture as cornerstone investors, co-investors, Direct Investment Fund (RDIF), and is capital- and lenders, these funds play a key role in ized with $10 billion. RDIF was established in mitigating risk, and can provide a major June 2011 to make investments, primarily in boost to future PPP programs in Africa. the Russian Federation, and act as a catalyst for By nature, sovereign wealth funds (SWFs) are direct investment into the Russian economy. The trusted partners of sponsor governments and fund invests alongside qualified foreign investors. international investors, have top-level political support, and employ private equity and industry EXPERIENCE &EXPERTISE specialists. State agencies are increasingly look- In developing PPPs and private infrastructure, ing to new capital structures to meet needs best Russia has the advantage of being among the suited for long-term investors-especially in markets for private infrastructure tio emeri ipatoagoit 32retstoIxpnd.ocilGeneitsNaDthreKsE INVESTORS ownership/investment. Russia has a successful the PPP bid process, preferred bidder track record in privatizations and sector reform, selection, and project implementation along with several significant PPPs that reached all follow best practices. financial close. However, Russia's PPP program has had growing pains, in part due to the 2008 InvAfrica,tNigra is supporting is e financial crisis. Having gained experience, the Russian govern-IA). ment is now embarking on a new wave of PPPs sucessuly ierfing it ecn throug for major roadways, bridges, rail, ports, and iusrilition iture,ond ardl other vital infrastructure. The need for such dveligtconumersctor. ang recely assets is acute. Russia's per capita road density prveits ower stry Nig rcted is one-fourth that of some developed markets, strong its fr inal Nieratioal and Russia's rail sector carries over 80 percent structurestors. of industrial production. And, while the recent focus by investors has been electricity, Nigeria is in urgent need of expanded APPLYING SOLUTIONS infrastructure for highways, rail, water, health- Unsuccessful PPP programs in emerging markets care, and agriculture supply chain infrastructure. often follow a similar pattern: an initial PPP NSIA will play a major role in supporting PPP program is attempted, the project does not reach development by providing investment platforms financial close for a variety of reasons, and the to promote investment, economic growth, PPP program needs to be restarted. The restarted and help the government fulfill its vital social program is then considered a risk among inves- responsibilities. tors. This uncertainty is priced into the revived The potential for African governments to utilize program or results in lack of bidder interest. State-sponsored investment funds to support In the upcoming Russia PPPs, RDIF will play a PPP programs is great, especially in markets in key role as an investor. RDIF's participation in a which investors may attach a high risk premium. PPP bid is intended to signal to the market that: There is also the potential for SWs in different * the project is vital to the Russian regions to cooperate, co-invest, and help bring econmy ad hs stongsupprt;global expertise. For the African infrastructure economy and has strong support;market, SWFs have the benefit of being able * uncertainty in the process is greatly to reduce project risk, lower financing cost, mitigated; and and enhance the overall project structure for investors and the public. h 1FC 1 33 the By Julius Ngonga, Ernst &' Young Foreign aid has been a part of the African landscape for as long as most of us can remember. While these donor funds have saved lives during and after crises and funded critical infrastructure, many would argue that aid has also skewed incentives and created a crutch of dependence. But this seemingly entrenched paradigm has begun a slow shift. This change can in part be linked to the Paris Declaration on Aid Effec- tiveness (2005), which called for national ownership of policies and pro- grams supported through aid, and better coordination of the jumbled maze of external assistance. Supporting this, the United Nations Development Programme recommended aligning donor programs with national priorities and strengthening local implementation capacity. Better donor coordination seems to have followed, led by the creation of various multi-donor facilities. In addition to better coordination, new approaches in aid are emerging. Donors are increasingly responding to the growth of the private sector by offering programs to enhance the private sector business environ- ment, and also through more innovative funding mechanisms such as: * the provision of seed funding for early-stage private sector companies; * direct lending or equity investment to infrastructure projects; and * leveraging local financial institution participation by taking first loss positions in guarantee structures. A'M ,-ahtc,NrhTg DONORS CHINA'S EMERGENCE The change in the role of traditional donors is also a result of China's emergence as a significant player in Africa. As a result of drastically increased bilateral funding, Chinese companies are now involved in infrastructure projects across the continent that until recently were the preserve of Western countries and companies. But Western countries, recognizing the need to stay agile to safeguard their long-term interests and share of trade in Africa, are now offering more tailored and innova- tive funding mechanisms and focusing on somewhat neglected areas such as climate change and gender reform. In 2010, China committed $9 billion to Africa's infra- structure growth (up from $7 billion in 2006). This includes: * non-concessional development finance from China Development Bank; * equity finance to ventures launched or backed by Chinese enterprises from the China-Africa Development Fund; and * export credits, concessional loans, and guarantees from China Exim Bank. As the donor paradigm evolves to fit the times, foreign aid-and trade-will reshape itself accordingly. With the desire to affect change comes the certainty that approaches, too, will continue to change. IFC 135 II Like the unique countries that make up Africa, ing at what its offering to developing countries views vary on where Africa is headed, what is should be, and how best it can reflect countries' changing, and what is driving change. But we ability to self-finance out of poverty It will also agree on one thing: Africa is changing, and look at instruments to unlock U.K. expertise and with it, what we do as development partners continue to invest in the multilateral system- needs to change too. The U.K.'s Department for with a strong link to performance. DFID will International Development, or DFID, is looking continue to strengthen its commercial exper- at a renewed focus on economic development, tise-and use innovative delivery mechanisms refocusing its development program to help such as results-based financing and public-pri- create more jobs and strengthen governance and vate partnerships. Working in new ways includes international institutions, while working with continued work to improve the transparency of new partners and in new ways. aid spending and a focus on impact. DFID is also rebalancing its investments toward inclusive economic development, strengthen- CHANGING DEM0GRAPHICS ing institutions and governance, unlocking the The emergence of the African middle class is potential of girls and women, and mainstream- becoming a force for positive social and ing climate and conflict programming. It is look- nomic change. Many of the world's poor no lon- 361I IFC.ORGMHANDSHAKE ger live in the poorest countries. China and India This is built around supporting labor-intensive have already shown us how difficult it can be to activities and sectors that will generate the most eradicate poverty despite economic growth- productive jobs, promoting diversification Ghana and Nigeria face the same challenge. of economies to create inclusive growth, and By 2030 more Africans will live in urban than in strengthening export sectors to create deep and rural areas, and in the next 30 years there will be durable long-term markets. an unprecedented level of working age people. DFID also supports the institutional and The spread of mobile phones has revolution- political arrangements that facilitate growth. A ized information access and is transforming continued focus on transparency, rule of law, and what people know, who they know, what they a political settlement that can deliver long-term do, and how they do it. Accompanying these growth will help ensure that African citizens ben- demographic changes, new stakeholders, such as efit from growth and the country's wealth is not private investors, foundations, philanthropists, appropriated by a few. and most importantly emerging donors like Brazil, China, and India, have changed the PLUS IA CHANGE map of Africa's development relationships. ThereIt is important to stress that a new role doesn't is perhaps the biggest one, and threatens n mean everything changes. Many donor inter- reverse the development gains in many countries reduing pove ansa livesduc of by making infrastructure unusable, established thi w ork w n sinldes hai agriculture unsuitable, and exposing populations tarian interventions in conflict and natural to increased threats of droughts and famines. disasters. But here too, we are stepping up our Traditional partners, such as DFID, must take game: new innovation and technology is helping account of the new demographics and new us target, manage, and deliver assistance better. threats. This will allow the development commu- There is an increased focus on building resilience nity to make a lasting difference in Africa. to shocks, consolidating peace, and supporting recovery to reduce the likelihood of slipping SCALING UP back into conflict. In response to the new landscape, DFID has Traditional development partners have many an increased focus on Africos "development decades of development efforts to learn from as frontier"-the less developed and fragile coun- we tailor our offerings in response to the chang- inraned log-terica marets. oniuter tries as well as the poorer populations in more gan developed countries, We are also scaling up work from the past, even as the new role for donors on economic development for poverty reduction. in Africa changes with the times. 