InfraCo Review 2007 PDF

InfraCo
Mid-Term Review 2007

Public
CONTENTS
LIST OF ABBREVIATIONS ............................................................................................................... 1
EXECUTIVE SUMMARY ................................................................................................................... 3
1 INTRODUCTION ..................................................................................................... 6
1.1. Purpose of Report ................................................................................................... 6
1.2. Methodology ............................................................................................................ 6
1.3. Structure of the Report ............................................................................................ 7
2 THE INFRACO INITIATIVE ..................................................................................... 8
2.1. Mission .................................................................................................................... 8
2.2. The Approach .......................................................................................................... 8
2.3. InfraCo Structure ..................................................................................................... 9
Figure 1: Governance and operating arrangements .............................................................. 9
2.4. InfraCo Funding ....................................................................................................... 9
2.5. Focus ..................................................................................................................... 10
3 EARLY STAGE INFRASTRUCTURE DEVELOPMENT IN EMERGING
MARKETS ............................................................................................................. 11
3.1. The Development Process .................................................................................... 11
Figure 2: The Project Preparation Process Phase 1 ......................................................... 11
3.2. The Development Approach.................................................................................. 13
3.3. Constraints and Challenges to Developers ........................................................... 13
3.4. Development Phase Funding ................................................................................ 14
3.5. The Developers Exit ............................................................................................. 14
4 OPERATIONAL REVIEW - ANALYSIS OF PERFORMANCE ............................. 15
4.1. The Project Portfolio .............................................................................................. 15
Table 1: Projects under Development ................................................................................. 15
Table 2: Priority Project Pipeline ......................................................................................... 17
4.2. Evaluation of Project Development Activities ........................................................ 18
4.2.1. Kpone IPP ............................................................................................................. 18
4.2.2. Sandrandano Water .............................................................................................. 19
4.2.3. Aba Power ............................................................................................................. 20
4.2.4. Can Tho Infrastructure .......................................................................................... 21
4.2.5. Cape Verde Wind Project ...................................................................................... 21
4.2.6. Kalangala Infrastructure Project ............................................................................ 22
4.2.6.1. Ferry ...................................................................................................................... 22
4.2.6.2. Water ..................................................................................................................... 22
4.2.6.3. Power .................................................................................................................... 23
4.2.6.4. Road ...................................................................................................................... 23
4.2.7. Beira Land Development ....................................................................................... 24
4.2.8. Antara Cold Storage Facility.................................................................................. 25
4.2.9. Kampala Sanitation Rehabilitation ........................................................................ 26
4.2.10. Nfrasi Housing ....................................................................................................... 26
(ii)
InfraCo Mid-Term Review Report 2007 - Public

Public
4.2.11. KIS Renewables .................................................................................................... 27

4.2.12. Chiansi Water Development Trust ........................................................................ 27
4.3. Risk Assessment Summary .................................................................................. 28
4.3.1. Financing Risk ....................................................................................................... 28
4.3.2. Exit Risk................................................................................................................. 28
4.3.3. Political Risk .......................................................................................................... 28
4.3.4. Sponsor Risk ......................................................................................................... 29
4.4. Assessment of Development Outcomes ............................................................... 29
Table 3: Summary of Development Outcome Milestones ................................................... 29
4.5. Assessment of InfraCos Board and Management Performance .......................... 30
4.5.1. Board Performance ............................................................................................... 30
4.5.2. Management Performance .................................................................................... 31
4.6. Analyses of Sources and Utilisation of Funds ....................................................... 32
4.6.1. Evaluation of sources and uses of funds .............................................................. 32
Table 4: Sources and Uses Statement as at 31 December 2006 ....................................... 33
Table 5: Summary of Development Costs per Project to Financial Close .......................... 35
4.6.2. Kpone IPP: An illustration of the Project Development Cycle, Value
Creation, Costs and Risks ..................................................................................... 36
Table 6: Kpone IPP Project Cycle Illustration ..................................................................... 36
4.7. Evaluation of Financial Projections and Scenario Analyses ................................. 39
4.7.1. Base Case Evaluation ........................................................................................... 39
Figure 6: Base Case Projections .......................................................................................... 41
4.7.2. Scenario Analysis .................................................................................................. 43
4.7.3. Findings ................................................................................................................. 44
Table 7: Key Performance Indicators Scenario Analysis - Key Performance
Indicators ............................................................................................................... 46
Table 8: Scenario Analysis - Cash Flow.............................................................................. 47
4.8. Key Successes and Challenges ............................................................................ 48
4.8.1. Key successes ...................................................................................................... 48
4.8.1.1. Impressive portfolio development and pipeline ..................................................... 48
4.8.1.2. Development Outcomes ........................................................................................ 48
4.8.1.3. Innovation .............................................................................................................. 48
4.8.1.4. Buy-in from Key stakeholders ............................................................................... 49
4.8.2. Key challenges ...................................................................................................... 49
4.8.2.1. Lack of balance sheet strength ............................................................................. 49
4.8.2.2. Lack of ready access to grant funding .................................................................. 49
4.8.2.3. Optimising Project Exit .......................................................................................... 50
4.8.2.4. Achieving Sustainability ......................................................................................... 50
4.8.2.5. Enhancement of Operational and Financial Controls ........................................... 50
4.8.2.6. Entrance of New Initiatives in the same Development Space .............................. 50
4.8.2.7. Expansion and Extension of Participation ............................................................ 51
4.8.2.8. Scalingup of Communications ............................................................................. 51
5 CONCLUSION - THE INFRACO CONCEPT IS PROVEN ................................... 52
5.1. InfraCo business and performance targets ........................................................... 52
5.2. InfraCo on course to meet targets ......................................................................... 52
5.3. InfraCos innovative approach ............................................................................... 52
5.4. InfraCos financial projections ............................................................................... 53
(iii)

