Semin á rio Reformas e Politicas Econ ó micas Futuras

1. Strictly Private and Confidential Seminário Reformas e Politicas Económicas Futuras Namaacha, 22 a 25 de Março de 2010 Alastair Campbell – Standard Bank, Corporate & Investment Banking division

2. Objectives of this presentation • Examine the pipeline facing Mozambique in the short to medium-term • Many corridor related opportunities (Nacala, Beira and Maputo) • Many energy sector opportunities – constrained in most instances by a lack of transmission assets • Mining sector is in the middle of a boom • Agribusiness opportunities • Examine the funding challenges facing these projects • Many of these projects are Mega deals • This brings liquidity constraints • There are numerous cross-border issues • Discuss these challenges in the context of two recent case studies that have adequately addressed the funding challenges they faced: • The Sasol – Pande Temane pipeline • The Morupule B coal fired power plant in Mozambique • Consider how lessons learnt from these projects could be applied in the future to meet the funding requirements of Mozambique and the region?

3. SASOL NATURAL GAS PROJECT CASE STUDY

4. Sasol Natural Gas Project – overview • Growth in the South African gas market led Sasol Limited to develop a project to bring the Mozambican gas to its markets in South Africa back in 2002. This is known as the Sasol Natural Gas Project. • This Project consisted of two separate but integrated projects that were each developed on a limited recourse basis. These project are • Sasol Petroleum Temane Limitada (SPT) - R1.33 billion of debt (approximately $190m) • Republic of Mozambique Pipeline Company (Pty) Ltd (ROMPCO) – R1.98 billion of debt (approximately $280m) • SPT is the upstream project and is involved the development of the Pande and Temane Gas Fields in Mozambique along with the construction of a Central Processing Facility (CPF) to clean and compress the gas. • ROMPCO was the project company that was set up to construct the 865km gas pipeline and transport the gas from the CPF facility in Mozambique to Sasol’s petrochemical plants in Secunda, South Africa. • Both SPT and ROMPCO were funded through a combination of a commercial lender (Standard Bank) and various DFIs and ECAs. • The World Bank through MIGA and the IBRD (International Bank for Reconstruction and Development) were also brought into the deal in order to provide political risk cover. • A strong feature of the Sasol Natural Gas Project is the partnership between Sasol and the two host governments (South Africa and Mozambique). • Each Government expressed their desire to facilitate the projects by providing undertakings to lenders • Concessions were granted on the tax regime by the Mozambican Government for each project • Each Government was granted an option to take up an equity stake in ROMPCO (which is located in both countries) and the Government of Mozambique was granted an option to take up a stake in the CPF SPT operation (which is located only in Mozambique) • The Sasol Natural Gas Project was a hybrid project finance structure as Sasol guaranteed the lenders against all commercial risks • It was not a normal full Sasol credit though as the guarantee had carve-outs for political risks. • Mozambican political risk was a key concern for Sasol • Standard Bank was able to mitigate this through an innovative political risk structure involving MIGA, IBRD, ECIC, SACE and EFIC. • The involvement of the DBSA and various DFIs and ECAs meant that in the event of a political event of default , the Mozambican Government would be faced by a powerful group of interested parties • The political risk was stripped out of the financing structure while the commercial and operational risk remained within the projects (and with Sasol through its guarantee) Source: Standard Bank

5. Sasol Natural Gas Project – Commercial Structure • SPT is the designated operator for production operations for both the gas fields and CPF • There is also an 80% take-or-pay obligation on Sasol Gas included in the Gas Sales Agreement • For the ROMPCO transaction, an 80% ship-or-pay agreement obligating Sasol Gas is included in the Gas Transportation Agreement Source: Standard Bank

