Emerging Africa Infrastructure Fund

Progress Review 2009

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Table of Contents
Abbreviations and Acronyms ............................................................................................................2
Executive Summary ............................................................................................................................3
1

Introduction .................................................................................................................................5
1.1
Purpose of this Report ........................................................................................................5
1.2
Methodology ........................................................................................................................5
1.3
Structure of the Report .......................................................................................................6

EAIFs Background, Objectives and Approach .........................................................................6

2.1
Background and Objectives ...............................................................................................6
2.2
Funding and Management Structure ..................................................................................6

The Infrastructure Market in Sub-Saharan Africa .....................................................................8

3.1
The Need for Infrastructure in SSA ....................................................................................8
3.2
Challenges of Developing Private Participation in Infrastructure ....................................9
3.3
Current Market Conditions and the Availability of Long-Term Debt ................................9

EAIFs Performance ..................................................................................................................11

4.1
Current Status and Pipeline as of September 30, 2009 ...................................................11
4.2
EAIF Project Pipeline as of September 2009 ...................................................................12
4.3
Risk Profile and Quality of EAIFs Portfolio .....................................................................13
4.4
Investment Policy is not a business constraint ..............................................................14
4.5
Additionality .......................................................................................................................14
4.6
The Project Development Facility.....................................................................................16

Management and Operational Effectiveness ...........................................................................17

5.1
Organizational Structure ...................................................................................................17

Achievement of Aims and Objectives ......................................................................................17

6.1
EAIF Achievements of Aims and Objectives to date .......................................................17
6.2
Developmental Impact.......................................................................................................19
6.3
EAIFs Future: Long-Term Strategy and Sustainability .................................................20

Conclusions and Recommendations .......................................................................................21

7.1
Conclusions .......................................................................................................................21
7.2
Recommendations.............................................................................................................22

Annex 1: Terms of Reference ..........................................................................................................24

Annex 2: Persons Interviewed ........................................................................................................26
Annex 3: EAIF Fund Portfolio as of September 30, 2009 ..............................................................28
Annex 4: Refinanced and Pre-paid Projects ..................................................................................29
Annex 5: Portfolio - Project Loan and Stage of Development ......................................................30
Annex 6: EAIF Report Preparation and Reporting Requirements ................................................31
Annex 7: Summary of Development Indicators for EAIF Projects .................................................32

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Abbreviations and Acronyms

AfDB African Development Bank
ALCO Asset Liability Committee
CC
Credit Committee
CSR
Corpoarte and Social Responsibility
DevCo Infrastructure Development Collaboration Partnership
DFI
Development Finance Institution
DFID UK Department for International Development
DGIS Directorate General for International Co-operation, Dutch Ministry of Foreign Affairs
EAIF Emerging Africa Infrastructure Fund
ECA
Export Credit Agency
EMP Emerging Market Partnerships
FDI
Foreign Direct Investment
FM
Fund Manager
FMA
Fund Management Agreement
FMFM Frontier Markets Fund Managers
FMFML Frontier Markets Fund Managers Limited
FMO Netherlands Development Finance Company
IFC
International Finance Corporation
IFI
International Financing Institution
IPP
Independent Power Project
LC
Local Currency
LTIP Long Term Incentive Plan
M& E Monitoring & Evaluation
MTR Mid-Term Review
NBC
New Business Committee
PDF
Project Development Facility
PIDG Private Infrastructure Development Group
PMU Programme Management Unit
PPI
Private Participation in Infrastructure
PPIAF Public Private Infrastructure Advisory Facility
PSI
Private Sector Infrastructure
SECO Swiss State Secretary for Economic Affairs
SIFMA Standard Infrastructure Fund Managers (Africa) Ltd
Sida
Swedish International Development Corporation Agency
SA
South Africa(n)
SB
Standard Bank
SSA
Sub-Sahara Africa
SME Small- and Medium Sized Enterprise
TA
Technical Assistance
TAF
Technical Assistance Facility
ToR
Terms of Reference
WSS Water and Sanitation Services

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Executive Summary
EAIF has become a successful and unique initiative that supports infrastructure development in SubSaharan Africa. Operating as a public-private partnership, EAIF has balanced its dual objectives of
lending to developmentally and commercially viable projects in the development of its loan portfolio.
With its commercial focus with the risk appetite of a DFI market discipline and reputation, it sits
between the commercial market and the Development Finance Institutions and adds value with by
offering debt financing with longer tenors in difficult SSA countries and credit markets.
After seven years of operations, EAIF has:

Established its brand and a positive reputation in the financing market in SSA. Project
sponsors and other lenders approach EAIF to participate in their financings. It is considered a
reliable source of finance;
Taken a leadership role in as a lender participating as a sole lender to projects or acted as the
arranger of the financing, clearly adding value to the development of infrastructure services in
SSA
Developed a portfolio of fifteen projects with outstanding commitments of almost $378 million in
thirteen countries notwithstanding challenging market conditions1;
Increased its capital structure from $305 million to over $500 million, through additional
investment from its original investors as well as attracting new lenders, as well as increased the
leverage on its equity;
Built a promising project pipeline with experienced sponsors, notwithstanding the financial
crisis;
Maintained a business culture of high quality due diligence, financial innovation and responsive
approach in its market; and
Grew its organization effectively to support its business and risk management operations
including policies and procedures.

With seven operating projects in DAC I and II countries, EAIF is advancing its objectives of making an
impact on the development of SSAs infrastructure to facilitate economic growth, thereby contributing
to the alleviation of poverty in the region. These projects have provided access or improved electricity,
telecommunications and other infrastructure services to millions of people in SSA and provided
employment to tens of thousands. These operating projects, alone, represent over $5 billion in
additional private sector investment.
EAIFs role and loans has been additional in the infrastructure financing market in SSA. Through its
leadership, it has supported project developers, arranged financings and made good-quality
investments in infrastructure in SSA by financing transactions which otherwise may not have
materialized.
As its portfolio and its own funding has grown, EAIF has adapted its operations from a nascent
organization to effectively by adding the necessary additional staff, policies and operating procedures,
as well as monitoring oversight developing the financial institutional framework behind it. Looking
forward, as EAIF continues to expand, there are strategic and organizational issues that should be
addressed to best support the continued effectiveness of EAIFs performance.

The Fund Management Arrangements with SIFMA: These are to be reviewed at yearend.
Business continuity planning: The FMFM staff has been and remains key to EAIFs successful

Information is as of September 30, 2009

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performance; consequently a business continuity plan to address staff turnover and eventual
succession should be developed.
Increased dialogue between shareholders and the Board on EAIFs vision for the future:

With success comes additional decisions and strategic planning. Now that EAIF is solidly established
with the significant organization development completed, it has much to offer to support the
development of infrastructure services in Sub-Saharan African countries. However, EAIF is
approaching a strategic decision point with its future as it expects to commit its available funds in the
near future. Does it continue to expand, and how? Can it remain its current size? The initiation of a
dialogue between EAIFs Board and shareholders and planning should begin right away.

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1 Introduction
1.1

Purpose of this Report

The purpose of this Report is to conduct a Progress Review (MTR) of The Emerging Africa
Infrastructure Fund Ltd (EAIF or the Fund). EAIF is a facility offering long-term foreign currency loans
for private sector investments in infrastructure in Sub-Saharan Africa (SSA). This Report follows on
earlier reviews (a Mid-Term Review in 2004 and an independent review for DFIDs evaluation team) by
making a detailed assessment of EAIFs progress to date, as well as its plans for the future.
The review shall, according to its Terms of Reference (ToR):

Evaluate the success of EAIF against its aims and objectives and whether these remain realistic
given the current infrastructure market in SSA;
Describe broadly the current infrastructure market covered by EAIFs mandate, prevailing
constraints to private investment and the availability of similar instruments;
Assess the market analysis and strategy of management to identify projects that meet the
requirements of the Investment Policy;
Assess the services provided by SIFMA and Frontier Markets Fund Managers;
Assess EAIFs mandate and if it limits managements ability to meet the requirements of the target
market;
Comment on proposals currently proposed by EAIFs Board for refinancing;
Recommend changes to the aims and objectives, Investment Policy and management of EAIF as
appropriate;
Give a view on the Private Infrastructure Development Groups (PIDG) long-term strategy for EAIF;
Review the effectiveness of EAIFs Project Development Facility (PDF).
For details of the ToR, see Annex 1.

1.2

Methodology

This report was prepared on behalf of the PIDG by an independent consultant. It was undertaken in
May through September 2009 by the following means:
Document Review

2004 Mid-Term Review, DFID Assessment of its private sector infrastructure facilities, the draft
Progress Report by Mobsby Associates Limited and the 2008 Special Report to EAIFs Board on
financing private sector infrastructure in SSA
Historical documents including feasibility studies and minutes from PIDG meetings
EAIFs 2008-2009 Business Plan and Investment Policy
Selected New Business and Credit Memorandums, Monitoring and Evaluation sheets and other
project documents
Minutes of the EAIF Board and Board Committees
Management Agreement between EAIF and SIFMA Ltd, the Long-term Incentive Plan (LTIP) and
minutes from ALCO meetings
Refinancing proposals under consideration by EAIFs Board; and related information
Information on EAIFs Project Development Facility (PDF).