Public
5.5. InfraCo secures buy in from stakeholders ............................................................. 53

5.6. The Value Add of the InfraCo Board ..................................................................... 53
5.7. The contribution of the Management Team .......................................................... 54
6 RECOMMENDATIONS ......................................................................................... 55
6.1. Scale-Up InfraCo Pilot to a Full Project Development Facility .............................. 55
Figure 7: Proposed new structure ........................................................................................ 56
6.2. Commit Additional Funding to the Initiative ........................................................... 56
6.3. Enhance Operational Efficiency ............................................................................ 58
6.4. Build on the Existing Management Team ............................................................. 58
(iv)

Public
LIST OF ABBREVIATIONS
ADA Austrian Development Agency

ADB African Development Bank
AsPIFF Asian Private Infrastructure Financing Facility
CPs Condition Precedents
DBSA Development Bank of South Africa
DCA Development Credit Authority
DevCo Advisory Infrastructure Development Collaboration Partnership
DFIs Development Finance Institutions
DFID UK Department for International Development
DGIS Directorate General for International Co-operation of the Dutch Ministry of
Foreign Affairs
EAIF Emerging Africa Infrastructure Fund
ECG Energy Commission of Ghana
ECOWAS Economic Community of West African States
EIA Environmental Impact Assessment
EPC Engineering Procurement Contract
EPZ Export Processing Zone
GPOBA Global Partnership for Output Based Aid
GuaranCo UK DFID lead initiative to provide partial risk guarantees for local investment
in infrastructure works
HDV High Development Value
HIPC Heavily Indebted Poor Country
HOT Heads of Terms
IFI International Finance Institutions
IFC International Finance Corporation
IMS InfraCo Management Services
LDEs Lesser Developed Economies
LOI Letter of Intent
JDA Joint Development Agreement
MFIs Multilateral Financial Institutions
MLA Multilateral Development Agency
MOU Memorandum of Understanding
OBA Output Based Aid
OPP Operating Principles and Procedures
PIDG Private Infrastructure Development Group
PIM Preliminary Information Memorandum

Public
PMU Project Management Unit

PPA Power Purchasing Agreement
PPIAF Private Participation in Infrastructure Advisory Facility
PPI Private Participation in Infrastructure
PPP Public Private Partnership
PSP Private Sector Participation
RFP Request for Proposal
SECO Swiss State Secretary for Economic Affairs
SIDA Swedish International Development Corporation Agency
SSA Sub-Saharan Africa
SPE Single Purpose Entity
TAF Technical Assistance Facility
TOR Terms of Reference
VRA Volta River Authority
WAGPCO West Africa Gas Pipeline Company
WB World Bank

Public
EXECUTIVE SUMMARY
InfraCo Limited (InfraCo) was launched in April 2005 as a pilot initiative for three years, to test the
proposition that donor funds could be effectively used to support a privately managed infrastructure
development company, facilitate the early stage development of infrastructure projects, and
stimulate greater private sector involvement. InfraCos central objective is to identify, create and
structure viable business opportunities in various infrastructure sub-sectors and to offer them
through a transparent process to private investors for implementation.
Over the last 24 months, the Board and Management have taken a concept, overcoming
substantial hurdles and built a new business with a growing potential and recognition. InfraCo has
developed an impressive portfolio mix and pipeline of projects, with a creditable number of Higher
Developmental Value (HDV) projects which offer the potential for the widening of access to
infrastructure services to the rural and in some cases urban poor, thus making a contribution to
poverty alleviation.
InfraCo has achieved, and in some respects surpassed, the targets that were set on establishment.
By the end of Year 1, InfraCo had signed 5 exclusive agreements and conducted 4 feasibility
studies. This achievement is far greater than the target of 1 exclusive agreement.
By the end of Year 2, InfraCo achieved one agreed sale. The target of 2 sales agreed was not
achieved. However, they were able to sign 8 additional exclusivity agreements and undertake 9
feasibility studies. This surpassed the target requirements. In achieving the agreed Aba power
sale InfraCo has proven the model by attracting a private sector investor that would not otherwise
have been interested in the deal, and secured a return on its relatively small investment. InfraCo is
on course to surpass the third year business target outcomes, with 5 sales envisaged.
Further, InfraCo has contributed to the development of innovative approaches and practices to
infrastructure development in emerging markets, with a potential for replication. These include:
Development of integrated infrastructure Kalangala
The development in Kalangala is an integrated project covering water, power, road and
ferry services for rural communities which, on an individual project basis, may not have
been economically justified to undertake.
Support for indigenous water operators - Sandandrano Water
Providing water infrastructure to support indigenous operators in Madagascar.
Reinvigorating stalled projects Kpone, ABA, Kalangala
Utilising its relatively high risk tolerance, and limited patient equity to reinvigorate long
stalled projects as in Kpone, Kalangala and Aba.
Development of key infrastructure Cape Verde, Kampala
Assisting Government in the development and provision of key infrastructure assets as in

Cape Verde and Kampala.
Project visits undertaken during the review confirm that the InfraCo approach has secured buy in
from key stakeholders in central and local government institutions and communities in the locations
in which they are operating. Stakeholders contacted during the review generally expressed the
view that the model is significantly different and compares favourably to other technical assistance
facilities with which they have had experience.