1FC 1 37 DONOR CASE STUDY: KfW in By Maximilian Heyde, KfW_ THE DONOR THE APPROACH KfW, a German government-owned develop- KfW is undertaking additional activities in the ment bank, is active throughout the power sector sector-some with the potential to change the in Uganda, focusing mostly on putting together paradigm for donor support throughout the a renewable energy fit in tariff program. As part region. In one case, KfW is providing assistance of this program, KfW has made funding avail- to one of the isolated power grids in the West able to potential private sector players to top up Nile Region and helping UEGCL, the national the tariff at which they sell power to UETCL, power generation company, launch several other Uganda's national transmission company and the projects in remote areas. IFC and KfW are work- buyer of all power in the country. Depending ing together to meet this goal. Specifically, KfW on technology, this amounts to about $0.02 has provided funding to buy down the capital per kilowatt hour (KWh) in addition to what cost of a mini hydro scheme in the West Nile it receives from UETCL, which is supposed region; with KfW funds, UEGCL hired IFC to incentivize private sector power players to to advise on how to structure the mini hydro come and develop renewable energy projects transaction and attract private sector partners. in Uganda. Given that the hydro power scheme is located in an area that is not served by the national grid, 38 r IFC.ORG/HANDSHAKE THE DETAILS the commercial aspects of the project on its own would not be likely to attract private sector financing. However, the capital buy down makes the opportunity viable and serves as a way to incentivize the private sector to address the critical power situation in an underserved area of the country. THE RESULTS Ultimately, the Government of Uganda, the Electricity Regulatory Agency, KfW and Deutsche Bank developed GET FiT to support 15 new generation projects with a total installed capacity of roughly 125 megawatts. The GET FiT initiative will increase generation capacity and Uganda by 20 percent, giving an additional 1.2b the GET Fit initiiv the cmmerial apect of te combines:it mon olnote e to trcl pBake part risk gued-itarats tt tae financing.th payment, risk ofpta thedwnmae *uadeutsc he ancdreew the~~al energynit financin facilitya awa t incentivizto offe private developersresth andequy inoecstent pat- critical~eaonbl rates; andto i nudesre Pament mechanism, usedw toe tofu the traditonall udelrie the fiacal renewable energy projects to THE RSULTSearn an adequate return on investment, rendering the projects financially viable. FiT nitatie wil icrese gnertio capcit inContact: secretariat@getit-uganda.org Ugana b 20 ercnt,givig a aditioal .2Yebsite: www.getit-uganda.org million people access to electric power. IFC 39 Norad By John Leber, IFC THE DONOR power to some parts of Monrovia. In 2007, with The Liberian conflict, which lasted nearly 14 a sta rted e eraton w 450 years and ended in 2003, left the country in anstrecomcilprtonwh45 eaoocrs i and de in0,fatruteury inas customers and a row of street lights for the first economic ruin and its infrastructure devas- tm ic h a.Snete,tegnrto tated. The country's prior generation capacity city s be ince to0na the of approximately 180 megawatts (MW) and transmission and distribution network has been accompanying distribution network were totally expanded. But differing donor objectives and lost, and as a result commercial electricity ser- procurement procedures were hampering prog- vices in the country were non-existent. LEC, the ress. The government was becoming increasingly state power company, had no infrastructure, no eager to speed up the process by introducing fuel source, and no customers, private sector investment and expertise. THE APPROACH THE RESULTS In July 2006, an international donor group for- Led by the Government of Norway, donors used mulated an Emergency Power Program to restore a highly innovative approach to support this 40 c IFC.ORG/HANDSHAKE THE DETAILS Temanagement contract acts as a framework agreement among the operator, the gov- ernment, LEC, and donors by: *referencing bilateral agree- ments between the donors and the government; requiring donors to define the annual funding amounts; project. By pooling funds, and tying their use to performance parameters already established in the management contract, donors gave the flexibility to the management contract opera- tor to use the funds when and how it felt most effective. This contrasts with a typical bilateral approach, whereby donors engage in discrete investments (usually purchasing equipment or construction), without coordination or integration with other donors. This approach often leads to suboptimal investments, since decisions are taken absent of considerations related to performance outcomes. h 1FC I41 Afrc 'sn :y Dnal Kabeuka Afrca Devepen Ban Photo @Andy Kristian Agabs/Gates Foundation, Uganda rice farm Donald Kaberuka, President of the African Development Bank, was recently in the U.S. for an award ceremony at the U.S. Treasury. In this article for Handshake, he touches on the irony of winning for a project on traditional aid in an environment that celebrates innova- tive approaches, and expands on the ways aid to Africa has been transformed in an era of private investment. 42 1 IFC.ORG/HANDSHAKE DONORS There is a massive change in outlook across the that men and women receive equal opportuni- African continent. The emphasis is on what we ties so that each can play their part in building can do with Africa, not what we can do for it. the prosperity of their nations. We know that in Given all the talk about new approaches to aid places where there is conflict, women and girls which mobilize private investment, was it not suffer disproportionately, so the issue of gender ironic that the reason for my visit to D.C. was is central to inclusive development. to celebrate traditional aid, as administered by the Multilateral Development Banks through their concessional windows, such as the African The emphasis is on what Development Fund (ADF) and the International Development Association (IDA)? Indeed, the we can do with Africa, African Development Bank came to the podium not what we can do for it. twice at the U.S. Treasury ceremony to receive awards for what the ADF does in fragile states, and for what it does to increase farmers' produc- tivity and incomes. We are impacting people's The second project, in Uganda, represented lives in meaningful and lasting ways, and the two our commitment to empower rural farmers by winning projects were perfect examples of what enabling them to increase their incomes. We do was being achieved. this by providing public goods and opportunities to help them move up the value chains, however EQUAL OPPORTUNITIES modestly, and to lessen the dependence on aid and handouts. The first project, in C6te d'Ivoire, represented The results were plain for all to see. Across 26 our commitment to gender equality, to inclu- sion, and to fragile states. The transformation of ds of easter ad er ud, tu- Africa requires that no one is left behind, and as ters of we rl 1FC 14 markets were established, and units of agro- mobilize additional resources for it, while saying processing production were built, from coffee that we should be focusing on trade and invest- and rice hullers, to maize mills and milk coolers. ments? My answer is simple. We are proud of The rise in farm-gate prices was as astounding as what we are achieving. The two projects show it was quantifiable: the price for cassava went up that aid money can be very effective, especially two-and-a-half times, maize 20 times, milk four (as in the Uganda project) when it frees the times, bananas two times. Travel costs and times recipient from aid dependence. It enables people involved in taking produce to market were cut in to step up and step out, or to "graduate." half, and post-harvest losses were cut by a fifth. This ties in with my fundamental belief that the time is ripe for what we should call "smart aid," which leverages further resources from The time Is ripe for 1smart the private sector, remedying social ills but also paving the way for graduation. The concept of aid." The concept of aid aid as a closed envelope has come to a close. We as a closed envelope has need to be less doctrinaire, and to rise above the tendency to answer modern problems by asking come to a close. old questions and using old tools. If we can do that, Africa will continue to "graduate" from being part of the global challenge to being part of the global solution. h This project strengthened my belief in several things. First, in how relatively small investments can generate very large returns. Second, in how international institutions working together (in this case we worked with the International Fund for Agricultural Development), each in their field of comparative strength, yields a superior result. 