Financing Low Carbon Projects - JCM Indonesia [PDF]

Capital Injection from GOI. Capital Market. (Bonds, Notes,. Securitizatio). Loans and Grants. BPJS, Sharia. Insurance. S

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Idea Transcript


A LEADING CATALYST IN FACILITATING INDONESIA’S INFRASTRUCTURE DEVELOPMENT

Financing Low Carbon Projects

Darwin Trisna Djajawinata Director PT Sarana Multi Infrastruktur (Persero)

Accelerating Private Sector Participation Towards Low-Carbon Development in Indonesia: Workshop on Joint Crediting Mechanism Jakarta, 30 November 2016

Project Finance and Corporate Finance Structure

1. Corporate Finance Lender relies on cashflows from all corporate activities

Project 1

Loan

Bank

Company

Project 2

Repayment

Project 3 Share holding Non / Partial guarantee

2. Project Finance

Non/ Limited recourse

Lender relies on cashflows from the specific project only (Project 3)

Loan

SPC

Bank Repayment

Project Finance is relying on the project’s cashflow as the principal repayment source

2

Case Study: Key Issues in Renewable Energy Financing in Indonesia – Risk Perspective

3

Project Key Considerations and Concerns

Key Considerations 1. Optimal sharing of risks – principle is that risks should be allocated to the party best suited to manage or minimize it 2. Having a conducive regulatory environment

Key Concerns 1.

Strong project sponsor

2.

EPC contractor with good track record

Typical Project Risks of Renewable Energy Projects Planning

Project Sponsor Eligibility

Construction

Operation

Construction Delay & Cost Overrun Operation Failure

Project Consultant Screening

Constructor Default and Insolvency

Operator Screening

Environmental and Social Impact

Land Topography

Sustainability of Resources Unexpected Operation and Maintenance Costs

Natural Disaster Offtaker

3.

Access to Infrastructure Grid Distance

Stable cashflow Supplier Screening

Law and Regulation Changes

Tariff Adjustment and Approval Contract Termination

4.

Solid project fundamental

5.

Suitable financing structure

6.

Professional parties

Land Acquisition Transport and Logistic Costs

Standard Quality

4

Case Study: Project DSCR vs Project Reliability Scenario-2: with 20% of cost over-run

Scenario-1: base scenario

4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 -

3,40

Base scenario

2,83

3,00

with 20% of cost…

2,50 2,00

1,32 1,00 1,02 1,06 1,11 1,16

1,51 1,60

1,50 1,00

0,93 0,80 0,82 0,85 0,89

1,09

1,26 1,33

0,50 Y-1

Y-2

Y-3

Y-4

Y-5

Y-6

Y-7

Y-8

Y-9

0,00 Y-1

Y-2

Y-3

Y-4

Y-5

Y-6

Y-7

Y-8

Y-9

Scenario-3: with 20% of cost over-run & 17,5% of CF (Year-1)

3,00

2,68 with 20% of cost over-run & 17,5% of CF (Year-1)

2,50 2,00 1,50

1,00

0,76 0,77 0,80 0,83 0,87

1,03

1,20 1,26

0,50

 The Debt Service Coverage Ratio (DSCR) is the ratio of cash available for debt servicing to interest, principal and lease payments.  It is a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan.  The minimum DSCR, particularly for new sector, for the banking acceptance is about 1.4-1.5 x

Y-1

Y-2

Y-3

Y-4

Y-5

Y-6

Y-7

Y-8

Y-9 5

Case Study: Improving Project Bankability

Indicative Ratio

 Financing size = 30%

Senior debt

 Financing size = 40% Mezzanine

Equity

 Equity size = 30%

Remarks

 Indicator of project’s bankability  With mezzanine portion, senior lenders will more secure or comfortable to finance the project  Limitation of senior debt portion due to new sector  Using cash waterfall mechanism

 Using bullet payment mechanism for principal  Reduce cash flow’s burden during senior debt’s tenor  Using cash waterfall mechanism

 Equity sponsor still has room for excess cash  Using cash waterfall mechanism

6

Our case: financing Structure in RE project (e.g: Mini-hydro Power Plants) PLN

PLN PPA

Assets

PPA

Senior Loan

SMI

• Intl Institution • SMI

Senior Loan

Mezzanine

Private Equity overseas

• PE overseas • SMI

Mezzanine

Equity

Project Sponsor

Project Finance: Mini-hydro Power Plant • SMI as a Senior Lender • PE as a Mezzanine Lender

Project Sponsor

Assets

Equity

Project Finance: Mini-hydro Power Plant • SMI and International Institution (Co-financier) as a Senior Lender • On the next stage: PE overseas & SMI as a Mezzanine Lender