Public
The review included an evaluation of the base case and scenario analyses contained in the revised
InfraCo business plan. The evaluation revealed that under the downside case assumptions, total
expenditure over the period to 2009 would exceed the currently available resources of US$20m.
Were this situation to be realised, the Board of InfraCo would be forced to defer expenditures
resulting in indefinite delay in closing of some of the portfolio.
Most importantly, the review also revealed that InfraCo had forward committed to projects under its
current development portfolio all US$20 million that had been provided to the initiative by DFID and
DGIS. This effectively means that InfraCo cannot increase its development portfolio or indeed
participate in new opportunities without additional financial resources.
Overall, the assessment revealed that the Boards leadership and governance of the company
have been exemplary. The stewardship and effectiveness of the Board in governing the activities
of InfraCo has been critical to the achievements of the company to date. InfraCos Management
team have performed well in accordance with operating procedures and requirements under the
service contract. They have proven their capacity through the portfolio they have assembled and
the innovation which they have brought to the project development effort.
The InfraCo concept is proven both in terms of its ability to attract private sector investment and in
its added developmental value to alleviate poverty through the provision of access to infrastructure
services to the poor in the emerging markets of Africa in particular and, to a more limited extent,
Asia. However, InfraCo faces significant challenges that will need to be addressed if it is to
continue to progress. Key amongst these are InfraCos lack of balance sheet strength which
constrains its operations and hinders its credibility. Further, its lack of ready access to grant
funding, limits its ability to structure a higher number and timely closure of HDV deals and meet
third party development costs for project development. The Technical Assistance Funding (TAF),
which has hitherto enabled InfraCo to meet these costs, will itself soon be exhausted.
A key challenge is the imminent establishment of a number of project preparation facilities,

including AsPIFF which it is envisaged may be established under InfraCo. The establishment of
such facilities would require InfraCo to redefine its area of focus and modus operandi in order to
eliminate duplication of effort and develop collaborative working relationships with these new
facilities.
The Review recommends that the pilot should be scaled up to a full project development facility.
This central recommendation is underpinned with a number of actions to ensure organisational
sustainability, a higher level of development impact and an enhancement of operational efficacy.
The recommended actions include the following:
Subject to securing additional funding, InfraCo should consider the establishment of

separate entities for the Asian and African operations.
PIDG should authorise InfraCo to extend an invitation to DFIs, region specific funds, and
local and international institutional investors to participate in the InfraCo initiative.
PIDG should in 2007 provide InfraCo with an additional US$40 - US$60 million funding
commitment over a 5 year period for its African development operations with draw down to
nd
commence from 2 Quarter 2008.
PIDG should support InfraCo to raise an Africa specific investment fund, to be managed by
InfraCo to facilitate the provision of a portion of equity finance where appropriate to the
projects developed.
PIDG Members should broaden accessibility to grant funding for HDVs.
PIDG should commit to the replenishment of the TAF directly, or through a special window
within InfraCo.

Public
PIDG should examine the adequacy of resources within GPOBA with a view to effectively
resourcing the fund, so that it can effectively engage with its client base and thus increase
poverty reduction benefits of its projects.
InfraCo should devise and implement a regional marketing strategy with a view to
promoting awareness, building networks and forging partnerships particularly with other
PIDG instruments; subject to additional funds being committed.
InfraCo should continue to implement financial and operational systems and controls in line
with organisational growth and market benchmarks.
Subject to the commitment of new funding, the InfraCo Board should review the terms of
the existing contract and re-negotiate with IMS a new contract, which will take into account
new additional funding and the fact that the market conditions under which the existing
contract was concluded have changed, due largely to the demonstration effect of InfraCo
and concomitant reduced risks.
It is further recommended that going forward, the Board retains the flexibility to negotiate
arrangements for developer and fund management services, which will ensure the optimal
use of the financial resources and advise PIDG accordingly.
The recommended actions above have been designed to overcome the

identified challenges facing InfraCo and support its transformation to a
full project development facility. Essentially, InfraCos success going
forward will require an enhancement of its structure and modus
operandi, the participation of additional regional development partners,
securing additional financial resources and the continued commitment
of PIDG, the leadership and strategic direction of the Board, and a
resourceful and incentivised Management team such as IMS.

Public
1 INTRODUCTION
1.1. Purpose of Report
The purpose of this report is to present the findings of the Mid-Term review of the
InfraCo initiative. InfraCo was established by the Private Infrastructure
Development Group (PIDG), currently supported by the Development Agencies
from Austria (ADA), the Netherlands (DGIS), Sweden (SIDA), Switzerland (SECO)
the UK (DFID), and by the World Bank.
InfraCo Limited (InfraCo) was launched in April 2005 as a pilot initiative for three
years, to test the proposition that public funds (donor funds) could be effectively
used to support a privately managed infrastructure development company to
facilitate the early stage development of infrastructure projects. InfraCos central
objective is to identify, create and structure viable business opportunities in various
infrastructure sub-sectors and to offer them, through a transparent process, to
private investors for implementation.
The key rationale for InfraCo therefore is to bridge the gap between public and
private sector delivery of infrastructure and act as the catalyst for increased Private
Participation in Infrastructure (PPI) in emerging markets. InfraCos mandate is to
act as principal (not an advisor) in this process and complement the activities of
other PIDG initiatives.
To enable PIDG to better understand progress over the last 24 months and to aid
the decision making process on the options for further funding beyond the pilot
project, the PIDG have commissioned the services of The Consultants to
undertake a mid-term review of InfraCos activities.
In this respect the Mid-Term review assesses and evaluates the:
Performance of InfraCo.
Potential for scaling up InfraCo.
1.2. Methodology
This review was undertaken in February-March 2007.
The main activities of the review included, without limitation, an assessment of: the
current projects, the performance in terms of achievement of project goals,
developmental impacts of InfraCo activities, the key successes and challenges to
date, the quality of the project pipeline, the appropriateness of operational,
financial and management procedures, the effectiveness of the process of
identification and development of potential investment, project risks and risk
mitigation, the potential private sector market for the sale of projects, the level of
awareness of InfraCos brand. (The detailed scope is given in the full terms of
reference at Appendix I).
The review methodology executed was as follows:
Desk research and examination of all relevant background documents