'Ihird, in how infrastructure is critically important for agricultural development. AID AND TRADE Was it ironic that we were celebrating the work ofatthe shoulanbaifoinstnumenttrand seekinveto r eDonald Kaberuka, President, African Development Bank 44 IFC.ORG/HANDSHAKE SMART AID: THE SPECIFICS We know the financing gap for African infrastruc- ture, put at about $50 billion a year, cannot be funded purely through public resources. The first task is to take advantage of the strong cycle of commodity prices, and to manage natural resources wisely to fund infrastructure. That is why the G8's9 trade, tax, and transparency agenda is so important. Second, we must bring in the private sector. The African telecommunications revolution of the 1990s was largely driven by private funding, after*#es 0 sector deregulation showed what was possible. In the energy sector, the reforms are in place, and it awaits private capital. Our challenge is to make that possible. o For each dollar we loan, we are able to leverage up to six more. I was in Dakar recently to see a cluster V of infrastructure projects-a toll road, an airport, a power plant, and the expansion of the port-which, , with $245 million of African Development Bank funding and $132 million from the Senegalese government, drew a further $1.3 billion from com- mercial banks and international private investors. This is smart aid in action-leveraging private capi- tal, crowding in investment, and fighting poverty through trade, investment, and the private sector. Adapted from "We need to rethink how we provide aid to Africa," Donald KaberLika, 77he Guardian, September 25, 2013. 1 1 Photo (DAndy Kristian Agabs/Gates Foundation, Uganda rice grain The need for investment in Sub- Saharan Africa electric power is urgent. To meet suppressed demand and provide additional capacity for electrification expan- Sion in the region, approximately 7,000 megawatts (MW) was required to be added each year between 2005-2015. This expan- Sion would have required upwards of $27 billion per year. However, actual funding to the electricity sector (for capital expenditure) does not exceed $4.6 billion a year- leaving an annual funding gap of more than $20 billion. Since public sources (utility income and fiscal transfers) contribute only about . .. ...one-half of current capital invest- ment requirements, there is a clear imwnperative for increased private investment, including through ablic-privafe partnerships (PPPs). i n OUTOis By ~ ~P Anto rkr,UnvriyWfCp E nd awc, needn 46~-0 IFCOR/HADSAK POWER Between 1990 and 2011, approximately $9 free government balance sheets from contingent billion of Sub-Saharan Africa's private invest- liabilities. However, approximately 15 years later, ment was made through management and lease as governments recognized that the value of the contracts, concessions, divestitures, and green- guarantee outweighs the balance sheet concerns, field investments, or independent power projects PRGs are finally part of the deal for most new (IPPs). Seventy percent of the investments were power plants. in IPPs with a capacity of over 40 MW and As a result, four new plants in Kenya will benefit long-term power purchase agreements with the from a PRG. The government is required to primarily state-run utilities. There are approxi- counter guarantee less because the liability mately 25 such projects across a dozen African is small-less than five percent of the total countries, and several more in the pipeline. project cost. Other projects benefitting from Originally, the expectation was that IPPs-with PRGs include Cameroon's Kribi (216 MW), their risk-limiting project finance structures- C6te d1voire's Azito (288 MV), and Ugandis would attract private investment into otherwise Bujagali (250 MW). under-funded state-run electricity sectors. While There's a good reason for the success of PRGs: private investment has increased, the public sec- they insure against the risk of government (or tor has also continued to invest. tor as lsoconinue toinvst.a government-owned entity) failing to perform Over 30 percent of projects during the last two against its contractual obligations. PRGs are decades have received equity investments from typically used where the project is large (or in the state agencies. And nearly every project over the case of Kenya, when projects have been grouped same period has required foreign public debt, generally through multilateral or bilateral con- cessionary loans. Are we looking at the future, ps t pia i i - or just a blip on the screen? c g a i S the ery19s.-----------e---sos THE ROLE OF GUARANTEE 0 s pc ( $6 b PRODUCTS Many projects trace elements of success to the availability of partial risk guarantees (PRGs) and various levels of political risk insurance. These products have evolved considerably since the - first IPPs took root. Kenya-one of the most i rl i popular IPP spots in the region-is an interest- * n i a p a ing case. In 1996, at the dawn of its first private i n g role. power investment, sovereign guarantees were not extended because aPPs were supposed to IFC 1 47 together), the country is in an early stage of with shares in projects in C6te d'Jvoire, Kenya, reform and/or has made clear reform intentions, Tanzania, and Uganda, and Aldwych Interna- and where there are commercial lenders. tional (U.K.), involved in Kenya, are driven by commercial interests. However, their work emerged from agencies with strong commit- While private investment has ments to social and economic development. increased, the public sector South-South investors. Indian and Chinese firms have also become increasingly involved in has also continued to invest. the power sector in Sub-Saharan Africa. Tata, ______________________________________ India's largest private integrated electricity firm, holds a 50 percent equity stake in Zambia's Furthermore, the government of the country Itezhi. Tata has been selected as the preferred must request the PRG; thus, the project must bidder for two South African wind farms, and be a priority both for the government and the will also be the technical service provider for the institution (the World Bank or African Develop- recently privatized Benin Distribution Company ment Bank) providing the PRG. In some cases, of Nigeria. Chinese firm Shenzhen is involved in the PRG can be further enhanced or replaced Sunon Asogli (Ghana) and Sinohydro in Kafue by political risk insurance from the Multilateral Gorge Lower Hydro Project (Zambia) and in Investment Guarantee Agency. Karuma Hydro in Uganda. China-Africa Sun- light Energy has been licensed by the Zimbabwe A NEW TYPE OF SPONSOR Energy Regulatory Authority to develop a plant for harnessing coal bed methane. The more traditional investors in African These are enthusiastic partners laying the electricity are literally all over the map. Major players, including American firms such as AES the fuure in roje tere and French giant Electricit6 de France, have the titional-pahave show it eest made important investments in Cameroon, C6te an with ahaan thris nveste ga d'Ivoire, Kenya, and Nigeria. Smaller Malaysian atp$20ubiio ally h firms like Westmont and Mechmar were among the first in Kenya and Tanzania. This article is based on a larger review of independent power However, the universe of players is expanding. projects across Sub-Saharan Africa, undertaken by Eberhard To fulfill future needs, two non-traditional spon- and Gratwick, part of which was recentlyfeatured in Invest- sors have already begun making inroads. These ment Power in Africa: where from and where to?" published include: in The Georgetown Journal of International Affairs, "The Future of Energy," Winter/Spring 2013. Triple bottom-line companies. Globeleq (U.K.) and Industrial Promotion Services (IPS-Kenya), 48 1 IFC.ORG/HANDSHAKE S H A'CA *sko ., * a . p o*. . 188- -m * C .edi -e * (MW reeal enrg proram Thi col a nu be of fatr,icuig eldsge .a -a ** S .ag- * S *d a * rep-- * .e . . .-e I - -e * * - . - . * . . I c public *- -prcue- i* *he *esign * * * b so* Th*- e- A ** program -is .u * t - *- .ited *as - m a S * S *. - I e5 * e s - .I . . - *S e - e * - - . -- -* S I B . -555 5 * tigise by th fac tha it adane co pei in th fis ron exeddtem re' Saaiy * S S 8 8 S 5 e- * .