7

Typical Financing Structure of Renewable Energy Projects Typical Financing Mix

Financing Institutions

Source of Funds

Banks • International Banks • Large Domestic Banks • Local Branch of Foreign Bank • Small-to-medium Domestic Banks

e.g. deposits (mostly short term for domestic banks) & capital market

ECAs

e.g. government, private investors

Multilaterals/bilaterals

e.g. multilaterals/ bilaterals member countries, capital market

Sub-Loan

Infrastructure Financing Institutions (PT SMI/IIF)

e.g. Government, multilaterals/ bilaterals, private investors & capital market

Mezzanine

• Strategic Investors

Quasi-Equity

Equity

Debt

• Private Equity / Hedge Funds

Convert

• Infrastructure Financing

e.g. private investors, multilaterals/bilaterals, capital market

Institutions (PT SMI/IIF) Equity

Grant

• Donors • Multilaterals/bilaterals

e.g. climate funds, green funds, adaptation/mitigation funds, multilaterals/ bilaterals funds

8

Our Business Model

PT SMI Business Pillars Sources of Funds

Conventional

Capital Injection from GOI

Capital Market (Bonds, Notes, Securitizatio)

Loans and Grants

Sharia*

Sharia Capital Market

BPJS, Sharia Insurance Hajj & Syirkah Funds Sovereign Wealth Fund

FINANCING & INVESTMENT

CONSULTATION SERVICES

PROJECT DEVELOPMENT

Public Sector Advisory

Project Development Facility (PDF)

Infrastructure Financing • Senior loan (Working Capital, Investment Loan) • Junior Loan • Mezzanine • Equity investment • Arranger & Underwriter • Standby Lender PPP

Municipal Financing (PIP/RIDF) IMBT/Lease with Option to Own Murabahah/Installment Sale with Deferred Payment MMQ/Diminishing Partnership

Sectoral Focus Electricity Transportation Telecommunication

PPP Project

Training & Capacity Building

Renewable Energy Project (Geothermal Exploration)

Investment Advisory (Conventional and Sharia)

TA & Donor Funds Management

Energy Efficiency

Irrigation

Oil and Gas

Drinking Water

Road and Bridge

Waste Management

Municipal Projects

Technical Assistance

Financial Advisory (Conventional and Sharia)

Rolling Stock of Trains

PDF & Donor Funds Management

Donor Funds Management

Correctional Infrastructure

Hospital

Region Infrastructure

Market

Education Infrastructure

Tourism Infrastructure

MMOB/Restricted Investment

Social Infrastructure

* Islamic Business Unit is expected to be operational at the end of 2016

IMBT= Ijarah Muntahia Bittamlik

MMQ= Musyarakah Mutanaqisah

MMOB= Mudharabah Muqayyadah on Balance Sheet

9

PT SMI’s Sustainable Financing Initiative

Sustainable Financing Focus

Economical

Social

• New & Renewable Energy • Energy Conservation • Waste Management Product

• • • •

Loan Grant Quasi Equity Facility Technical Assistance

Sustainable Development & Green Growth

Strategy • Create strategic relationship with potential clients • Create strategic cooperation with multilateral institutions • Coordination with government institutions

Environmental

10

PT SMI Eligible Sectors for Sustainable Finance

Municipal Waste Management

Low Emission Transportation

Social Infrastructure

Drinking Water Supply System

New and Renewable Energy

Geothermal Energy

Solar PV

Industrial and Domestic Waste Water Treatment System

Biomas s Energy

Wind Energy

Irrigation

Energy Efficiency

Green Building

Smart Street Lighting

11

PT SMI has Implemented Environmental and Social Safeguard

PT SMI ESS Architecture Policy

Procedures

Compliance of the Environmental and Social Rules and Regulations

Evaluating E&S Risk Transaction Screening

ESS Governance and Management System

Risk Identification

Risk Categories

E&S Due Diligence

Biodiversity and Natural Resources Management

Conditions of Financing Land Acquisition and Resettlement

Monitoring E&S Risk

Indigenous People and Cultural Heritage

Reviewing Client/ E&S Performance

Gender Policy Consultation and Grievance Handling Mechanism

Managing non-Compliance

Continuous capacity and capabilities improvement Monitoring and Reporting ESS: Environmental & Social Safeguards

12

Generic Partnership Model With International Institutions

Co-financing Model Climate Fund / Donor

PT SMI

Intermediary

Fund Management

Capacity building programme/ PDF

Climate Fund / Donor

Climate Fund / Donor

Structure the project & manage TA Grant

Assign for fund manager

Fund

Loan repayment

Special/ Esc. Account

PT SMI

PT SMI Loan repayment

Loan / TA

Loan revolving

Loan/ Grant

Loan

LowCarbon Projects

Training Coordinator

Fund management

Cofinancing Loan repayment

Fund disbursement

LowCarbon Projects

LowCarbon Projects

13

Partnerships in Climate Change Programs i.e. Renewable Energy

Climate Technology Fund (CTF)* Grant USD49 million

USD100 million Credit Facility Aggrement €400 thousand USD5 million Technical Quasi Equity Assistance Facility Programme