including (but not necessarily limited to) the Feasibility/Design study report,
the DFID Project memorandum, the IMS Business Plan, operating policies
and procedures, audited financial statements of InfraCo, all project
submissions and progress reports issued by InfraCo to date.

Public
Discussions with both the PMU and the PIDG members to elicit views on
the effectiveness of InfraCo, its operations, the arrangements for reporting
on its activities and the efficiency of the financial management of the
facility.
Discussions with the InfraCo Board and IMS to gain a full understanding of
the strategy, planning, budgeting operational and due diligence for new
projects, and, governance arrangements put in place between the
company, its shareholders and IMS.
Visits to the Uganda/Ghana projects to solicit views from government, local

investors and beneficiaries to assess appropriateness of InfraCos
approach to project development.
1.3. Structure of the Report
This report provides an assessment on the salient issues to be addressed by a

review of the InfraCo initiative. The report is structured as follows:
Chapter 2 outlines a background of the initiative, mission, structure, approach,

funding and focus.
Chapter 3 provides a critical analysis of the requirements for executing early stage
infrastructure development in emerging markets.
Chapter 4 presents details of the analysis of the operational review and InfraCos
progress to date.
In Chapter 5, the main conclusions drawn from the review are documented
In Chapter 6 recommendations for future action are proposed.

Public
2 THE INFRACO INITIATIVE
2.1. Mission
Significant focus is being placed on the need for new solutions for the development
and delivery of infrastructure in LDEs, particularly in Africa. The aim of the PIDG is
to facilitate the provision of infrastructure needed to eliminate poverty in developing
countries by encouraging private investment.
The objective of InfraCo is to contribute to PIDGs aims to stimulate greater private

sector involvement in the development of infrastructure and related projects by
reducing the costs and risks of project development at the pre-financial close
stage. In this regard, InfraCos mission is to identify, create and structure,
financable and sustainable private sector and PPP investment infrastructure
project opportunities, and offer them prior to financial close, to the private sector for
implementation.
Alongside its project development brief, in order to deliver projects and improve the
general business climate, InfraCo will also work closely with the other PIDG
initiatives (EAIF, GuaranCo, DevCo Advisory), as well as PPIAF, World Bank and
donors, in order to identify the support required for policy, legal and regulatory
developments, and capacity building requirements.
2.2. The Approach
InfraCo operates as a private sector project development company, acting as

principal with the following key operating principles:
Undertake pre-financial close development activities for its own account

and risk;
Operate at arms length from government with a Board of Directors from

the private sector, acting in accordance with agreed operating policies and
procedures;
Not compete with the private sector, rather seek to stimulate expanded
private sector involvement in infrastructure development;
Seek to structure opportunities in a way that balances the interests of host

governments and other national stakeholders with the requirements of
private sector investors and providers of finance both local and
international;
Seek to balance the goal of attaining attractive sales value with the goal of
promoting opportunities with a high developmental impact;
Over the long term, seek sufficient revenue from successful sales to cover
its general operating costs, the direct project preparation costs of sold
opportunities and to make a contribution to the costs of unsold
opportunities;
Seek in the early days of its life to produce a demonstration effect so as to

attract further funding for the continuation of its important role.
InfraCos approach is markedly different from much of the traditional technical

assistance approaches towards development of capital projects in emerging

Public
markets. InfraCo takes a pioneering development role and offers a full

development capability that includes taking a project from the very earliest stage
a project idea to a final, economically viable, financed project.
The Company was initially established with a three year Pilot Phase business plan.
2.3. InfraCo Structure
Figure 1: Governance and operating arrangements
PIDG Donors: DFID,
ADA, DGIS, SIDA, Other Sponsor if any

World Bank, SECO
World Bank,
SECO, DFID,
Public/Private
Infrastructure Infraco Ltd
World Bank,
Development
Trust
D
4 non-
Donors InfraCo
executive
directors Management
Board (including Team(s)
Managing Director)
(IMSIMS)
Source: Operating Policies and Procedures, 2006
The Board was structured to lead the establishment and strategic direction of
InfraCo. The Board is actively involved in governance and decision making for the
Company to safeguard Shareholders assets while enabling the Company to
operate in a flexible and commercial manner. The Board additionally designed the
process to secure management services, and provides oversight of the
Management team and the development activities.
The day-to-day management of the Company is the responsibility IMS and the IMS
Managing Director who were appointed in April 2005 after a successful bidding
process.
2.4. InfraCo Funding
InfraCo was launched in May 2005 with initial capital of US$10 million from DFID.
The Directorate-General of Development Co-operation of the Netherlands (DGIS)
provided a further capital injection of US$10 million in 2006. This additional
funding signalled an extension of the three year initial pilot phase to four years.