** . - *-- *S S * B S S . . - - . - * - * - * * A* so a *9-*l . SI * * S -* 9- 9 - * * * 5 * S / Photo ©epicurean/istock tivebidsfor enewble nerg (REIDs rater i wasredued i roud tw toimpov Iope yro By Ryan T, Ke tch , Hnton,-- William wvith contuiot10 -Marie Marconnet AnanýaGÓrasm 50 IFC.ORG/HANDSHAKE POWER In late December of 2012, the General Assembly of the United Nations declared 2014-2024 the in Africa, one of the continents decade of sustainable energy for all and launched the Sustainable Energy for All Initiative jointly with the African Development Bank. In passing tional generation capacity, only 5 the resolution, the General Assembly noted that percent of potential hydropower 1.3 billion people live without access to electric- is in use ity and that 2.6 billion people in developing countries rely on traditional biomass sources for cooking and heating needs. Half a billion of those living without access to electricity live in RUZIZI I & 11 Africa. The Ruzizi River forms the border between DRC Hydropower is undoubtedly the most common and Rwanda. The south-flowing river connects form of sustainable and renewable energy. In Lake Kivu with Lake Tanganyika. Two projects 2008, hydropower accounted for 16.3 percent located on the river are currently in operation. of global electricity production. In Europe and The 29.8 megawatt (MW) Ruzizi I, which is North America, 25 percent and 29 percent, owned and operated by SNEL, the parastatal respectively, of the potential hydropower has electricity utility of the DRC, is located 3 kilo- been developed. In Africa, one of the continents meters downstream of the outlet from Lake Kivu with the greatest need for additional generation and was commissioned in 1959. The 43.8 MW capacity, only 5 percent of potential hydropower Ruzizi 11 is owned and operated by SINELAC, is in use today. Hydropower has the potential a multi-national organization established by a to provide a significant percentage of the energy treaty among Burundi, the DRC, and Rwanda that is necessary to realize the objectives of the and was commissioned in 1989. General Assembly's resolution. It's not impossible for nations in conflict to PRECEDENTS PAVE TH WAY put aside their differences to coordinate the The Ruzizi III dam will be the third in a series delivery of natural resources, but it's unusual. For Burundi, Democratic Republic of Congo (DRC), and Rwanda, cooperation is transform- ces o the scs o Ruizi proviTe Rzi ing the shared Ruzizi River into a valuable source River fo the boder bw the Ruzand of hydropower for three peoples. 1FC 151 Rwanda. The south-flowing river connects Lake the consortium of Sithe Global and Industrial Kivu with Lake Tanganyika. The 29.8 MW Promotion Services (Kenya) as the preferred Ruzizi I plant, owned and operated by SNEL, bidder for the project. (This is the same the parastatal electricity utility of the DRC, is tium that developed the 250 MW, $900 million located 3 kilometers downstream of the outlet Bujagali Hydroelectric Dam on the River Nile in from Lake Kivu and was commissioned in 1959. Uganda.) The 43.8 MW Ruzizi II plant is owned and The proposed technical solution for Ruzizi III operated by SINELAC, a multi-national orga- envisions a run-of-river project comprising: nization established by a treaty among Burundi, the DRC, and Rwanda, and was commissioned in 1989. * a 7 kilometer headrace tunnel; SINELAC has been besieged by management - penstock and surge chamber; and financial challenges since its commission- 0 surface powerhouse; ing-a repeat of that structure for Ruzizi III was not an option. Donors and governments wanted - three Francis type turbine-generator units; a fully commercial and independent structure - a 220 kilovolts switchyard; and protected from interference by any of the three - a 10 kilometer transmission line to a substa- governments, assuring that they are all equal. tion located at Kamanyola in the DRC. TIhe design also includes a small generating unit A THIRD WAY at the dam site to produce energy from the eco- EGL has been working steadily to promote the logical flow that will be released to the bypassed third project. In June 2012, EGL launched a reach of the river between the dam and power request for proposals for the selection of a private station. The proposed technical solution has a investor to develop Ruzizi III on a Build-Oper- total installed capacity of 147 MW h ate-Transfer basis. In September, EGL declared Iidd fo r he projt. is tesame tages it te uren sat o ifrsBcujgHyroel Eeric Dain pthRivelrien is a gam chager Accs to enrg lieal chne people'slives. 2h prop tcil soluio n fo r uzizicI enison a run-f-rierGroHetNcmprAKng At the 2012 Summit of the African Union, African heads of state endorsed a set of priority energy projects to be implemented by 2020 as part of the Programme for Infrastructure Development for Africa (PIDA). The energy infrastructure program focuses on major hydroelectric projects and interconnects the power pools among countries to meet the anticipated increase in demand. Nine hydropower projects were identified for this phase, amount- ing to more than 50 gigawatt potential capacity-representmng 40 percent of the actual installed capacity of the continent. To date, the African Development Bank has been involved in five of them: * The Mphanda-Nkuwa project in Mozambique, which will contribute to supplying energy to Mozambique and South Africa. * The Inga hydropower projects in the Democratic Republic of Congo (DRC), which will transform Africa by providing electricity to a large part of the continent with transmission lines interconnecting several countries. * Hydropower components of the Lesotho Highlands water project Phase II, which will supply power to Lesotho and South Africa. * The Ruzizi III project in Rwanda, which will provide additional electricity capacity in Burundi, DRC, and Rwanda, and is the first regional public-private partnership power project in Africa. * The Rusumo Falls development, which will supply electricity to Burundi, Rwanda, and Tanzania. Those multinational large-scale renewable projects will ease regional cooperation in Africa and facilitate universal access to modern, reliable, and affordable energy services on the continent. Photo (D Rich Bcilfuss/International Rivers, Cahora Bassa hydro, Mozambique p Ao RE With donor funding constrainedI and dlomestic capital markets not fully developes the world is looking toward pivare sectmr investment to remedh Africds huge 111frstructuTe def1cit. Th le Cof 11m1ulr0 ilaelsnd dev1lopilent f1in11ce institutialls 1s trans1tloing from finantcis to mobilizers and isk mistigatrs"-leveraging their 111volvement by allowing counties to unlock access to pria t e finance. As a risk mitigator, the Multilatral Imvestment Guarantee Agency (MIGA) plays a significant and increasingly critical role. MIGA's exposure in Sub-Saharan Africa more than doubled in the last four years. For the fiscal year ending June 30, 2013, MIGA issued $1.5 billion in coverage for investments throughout Sub-Saharan Africa, and $1.3 billion of this coverage was for projects in the energy sector. Countries such as C6te d'Ivoire, Kenya, and Uganda have experienced significant progress in this sector due in part to MIGA guarantees. By Jason Zhengrong Lu, M/GA COTE D'IVOIRE KENYA In C6te d'Ivoire, a MIGA guarantee In Kenya, the government is imple- of $116 million is providing breach menting its ambitious "least-cost power of contract cover for the conversion development plan," which calls for an of the Azito thermal power plant increase in the number of independent from simple-cycle to combined-cycle, power producers and a more diversified increasing total capacity from 290 to and reliable energy mix. approximately 430 megawatts. This year, MIGA provided $102.5 MIGA is also supporting Foxtrot million in breach of contract cover to International's oil and gas production the Industrial and Commercial Bank platform, which supplies Azito and of China and Standard Bank of South other plants in the country, by cover- Africa for their long-term commercial ing the equity investment by SCDM financing to Triumph Power Generating Energie and debt from HSBC. The Company Limited. MIGAs support for World Bank's International Develop- Triumph is complemented by an IDA ment Association (IDA) is also provid- partial risk guarantee. ing a partial risk guarantee to back the MIGA is also providing coverage for government's payment obligations to Thika Power Limited and Olkaria III, the company under a gas supply and Kenya's first geothermal independent purchase agreement. power producer. UGANDA In Uganda, the Bujagali hydropower project is key to the country's plan to increase access to electricity. The dam, commissioned in 2012, is already meeting almost 50 percent of the country's electricity needs. The project is sponsored by a consortium of Sithe Global Power of the United States and the Aga Khan Development Network. A partial risk guarantee from IDA is covering commercial lending of $115 million from Standard Chartered and Absa banks, while MIGA is providing 20-year breach of contract cover of $120 million to Sithe subsidiary World Power Holdings. WN More than two-thirds of the population of Sub- According to the International Energy Agency, Saharan Africa is without electricity, and more Sub-Saharan Africa will require more than $300 than 85 percent of those living in rural