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Interviews
In-person and telephone Interviews were conducted with FMFM staff, SIFMA, Board members and
PIDG donors during PIDGs May meetings in London and in Kenya and South Africa with clients,
banks and DFIs. Annex 2 contains the list of persons interviewed.

1.3

Structure of the Report

This Report is structured as follows: In Chapter 2, EAIFs background, objectives, and approach are
described. In Chapter 3, the market for private sector investments in SSA is described in terms of
trends and characteristics. In Chapter 4, the performance of EAIFs portfolio and pipeline is analyzed
and Chapter 5 discusses the organizational and management effectiveness of EAIF. In Chapter 6,
EAIFs achievements in relation to its objectives are assessed and its long-term strategy is discussed.
The main conclusions are drawn and recommendations made in Chapter 7.

2 EAIFs Background, Objectives and Approach

2.1

Background and Objectives

EAIF was established to address the market gap created by the scarcity of long-term debt for private
sector-based infrastructure development in SSA. Its objectives include supporting projects that
promote economic growth and reduce poverty. EAIF lends on commercial terms, to demonstrate the
viability of long-term commercial lending into the SSA countries. Established in 2002 as a $305 million
fund, EAIF has grown to be a $500 million fund.
It was the first initiative developed by the PIDG to promote mechanisms to address the funding gaps
that impede attracting capital to the provision of infrastructure services in the poorer developing
countries. PIDG is a multi-donor initiative whose members are development agencies from Austria,
Ireland, the Netherlands, Sweden, Switzerland, the UK and the World Bank. At the core of the PIDG
initiatives is the belief that infrastructure is important to sustainable development and that private
sector investment is essential to increasing infrastructure services. PIDG has other initiatives, all of
which are intended to complement each other. They include GuarantCo, a local currency guarantee
facility; DevCo, which supports project preparation work to develop public-private partnerships; InfraCo
which acts as a developer of infrastructure projects in sub-Saharan Africa, InfraCo Asia which acts as
a developer and financier of infrastructure projects in Asia, the Technical Assistance Facility (TAF),
which supports local capacity building for private sector investments in infrastructure and CF Debt
Pool, a debt fund established as a response to the current financial crisis.

2.2

Funding and Management Structure

EAIF is funded from public and private sources and privately managed. Table 1 shows EAIFs capital
structure from its inception to today. EAIFs shareholders and Board have approved an increase of
EAIFs size to US$600 million. Due diligence is underway with IFC, AfDB and the Austrian
Development Bank to conclude their financing by January 2010.

Table 1: EAIF Capital Structure: Commitments in USD millions

Year
2002
YE 2006
June 2009
YE 2009 (est.)
Total Fund Capital
305
365
501
600

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Equity 2
PIDG Trust
Subordinated Debt
FMO
DBSA
DEG

Senior Debt
Barclays Bank
Standard Bank Group
KfW
4
IFC / AfDB/OeED

100
85
40
25
20

100
85
40
25
20

133.5
85
40
25
20

150
95
40
25
20

120
60
60

180
75
75
30

282.50
100.0
87.5
95.0

355.0
100.0
87.5
95.0
82.5 (proposed)

EAIFs management arrangements are complex

Frontier Markets Fund Managers Limited (FMFML, formerly SIFMA6) has managed EAIF since its
inception7. FMFML is a fund management company, incorporated in Mauritius and jointly owned by
Standard Bank Group, FMO and Emerging Markets Partners (EMP).8 Frontier Markets Fund
Managers (FMFM), a division of Standard Bank Plc, is contracted by FMFML to advise EAIF on its
operations, including originating, due diligence, structuring and negotiating documentation for
transactions as well as the management and monitoring of its portfolio.
A Board of non-executive Directors oversees EAIFs operations, decides on the commitment of funds
and its strategic direction. The Board is made up of ten persons, of whom the shareholders and
lenders each select six and four members respectively. Elected in January 2009, Tony Lea is the
Chairman of the Board9. The Board has several committees including a Credit Committee (CC) and a
New Business Committee (NBC) that screen potential transactions and support the Board in its credit
approvals, an Audit Committee and Project Development Facility (PDF) sub-committee. The EAIF
Donors meet with EAIF management at PIDGs biannual meetings, receive regular reports from the
Fund, and other ad hoc measures.
FMFM has a staff of fifteen to support the London-based operations of both EAIF and GuarantCo.
Ten team members have transactional responsibility. Five are dedicated to EAIF, plus the Managing
Director (MD). FMFMs MD, Nick Rouse, has held his position since 2005. Five staff members
support the back office operations including treasury and monitoring functions for both facilities. As
Standard Bank employees, FMFM are subject to Standard Bank policies, including decisions on
bonuses and compensation. Environmental and socio-economic due diligence is outsourced to other
Development Finance Institutions (DFIs), if they are co-lenders, notably FMO, or approved firms.
EAIFs Operating Policies, Procedures and Products
2

,,

Original commitments in US$: DFID 50 million Swedish International Development Cooperation Agency (SIDA) 20 million,
Netherlands Minister for Development Co-operation (DGIS) 20 million, and Swiss State Secretary for Economic Affairs
(SECO) 10 million.
3
The subordinated lenders require a commitment of an additional $50 million to increase to $600 million (of which $33
million has been committed and disbursed).
4
Austrian Development Bank is also considering a senior loan of 15-20 million Euros to EAIF.
5
IFC and AfDB to provide an additional $25 million of standby senior debt to cover any tenor mismatch.
6
SIFMA is used to refer to the fund management company in this text, although the name has changed.
7
SIFMA also manages GuarantCo under a separate Management Advisory and Support Services Agreement that expires on
November 30, 2009.
8
EMP a Washington DC based fund manager provided initial management but has not provided funds and maintains a
passive management role.
9
EAIF has had three Chairmen. Keith Palmers tenure ended October 2007. Tim Parker was chairman from November 2007
through June 2008. Claes de Neergaard, a non-executive Board member was named Acting Chair for the interim seven
months until Tony Leas election.

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EAIF has several policy documents in force including the Investment Policy, Hedging Policy,
Provisioning Policy and Pricing Policy that have been developed and amended to support the growth
and complexity of the Portfolio. In December 2008, the Board approved FMFMs Operating
Procedures. A Treasury Policy is under development and expected to be completed by year-end
2009.
EAIFs Investment Policy emanates from a Master Agreement dated 2002 among the Shareholders,
the Lenders, EAIF and the Fund Manager. It has been amended several times, most recently in July
2005. It reflects both the development objectives of the shareholders and the credit criteria necessary
to support commercial soundness. It specifies the investment criteria, defines eligible countries and
infrastructure and excluded sectors and establishes country, sector and company exposure limits,
product types, and other criteria such as environmental and social screening.
The Pricing Policy has also changed over time to reflect market conditions. Last revised October 2006
when continued downward pressure on pricing made it difficult for FMFM to identify sufficient viable
and diverse projects, it should be reviewed to reflect EAIFs refinancing.
EAIF can provide senior debt, subordinated and mezzanine loans, guarantees to support local
currency facilities with the main focus on senior debt. Senior debt can be offered on a standalone
basis or with co-lenders. EAIF may act as an arranger, offer bridge finance or underwrite loans
(subject to a limit of $50 million). Or, it can join a lending syndicate. EAIF can lend up to 15 years but
may not exceed the final maturity of its senior and subordinated loans. The Investment Policy does not
limit the percentage of subordinated debt in its portfolio. However, IFCs term sheet (Board approved)
limits it to 30%, which will require a change to the Investment Policy once the IFC financing closes.

3 The Infrastructure Market in Sub-Saharan Africa

3.1

The Need for Infrastructure in SSA

Infrastructure investment needs in Sub-Saharan Africa are staggering. Annual investment needs are
estimated to be over $75 billion over the next ten years and increasing. About half, $38 billion, is
needed for new capital expenditures and the remainder for operations and maintenance. (See Table 2
below.) Power has been the most limiting factor to growth and it is expected to be the greatest
challenge.10 As an example of SSAs power deficit and impact on economic growth, power
consumption, at 124 kwh per capita per year and falling, is a tenth of that found elsewhere in the
developing world. This is barely enough to power one 100-watt light bulb per person for three hours a
day. Firms in SSA report losing five percent of their sales as a result of frequent power outages. This
rises to 20 percent for small and informal businesses unable to afford backup generation facilities.

10

Figures in this section are from Meeting Africas Infrastructure Needs: The Twin Challenges of Financing and
Sustainability, V. Foster and C. Briceo-Garmendia, Africa Infrastructure Country Diagnostic, October 9, 2008 and The Africa
Infrastructure Country Diagnostic, Overhauling the Engine of Growth: Infrastructure in Africa by Vivien Foster, September
2008

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Table 2: Annual Infrastructure Investment Needs

US$ billions per
Capital
Operating
yr. over 10 yrs
Expenditure
Expenditures
ICT
0.8
1.1
Irrigation
0.7
Power
23.2
19.4
Transport
10.7
9.6
WSS
2.7
7.3
Total
38.1
37.4
Source: Africa Infrastructure Country Diagnostic, 2008

Total
1.9
.07
42.6
20,3
10
75.5

Public funding remains the primary source for power, transport and water but it is insufficient and often
inefficiently invested. The inefficiency and lack of cost recovery of Africas utilities also contribute to
the problem and are a major bottleneck to investment. Efficient operators are essential to improve
service delivery. As such, private investment in infrastructure and private or commercial operators
could have an important role in supporting economic development in SSA.