Public
2.5. Focus
InfraCos main geographic focus is projects in Sub-Saharan Africa and Southeast

Asia, with an emphasis on projects that:
Benefit from the focus and commercial impetus of InfraCo.
Reach financial close in a reasonable timeframe.
Have a high development impact, are pro-poor and on which the local
impact of InfraCo can be demonstrated.
10

Public
3 EARLY STAGE INFRASTRUCTURE DEVELOPMENT IN EMERGING

MARKETS
3.1. The Development Process
The activities normally undertaken by commercially driven project developers

during the early stages of the development of infrastructure projects, until financial
close, are shown in figures 1 to 4 below. The activities post financial close
normally comprises construction and implementation. It is during the stages
immediately prior to financial close that the commercial project developer is most
at risk and seeks to defray his risk through the careful and timely assembly and
structuring of the intended transaction.
Figure 2: The Project Preparation Process Phase 1
The Project Preparation Process
Phase1 Phase 2 Phase 3 Phase 4 Financial

Close
Development Activities:
Deliverables:
Market Screening:-
Signed MOU with
Financial Resources of Offtakers and Payment Security
Host Governments or
International Market Appetite
Parastatal
Preliminary Market ; Technical; Financial;
Short List / Secure
Legal & Regulatory Framework; and Environmental Studies
Project Partners
Quick & Dirty Reviews
Project Definition Paper
Approvals to
Issues to Consider: Proceed to Phase2
Fast Tracking Project Development Establish Management
Optimum Early Stage Funding Structure
11

Public
Financial
Phase1 Phase 2 Phase 3 Phase 4 Close
Build Local/International Consortia
Further Financial Appraisals
Negotiate HOT with Host Government/Parastatal Deliverables:
Preliminary Discussions with Sources of Finance Signed PDA with Consortia
Prepare PIM Members Agreement on
Costs Going Forward
HOT with Govt/Parastatal
Preliminary PIM
Issues to Consider: Substantive Project
Out source Development Process with Single Point Reports for bankability
Responsibility LOI from
Formal Market Study Sources of Finance
Conceptual Designs & Preliminary Environmental Studies
Review Local Regulatory & Legal Framework

Close
Monitoring Progress by International PSP
Deliverable:
Issues to Consider: (Procured by Project Sponsors with
PPP Concession
Single Point of Responsibility):
Preliminary Info
More Detailed Engineering Work & Technical Studies
Memorandum
Detailed Environmental Studies
EPC Documentation
Negotiation of Full Concession
Prepare documentation for EPC contracts use of D&B
methodology
Work on CPs to Secure Finance
12

Public

Close
Monitoring Progress by Project Sponsors
Deliverable:
Issues to Consider: Financial Close
Use of Innovative Financial Products and Risk Mitigation
Strategies
Finalise all Loan Documentation
Work on CPs to Secure Finance
3.2. The Development Approach
In many situations, the project developer seeks to develop opportunities which are
primarily off market, where his expertise and local contact base are able to source
opportunities rather than respond in a direct manner to openly advertised
competitive situations. Unless the project developer is in a commercial relationship
with a particular company within a given sector, he will concentrate on those
opportunities which maximise his local knowledge, contact base and in country
experience and developmental and negotiating skills, by bringing together
operating, construction and financing partners under the umbrella of a Single
Purpose Entity (SPE). The SPE holds all licences, permits, concessions and joint
venture agreements between the parties, as well as performing the cash flow
function for investment and operations. This overall approach will allow the expert
developer to maximise his potential returns, whilst also enabling him to mitigate his
own development costs.
3.3. Constraints and Challenges to Developers
The constraints and challenges facing developers are similar, but not identical, to
those facing the construction, operating and financing / investment partners. The
developer is in essence an entrepreneur. The developer has to be aware of the
medium / long term appetite for the projects and the markets that they serve.
Other than any carried interest, he does not normally remain an active or even the
lead participant beyond financial close. Consequently, the developer needs to be
aware of the main issues affecting long term participation in infrastructure projects
in emerging markets, including without limitation:
13

Public
The regional or national market climate comprising issues of political and

economic stability and the manner in which private sector participation can
be integrated into the economy as a whole;
The uncertainties associated with MFI supported sectoral reforms;
The attractiveness of the project as a commercial proposition and the

markets willingness and/or ability to pay for the goods and services at a
level which exceeds the total cost of provision and, if this is not possible,
the availability of subsidies or grants to cover shortfalls;
The transparencies of the legal and fiscal processes and the ability of the
project partners to enforce the project agreements;
The ability of the project to provide an appropriate rate of return to the

investors and for the developer to recover his costs of assembly with an
appropriate return on investment.
3.4. Development Phase Funding
To achieve success, the commercial developer is obliged to manage financial

resources carefully. The cost of achieving financial close on infrastructure projects
in emerging markets often ranges between 5% and 15% of the total capital
requirement for the project. Developers are not normally willing to bear this degree
of, or any significant exposure, on their own and it is frequently advisable to involve
other parties, to share in the costs of development as early as possible within an
SPE.
Identifying parties to join the Developer in the earlier stages of a development is

usually difficult in emerging markets; hence the developer will have to possess the
requisite resources to drive the project as far as possible to towards financial
closure. This would include, inter alia, undertaking detailed feasibility and
environmental studies and securing the relevant licences, permissions and other
agreements.
On entry of the strategic and operating partners in the project, it is the assembled
Project Sponsor group which then bears the cost of development on a pro-rata
basis, according to their respective shareholdings in the SPE.
3.5. The Developers Exit
The developer will bear the initial costs for as long as is appropriate and then
contribute, as may be required on an agreed basis in order to protect his interest,
until his agreed exit point. The agreed exit point may be at an early stage with a
small carried interest, or financial close with a partial exit and carried interest.
Alternatively, the developer may choose to participate more fully in the financing of
the project and become a significant shareholder in his own right, seeking an exit
when the project is sold on at completion, or within two or three years of
operations, with a higher degree of return. It is of interest to note however, that
corporate developers - including without limitation project sponsors - retain their
interest in projects for longer periods principally to either protect strategic interests,
operate the business and/or give comfort to financial investors.
14