areas lack billion in investment to achieve universal electricity access. To help solve this inequity, U.S. President access by 2030. Only with greater private sector Barack Obama has announced Power Africa, a investment can the promise ofPower Africa be new initiative to double access to power in Sub- realized With an initial set ofsix partner countries Saharan Africa. Power Africa will build on Africa's in itsfirstphase, Power Africa will add more than enormous power potential, including new discover- 10,000 megawatts of cleaner, more efficient electric- ies of vast reserves of oil and gas, and the potential ity generation capacity. It will increase electricity to develop clean geothermal, hydro, wind, and access by at least 20 million new households and solar energy. It will help countries develop newly- commercial entities with on-grid, mini-grid, and discovered resources responsibly, build out power off-grid solutions. generation and transmission, and expand the reach of mini-grid and off-grid solutions. commrcia enite with onhrid minigrid andani POWER The United States will commit more than $7 billion in financial support over the next five years to this effort. The U.S. Agency for International Development (USAID) will provide MW $285 million to advance private sector energy transactions. P The Overseas Private Investment Corporation (OPIC) will commit up to $1.5 billion in financing and insurance to energy projects. The U.S. Export-Import Bank (Ex-Im) will commit up to $5 billion in support of U.S. exports for the development of power projects. The Millennium Challenge Corporation (MCC) will invest up to $1 billion in power systems to increase access and the reliability and sustainability of electricity supply. OPIC and the U.S. Trade and Development Agency (USTDA) will provide up to $20 million in project preparation, feasibility, and grants to develop renewable energy projects. The U.S. African Development Foundation (USADF) will launch a $2 million Off-Grid Energy Challenge to provide grants of up to $100,000 to African-owned and operated enterprises to develop or expand the use of proven technologies for off-grid electricity. Power Africa will also leverage private sector investments, beginning with more than $9 billion in initial commitments from private sector partners to support the development of more than 8,000 megawatts of new electricity generation. These commitments include investments from: 0S A e*AF ar H eirs Holdings symaiwiI 1FC 157 POWER GOOGLE GREEN Mrica is already benefitting from Google Green's plcefrrnwbeeeg aei natatv massive investment in solar power. The companyplctoivs-hhiswythatehget has closed its first investment on the continent, got nceneeg neteti h ol a $12 million investment in the Jasper Power lsya.Scn,w okopoet hthv Project, a 96 megawatt solar photovoltaic plant trnfmaieonilthts,pjcstatwl in the Northern Cape province of South Africa. bosethgrwhfternwaleegyidty Upon completion, Jasper will be one of the larg- admv h ol lsrt la nryiue est solar installations on the continent, capable 7hJaprPwePojcisoneftoetanfom- of generating enough electricity to power 30,000 tv potnte.T xli h,prassm South African homes.bakrudwlde ,A. As Rick Needham, Google's Director, Energy & Baki208SotAfcaeprnedasve Sustainability, explained on the Google Green eeg hrae hc eutdi lcot blog:thogottecutyadsoedoneomi When we consider investing in a renewable energy grwhSictenheouhAianovnmt project, wejfocus on two key factors. First, we only hsbe cieyspotn h rwho e pursue investments that we believe makefinancial soreoflctityopwrthnao.Wie sene. ouh Aria'sstrngresures ndup ortve traSomtvu onilthatfic is,pr ojetsthtrilleedeto 0t t gotofernwlenridur an oetewrd lsrt laneeg uue Th0aprPwrPoeti n fhs rnfra Afrca s aredy eneitngfro GogleGren' poicisrowth rnewalen tenerguthk Aian overactie hascloed ts irs inestenton he ontnen, goha ien aclien enerinetei the wthonew a $2 mllin ivesmen intheJaser owe lstur ofelccd, wetookpect hatn hve in te Nrthrn ape rovnceofouthAfrca. boteray rowth f the prenearile deenegnutr seSouth Afica's omeng backgrces andd supporpful As IC.ORG/HDSHGogE'sDrco,Eeg aki 08 otfiaeprecdasvr fossil fuels, there' lots ofpotential for renewable through the REIPPPP have thepotential to energy-it' a country blessed with abundant wind transform the South African energy grid Andgiven and solar resources-and the government has set an South Africa'position as an economic powerhouse ambitious goal ofgenerating 18 gigawatts (GW) in Africa, a greener grid in South Africa can set an ofrenewable energy by 2030 (as a comparison, the examplefor the whole continent. entire South African grid is currently 44 GW). entie SuthAftian ridis urretly44 W). Jasper will create approximately 300 construc- To meet this goal, the South African government tion and 50 permanent jobs in a region expe- has established the Renewable Energy Independent riencing high rates of unemployment, as well Power Producer Procurement Program (REIPPPP). as providing rural development and education Through the program, renewable energy projects programs. It will set aside a portion of total proj- compete on the basis ofcost and contribution to ect revenues-amounting to approximately $26 the local economy to be awarded a contract with million over the life of the project-for enter- Eskom, South Aficas state-owned energy util- prise and socioeconomic development, spreading ity Jasper and the otherprojects being developed the green further than it's ever gone before. AFP tr A S A n g n FNL14 F a R ,1t,4ORL examplgo -A - e h hlecniet - I- ~6. - ?fF!VM* I-ARM 1FC 159 OUARZAZATE The scene: a rocky plateau above the southern city of Ouarzazate, on the edge of the Sahara and often called "the door of the desert." It's a Hollywood favorite: Star Wars, Lawrence ofArabia, and Gladiator were all filmed there. A scorching sun hangs overhead, boosting summer temperatures to 400 C (104o F) or more. IFC and its partners are now tasked with harnessing that heat by making it the basis of a feasible power project, advising the Moroccan government on the initial phase of an ambitious 2,000 megawatt plan for solar energy. National solar agency MASEN named IFC its financial adviser in developing the first power plant to be built in Ouarzazate. The goal is to have 500 megawatts installed by 2015 at a cost of approximately $3.5 billion. Private investors were asked to submit proposals for the initial phase of at least 150 megawatts by early 2011, with a public bid award expected in the second half of that year. However defined, it will be one of the largest solar plants ever built, selling power in the domestic market first, and later perhaps to Europe as well. Such projects are now growing in number: in June 2010, Abu Dhabi authorities named Spain's Abengoa Solar and French oil company Total their partners in a new, approximately $700 million, 100 megawatt solar plant called Shams-1, in 2012. The consortium will build, own, and operate the power plant using concentrated solar power (CSP) technology, col- lecting sunlight in 768 parabolic troughs. The Morocco project will also use CSP systems. But large- scale commercial financing is far less available in emerging Photo ( Dana Smilie/World a economies than in oil-rich Gulf locales. So IFC and the World Bank will help mobilize concessional financing Photo © Atne Hoe!iWorld Bank, Otarmy.ate from development institutions so the Ouarzazate project can sell affordable power to its final consumers without major government subsidies, while also providing private developers a viable business proposition. Source: Telling Our Story: Renewable Energy, IFC, 2010. 60 IFC.ORG/HANDSHAKE SENEGAL Morocco's national utility, the Office National de l'Electricit6 (ONE), has raised the rural electrification rate from 18 percent to 95 percent since 1995. Small-scale solar kits were an important part of its approach to bring power to more than 3,600 villages. This led to a partnership between ONE and IFC in Senegal, whose government is working with the World Bank Group on new public-private partnerships to achieve 50 percent rural electrification. In one rugged northern area near the Mauritanian border, IFC and ONE are co-investors in a new private utility called Comasel St. Louis, which has a long-term concession from the government. Among its goals: using solar technology to bring more than 5,000 local villagers their first electrical power over the next two years. The area is poor and dry, using unpaved roads for transport and simple wells for water. But its residents want a reliable source of power and lighting, and are willing to pay for it. Comasel St. Louis' solar systems will meet those needs for as little as $8.39 a month, costs that are far below those of the kerosene lamps and dry cell batteries currently being used. They will also serve 213 schools and 118 health centers. Initial subsidies from the International Development Association and the Global Environment Facility, provided under an innovative Output-Based Aid approach where funding is released only as targets are met, and Islamic Development Bank loans will help defray installation costs in the early phases. Villagers will then begin to pay, ramping up commercial viability via a four-tier pricing