3.2

Challenges of Developing Private Participation in Infrastructure

The same constraints to PPI remain and vary by country and by sector
There has been no meaningful reduction in the need for infrastructure or in the risk factors that
constrain private investment in SSA since the formation of EAIF seven years ago. Risk factors limiting
private participation in infrastructure (PPI) include political and economic stability, governance,
investment climate and the technical and management capacity to prepare well-structured projects. In
2008, the EAIF Board commissioned a study on the constraints on infrastructure investment in Africa,
asking the question, Why are there so few bankable projects in SSA?
The report sums up the required success factors from the perspectives of developers and lenders as
follows, The basic requirements to attract PPI are known, and will not change. At its simplest, the
fundamental reason why there has not been more PPI in SSA is because there have not been
sufficient PPI projects offering a sufficient rate of return in relation to the perceived risks.11
The lack of private finance is rarely the only issue. The constant refrain one hears is that there is a
lack of good, high quality projects. But for developers to consider investing time and money, the
investment climate must be perceived as stable and viable. And, it must offer a return that is
commensurate with the risks. The value of EAIF is that it offers project developers a commercially
structured lending option if a commercially viable project is found with a greater tolerance for the
lending environment in SSA.

3.3

Current Market Conditions and the Availability of Long-Term Debt

The use of long-term debt to finance the significant costs of infrastructure is essential in order to make
the cost to the end-users affordable. The availability of hard (and local) currency long-term debt in
SSA, in general, is extremely limited for local currency earning infrastructure projects. Potential
sources of debt finance are international, regional and local commercial banks, the capital markets
and international finance institutions (IFIs) and represented in EAIFs niche by the DFIs.

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SSA has not been immune to the global credit crunch. The project finance commercial market is
basically shut and senior commercial bank debt for infrastructure projects to the extent it was
available has generally dried up or become cost prohibitive. A more detailed discussion of funding
sources in the current market follows:
Capital markets are unavailable: The availability of the capital markets for infrastructure projects in
SSA is best summed up by Standard and Poor's (S&P) experience.
This means that no project
developers have seriously considered issuing project finance debt for a project in SSA. Access to the
international capital markets is primarily limited tor investment grade issuers and few EAIF mandated
countries are investment grade. Within the EAIF mandated markets, there are no liquid and functional
bond markets that issue long-term debt for non-government entities (a possible but occasional
exception is Kenya). Bond markets require liquidity for most pension funds that might be able to lend
domestically. And, the few African bond markets that offer relatively short-term government issues are
only just showing signs of life again.
Commercial bank options are limited: Where there were a few international banks in infrastructure
deals in SSA prior to the financial crisis, there are none now. (Most all lenders commented on the
hole that Barclays left in their rapid withdrawal from SSA during the financial crisis.) Regional banks,
(i.e. South African (SA) banks) lending cross border has been limited principally to rand denominated
in the SADC region and concentrated in natural resources (i.e. hard currency denominated). The four
largest SA banks confirmed that they could offer for cross border project finance transactions, if
financing was available at all, tenors of no more than five to seven years with dramatically increased
financing costs. (This has also been the experience of African corporations who have been postponing
plans for lack of finance.) SA DFIs have also reduced the size of their loans and increased the pricing
for their project lending. Loan pricing at less than Libor + 500 basis points is presently unavailable.
While SA project finance bankers expressed a desire to participate, their risk management units have
restricted their ability to lend, due to limited market liquidity. Further, if they had capacity, they would
be unable to provide sufficient tenors for an infrastructure project. One banker approached their credit
committee to lend with EAIF on one of its projects and was told that without another commercial lender
in the lending group, they would not approve the loan. Another commercial lender could not be found.
All cross border projects in any sector require political risk guarantee cover, principally only available
from MIGA and using the World Banks Partial Risk Guarantee. The latter is used for large pioneering
projects in reforming sectors and this is rarely EAIFs niche. Some banks suggested that EAIF and the
DFIs could provide longer tenor mezzanine project debt to allow banks to provide the senior debt.
While this may be viable in some limited situations, as the number of lenders increase so does the
cost and complexity. The markets in general will recover but the accessibility to finance will continue to
be a country and sector specific decision.
Prior to the credit crunch, a limited number of local commercial banks in a few countries were able to
lend to domestic infrastructure projects. (i.e. primarily Nigeria and Kenya). With tenors at no more
than five years, most lending was in the telecom sector. Looking forward, commercial banks are
shedding assets, particularly long-term assets and this deleveraging is expected to last for a while.
SSA is principally a DFI market: For local currency earning infrastructure projects requiring longterm finance, the market has been primarily supported by the DFIs. Consequently EAIFs co-lenders
are often DFIs, primarily FMO, DEG and Proparco, with whom they have signed cooperation
agreements to share costs, due diligence analysis and facilitate financing. In EAIFs projects, there
has been, for example, one commercial bank that participated in a power plant financing (in 2006) and
a few in the telecom projects. With size constraints, limited staff, and their lending often tied to
national interests, DFIs able to make loan commitments in the $20-25 million range in this market are
also limited.

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EAIF remains a unique initiative among lending options
Not only was EAIF the first fund or facility of its kind but also EAIF appears to be the only SSA
infrastructure fund that offers long-term senior and subordinated debt12. Its public private structure
and its commercial approach to using private sector fund management supporting a mix of public and
private funding sources is also unique in contrast to purely private commercial lenders and DFIs.

4 EAIFs Performance
4.1

Current Status and Pipeline as of September 30, 2009

EAIF has developed a reasonably diversified, quality portfolio and a credible pipeline despite a slow
start. It has invested over US$ 560 million into 22 projects of which seven have been pre-paid or
refinanced. Outstanding commitments total US$378 million of which senior and subordinated loans
and loan commitments are $261 and $116 million, respectively. Disbursements (net of repayments)
are approximately $249 million. Two additional projects are being prepared for Board approval and
could potentially reach financial close during the last quarter of 2009 These two projects would add
$55 million to EAIFs loan commitments bringing the total to $433 million. Based on its project pipeline
and current run rate, FMFM believes that it will reach the Funds capacity towards the middle/third
quarter of next year and that funding from IFC and AfDB should provide sufficient funds into mid2011.
EAIF current portfolio is comprised of 15 projects13. Most projects to which EAIF lends are between
$100 and $200 million and EAIFs average loan commitment (including those projects that have been
pre-paid or refinanced) is US$25 million. Commitments by country and sector are shown in Tables 3
and 4. EAIFs portfolio is dynamic and this is a representative snapshot at September 30, 2009. It has
made loan commitments in 13 countries with its largest exposures in Kenya, Nigeria and Uganda.
Power and Telecom dominate with ten projects, approximately 70 percent of the portfolio. The
remaining projects are in the mining, manufacturing and energy sectors. There are no water projects in
the portfolio or NBC approved pipeline. (See Annex 3 for a detailed breakdown of EAIFs portfolio).
Table 3: Loan Commitments by Sector
Note: The current portfolio is representative of
EAIFs market niche and the types of
infrastructure investments available in this
market niche. Water projects are not being
developed by the private sector and lending to
infrastructure manufacturers or for infrastructure
associated with mining adds good breadth to the
portfolio and meets policy requirements.
However, it does not describe the full
development benefits, level of effort and
investments that EAIF has made. In addition to
its current portfolio holdings, almost $183 million
of loans have been re-financed or pre-paid,
representing seven projects. (See Annex 4 for
list of pre-paid or refinanced projects.)
12

The Emerging Market Infrastructure Funds and Facilities Inventory (EMIFFI), (Report funded by PPIAF), the
inventory contains information on 262 funds and facilities currently operating or in the process of raising funds. A review of
the websites of all SSA infrastructure funds listed did not turn up any debt infrastructure funds. A few funds might offer
mezzanine level loans but most were for equity investments.
13
Celtel Africa, counted as one project, is comprised of 5 smaller Celtel entities each of which EAIF individually evaluated
and approved.

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Table 4: Loan commitments by Country

Note: The portfolio covers a

range of countries although
Western
Africa
is
under
represented. This is indicative of
the challenges of covering a large
region with a small team with less
experience in the West, limited
projects or both.

EAIF has built a track record and is expanding its leadership role in lending
EAIFs initial opportunistic marketing strategy used to build its portfolio and develop a track record has
changed somewhat now that EAIF is known in its market. While marketing is always necessary,
Project developers (and co-lenders) are approaching EAIF, allowing more selectivity. FMFM is
extremely knowledgeable about potential projects that meet its requirements. The team has used their
contacts, client relationships and African experience to obtain mandates. Recently, EAIF has taken a
greater market leadership role acting as an arranger of a loan syndicate (Rabai IPP), sole lender in
three projects and structuring the subordinated debt in the challenging Seacom Project, a highly
developmental undersea fiber optic cable. This is a strong demonstration of the confidence that
borrowers, the CC and Board have in the teams ability.