Public
4 OPERATIONAL REVIEW - ANALYSIS OF PERFORMANCE
This section presents the findings of the review and examines key operational, financial
and design issues. The issues examined include: origination and quality of the project
portfolio, approach and status of each project under development, adequacy and utilisation
of funding, brand awareness, responsiveness to local needs, adequacy of operational and
financial controls, management performance and board governance and decision making.
The section concludes with a summary of the key successes achieved during the pilot
phase, and challenges that InfraCo must address going forward.
4.1. The Project Portfolio
From start of operations 24 months ago, InfraCo has created a portfolio of projects
with a total direct investment potential of approximately US$800 million in the
countries in which they are located. The table below provides a summary of the
projects with Joint Development Agreement (JDA), Memoranda of Understanding
(MOU) or letters of intent.
Table 1: Projects under Development

Project Location Description Costs
Kpone IPP Ghana 300 MW Power Plant $4.8m
Sandrandano Water Madagascar Bulk Water for periphery of $2.0m
Antananarivo
Aba Power Nigeria 130 MW Power Plant $2.0m
Can Tho Infrastructure Vietnam Oil terminal supporting $1.5m
distribution logistics
Cape Verde Wind Cape Verde Renewable energy project $1.5m
three islands
Kalangala Infrastructure Uganda Integrated Infrastructure $1.3m
power, water, ferry, road
Beira Land Development Mozambique Land reclamation for $1.1m
housing, industry and port
Antara Cold Storage Vietnam Cold storage facility for $1.1m
Facility export/import hub
Kampala Sanitation Uganda Waste water and sanitation $1.0m
Rehabilitation system
Nfrasi Housing Ghana Housing $0.9m
KIS Renewables Uganda Solar power for remote $0.6m
community
Chiansi Water Zambia Water infrastructure for $0.5m
Development Trust agriculture
Ninh Thuan Wind Power Vietnam Renewable energy $2.0m
Source: InfraCo Management 2007
The array of projects detailed in Table 1 above, reveals a balanced portfolio in

terms of size of deals and sectors. With respect to geographic spread the majority
of the projects are located in Africa with only three in Asia.
The creation of this portfolio is the culmination of a Board-led strategic planning

process, jointly with IMS Management, which defined the aims and parameters for
15

Public
InfraCos project development activities namely; innovation, poverty reduction,

maximum added value and organisational sustainability.
Areas identified for the focus of development activities include:
Innovative approaches to broaden access of infrastructure services to the

poor, in particular to water and sanitation.
Developing infrastructure to support or facilitate large scale investment

projects.
Developing eco-friendly and renewable energy projects.
Developing infrastructure for agriculture.
The portfolio in Table 1 indicates that InfraCo has succeeded in implementing its
strategy for portfolio development.
The portfolio has a mix of large commercially attractive and high developmental
value (HDV) projects. Ideally, the quality of the portfolio could have been
enhanced if it included one or two more Kpone IPP type projects. Such a balance
is important because successful and timely exit from large projects such as Kpone
IPP will provide long term income, that could be directed to HDV projects which, by
their nature, are high risk, more difficult to package and develop and often do not
yield a significant premium over cost recovery when they are sold to the private
sector.
In addition to the projects currently under development, InfraCo has a pipeline of

potential projects as shown in Table 2 below; however this list is by no means
exhaustive. Indeed InfraCo has refrained from extending the priority projects
pipeline due to resource constraints.
16

Public
Table 2: Priority Project Pipeline
Project Location Description Costs
Mumbai Waste India Digester reducing waste to bio-gas for power $0.5m
to Energy production
Bengkalis Indonesia Providing clean water to a badly under-supplied $1.0m

Water Supply population in Riau Province
Athi River Kenya Water supply to industrial and residential $2.5m

Water customers in Athi River, outside Nairobi
Nam Nhone Laos Supply electricity and reduce import from Thailand $1.0m
Hydropower
Antananarivo Madagascar Bulk Water supply to Antananarivo $3.0m

Water
Nepal Hydro Nepal Greenfield hydro-electric facility $2.0m

Power
Lagos Ferry Nigeria New private commercial ferry service for the city of $2.0m
Project Lagos, Nigeria
Togo Ethanol Togo Integrated project for local production of Ethanol $4.0m
derived from sugar and exported to Sweden
Kalangushi Zambia New private hydro project to serve regional market $5.0m
Hydro
Rwanda Rwanda Housing Development $2.0m

Housing
Cape Verde Cape Verde Downstream energy and water $2.5m

Downstream
Energy and
Water
Tinco Export Sri Lanka Development of infrastructure for new EPZ $2.0m
Processing
Zone
Infrastructure
Integrated Mozambique Development of integrated sweet sorghum-based $3.0m