Regional Infrastructure Development Fund Loan USD500 million

SECO

Grant USD3 million TA & Project Preparation

Geothermal Energy Development

Global Environment Facility (GEF) Grant* USD6,25 million

Accredited Entity Low-emission and climate-resilient development*

Grant for Loan USD6- 8 million Sustainable Urban Transport (BRT)**

Grant Facility USD300 thousand Wind Energy Development di Lombok

In Accreditation Phase II

*) Preparation Phase **) Planned

14

A LEADING CATALYST IN FACILITATING INDONESIA’S INFRASTRUCTURE DEVELOPMENT

THANK YOU Contact Us: PT Sarana Multi Infrastruktur (Persero) Sahid Sudirman Center, 48th Fl. Jl. Jend. Sudirman No. 86, Jakarta 10220 Indonesia (62-21) 8082 5288 (hunting), (62-21) 8082 5288 (fax) Website : www.ptsmi.co.id Email : [email protected] #baktiuntuknegeri

Roles of PT SMI in Addressing Sustainable Development Issues in Indonesia

1

2

Roles of PT SMI in Addressing Sustainable Development Issues in Indonesia

Infrastructure Finance Company

The only SOE with focus mandate in Infrastructure Development Financing

Supports Mitigation Actions

The business sectors are very relevant to sustainable development actions, including renewable energy and transportation

Future Role as a Development Bank

Future role as a Development Bank with a broader eligible sectors will allow SMI to contribute more significantly in addressing sustainable development issue;

3

4 Supporting Impact to Global Target

Plays significant role in supporting relevant infrastructures in sustainable development projects as well as reducing emission in order to achieve global target in sustainable development goals (e.g.: climate change mitigation).

16

Partnership between AFD and PT SMI Renewable Energy and Climate Change Projects

Credit Facility Agreement (CFA)  Financing of Renewable Energy and Climate Change Investments o Loan Facility :USD100 million o Tenure: 10 years o Grace Period: 3 years o Project size max: USD50 million o Loan size max: USD25 million for each project  At least 50% of the facility must be dedicated to Renewable Energy investments and the rest is for Climate Change investments  Renewable Energy: hydropower, geothermal, biomass, solar, wind mills, etc.

Quasi Equity Facility (QEF)  This facility will target either innovative or riskier projects o Facility: USD5 million o At least 3 projects to be financed with the QEF  This facility will be provided by means of de-risking mechanism for PT SMI or interest-rate subsidy o First Loss Mechanism (FLM) o Cost Overrun Junior Debt Mechanism (CJD)

o Interest Free Loan for Innovation (IFI) o Innovative Equity Mechanism (IEM)

Technical Assistance Programme (TAP)-MoU  This programme amounting to maximum EUR 400,000 will support the two facilities  TAP will build up PT-SMI’s capacity to originate, finance, and monitor more Renewable Energy and Climate Change investments  Scope : o Support PT-SMI in appraising and assessing Renewable Energy and Climate Change investments o Assist PT-SMI in upgrading its Environmental and Social Risk Management System (ESMS) o Promote Renewable Energy and Climate Change investments in Indonesia

 Climate Change: Mitigation & Adaptation

17

Cooperation in fostering geothermal development in Indonesia 

The World Bank channeled grant from Clean Technology Fund and Global Environment Facility to support the Geothermal Energy Upstream Development Project where Government plays important role to absorb the risk of exploration phase



Government participation during the exploration phase can significantly decreasing the risk of geothermal development which could encourage private sector participation in the exploitation phase



Some prerequisite arrangement that should be fullfilled before the grant could be effectively granted:  Government should contribute in co-financing scheme

Grant Clean Technology Fund & Global Environment Facility

$ 49 mio + $ 6,25 mio Co-financing amounted to $ 49 mio

 The aims of CTF & GEF grant: 1. To support Government of Indonesia in unearthing geothermal potential through risk sharing mechanism 2. To encourage investor geothermal project

participation

in

developing

3. To leverage the geothermal fund that’s been managed by PT SMI

 PT SMI act as the Implementing agency  The grant should be utilized only for government drilling scheme in certain greenfield area determined by GoI

18

Collaboration to Promote Development of Green Projects

Strategic Partnership between SMI and Global Green Growth Institute: Collaboration to promote programs, research and joint activities in support of the development of green projects.

Mandalika PV Project PT SMI and GGGI will support the preparation of feasibility study of Solar PV Power Plant in Mandalika Tourism Special Economic Zone Location

Lombok, West Nusa Tenggara

Developer

Indonesia Tourism Development Corporation

Area

1.255 Ha

Sector

Eco-Tourism & MICE

Estimated Energy Demand

110 MW by 2030

19

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