4.2

EAIF Project Pipeline as of September 2009

Credible and deep pipeline notwithstanding financial crisis

EAIFs project pipeline consists of 21 projects approved by the NBC but not yet submitted to Credit
Committee and another 20 projects under evaluation14. EAIFs potential funding requirements for
these projects far exceed its resources to provide financing. Further, EAIF is one of few lenders able
to lend long term in SSA countries in a difficult financing market. Therefore, it is being approached to

14

The pipeline is very dynamic and can change daily.

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replace lenders that have withdrawn from some financings.
opportunities.

This could potentially offer good

Nevertheless, EAIF needs to maintain a large pipeline given the challenges to reaching financial close
in this market. EAIF has signed mandate letters for over half the NBC approved projects, which
demonstrates the sponsors commitment to EAIF participation in their financing plans. These projects
are in the transport, power, mining and agribusiness sectors in eleven countries. Most project costs
are between US$100-250 million, similar to the projects in its portfolio. EAIFs potential participation
ranges from US$ 15-25 million. In the majority of projects, DFIs are co-lenders. Commercial bank
involvement is extremely limited and if they are involved, the commercial banks more often than not
have an arranging (but very limited lending) role.
Another indicator used to assess a projects probability of success is the quality (financial, technical,
experience) of the project developers. Credible international, regional and domestic industry
participants are the project sponsors for many of EAIFs pipeline projects. Experienced in their sector
and in SSA, most of these companies appear to have the financial resources to develop the project
and invest equity capital. As projects in Africa generally have long gestation periods, these sponsors
are likely to be undeterred by the financial crisis and will continue to develop their projects. Annex 6
contains a list of the NBC approved projects including brief descriptions of the project sponsors.

4.3

Risk Profile and Quality of EAIFs Portfolio

A portfolio review considers the individual projects credit quality and risk profile, the portfolios overall
diversity and the oversight process to identify problems at an early stage. A projects risk profile is
dependent on many constantly changing factors. Some risks, such as political risk, are unpredictable
requiring consistent oversight. So, while EAIF lends to good projects, it operates in a market that is
viewed as very risky by commercial lenders, principally based on the political risks.
EAIFs portfolio contains a good mix of projects along the risk spectrum
All borrowers with scheduled repayments in the portfolio are making these repayments on a timely
basis and there are no impaired projects at this time.15 While highly structured project finance
transactions have seemed to weather this market better, a portfolio without impairments is impressive
and should not be expected to be the norm.
The portfolio projects have a wide variation of project risk. It is about evenly divided between projects
in construction and in operation. Significant technical risk is reduced when the construction is
completed and a project is operating. Similarly, four projects are repaying their loans, demonstrating
the financial viability (and reduced commercial risk) for these projects16. At the other end of the
spectrum, projects such as Aldwych and IPS Seacom, where EAIF has lent subordinated debt to the
project entity, are quite risky. (Annex 5 contains a list of the project status of development) However,
a detailed portfolio assessment of the projects current credit quality is difficult. EAIF does not have a
credit grading system to benchmark projects and changes in risk as well as determine a probability of
default although this is under discussion.
Monitoring oversight is in place but follow-up on credit scoring process needed
The process for the initial credit decision works well. EAIFs portfolio benefits from a knowledgeable
team and a solid credit evaluation process from the CC. FMFM does comprehensive due diligence
and prepares detailed credit commitment papers for the CC (and Board) to review and provide the
15

EAIFs auditors (KPMG) assessed whether the Kenmare (Moma) project was considered impaired. They concluded it was
not impaired as of year-end 2008. A project is considered impaired when it is unable to meet its financial obligations or when
the outlook indicates that it will be unable to meet its obligations.
16
AES and Celtel Madagascar are scheduled to start repayments in March 2010.

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appropriate checks and balances. The Investment Policy limits the portfolios concentration in order
to manage risk (i.e. requiring portfolio diversity) and EAIF operates within its limits.
Project monitoring post-financial close is equally important. Monitoring requirements will continue to
grow in terms of relative importance as the number of projects in the portfolio increases, potentially
requiring additional resources. A key function/role for continued smooth operations is the Treasury and
Administrative Manager, Anne Ranasinghe, who oversees the Treasury, portfolio management and
other back office operations. FMFM has a reasonable oversight function in place. FMFM monitors
all its projects and increases the periodicity of its reviews on projects that are falling behind on their
reporting obligations or on those that are considered more at risk.
As recognized by the Board, a consistent credit measure is needed to support the maintenance of a
quality portfolio17.
4.4

Investment Policy is not a business constraint

Sufficient investment opportunities have been available to develop EAIFs portfolio and a deep pipeline
within its limits. The Board has also shown reasonable flexibility in its policy interpretation, when
merited, and has focused on clarifying it, as described below, to provide better guidance for EAIFs
asset growth, rather than expand it. FMFM also has not indicated a need to change the policy to be
able to find viable projects.
To refine the management of the concentration of portfolios risk exposure, the Board asked FMFM to
prepare a Risk Appetite Paper that was presented and agreed at the July 2009 Board meeting. It sets
out guidelines on credit risk decisions for the CC in order to reflect the Boards wishes for portfolio
management in light of EAIFs increased size. The paper seeks to better reflect the factors needed to
maintain the balance between the donors objectives of maximizing developmental benefits while
providing sufficient profitability for Funds long-term viability. Its purpose is to manage risk exposure
by suggesting internal limits, particularly the single exposure limit. For example the policy limit for a
single borrower exposure is 10% so for a $600 million fund, the single borrower limit would be $60
million. The Boards preference is to maintain a diversified portfolio so the guidelines set it at $36
million. Similarly, it recognizes that power projects and Nigeria could test the sector and single country
limits, respectively, taking a wait and see view to maintain flexibility to review the circumstances.

4.5

Additionality

Additionality is difficult to assess in the African context, with few commercial long-term financing
sources, even in the most exuberant of markets. One key attribute of EAIF, valued by investors, is that
t is able to lend in all financial markets - good and bad in contrast to commercial lenders. It has
demonstrated this value added by over the last year when the financial markets have been in disarray.
Five of its projects have reached financial close since September 2008. In the current market, if EAIF
lends where the financing has fallen apart due to a financial institutions reduced liquidity, EAIF would
clearly be additional.
It also means that there is value added, not only by providing a source of capital that would otherwise
not been there, but through financial creativity and innovation resulting in lower transaction costs or
more balanced risk allocation. Interviews with EAIFs borrowers provide a similar picture of the value
added that they bring to the SSA infrastructure market as was emerging at the time of the 2004 EAIF
MTR. Borrowers consistently stated and often used the same phrases - that EAIF was commercial,
pro-active, nimble, and creative. Several banks referred to EAIF as commercial with the risk appetite
of a DFI. Now with a track record built over the last five years, EAIF has expanded its role as a
project participant in loans to leading syndicates in structuring and arranging loans for projects that
17

This assumes that EAIF will continue to lend and manage a portfolio of assets. However, the same credit grading system
will be used for GuarantCo in its preparations for an ultimate rating.

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would not have occurred but for their involvement. The table below illustrates the value added that
EAIF has provided in five of its recent portfolio projects.

Table 5: Assessment of Additionality in Selected Portfolio Projects

Country/
Transaction
and sponsor

Comment

Additionality

Seacom
Undersea
Telecommunica
tions Cable,
East Africa, IPS

This is a very high risk but also extremely developmental

infrastructure project. As the borrower explained, there was no other
long-term financing was available to support the investment by IPS,
particularly in the timeframe needed to secure the ships needed for
construction. EAIF met the time schedule, structured the financing
and brought FMO into the financing. Without these two lenders, IPS
would not have participated and the project would have at best been
delayed an estimated 18 months for lack of financing, if it was
completed at all.

High

Rabai Power
Project, Kenya,
Aldwych

EAIF acted as the lead arranger (and single point of contact) for the
High
project. As arranger, EAIF brought in other lenders to complete the
debt financing. The financing was organized during the post-election
unrest and through the fall of 2008 at the time when the financial
crisis was most uncertain. Lenders were fleeing from any lending.
The lenders provided 15 year financing was provided which is scarce
in SSA in the best markets. A weak sponsor complicated financing.

Bigoye
Hydroelectric
Plant, Uganda,

EAIF is the sole lender to this transaction. TronderEnergi and

High
Norfund took over the project from SN-Power to develop the Bugoye
site. EAIF underwrote the debt to the transaction, its largest
commitment to date. It was requested by the credit committee to find
another lender. IFC was approached, was interested but ultimately
did not lend. Although EAIF approached other lenders, no
commercial money or other lender was available.

TrnderEnergi
Kraft AS and
Norfund
SAFAL, Kenya,
Tanzania,
South Africa,
Chandaria/
Shah Group

The Chandaria/Shah Group is the largest non-multinational business

operating in sub-Saharan Africa (outside South Africa) with
businesses in 18 countries. Company has borrowed from EIB and
IFC for facilities in the past. No long-term local borrowing was
available. EAIFs unique role has been to bridge some of the
financing with subordinated debt through construction is completed
when the selected BEE small distributor equity investors could make
their investments.