structure based on consumer demand. The three lowest- level users will pay flat monthly rates, while small businesses and other large users will pay on a variable basis. Demand for a low-cost, "base of the pyramid" solution to Africa's rural electri- fication needs is high. But given the expectations of modest returns, private risk capital is in short supply, and this project sets a "powerful" example for others to follow. h IFC 161 By Jane Jamieson, IFC r Jemima Sy Water and Sanitation Program, World Bank Why are there more people in Africa who own a Poor sanitation and limited access to water mobile phone than a toilet when the economic generate massive healthcare costs for develop- and social value of improved sanitation is so clear? ing countries. In Tanzania, the total economic Improved sanitation (in contrast to basic sanita- losses due to lack of on-site sanitation have been tion) provides access to a facility that hygienically estimated to be over $200 million a year-an separates human excreta from human contact. Six astonishing 1 percent of the country's gross hundred and ten million Africans do not have this domestic product. access. just as critically, over 40 percent ofAfricans As country governments and the international also lack access to safe water. This isn't just about development community strive to tackle these restoring dignity to those who go without: it's an issues, there has been a shift in the way govern- economic imperative. ments perceive the delivery of basic services. This is largely because governments in developing 62 a IFC.ORG1HANDSHAKE WATER countries with large numbers of people living because money is tight and incomes seasonal, in poverty do not have the capacity to meet the they engage in price-value tradeoffs in water need for improved water supplies and sanitation and sanitation. Meeting a standard level of services from public resources alone; they recog- water consumption from networks involves cash nize an opportunity for domestic enterprises in outlays that are a significant percentage of poor these growing markets. households' income. In Benin, for example, the Once viewed as "opportunists" and "gap fillers," cost of a household water connection comprises the domestic private sector is now seen as a cen- more than 100 percent of the household's tral part of the solution as millions of poor (and monthly income. Most households have access non-poor) households already rely on it to meet to inexpensive alternative sources of water (if their needs. In water, private sector enterprises only for parts of the year), including wells, provide water through independent systems or springs, and boreholes. Poor people's purchases the resale of water. In sanitation, businesses are are thus limited by cost and by their assessment involved in the installation of latrines and toilets, of the value of network water with respect to the manufacture of components, the importation and sale of materials, the provision of empty- Although poor households seem to prefer ing services, and the growing business of waste cheaper water to good-quality water, they also re-use. value convenience. If operators can ensure good- quality service, the availability and opportunity MARKET POTENTIAL cost of alternatives will likely shift incentives in favor of networks. The scale of the market for piped water supply and on-site sanitation services is large and the nascent demand is far greater than originally B t s o a - thought. In Benin, annual sales of water from h w c com- privately or community-managed networks in small settlements could reach $22 million by 2025. In sanitation, the current market for o t h m nh improved on-site sanitation services is vast, and i untapped households in Tanzania alone represent a huge market of about $240 million. But this demand belies the fact that poor However, sanitation is a relatively low-priority households are highly discriminating clients: expenditure for poor households, and cost is an 1FC 1 63 important factor in their decision making. But entrepreneurs, expanding is an issue because cost is not necessarily an insurmountable bar- they are dependent on public funding for capital rier-as the widespread use of other consumer development. In sanitation, the risk of unsteady products, such as cellphones, suggests. Poor demand and the inability of small enterprises to households are willing to bear a cost to attain invest in research and development and market- improved sanitation that they find attractive ing limit their ability to realize the sizable market and providing value. potential. Supply is not matching demand. The other barrier to safer sanitation practices In addition to market-related risks, water is that products are literally out of reach. More firms face a variety of policy and institutional than three-quarters of sanitation businesses in obstacles, including the bureaucratic hassle of Tanzania indicate that the poor live in areas that applying for permits and participating in public are expensive to service because of transport and tenders, the insecurity of licenses, and the lack infrastructure problems. This increases the cost of effective dispute-resolution mechanisms. In of products due to transport, and also frustrates contrast, the impact of policies in the sanitation the ability of households to build facilities- sector is limited. Enterprises working in the because too many inputs need to be coordinated. sector would like governments to concentrate on removing risks to entry by providing market intelligence and promoting the entry of enter- Poor prises that are able to undertake transformative - research and development on new technologies discriminating clients because andmaterials. money i t Transforming the water and sanitation markets seasonal, t e in will not happen overnight. Systematic change is required if the potential of this market is to price-value be unlocked. Policy makers have a key role to water a s play to improve affordability and sustain water services by creating a conducive investment climate, right sizing public investment, targeting subsidies, and being more flexible in pricing to SCALABILITY IS KEY the poor and wealthy alike. h The base of the pyramid in the water and sanitation sectors is dominated by micro- and Statisticsfrom: "Tapping the Markets: Opportunitiesfor saniatin sctos i domnatd b miro-and Domestic Investments in Water and Sanitation for the Poor." small enterprises (72 percent for water and from the World Bank Direction in Development series due 80 percent for sanitation). An overwhelming forpublication January 2014. number of these enterprises are profit-making, Photo credits for page 62, from left to right, top to bottom: but they face many constraints. For water supply tey Foundation, Heather Arney, Arne Hold/World Bank, World Bank, Gates Foundation 641I IFC.ORG/HANDSHAKE In Africa and elsewhere, access to safe water, sanitation, and the tools of basic hygiene can rnean the difference between life and death, education and illiteracy decent wages and poverty Here's a look at hand washing practices throughout the world. The very simple act of washing hands with soap and water is one of the most effective methods of preventing disease. In 2012, child mortality figures released by UNICEF showed that almost 2,000 children die each day from diarrheal diseases, 90 percent of which is due to a lack of safe water, sanitation, and basic hygiene. As diarrheal diseases are primarily fecal-oral, one of the simplest and most inexpensive barriers to infection is hand washing with soap at critical times, such as after using the bathroom and before eating. 0%-34% of people worldwide a6 0 Laundry, bathing, and wash their hands with soap washing dishes are seen at critical moments-before as the priorities for soap handling food and after using use, not hand washing. the toi let. WITH THE PROMOTION OF HAND WASHING 44% increase in newborn survival rates when birth attendants and mothers washed with soap. 40% reduction in 23% reduction of acute diarrhea episodes. respiratory infections. .50% Iower incidence of 54% fewer days of .*. pneumonia in children absence among primary under five years old. school students. Source: UNICEF IFC 65 p e10 *-le 11esV .A---n.s1 * M. * Burk,.i-: a*"s By John Crothers, Frederic Pia, & Thomas Clement Gide Loyrette Nouel & Alard Guiramand Alemand Moussy In Burkina Faso, as in much of Africa, access oprts.Tisucsisenmrernucd to safe drinking water and sanitation remains whncmaetoPsinteretrsnte scarce. This is especially true in rural and cuty semi-rural areas where villages are dispersed, the TyialinralwtrPp'hecleges population is small, and access to energy is rare.toicescvraendxpdthrlefte TO remedy this, the Burkina Faso government prvtseorwiekpnghercefwar has involved the private sector in rural water lo.LsnsfmBukaFsotthvec- through public-private partnerships (PPPs) in tiuc omeigti hleg-nldn an effort to increase access to water as well as to intuioaseupcnrculpovin,ad improve the level of service. The PPP model has - been relatively successful, with approximately otegvrnnscnidigthPPmdl opeatrs.Ths uccssiseve mreproouce 20pecet f llvilaesno cveedbyprv typicrual inte rurliwaerPP,th.hllnei l ow . Lessons/o B n F t triute tomeeingthi.chllege-ncldin insittina set up, conracua prviios,an price-setting- S .