6. Debt Service Support Sasol Ltd Debt Service Support EIB SPT ( Upstream AfDB project co ) MIGA Commercial Agency Loan Political Loan Tranches DBSA IBRD Risk SBSA Commercial Insurance Tranches Loan Tranches DEG ECIC ROMPCO ( Downstream project co ) PROPARCO FMO Sasol Natural Gas Project – Financing Structure EFIC SACE PRG structure • Sasol could have easily funded the project on-balance, but they were concerned about political risk and the fact that the project would represent a substantial part of its asset base. • In order to facilitate the timing of the transaction and reduce the funding costs, Sasol provided a guarantee for all payments required. A carve-out for political risks was included. • Various DFIS were brought into the funding package to further reduce the political risk • Standard Bank was the only commercial lender in the Project. Due to the tenor of the funding (12 years) political risk cover was required. • Much of the cost of the political risk cover was reduced through the involvement of ECAs • Political risk insurance was also specifically sourced through IBRD using a PRG structure. This requires a counter-indemnity from the Government of Mozambique for breaches by the Government under the Petroleum Production Agreement (PPA) and various other agreements. This is the strongest form of political risk cover. Source: Standard Bank

7. (5.8%) STANDARD BANK SASOL FINANCE Full Guarantee CMG Equity Funding (9.1%) (10.1%) EIB Lending Guarantees 25% 25% STANDARD BANK CMG 25% 25% iGAS ABSA 50% 50% SASOL FINANCE SASOL SENIOR DEBT ROMPCO Republic of Mozambique Pipeline Investments Company – further developments • The original ROMPCO deal was done back in 2002 with Sasol as a 100% shareholder in the Project Company • The Government of South Africa through iGas and the Government of Mozambique through CMG had an option to purchase a 25% stake respectively in ROMPCO. This option was taken up in 2005. • The original deal was done with full commercial risk cover from Sasol. Senior lenders required the full commercial risk cover to remain in place. • Credit worthiness concerns meant that both CMG and iGas would need to provide a bank guarantee to cover their respective proportion of the guarantee • CMG did not have the available funds to take up their equity proportion and provide the lending guarantee. • Standard Bank assisted by arranging a funding package of approximately R900 million that enabled CMG to take up their rights. • This was done by ring fencing the debt provided to CMG with repayments expected to come from the dividends distributed at the ROMPCO level. • The EIB and Standard Bank provided a loan with a synthetic equity structure. These facilities did not have a fixed repayment profile but rather are repaid via sweeps of cash as ROMPCO declares dividends. • A Standard Bank loan facility with a Sasol Finance guarantee was structured to be a top-up facility to enable CMG to pay its interest on the loan above and to pay the guarantee fees to Standard Bank. • Political Risk cover was again taken out as the Sasol Finance guarantee had a carve out and Standard Bank was unable to take Mozambican political risk for 15 years. • Currently, Standard Bank is assisting ROMPCO with a subordinated loan facility that will refinance the arms-lengths shareholder loans put in place by CEF and Sasol to finance the expansion of the pipeline from 120MGJ/a to 143MGJ/a. STANDARD BANK Source: Standard Bank

8. MORUPULE CASE STUDY

9. Morupule B Power Plant – overview • The US$1.6 billion Morupule coal power station is part of Botswana's (through the state utility Botswana Power Corporation (BPC)) strategy to secure power supply by expanding the existing generating capacity as well as improving the southern African country's self-reliance • The power station will have four 150 MW units and will be a coal-fired and air-cooled power plant • Standard Bank and ICBC will finance the expansion of Morupule for US$825 million over 20 years • ICBC will provide a 20 year loan of US$825 million which will be guaranteed by Sinosure for 15 years with the remaining years (16 to 20) being guaranteed by the World Bank. Both guarantees will cover commercial and political risk • A US$140 million bridge finance facility will also be provided by ICBC that will be guaranteed by Standard Bank • In turn, the Botswana Ministry of Finance will provide guarantees to Sinosure and Standard Bank for any outstanding balances • Standard Bank will also provide a cross-currency swap that is designed to convert US$ funding into fixed rate synthetic Botswana Pula funding, thus minimising BPC’s exposure to adverse movements in foreign exchange rates and interest rates. • This fully underwritten financing package was provided in September 2009 – i.e. in the middle of the credit crunch • The extent of funding is possible because of Chinese participation and the SovereignGovernment Guarantee (through the Botswana Ministry of Finance) • The primary requirement of BPC was to ensure that to the greatest extent possible, local currency funding is secured. The reason for this local currency requirement is that BPC sells power to its customers in BWP • The funding solution provided by Standard Bank, ICBC, Sinosure and World Bank provided the liquidity and currency risk mitigation that ensure that BPC’s primary objective will be achieved • The funding solution proposed to the client provided a one-stop funding solution to the client. In the current lending climate, this is almost unheard of. The value add that Standard Bank brings in this instance, is its regional knowledge. This local knowledge, when combined with the considerable lending capability of ICBC and political risk mitigation capability for Sinosure, provided the client with a funding solution that few financial institutions can offer Source: Standard Bank