Medium

Olkaria
Geothermal
Plant,
Kenya,Ormat

This project is the first private geothermal project in Africa and

Medium-low
located in a game park. Project sponsor wanted DFI lending group to
reduce potential political risk of investment, given sector in Kenya.

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Industries

EAIF does not have the human resources to lead in all its projects. Similarly, all lenders are
constrained by limits on obligors, sectors and countries. So, it has successfully teamed with DFIs to
complete the needed funding on many transactions and it is often associated with participating as part
of the DFIs. While EAIF has partnered with DFIs particularly as it was establishing its reputation, its
added value by having a commercial perspective and focusing on the proper project structuring.
Indicative of their appreciation of the type and quality of EAIFs projects, a number of SA lending
institutions (DFIs and commercial banks) see EAIF as part of a closely knit and somewhat exclusive
club of DFIs and expressed the desire to also participate in financings with EAIF18. In conclusion,
EAIF has continued to add value to the market and has expanded its role as it has grown to more
clearly making the financing happen.

4.6

The Project Development Facility

A potentially effective marketing tool, but whose use should be carefully weighed against other
strategic needs
EAIFs Board approved the establishment of a Project Development Facility (PDF) at the July 2007
meeting.19 The PDF is funded from EAIF's accrued equity reserves and was limited to US$1 million
per annum for a period of three years. The rationale for its creation was that EAIF had established a
steady profit profile, so some excess reserves could be used to support the Funds activities. A
Board sub committee made up of the EAIF Chairman and one representative from the Subordinated
Lenders and the Senior Lenders evaluates and approves the applications. PDF funds can be used
prior to a project receiving NBC or CC approval. There is, appropriately, no specific limitation on the
use of the funds, except that the project must potentially be one EAIF can invest in at a later stage.
The PDF is principally used on a project specific basis irrespective of whether it is used for due
diligence or other project specific purposes. Five projects have been approved totaling US$ 1.6 million
in investments, although not all funds have been disbursed.
Under its Constitution, EAIF is permitted to make investments, but not grants. Consequently, PDF
funds are provided in exchange for equity in the project. An equity valuation has to be agreed for the
investment as part of the funding arrangement. EAIF should determine the equity valuation with the
same adherence to commerciality and transparency as it does in its lending operations
notwithstanding the project sponsor.
FMFM has used the PDF opportunistically, seeing it as a valuable tool to offer as a sweetener to
developers in order to get involved in projects. Sponsors have commented on its value, particularly as
an offset to EAIFs higher pricing and other costs. It is too early to evaluate the PDFs effectiveness.
Only the Rabai project has reached financial close and the other projects are not sufficiently advanced
to assess.
The Board should continue to assess the value of using EAIFs equity reserves for the PDF versus for
18

It is the project developers or sponsors that are principally responsible for developing the financing plan and selecting the
lenders. They choose lenders for many reasons. In EAIFs case, it was selected for its speed of its approval process, the
knowledge of the staff and its commercial approach to negotiating a project loan agreement. While other institutions may
have expressed a desire to work with EAIF, they may not be selected by the project sponsors because they are unable to
lend on the same terms or able to obtain credit approval on a timely basis. These are aspects that are outside of the control
of EAIF, even as an arranger.
19
EAIFs lenders permitted this use of funds because they had not relied on the reserves as part of Funds equity base at
the time of their lending decision.

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other important purposes such as reserves in the event of a loss or as additional equity on which to
support more borrowing for the fund as part of its consideration of equity funding resources in the
development of a long-term strategy.

5 Management and Operational Effectiveness

5.1

Organizational Structure

When EAIF was created, a private equity model was used where the Fund would have a small,
streamlined staff for its operations. As EAIF has grown, the different nature of the underlying product
(debt) is reflected in the needed policies, reporting requirements and back office support. EAIF has
had to develop and formalize multiple policies and practices as well as increase FMFM staff resources
to service and monitor its loan portfolio as any financial institution would be required to do in order to
prudently protect its assets. EAIFs reporting requirements alone are extensive, necessitating
significant staff time and resources. (See Annex 7 for a representative list of its reporting obligations.)
EAIFs performance relies on the commercial practices and incentives of FMFM overseen by a
professional, non-executive Board that represents the interests of shareholders (and in this case,
lenders) to provide the appropriate governance and balance for the Funds objectives. And, it has
worked well to date because of the people involved. It is, always, the individuals, their commitment
and their relationship to each other, particularly in a lean organization, that are as important, if not
more, to the organizations well functioning and long-term performance as how the checks and
balances are structured on paper.
The key relationships that underpin the effectiveness and stability of EAIF are between the Chairman
of the Board, the Credit Committee Chair and the MD. The Chairman of the Board is the main
interface with and support for the MD. The Chairman is responsible for clarifying and defining issues
with the MD, developing the Boards agenda, creating consensus and moving the Board to make
necessary decisions on a timely basis. The Chairman and MD should have a clear, shared vision of
the Funds direction and an ongoing dialogue. The CC Chair, as a lead gatekeeper to lending, is an
objective check over FMFM who is incentivized to book transactions. The CC Chair must have the
confidence and trust that the MD (and staff) can knowledgeably judge and understand a projects
credit risks, and will disclose all material information to the CC. The MD is responsible for overseeing
all of EAIFs operations including staff and business development, providing market knowledge and
credit experience, and takes his overall direction from the Board.

6 Achievement of Aims and Objectives

6.1

EAIF Achievements of Aims and Objectives to date

EAIFs website summarizes its objectives as follows: EAIF intends to make a real and lasting impact
on the development of SSAs infrastructure to facilitate economic growth and so, both directly and
indirectly over time, contribute to the alleviation of poverty in the region.
A comparison of EAIF today to its position at the time of the 2004 MTR shows its achievements five
years later. In late 2004, EAIF had not established a market presence and the performance of its fiveproject portfolio was indeterminate. Its pipeline was an opportunistic list of potential projects under
development in the region, not selective or distinguished in any way. And, while a re-financing was
under consideration, it was not clear if it would be able to invest US$70-100 million per year if a refinancing was viable. It had a staff of five; no MD and its back office operations were nascent. Now,
after seven years of operations, its achievements of its aims and objectives are tangible in three
distinct areas:

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Development of private sector investment in Infrastructure: EAIF loans have, to date,
successfully facilitated several operating projects, providing access to electricity, telecommunications
and other infrastructure services to millions of people and employment to tens of thousands in SSA.
Several more power, manufacturing and other projects are under construction. EAIF has taken a
leadership role in a number of projects that may not have happened without its technical and financial
support. And, it has been involved in a number of financing firsts, including the first private
geothermal power plant in SSA and the first telecommunications cable in East Africa. It has closed
several transactions in each of the last three years and has a credible pipeline. EAIFs loans have
supported billions of dollars of additional private investment into infrastructure in SSA.
However, to evaluate a lasting effect, these projects need to demonstrate that they are sustainable
and that additional investment in like projects continues to grow. In this regard, we are still at a
relatively early stage.
Increase the impact through greater leverage and funding: As a testament to its operating
success, EAIF has continued to attract financing from the public and private sectors, almost doubling
in size in the last three years. Each time a lender has increased their commitment to EAIF, significant
due diligence and review of the Fund has taken place confirming the quality of its operations and
market role. The FMFM management team should be commended for closing the re-financing
increasing the Fund size to US$ $480 million on the agreed terms in December 2008 when the
financial markets were in complete disarray. Now, EAIF appears to be on its way to reaching a size of
$600 million with the closing of the IFC and AfDB financing. As the Fund has increased, its impact has
also increased in a number of ways. It is, obviously, able to lend to more projects and with greater
loan amounts. However an increased Fund size has moved EAIF from a follower to a market
participant that can lead transactions, demonstrating that a calculated lending risk can be taken on
projects such as Seacom, in order to obtain significant developmental benefits. EAIF could not have
achieved this five years ago because they did not have the credibility.
Operating as a public-private partnership: EAIF has managed to balance commercial interests with
development objectives. Each time a project is approved by the Board, it has had to be evaluated
through two different lenses and meet both hurdle rates (or sets of criteria) mandated by its investors
and lenders. The staff has to prove to its credit committee that a project can be successfully
constructed and when operating, will have the ability to repay a long-term loan on a timely basis.
EAIFs lenders have been willing to lend to the Fund and increase its leverage because they believe
that EAIFs loans will meet a commercial standard. They also believe that the portfolio must be
diversified to have a reasonable risk exposure.
The second lens is developmental. The project has to positively impact economic growth and clearly
improve lives through employment or access to key basic services. Projects that do not meet both
standards have been rejected. While EAIFs commercial staff has a private sector approach and are
incentivized to close transactions, the credit approval process and the Board, representing the
shareholders interests, provide the counterbalance so that both objectives are met. The result is a
portfolio that is both commercial and developmental. And, only as the portfolio matures, will both the
actual development impact be determined as well as correctness of the credit decision.
There is an additional layer to the public-private balance. It is the private sector borrowers and how
they view the trade-off between EAIFs development requirements and other funding options. While
the commitment varies, most of EAIFs borrowers recognize the importance of the community relations
and their corporate responsibility, knowing that it is good business practice as well. As such they
develop CSR programs funded out of their profits. But there is a limit to the human and financial
resources that they are willing to commit. They also recognize that they must meet the requirements of
DFI lenders such as social and environmental standards and view access to finance and perhaps
some political risk coverage as a reasonable trade-off. EAIF offers its borrowers a client-friendly and
commercial approach, and that is why it is attractive to many borrowers. At the same time, EAIF must