~ mehns s aeintutv0o 2~ 0pecn ofal vilae no covre by prvt fo rua wae delivery.0 66- | IFC.ORG/HANDSHAKE LEGALEASE In Burkina Faso, management of water supply isrofAiclueHyalc,anFshy differs between urban and rural areas. In the Rsucshspbihdtomdlcnrcst large cities, water is supplied by the state utility, mnmz ieadcs ncnrcig noea or Office National de l'Eau et de l'4ssainissement tinadmneaceotrtadanfieag (ONEA). cnrc.Teueo hs oe otat a Following decentralization, responsibility to beoetenrinmsruamncplte. supply piped water to rural areas has been trans- ferred to local municipalities. These municipali- ties may then either delegate the operation (and, as the case may be, the construction, mainte- nance, and renewal) of their piped water systems to private operators or operate the systems themselves. In any event, delegation to private operators must be preceded by a public call for tenders held by the municipality. The central government remains responsible for capital expenditures in water infrastructure Unethmoloprinadmitnnc and setting out national water management cotatthoprorireonblfroea- policies-and supervising their implementa- igadmitiigteppdwtrsse tion-but has otherwise removed itself from the wietemncplt srsosbefrrnw delivery of water in rural areas. This decentral- igteast ftesse ternwlo h ized approach has given substantial responsibili- ln-emast en usdzdb h tt) ties to the rural municipalities. The risk remains Thintaivemntrledotecnsu- that they are not always adequately resourced tinothwaeppdsyemnfsruue to negotiate or follow up on the PPP contracts (wl,pm,atroe,pis,nditibin awarded for their water supply networks. pit)i elzdb h tt.Termnrto delteatingratr isupl activiromte manifagement tconctmoeratio and mpeaionteance cointrnac, minimize ime usandycot int onr atngra opea In rinipe, rualmuncipliym yloktione ad manintancetlcornratanlae ffrmg tcnrat Theou usem of theserhi modelct cotrcsra beom tmi Une th moe0prto an -aneac conrat,th oerto is repnil foprt in In manann h ipdwtrsse whl*h uncplt s epnilefrrnw in th-seso h syte (h reea0 oh logtemasesben ubiizdb teStt) ThInta netetrltdt h osrc tino-h aerppdsse0ifatutr (wl,pmp ae twr ies n isrbto pons0srelzdb heSae0h rmnrto ofteoprtr sdrie0ro h0trfs adb th*osmrs h prainadmaneac cotati*uulyetee nofo0 emo the er*adi ailyrnwbe to vaiu fomso patesi cotat0 o * 0FC-|067 Under the affermage contract, the operator is liieacsstcptlmrksanthfctht responsible for operating and maintaining the i h rvt etri epnil o iacn network and renewing the "short term" assets caiaexndtrsthswlauotclyrie of the networks (those whose lifetime does not trfs exceed 15 years) and the State is responsible for the renewal of long-term assets. The private operator is not liable for any "renewal fees." As with the operation and maintenance contract, InubnaescvrdyONAthpie its remuneration is derived from the tariffs leviedofteweridrclystbONAaedn on the end users. The affermage contract is in principle entered into for a term of five years as bet fe sca"trf o t ors and is tacitly renewable. csoes sn cnmc fsaeadcos Theul opertio andtiel maintnanc conrac ineemsevls toh beic the previlin arageet The affermagedcrea conrac should probabl bet the preferredd choicetall ofb the ruralplit muiipltis howver asrao it shift toag thef opeato the respnsiblit for renewa ofds thepico assets ande coseuetl relieve the publi sectoropseb ofh thiser obligtion Idelly aal govrnen shoulds tryhi tote move towrd theuagn concssiotconract since theul priat sectorr takesur maxmu risk forc chostrction financin,oeatie ontmaintseneso, upidwtr h dabc sta hrc andb te rifclectiion. Thisngapproache is erag unlikelyedso teefetiees fh contactshold robaly e tepeferedhoielimpited n acestn capital mare candfo tenfacrtha the~ ~ ~ ~~~~~ ~i oprtrtersosblt o eea ftewther privte isect istresponsil fory financing assts nd onsquetlyrelevethpulicsecorcaepil oaexpdtes ti wei automaticll raie try~ ~ ~ ~ ~~~~ ~I urba oarstecnesincnrat mlmnt aeasicovereutby e NE,ite poricera since~ ~ ~~~~~~ ~o tepiaescotaemaiurikfr wte wter isodretynt by Oukna ased inon consrucion,finncin,oeraton,mainenace,cusomers,ing econtomiguaes ofe sce and carssn and arif colectin. his pproch i unlk I rural areas, crossmansubsidizartiont is morbdif to~ ~ ~ ~ ~ ~ ~~ ~h puce ntemdu tr,hwvr ierice of axmtrif sent gldby decree as in urban aesbuideeieco bytemuiialt ndteoprtr tte0tg Thi0sytemasaenorgncmpttn an shud u owwr prsueo0h rc ofsple0 ae.Tedabc sta h rc verymuc depndson te efectvenss o th comptiton eistng drin thecal forteners Conseqently wher th PP o priua watr sste i no atracin maybde0 theprie o waer ens t reainhig-toth derien of thoalpplain In orert impemnta ntina eqial 0rc o ua waer 0h oeneto BuknaFs i o cosierngho t rguae heprceofwaeri rua ara namne iilrt hti ra toscedi *h meimtr ,h wvr ie areas (amxmmtrf0e ydce) 68 | FC.OG/HANSHAK To attract private investors while preserving a price for water that is affordable for the rural poor, Burkina Faso has opted for a significant financial contribution from the state that I impacts the price of water. Under the current PPP arrangement (whether operation and main- tenance contract or affermage), the construction, financing, and to some extent the renewal of the core infrastructure are realized by the state. The related costs are borne by the neither the private sector nor the end users. Consequently, the construction and to some extent renewal costs are not taken into account by the operator when determining the price of the water. Such a mechanism, which may be regarded as form of capex subsidy, appears to be one of the few ways to preserve an equitable price for rural water. Another possible solution may be to combine projects over a group of municipalities to try to achieve economies ofI scale and even cross-subsidization among users in the various municipalities. Since Burkina Faso aims to significantly increase access to piped water in rural areas as part of the millennium goals, it is clear that PPPs form a crucial part of the current rural water delivery system in a country where such partnerships are otherwise rare. The institutional, contractual, and price-setting mechanisms currently in place form a solid legal basis for success, and Burkina Faso's government continues to look for ways to improve the system and reach more users at an equitable price. Photo 0 Cristian Ca. \.ozambique * . 0 S 04 BUILD RE LATIONSHIPS By Catherine O'Far ,/F Public-private partnerships, take root in Lesotho Photo (D IFC . Lesotho, a mountain kingdom in southern in the first year of operations. In 2011, the state- Africa, is known for its hard-working population of-the-art Queen Mamohato Memorial Hospital and challenging geography. Although it is not opened and the full health network became a wealthy country, the government has worked operational. steadily to develop its own solutions to resource But this was just the beginning of Lesotho's constraints and the increased demand by its successful experience with PPPs, as the hospital citizens for infrastructure and services. One of partnership evolved to serve as a model for the government's guiding principles is to harness others. Lesotho's officials have continued to private sector capital and expertise to meet its design health PPPs, completing a second PPP national strategic goals. natinalstrtegi gols.for healthcare waste management. PPP projects Because Lesotho's people had especially press- are also underway in facilities management and ing needs in the health sector, the government information technology for clinics, as well as a and IFC's Advisory Services in Public-Private variant, results-based financing, for primary care Partnerships started working together in 2006. in rural areas. The government was committed to providing Significantly, PPP principles are being applied to virtually universal health coverage to all citizens. Together, government officials and IFC worked ration for wind energy and tourism. Lesotho's together to design a public-private partnership government has continued its work with the (PPP) that would replace the aging national World Bank Group to expand capacity building hospital and feeder clinics with a new health for contract management and to complete the network in the capital city, Maseru. National PPP Framework, with plans underway In 2010, a network of three refurbished and for the full legal and regulatory framework for expanded clinics opened and provided hundreds PPPs in 2014. h of thousands of patients with advanced services 70 1 IFC.ORG/HANDSHAKE HEALTH Lesotho's government and the World Bank A A Group are working together in a variety of sectors, such as: 5 % i health power 16 i ll tourism Tiff legislative/ ( c regulatory ............. ................... ovrl motlt A PPP HEALTH NETWORK Learn more about the results o from Lesotho's health sector PPP experience in this video.ii 41%rn deneain o0 ve al ority lo To better provide more b effective public services... governments every- wu h where are increas- -5 ingly turning to p1oi1 art some form of public- private partnership. foivr IFC 1 71 A HEALTH prScription. D D Nigeria's first health partnership delivers new hospital Nigeria's Cross River State, with just over 