Ethanol ethanol
Coal Export Mozambique Export terminal for coal produced in Mozambique $2.5m
Terminal for international markets
Source: InfraCo Management 2007
There is good strategic fit between this project pipeline and InfraCos areas of
focus and contribution. Pursuance of these projects would extend the number of
countries in which InfraCo operates and broaden InfraCos reach and development
impact. Additionally, this pipeline includes two large projects which, if successfully
17

Public
packaged, could be attractive to the private sector and contribute to the

sustainability of the initiative.
In terms of portfolio establishment, InfraCo has made creditable progress in its first
24 months to create a focused and well defined portfolio of projects. Creation of
this portfolio required an exhaustive identification, screening and selection process
by both the Board and the Management Team. The number, scale and size of
projects compare favourably when assessed with portfolios of other small
development entities and technical assistance facilities. It should be noted that the
Board is no longer able to commit to any new project development activity as
committed funding from PIDG has been allocated to the existing projects under
development.
4.2. Evaluation of Project Development Activities
A review of the status and development activity for each of the projects is outlined
below.
4.2.1. Kpone IPP
InfraCo became involved in the Kpone project, a 300MW Combined cycle

power project, in August 2005. There is a critical demand for a project of
this capacity as Ghana is experiencing a shortage of power with rolling
blackouts since August 2006. Ghana will shortly have access to
attractively priced gas through the West African pipeline.
Under a JDA signed in March 2006, InfraCo formalised the partnership

with Cenpower, who originated the project in 2003 but had not made any
significant progress. InfraCo has invested in the partnership with its
development capability and by paying for third party development costs in
exchange for share options with rights to a minimum of 75% of the overall
shareholding in Cenpower. The project is managed by a steering
committee of five members, three of whom are appointed by InfraCo.
A 10 acre site for the plant has been secured and is currently being
cleared and fenced. The site works are expected to be completed in April
2007. An in-principle agreement has been reached with Volta River
Authority (VRA) that the project will be able to connect to the new
backbone 330 kV which will run immediately adjacent to the site. This line
will be built in 2008 under West African Power Pool funding (funded by the
World Bank). This is advantageous for the project since it would minimise
grid interconnection costs. The location also offers other advantages. For
example:- the Tema landing point of the West African Gas Pipeline
Company (WAGPCO) is located 1.5 km south west of the site and access
to sea water for cooling is available less than 1 km to the south.
Various technical studies have been completed including geo-technical

surveys, preliminary engineering and a full Environmental Impact
Assessment (EIA). An environmental permit for the project has been
issued by the Ghanaian Environmental Protection Agency. An application
for an IPP wholesale power supply licence which comprises a construction
and generation licence has been submitted to the Energy Commission of
Ghana (EC). The Commission have formally confirmed that all
documentation required for processing of the licence has been received
and have indicated to this review team that they expect a licence to be
issued before end April 2007.
18

Public
InfraCo has, in the month of March 2007, opened substantive negotiations

for off-take with the Electricity Company of Ghana (ECG) and separately
with the four largest mines. Another potential off-taker could be the VRA,
the largest generating company. Innovation in financial structuring will be
crucial to provide adequate security to the lenders.
InfraCos third party expenses paid in the project to date are in excess of
US$620,000, of which US$239,000 is paid out of a TAF grant. In addition,
InfraCo has incurred approximately US$75,000 in travel expenses and has
used 220 man days of internal time. This is well within the initial
committed budget of US$4.76 million, however, the main cost items,
specifically legal fees, have as yet not been incurred largely due to delays
in Power Purchasing Agreement (PPA) negotiations.
The development plan includes the following activities for the next six
months:- finalise the Gas Supply Agreement, the Grid Interconnection
Agreement, the PPA negotiations; prepare EPC specification and RFP
documents and the preparation of PIM and road shows to potential equity
investors and lenders. The budgeted cost for activities to closure is
US$5,000,000 for external costs and US$2,500,000 for internal costs.
InfraCo has given a commitment to Cenpower to fund all external costs.
InfraCo is in discussion with a number of parties concerning an equity
participation in the deal. An early entry by one of these parties would
accord InfraCo the opportunity to share the development cost going
forward. This notwithstanding, it should be noted that monies expended to
date and any further expenditure will be recouped with a premium at
financial closure, or at the time of exit. InfraCo can expect a higher
premium on exit, the further it drives this transaction to financial closure or
beyond, by virtue of the value it has created and a declining equity risk
premium in the project.
InfraCos entrepreneurial approach, underpinned by its relatively high risk

tolerance, has reinvigorated this project and increased the probability of
attracting significant private sector investment in the power sector in
Ghana. This project also offers InfraCo the realistic prospect of earning a
significant development premium to compensate it for the risks and effort it
has committed to this project.
Given the rising national demand for power and priority which Government
has placed on the power sector, Cenpower is benefiting from a broad
consensus of support within Government and the relevant independent
agencies. This bodes well for its efforts to secure the relevant PPAs and a
timely financial closure for this project.
4.2.2. Sandrandano Water
This project aims to provide safe clean drinking water to the poorer
municipalities adjacent to the capital city Antananarivo, Madagascar. The
project will have substantial positive health impacts and economic benefits,
by eliminating the time and cost of obtaining water from traditional sources
and increasing the quantity and quality of water provided.
It is envisaged that the project will also facilitate the regeneration of these
relatively poor areas and boost residential and industrial development,
which has been severely constrained because of the lack of piped water.
Successful regeneration of these areas will relieve population pressure on
the inner city and facilitate the economic development of the greater
metropolitan area. The Government of Madagascar is strongly supportive
19