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remain aligned in terms of what it requires of its borrowers versus other like lenders (i.e. the DFIs).
Further, when a project is ready for EAIF or any lender to review, much of the projects design has
been done. Therefore, to improve the development impact of these projects, FMFM can encourage its
borrowers to develop add-on projects and provide resources for ideas (such as GPOBA), particularly
if it is offering funds such as TAF. But there should be no penalties to the borrowers if they do not
develop these programs.
It is too early to assess the demonstration effect of EAIF on the market
While EAIF has had numerous achievements and should be considered a very successful initiative, it
should be recognized that EAIFs initial projects are only now operating and are just beginning to
repay their loans. The project lending cycle is not complete for these projects. It is too early to assess
the full impact of the loans in catalyzing private sector investment. It is also too early to evaluate
lending risk to infrastructure projects in SSA. The projects in EAIFs portfolio and the portfolio itself,
have not weathered the cycle of a full economic downturn.
In terms of imitating EAIF, exogenous factors such as the banking liquidity crisis have limited any
potential in expanding long-term commercial lending programs.
Any judgment on EAIFs
demonstration effect on private sector lenders is premature.

6.2

Developmental Impact

The PIDG approach to development impact of a PIDG supported infrastructure project is i) the direct
impact of improved services for its consumers, and ii) the indirect impact on economic growth that it
facilitates. It uses three proxy indicators to assess direct impact:
Private investment mobilized for a particular project;
Expected number of additional people served and/or expected number of people with improved
quality of service; and
Expected fiscal saving for the host government (in terms of up-front fees to Government and
subsidies avoided by Government).
All PIDG facilities have used the same development indicators to measure the development impact of
their projects since 2007. The responsible investment officer must complete a Monitoring and
Evaluation (M & E) sheet within two weeks of Board approval of a project. M & E sheets have been
completed on all of EAIFs projects. FMFM does not revisit the M & E sheets to assess the impact
post-completion (nor is it recommended that FMFM be required to do a reevaluation. Any reevaluation
should be done by a development professional rather than a banker.) Annex 9 summarizes EAIFs
aggregate predicted development impact based on the indicators as of December 31, 2009.
At the PIDG meeting in May 2009, PIDG members asked the PMU to arrange an annual
comprehensive post-completion impact monitoring exercise in relation to PIDG supported projects to
quantify ex post realized impact data. This would allow the PIDG to demonstrate realized, rather than
expected, impacts and provide a basis for assessing the accuracy of the exante, predicted
development impacts. This is appropriately a separate analysis from this Progress Report. The
PIDGs Development Advisor supported by a Social and Environmental Consultant are in the process
of carrying out this analysis.
EAIFs aggregate development impact is based on the agreed indicators. EAIF has nine operating
projects where post-completion impact monitoring is possible20. The Post-Completions Impact
Monitoring Interim Report states that it is premature at this stage to make a commentary on the results
because a meaningful amount of data is still awaiting confirmation from respective clients. While not

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all the borrowers have responded to date, the data received and confirmed shows that actual results
meet or exceed expected results. For example, private sector investment mobilized for these
operating projects exceeded $5 billion. Similarly, with this additional infrastructure, millions of
additional people now have access to telecommunications, electricity or other services. Therefore,
based on the results to date, EAIF supported projects are impacting large numbers of people with
improved or additional access to infrastructure in mostly DAC I and DAC II countries in SSA.
While none of the operating sites were visited during this review, anecdotally, discussions with several
other EAIF borrowers, including site visits, illustrated the borrowers commitment to development in
their communities. This includes training local labor, which requires a significant amount of
management time and oversight. (All borrowers described using local labor as extremely challenging
in all cases.) It also means the creation of Community and Social Responsibility (CSR) programs to fit
the needs of the local community (i.e. schools, clinics, and training). All of the EAIF borrowers that
were contacted or visited had or were developing CSR programs, although the responsible personnel
were rarely on site.

6.3

EAIFs Future: Long-Term Strategy and Sustainability

Discussions about long-term strategy implicitly recognize that EAIF has been successful and assumes
that its objectives remain relevant today. The need for EAIF does remain and demonstrated benefits
are achievable. In this economic environment, with the dearth of financing options, EAIFs impact
could potentially be even greater. However, the Boards reliance principally on FMFM to present
strategic options focuses the strategic discussions too narrowly. An integrated plan should be
developed if the donors objectives are to maintain a sustainable initiative.
EAIFs value creation is at both an institutional level as well as on a transactional and developmental
basis. Not only has EAIF been successful supporting projects that may not have been otherwise
financed but it has also created the institution to support its operations and the resulting portfolio. This
support was not in place at the time of the last MTR, and the value of an ongoing operation should not
be lightly regarded. EAIF seems to have reached a critical mass in terms of its overall size, portfolio
and the size of its project loans to make it a market player. Project developers consider it a reliable
source of finance.
Any decision about EAIFs sustainability impacts on the PIDG initiatives as a whole
When the donors and Board develop a long-term strategy and sustainability options for EAIF, they
should consider the impact of its role on the PIDG and the other initiatives. As the PIDG poster child
with strong brand recognition, EAIF is a cornerstone of its initiatives and provides weight to PiIDGs
approach and platform. As such, it has an important demonstration effect role showing the effort, time
and investment that it is required to create a meaningful program in supporting infrastructure and
economic development in SSA. EAIF shows that the PIDG has created something more sustainable
than a one-off program. EAIFs success to date is likely to be an important contributor to other
potential donors into the PIDG group.
Its reputation and market role also has a direct positive impact on GuarantCo, which is at an earlier
stage of development. The cross-support and cross-fertilization of ideas provided by using FMFM for
both GuarantCo and EAIF is cost effective and important with clear synergies between two facilities.
EAIF has, for example, stepped into support the Maghreb Tubes transaction until the structure can be
put in place for GuarantCo.

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The global liquidity crunch and the IFC financing has had a cost
The financial crisis increased pricing and reduced liquidity affecting the near-term opportunities for
raising senior debt from commercial lenders (and even DFIs). EAIFs pricing already viewed by the
market as expensive - is dependent on managing its capital structure to maintain the lowest possible
cost of funding. So, while EAIF continues to seek additional lenders, the terms required are costprohibitive at this time.
Yet, with its commitments and pipeline potential, increasing EAIFs size is warranted (particularly with
its long term strategy not yet in place.) Consequently, the IFC/AfDB financing is important..

7 Conclusions and Recommendations

7.1

Conclusions

EAIF is successful initiative; and it is meeting its dual developmental and commercial
objectives.
EAIF has successfully developed from an early stage initiative at the time of the 2004 MTR where its
impact and operational aspects were unknown into an entity that has reached early adulthood and it
has made an impact in its market. It has developed a solid track record of performance lending to 22
projects in thirteen countries. Its has developed a reputation for being commercial, nimble and
responsive and project sponsors and other lenders want to include EAIF in its financing for the value
that they add to the structuring of the financing and the project. Its portfolio performance has been very
good and its prospects based on its pipeline look promising as well. Its team is respected and thus,
able to take a greater leadership role in transactions.
Operating as a public-private partnership, EAIF has been able to balance its dual objectives of lending
to developmentally and commercially viable projects. With its commercial with the risk appetite of a
DFI market discipline, it sits between the DFIs and commercial entities and adds value with by
offering debt financing with longer tenors in the difficult SSA countries and in difficult credit markets.
With seven operating projects in DAC I and II countries, EAIF is advancing its objectives of making an
impact on the development of SSAs infrastructure to facilitate economic growth, thereby contributing
to the alleviation of poverty in the region. These projects have provided access or improved electricity,
telecommunications and other infrastructure services to millions of people in SSA and provided
employment to tens of thousands. These operating projects, alone, represent over $5 billion in
additional private sector investment.
Further, EAIFs role has been additional in its market adding value to the existing market. Through its
leadership it has made good-quality investments in infrastructure in Sub-Sahara Africa through
transactions financed by the Fund which otherwise may not have materialized.
Organizationally, EAIF has developed into a mini-financial institution to manage its
increasingly complex operations and funding.
EAIF started with a simple model of a small streamlined team to invest in projects. Expertise such as
environmental and social impact, market evaluations and legal support are all outsourced on a
transaction-by-transaction basis. However, the fund management and portfolio monitoring cannot be
outsourced. So, EAIF has had to create similar systems, policies and procedures to that of any minifinancial institution in order to properly support its lending operations. EAIF has been implementing
these systems as needed and they appear reasonably sufficient. This will continue to be an ongoing
process as the portfolio grows. There are, however, some important policy issues outstanding that