0.5 hospital beds per thousand people, has the lowest density of hospital infrastructure in the South-South region of the country. While there is nascent private sector involvement in the health sector, most healthcare delivery is provided by the state; however, the network of public sector hospitals and healthcare centers does not meet the region's needs. With IFC as transaction advisor, the government of Cross River State is structuring and implementing the first health public-private partner- ship (PPP) in Nigeria: a new referral hospital in the capital city of Calabar that will deliver an affordable international standard of healthcare for the state. The hospital facilities in Cross River State are rate of medical evacuations to other countries. inadequate: in addition to deteriorating infra- The lack of advanced diagnostics is a serious structure and a lack of skilled staff, the facilities problem and patients are often forced to travel to lack advanced medical equipment. As a result, neighboring states for imaging services; there is the quality of public healthcare services is sub- also limited access to quality high-risk obstetric optimal. Moreover, the population perceives the care, intensive care units, and to emergency! quality of healthcare as poor, resulting in a loss trauma care. of confidence in the facilities, a greater reliance With a population of approximately 3.4 million on self-medication, and an exceptionally high people, a shortage of doctors exacerbates the 72 1 IFC.ORG/HANDSHAKE state's healthcare problem. Apart from the fed- the proposed hospital through a transparent erally-funded teaching hospital, only 36 doctors tender process. and 938 nurses employed by the state cover the The hospital is anticipated to be operational in state's secondary health facilities. This number 2015. The 10-year project term will include up translates into an alarming doctor-population to two years for construction and eight years for ratio of 0.21 doctors per 10,000 patients- operation. The construction and equipping of one-fifth of the Sub-Saharan African average. the hospital, totaling approximately $37 million, will be financed by the state government. The TAKE ONE PPP AND CALL ME consortium will bear some project development IN 10 YEARS costs, deliver a turnkey hospital, and will then be responsible for running the hospital operations To confront these challenges, the Cross River under terms defined in the PPP agreement. At State government proposed the establishment the end of the concession period, the facility will of a 105-bed referral hospital to serve the needs be transferred to the government. of the capital city, Calabar, and its environs. A The hospital will be managed as a state referral new gateway clinic to be attached to the hospital hospital, providing quality and affordable access will offer primary healthcare services and a solid to regional level clinical services. The consortium referral mechanism for the PPP hospital, ensur- led by UCL Healthcare Services includes Cure ing that only patients requiring secondary care Hospital Management Services, a U.S.-based are admitted to the hospital. Starting in Sep- firm which will provide clinical services, and tember 2011, IFC facilitated the participation Simed International, a Dutch firm which will of qualified private sector firms in the design, deliver the medical equipment. h construction, equipping, and management of STh hopitl i exectd t prvid hih tHe sal, trotesal approximtateyi$37bmillin quality ~ ~ ~~ il bdacdscnayciia n xerfinaned byrug texpsate goiernent.Th dconsort iumvi w b s ome prjc develpmen River ~ ~ ~ ~ ~ ~ oss del,prtc ty ote50,0 ier a turrdnke hospital,ean willthnb cthefen tof the cones son peod, ate facil "~ ~ ~ ~ ~ ~ ~~~h hh optlwl ly oei h ttosial willberatngednasraisteratiferal goverhospitalovprovidingwqualitytany affordablenaccess toatn reinljeeoliiabsrie.sh.onotu 1FC 1 73 INTERVIEW Senator Livel Irnoke, Governor of Nigeria's Cross River State, speaks . . to Handshake crossin o healthcare needs in about why his administration pursued the new hospital, and the state's openness hvto increased apnivate sector participation. Why is the hospital specifically, us was to bvestigate the feasibility of a special- and the healthcare sector gen- ist healthcare facility. This hospital will serve as a center of excellence that will drive delivery of erally, a priority for the current first-class, top quality healthcare across the state. administration? As part of our socioeconomic development we en i on experiene n hta agenda, Cross River State has extended its public We have entc lede sector investment beyond infrastructure. We in pess i h s o have embarked on a concerted effort to increase our investment in our people. Improvementse a rvesecto conessionai oure ein in education, social welfare, and healthcare are r ope and maageet of therospital top priorities for this administration. Over the years, we have created an extensive network of pol.Tehsia sepce ob h o primary healthcare facilities, particularly in rural reralfcitinhest,dlvrngnen- areas across the state. We have also established toa tnadseils elhaet u ii programs to improve access to these facilities and zn.I ilb tfe ymdclpronlwt have recorded significant success. Currently, we etnieitrainleprec nhatcr are engaged in a program of substantial upgrades deiryWehvjutecnlcoptdte for our secondary healthcare facilities, so they bdigpoeswrigwt T savsr o will meet the demands of our population. The aprvt-eorcnsinietonueefcet natur ~ ~ ~ ~ ~ ~ ~ ~ial togrsso irnproe healthcare detrfr oeainadmaaeeto h optlivr 741~i the.OGstate?AK The new hospital will translate world-class best recently, General Electric commissioned a $1 practices which can be easily adopted by other billion investment in a manufacturing plant facilities. As the only specialist tertiary healthcare here in Cross River. This entry shows the huge facility of its kind in the region, the new hospital potential there is for investment in industry and will attract cases from all over Nigeria. It will manufacturing. help divert the immense annual importation of healthcare from countries in Europe as well as India, South Africa, and the U.S. What role do you see for the pri- s a o s r p vate sector in the development e our g ast of Cross River State-not just in healthcare, but in other sectors as well? What has the government done As the premier destination for business and to encourage private sector leisure tourism in Nigeria, Cross River has consolidated its position as the hub of the country's tourism industry. Nevertheless, we Private sector participation will improve stan- have sought to further establish Cross River as a dards and increase quality to the benefit of all credible tourist offering on the subcontinent. In the people. This government has made assiduous this regard, there are substantial opportunities efforts to institute the processes and mecha- for private sector participation to facilitate the nisms for the smooth entry of private sector development of various tour sites and attractions participation in operation and management of that already exist, bringing them up to interna- public sector assets. We have created an Invest- tional standards. tionl sandads.ment Promotion Bureau as well as a Bureau for Agriculture is just one example of the viable Public-Private Partnership in an effort to ease the opportunities here for private sector participa- entry of private sector commercial interests, thus tion. Wilmar International, the world's largest freeing up government resources which can be oil palm producer and distributor, has invested employed in investments in infrastructure and in developing a 50,000 hectare plantation other social amenities. h with a refinery. Other domestic agricultural investors have found Cross River to be a con- ducive environment for their investments. just Photo courtesy ofCross River State government. 1FC 1 75 FAST FACTS LIGHTING AFRICA Catalyzing markets for modern off-grid lighting 589,000,000 I $4,400,000,000 people in Africa live without is spent per year on kerosene by access to a public electricity facility. : off-grid African households. 1/3 49% of Africa's on-grid popula- of off-grid households in Africa tion experiences frequent (54 million households) could blackouts and is consid- have their lighting needs met ered under-electrified. by solar portable lanterns. 6,900,000120 off-grid lighting products rowin aes o ghii that passed Lighting Global qultlihngpocs quality standards sold in i 02(vr2 1) Africa. 6,900,0001138,600conrenwslig people n Afria withtons of GHG emission pout hthv cleanlighing nd btter avoided; CO2 -equivalent pasdLgtn access o energ due toof taking 26,000 cars off Glblqaiyts. solar lanterns.th rod Ligtin Afic isa jintIF an WoldBan prgra tat ork toar imroquali sty ete lighting prdut areas not yet connected to the electricity grid. 761I IFC.ORG/HANDSHAKE e £e e toy se paradse. WATCH THE TED TALK Chimamanda Ngozi Adichi: "The danger of a single story." Subscribe: Nx ifc.org/handshake Connect with us: f f acebook. com/if cinf rastru ctu re twitter. co m/ifc_adv iso ry S scribd.com/ifcpppFS 0 0 handshake@ife.org 1 ; FInternational Finance Corporation October 201 3 IN a World Bank Group