10. Morupule B Power Plant – funding structure Sinosure Guarantee World Bank Partial Credit Guarantee 15 year Political/ Commercial cover Ministry of Finance Guarantee ICBC 16 – 20 year Standard Bank BPC 20 year loan US$825m Bridge Currency Basis Risk hedging ICBC US$140m US$140m Guarantee Bridge 9 month Standard Bank Sinosure Guarantee US$825m Loan balance World Bank Partial Credit Guarantee 0 15 20 years Source: Standard Bank

11. Morupule B Power Plant – funding structure (cont) • Standard Bank partnered with ICBC to provide a tailor made solution to BPC for the financing of the USD1,6bn power project. • The development of the project was key to BPC’s long term strategy to be energy self sufficient. • China National Electric (CNEEC) was the appointed EPC contractor to build the 600MW power station. CNEEC is one of ICBC’s top tier clients. • ICBC and Standard Bank were the lead arrangers of the funding package which included the following: • USD 825m Export Finance Facility to be guaranteed by Sinosure (year 1 – 15) and the World Bank IBRD (year 16 – 20) • USD 140m Bridge Facility pending Sinosure and other approvals being forthcoming. • The US$825m Export Finance Facility will effectively be provided in fixed rate Botswana Pula through an innovative interest rate and currency risk hedge provided by Standard Bank for the full duration of the 20 year facility. • ICBC and the Standard Bank Group provided a single joint proposal to BPC. • Standard Bank’s on the ground presence in Botswana as well as the specialist input from Global Markets, DCM and Project and Export Finance helped secure the mandate for the bank.

12. Morupule B Power Plant – advantages and benefits • Sinosure supported ICBC funded Export Finance loans - Benefits and advantages for clients 1. Large USD funding available for key sectors in targeted countries. In these times of scarce and costly liquidity for emerging markets, having a funding partner who is able to make large sums of USD liquidity available for debt investments in emerging markets is a significant advantage. 2. Sinosure and ICBC have significant appetite for sovereign debt (backed by MOF guarantees) 3. “One stop shop” – BPC were able to negotiate a very large fundraising with one single bank consortium (ICBC and SB). No need for a large consortium of a dozen or so banks. There is a direct but inverse correlation between number of banks involved in a deal and the time and cost it takes to reach financial close. Not so for Morupule financing, which took only two months from mandate to signing of loan documents. 4. Standard Bank were also able, through an innovative basket currency hedge, to offer BPC a 20 year facility denominated in fixed rate pula . This derivative enhancement significantly improved the attractiveness of the financing offer from the ICBC/SB consortium in that BPC were able to align their loan currency with the currency of their revenue stream for the full repayment period. 5. The involvement of the World Bank International Bank for Reconstruction and Development to increase the loan tenor to 20 years has also been of benefit to the client. 6. The export finance loan, provided by ICBC and Sinosure in support of CNEEC as the EPC contractor, was provided on very attractive terms in the current market. • Sinosure supported ICBC funded Export Finance loans

13. Concluding take-away’s • The big Mega deals can be done, but they do require “packaging” from the Arranger banks • Guarantee products such as the PRG programme can ultimately end up providing the key that unlocks commercial bank participation in these projects • Accessing liquidity from traditionally under utilised sources, such as China, is possible but it does require a degree of financial structuring from the arranging bank • “Enclave” projects lend themselves to funding solutions that can be structured without the need for significant host government financial support • From a Mozambican government perspective, the following advice is offered: • Continue to create an investment climate that is conducive to accommodating the private sector (CPI) • Don’t create impediments to entry with “mist on the runway” scenario’s – i.e. ensure that a regulatory and legal framework is in place to accommodate the private sector • Try to remove bottlenecks from the process

14. Alastair Campbell Head of Power Director, Corporate and Investment Banking Contact - Ph:+27 11 636 6416 Contact - Fax:+27 11 631 0491 Email:Alastair.Campbell@standardbank.co.za Conclusion Thank You

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