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need to be updated and approved by the Board once all EAIFs financings are closed. Finally, a credit
scoring approach should be determined and put in place.
EAIF is rapidly approaching to a decision point on a strategic level and planning should not be
delayed.
The decisions with respect to EAIFs future are multifaceted, and they impact on many aspects of its
business operations. These include the FMA negotiations, the composition of the FMFM staff and the
directions to FMFM on how they should manage their lending (i.e. should FMFM offer smaller loans or
be more selective to stretch out the time until it reaches capacity?) The implementation of any longterm plan will take at a minimum several months and EAIF could reach its lending capacity in the next
eighteen months. Based on its project pipeline and current run rate, FMFM believes that it will reach
the Funds capacity towards the middle/third quarter of next year. The funding from IFC and AfDB
should provide EAIF with sufficient funds into mid- 2011. This assumes as well that there are no
losses or other issues that would impact the Fund. Additional loans or equity investments into EAIF or
sales of portfolio projects will have a long lead-time, particularly in this liquidity-constrained market.
Therefore, discussions on EAIFs sustainability, if desired, should be undertaken right away.
The Board and the Shareholders need to engage in a dialogue about EAIFs long-term strategy.
EAIFs shareholders appear to want to maintain their investment and involvement in EAIF but they
have not directly and clearly communicated their views to the Board. The shareholders will have to
address several additional and nuanced questions about maintaining the EAIF sustainability or
planning for self-liquidation. The shareholders perspective is, naturally, broader than the options that
FMFM has provided to the Board because FMFM is incentivized to maintain the continued growth of
the Fund (and close transactions). A dialogue between the Board and donors should be established
on EAIFs strategy and if desired, sustainability. An action plan is urgently needed to give the Board
clearer guidance to formulate a strategy and make recommendations.
No changes to the Investment Policy are needed
The Investment Policy does not appear to be a business constraint for EAIF at this time. Sufficient
investment opportunities have been available to develop its portfolio and a deep pipeline within the
Policys limits. The Board has shown reasonable flexibility in its interpretation of the Policy, when
merited. FMFM has also not indicated a need to change the Policy. In approving the term sheet and
financing, the Board has approved these changes; so these changes to the Policy should be
undertaken once the financing is closed.

7.2

Recommendations

While there are a number of recommendations throughout the report, the recommendations in this
section focus on the most important one. These relate to the need for greater attention to EAIFs
decisions about EAIFs future and long-term sustainability. There are no specific recommendations to
the lending operations of EAIF itself conducted by FMFM. These are working well. Similarly, there
are few recommendations relating to enhancing the development impact of EAIFs lending operations
or increasing the number of projects that are highly additional in its portfolio because they are
constrained by the nature of EAIFs public private structure as well as factors outside of EAIFs control
(as discussed in Section 6)
It should also be recognized that while these are recommendations to achieve certain objectives, there
may be many other suitable approaches to achieving the same objectives in addition to what is
proposed below.
The Board and the Shareholders should begin develop a strategic plan for EAIFs sustainability
now.

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The EAIF shareholders should determine what their clear overall (and cohesive) directive should be to
the Board with respect to their position on EAIFs future. And, the Board should begin exploring in
greater detail possible options and implications of each of these options. In order to develop an
effective and meaningful strategic plan, the Board needs to engage with the shareholders to elicit the
information needed from them as the Board develops a proposed approach. The needed dialogue
between the parties should not be seen as a one-off discussion because the development of a plan
will be a dynamic process. It is recommended that a subcommittee comprised of Board members and
shareholders (and supported by the PMU) be created to advance the process.

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Annex 1: Terms of Reference

Background
The Emerging Africa Infrastructure Fund Ltd (EAIF) was established in Mauritius in December 2001 as a private company
limited by shares and became fully operational in mid-2002 (see www.emergingafricafund.com). With an original size of US$
305 million, EAIF was conceived as a fund to provide long-term hard currency (US$ and Euro) denominated loans for private
sector infrastructure projects in sub-Saharan Africa (excepting Mauritius and, more recently, South Africa). EAIF aims to
address the market gap created by commercial banks in the region which typically provide high interest / short tenor loans,
which are in general not suitable for financing infrastructure projects. Coupled with the access to private sector know-how
through its directors and fund manager - Standard Infrastructure Fund Managers (Africa) Ltd (SIFMA) - EAIF provides a
unique solution to the need for long term debt financing for infrastructure development in the region. It operates on private
sector commercial principles and thereby demonstrates the viability of long-term commercial lending into sub-Saharan
Africa.
EAIF is one of a number of complementary facilities developed by the Private Infrastructure Development Group (PIDG),
whose membership currently comprises the development agencies from Austria (ADA), Ireland (Irish Aid), the Netherlands
(DGIS), Sweden (Sida), Switzerland (SECO) and the UK (DFID), and the World Bank Group (WBG). The PIDG established
a Mauritian trust (managed from the UK by SG Hambros Trust Company Ltd) in order to provide a legal entity for their
operations and to hold the equity of the various companies formed under the PIDG umbrella, including EAIF (see
www.pidg.org).
EAIFs financing comprises equity, provided by a consortium of the PIDG members (the EAIF donors), and senior and
subordinated debt financing provided by senior lenders (Barclays Bank Plc, Standard Bank of South Africa and KfW) and
subordinated lenders (FMO, DEG and DBSA). EAIFs success in its first four years of operations, evidenced by the initial
loans it issued, meant that it was successfully able to refinance in 2006, increasing its senior debt to US$180m and bringing
the total size of the fund to US$ 365 million (from an original size of $305 million).
To date EAIF has committed loans totalling just under US$ 365 million to 15 projects. This has helped mobilise funding
commitments from private investors, which are expected to deliver new infrastructure services for people in Africa and result
in significant economic benefits. EAIFs strong performance has convinced EAIFs existing senior lenders to increase their
commitments to the company once again, and for new lenders to consider providing additional commitments. It is hoped
that in this second refinancing EAIF will be able to leverage the initial equity provided by the EAIF donors even further, to
increase the total size of the fund to greater than US$ 600 million.
In order to enhance their understanding of developments in the infrastructure market in Africa, in early 2008 the Board of
EAIF commissioned a special report on the financing of private sector infrastructure in Sub-Saharan Africa tasked with
reviewing trends, needs and challenges as perceived by other players in these markets. This review was completed in April
2008.
The performance of EAIF was initially assessed by the PIDG under a Mid-Term Review in 2004 and, more recently, EAIF
was assessed in broad terms, together with other private sector infrastructure facilities supported by DFID, in an
independent review undertaken for DFIDs evaluation team. In addition, some initial work has been undertaken on this
Progress Review by Mobsby and Associates, but this has been discontinued.
The PIDG members now wish to follow up these earlier reviews by undertaking a full and detailed Progress Review of EAIF
to assess not only its progress to date, but also plans for the future and this work is to be the subject of this consultancy.
Output
Drawing as necessary from the earlier reports, the current review should lead to a report of not more than 20 pages which:
o
o
o

looks at the original aims and objectives of EAIF and its success, or otherwise, to date in achieving these and whether
these remain realistic given the current infrastructure market in sub-Saharan Africa;
describes the current infrastructure market in the developing countries covered by EAIFs mandate, any prevailing
constraints to private investment in this market and the relevance (or otherwise) of the availability of long term, hard
currency, debt in helping to increase such investment;
comments upon the availability of similar lending instruments in the market in which EAIF is mandated to operate and
confirms (or otherwise) EAIFs continuing additionality both at the facility and transaction level;

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o
o

gives an assessment of the analysis of this market as seen by the management team;
gives an assessment of the strategy of EAIFs management team to identify projects that meet the requirements of
EAIFs Investment Policy;
o assesses the quality and effectiveness of the services provided by SIFMA and Frontier Markets Fund Managers to
EAIF;
o gives an assessment of the EAIF mandate and whether this limits the ability of the EAIFs management to meet the
requirements of the target market;
o comments on the proposals currently being taken forward by EAIFs Board for refinancing;
o recommends any changes to the aims and objectives, Investment Policy (inter alia criteria, focus on sectors, etc.) and
the management of EAIF as may be seen as appropriate.
o comments upon the developmental aspects of the transactions to date, with specific reference to the benefits assessed
at the time the transaction was approved by the Board;
o provides a specific update of the Monitoring and Evaluation sheets (the PIDGs system for assessing the development
impact of interventions by its facilities) for a sample of projects on the basis of site visits;
o gives a view as to the long-term strategy of the PIDG vis--vis EAIF, and a commentary on whether this is seen as
appropriate;
o provides a review of the developmental value and effectiveness of EAIFs Project Development Facility (PDF).
Input
It is envisaged that the review will be undertaken by a singleton consultant, a broad knowledge of the development of, and
hard currency private investment in infrastructure in Africa (the Reviewer).
The Reviewer will be expected to make field trips to three projects which have received support from EAIF (which the
reviewers will select in consultation with the PIDGs Programme Management Unit (PMU) and EAIF) in order to meet with
recipients of loans from EAIF and to form a view as to the value added by EAIF and of the outcomes to date of its
investments.
In addition, the Reviewer will review both the earlier Mid-term Review, the DFIDs more recent review and the Mobsby
preliminary report, plus the report on market trends commissioned by the Board of EAIF. The Reviewer should also review
copies of the minutes of EAIFs Board Meetings and other relevant documents in order that they may form a view on the
effectiveness and efficiency of the management and control systems in place.
Timing
It is anticipated that the contract for this consultancy will be awarded not later than 30 April 2009. The Reviewer shall submit
a First Draft Report to the PMU within 45 days of appointment. The PMU, EAIFs Board and its management team will
provide comments on the Report to the Review Team within 14 days of receipt of the First Draft Report.
The Reviewer will produce a Second Draft Report (incorporating any comments received) to the PMU not later than 1
October 2009. The PMU will then circulate this to the EAIF donors and the PIDG.
The Reviewer will be invited to present their findings to the PIDG at their biannual meeting scheduled to be held in Paris in
early November 2009.
They will then be required to produce a Final Report for submission to the PMU by the end of November 2009.

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Annex 2: Persons Interviewed
PIDG PMU
DFID
SIDA

SECO
Frontier Markets

EAIF Board

IDC
IFC

PPIAF
SIFMA
Standard Bank, London
TAF
WSP
ABSA Capital
Afcap Consulting
Aldwych
ASP Company

DBSA
Fieldstone
Harith

Diane Harris, Solicitor

Smita Biswas, Development Advisor
Jane Jamieson
Elisabeth Ekelund, Senior Financing Specialist
Lars Ekengren, Consultant
Roger Garman
David Kramer
Nick Rouse, Managing Director
Chris Vermont, Head of Debt Capital Markets
Orli Arav, Director
Anne Ranasinghe, Finance and Admin Manager
Tony Lea, Chair
Johan Bastin
Beate Baethke
Claes de Neergaard
Hein Gietema
Irving Kuczynski
David Pitts
Robert Sack
Tlamelo Ramantsi
Deepak Desai
Laurence Carter
David Donaldson
Tom Bulter
Emmanuel Nyirinkindi
Joel Kolker
Bruce Ursell, Chair
Graham Thomas
Simon Morgan, Director, Private Equity
John Flora
Steven Paling
Sollie Nortje, Principal
Johan Kruger
Mark Fitzpatrick
Bob Chestnutt
Terence Loh
Jeremy Mott
Feng Yu
Jonathan Berman
Roberto Nunes Ferreira, Investment Director

Industrial Promotion Services

(Kenya) Ltd:
Dr. Kevin K. Kariuki, Head of Infrastructure
Mehboob K. Jesani, General Manager - Finance
Lutaf Kassam, Group Managing Director East Africa
Nedbank Capital
Sakkie Leimecke, Investment Banking
Energy Project Finance
Norfund
Mark Davis
Orpower 4, Inc.
Ernest Mabwa
Rand Merchant Bank
Werner Van Oudenhove,
Investment banking - Infrastructure Finance
Leslie Silverstone, Investment Banking - Head Africa

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Safal Group

Standard Bank, SA
Standard & Poors

Ronnie Graham, Regional CEO South Africa

Arup Ghoshal, Group Chief Technical Officer
Duane Fischer, EHS Manager
Ashutosh Datta, Technical Manager
Guy Du Plessis, Financial Manager
Jonathan Wood, Global Head - Project Finance
Konrad Reuss, Managing Director,
South Africa & Sub-Saharan Africa

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Annex 3: EAIF Fund Portfolio as of September 30, 2009

Project Name

Developer

Country

Sector

Type of
Loan

Loan Amount
in millions
(US$ unless
noted)

AES Sonel II

AES Sonel

Cameroon

Power

Senior

23.99 EUR

Moma Titanium
Minerals

Kenmare

Mozambiqu
e

Mining

Senior and
Sub Debt

38.77

Celtel Nigeria

Celtel Nigeria

Nigeria

Telecoms

Senior

35

Eleme
Petrochemicals
Ltd

Indorama

Nigeria

Petrochem

Senior

20

Celtel Africa

Celtel International

Pan African

Telecoms

Senior

24

Seacom / IPS
Cable System
Holdings

IPS

East Africa

Telecoms

Sub Debt

35.44

Safal Project

Chandaria/ Shah
family trusts

Kenya/
Tanzania/
South
Africa

Manufacturing

Senior

29

Bugoye Uganda MiniHydro

TrnderEnergi Kraft
AS and Norfund

Uganda

Power

Senior

35

SAEMS

SAEMS

Uganda

Power

Sub Debt

14

Rabai Power
Ltd.

Aldwych

Kenya

Power

Senior/
Sub Debt

22.57 EUR

Olkaria III

OrPower4 Inc.
Ormat Industries

Kenya

IPP

Senior

15

Maghreb Tubes

Terence Loh Group

Algeria

Other

Senior

17

Aldwych

Management, FMO,
Private Equity
Investors, PAIDF

Pan African

Power

Sub Debt

EUR 6

Zain Ghana

Zain

Ghana

Telecoms

Senior

17.5

Bisha Mining

Nevsun

Eritrea

Mining

Sub Debt

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Annex 4: Refinanced and Pre-paid Projects

Project Name

Developer

Country

Sector

Loan Amount
(US$ millions)
30

MSI Celtel

Celtel
International

Pan African

Telecoms

AES Sonel

AES
Corporation

Cameroon

Power

30

Celtel II

Celtel
International

Pan-Africa

Telecoms

30

MTN Nigeria

MTN

Nigeria

Telecoms

10

Single Point
Mooring Buoy

Trafigura
Beheer B.V.

Ghana

Transport

12

Obajana
Cement

Dangote
Industries
Limited

Nigeria

Manufacturing

30

Ethiopian
Airlines

Ethiopian
Airlines

Ethiopia

Transport

36

Safal
Subordinated

Chandaria/Shah
Family Trusts

Kenya.Tanzania/

Manufacturing

4.9

South Afica

Total Loans refinanced or pre-paid: US$182.9 million.

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Annex 5: Portfolio - Project Loan and Stage of Development
Project Name

Country

Sector

Loan Status

Stage of
Development

AES Sonel II

Cameroon

Power

Repayment
begins 3/2010

Operational

Moma Titanium
Minerals

Mozambique

Mining

Repaying
loan

Operational

Celtel Nigeria

Nigeria

Telecoms

Repaying
loan

Operational

Eleme
Petrochemicals

Nigeria

Petrochem

Repaying
loan

Operational

Celtel Africa

Pan African

Telecoms

Disbursing

Seacom / IPS

East Africa

Telecoms

Disbursing

Commenced
operations

Safal Project

Kenya/

Manufacturing

Disbursing

Under
Construction

Tanzania/ SA

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21

Varies, most
in
construction

Bugoye MiniHydro

Uganda

Power

Disbursing

Under
Construction

SAEMS

Uganda

Power

Disbursing

Under
Construction

Rabai Power
Ltd.

Kenya

Power

Disbursing

Completing
construction
2009

Olkaria III

Kenya

IPP

Disbursed

Operational

Maghreb Tubes

Algeria

Other

Disbursing

In
Development

Aldwych

Pan African

Power

Disbursing

In
Development

Zain Ghana

Ghana

Telecoms

Disbursed

Operating

The Celtel Madagascar loan begins repayment in March 2010.

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Annex 6: EAIF Report Preparation and Reporting Requirements
Transaction Specific Reports
Report Recipient
New Business Committee
Board
Credit Committee
Board

Report
New Business Transaction
NBC minutes
Credit Paper
CC Minutes and Report
M&E

Management Reports
Report Recipient
PIDG

Report
Quarterly
Update Report and Presentation
Transaction specific ad hoc
advisements
Ad hoc visits, information
Progress reports/site visits

Periodicity
Quarterly
Semi-Annually
Occasional
Occasional
Occasional

EAIF Board
Portfolio and pipeline review
Quarterly
Treasury related
Monthly
Audit
Annual
Accounting
Quarterly
Business Plan
Annually
EAIF Lenders
Covenant Compliance
Quarterly
Credit Committee Reports
Quarterly
Accounting
Quarterly
Ad Hoc (i.e. impact of credit Occasional
crunch on Fund)
SIFMA
Reports on Board Meetings
Quarterly
ALCO
Monthly
Non-Disclosure Agreement
Occasional
Ad Hoc
Occasional
Standard Bank (FMFM as Management Accounts
Monthly
division)
Report to Division Manager on Monthly
pipeline and status
All Press Releases for Approval
Occasional
KYC Process
Transaction specific
Occasional
Internal Audit
Occasional

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Annex 7: Summary of Development Indicators for EAIF Projects

The list includes all prepaid, refinanced and current projects22.
M & E Indicator

As of December 31, 2009

Total Project Investment (US$ millions)

7482,50

Domestic PSI (US$ millions)

2804.32

Foreign PSI/FDI (US$ millions)

3712.50

DFI Equity (US$ millions)

No. Of Additional People Served (Predicted)
Improved Service Level (Predicted)
Fiscal Impact - Predicted (US$ millions)

147.28
11,580,118
1,876,500
933

Up-front Fees to Government

Fiscal impacts - Predicted (US$ millions)

73

Subsidies Avoided (by Government)

Employment Effects - Short Term Effects During

3,811

Construction (Predicted)
Employment Effects - Long Term Effects During

101,620

Operations (Predicted)

22

This table includes the Helios Towers and the African Foundries Projects that we signed at the end of
the year.
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