Public
of efforts to improve infrastructure and has encouraged private

participation in the water supply sector. It should be noted that the
National Water Code (1999) states that publicly run water services should
be the exception rather than the norm.
The original project sponsor Sandandrano, invited InfraCo to participate

as a co-developer for this portable water project. A letter of intent between
InfraCo and Sandandrano was signed in January, 2007. An initial
technical report was completed in February, 2007. Further technical and
economic work will be conducted in April, 2007, and, if positive, a JDA
would likely be concluded by May 2007. Whilst the JDA negotiations are
still at an early stage, it is expected to result in a partnership in which
InfraCo will provide the requisite development funds and take majority
ownership of the company, with the local sponsor retaining a carried
interest.
InfraCo has expended some US$25,000 to date on the initial review and
consulting services. Development costs are estimated at US$2 million for
which InfraCo will make commitments once the JDA is signed. This will
cover, inter alia, all third party costs such as; EIA and engineering design.
Both InfraCo and Sandandrano have agreed that a technical and operating
partner should be brought into the project as soon as possible in order to
add technical expertise to the consortium and to share in the development
costs.
Indicative capital cost estimates are approximately US$25 million for the
project. This will cover the provision of relevant infrastructure in 11
municipalities as well as a bulk treatment plant and distribution network.
Funding sources are anticipated to be a combination of DFIs, GPOBA and
other concessional sources.
Innovation will be required in the structuring and packaging of the deal - as

with all HDV projects - to ensure the long term commercial viability, and
hence attraction to the private sector. OBA is likely to be required to
ensure affordability of services for the poor.
4.2.3. Aba Power
The project consists of a 105 MW natural gas-fired generation plant and

associated transmission lines that will supply reliable power to industrial
and residential users at approximately half the cost of existing generation
in Aba. The project will also assume responsibility for the management of
the urban distribution network serving the local community.
EAIF, IFC and EIB have expressed strong interest in providing finance to
the project and were instrumental in securing the participation of InfraCo.
In December 2006, InfraCo received an offer from its partner, Geometric

Power Limited (GPL), the original sponsor of the deal, for InfraCo to
relinquish its position in the deal in exchange for US$480,000 to be paid at
financial closure. It is believed that this offer was triggered by IFCs
insistence upon the early entrance of an equity partner to operate the
project. Several potential partners were approached and final negotiations
are currently underway.
InfraCo responded favourably to the offer but indicated that it would wish
that payment be made in full, within 30 days of any agreement being made
20

Public
between GPL and the investor. GPL has formally confirmed its agreement
to these terms.
This represents InfraCos first successful sale of a project. The transaction

clearly demonstrates that the contribution of InfraCo to the project created
value at an early stage of project development. While InfraCo had
expected to spend US$2 million on project development, it was able to
attract an investor before any significant third party funds were spent.
While a later exit might have generated a higher return overall, the Board
felt that InfraCo had fulfilled the twin objectives of realising a profitable sale
a 100% premium - and leveraging the participation of the private sector
to a project that essentially had not made any significant progress prior to
its involvement.
4.2.4. Can Tho Infrastructure
The Can Tho Project is an oil tank farm and terminal supporting petroleum
distribution logistics. Vietnam has no refinery capacity and imports all its
annual 12 million tonnes of petroleum products and it is envisaged that this
platform will become the national oil distribution logistics hub. The project
is in the Vietnamese Governments national master plan. The sponsor,
CAWACO, has all the main approvals and licences for construction of the
facility and for project operation.
th
During the 4 Quarter 2006, CAWACO requested that InfraCo withdraw
from the project and it is reported that CAWACO has partnered with a
Korean based firm at more favourable terms. InfraCos exposure to this
deal with the exception of management time was US$15,000 which was its
contribution to a pre-feasibility study. InfraCo is seeking to recover its
costs from CAWACO.
Such events are not unusual in the development arena. Sponsors will
always seize the opportunity to maximise their position and/or returns in a
specific deal. InfraCo Management recognises this and has a policy to
secure interests as early as possible through agreements with significant
penalties for any termination without cause.
4.2.5. Cape Verde Wind Project
The aim of this project is the development of three wind farm sites in
Santiago, St Vicente and Sal islands The World Bank referred this project
to InfraCo after two failed public sector procurement exercises. The
project potentially provides substantial economic and environmental
benefits. Currently the country utilises expensive imported fuels to
generate electricity and desalinate water.
InfraCo signed an MOU with the Government in January 2007. Initial

discussions with the Government indicate that the project could be
structured as a PPP between InfraCo, Electra (the national electricity and
water utility) and the Government. To that end, a steering group has been
established comprising the Government (GoCV); Programa Energia, Agua
e Saneamento; Electra and InfraCo.
InfraCo has undertaken an update of the existing technical studies. The

total development cost is projected to be US$1.5 million. InfraCos share
of the development cost will be negotiated under the JDA. Indications of
21

Public
support have been received from the World Bank - via a GEF grant - and
SIDA.
While the project has substantial economic benefits, InfraCo expects that
OBA and other grant funding will be necessary to assure connection
subsidies for the poor.
4.2.6. Kalangala Infrastructure Project
The Kalangala integrated Infrastructure project aims to address the critical

demand for, and access to, affordable and reliable ferry transportation
services, electricity and water to the rural population of Bugala Island, in
Uganda. The project will also aim to cater for the potential demand for
infrastructure services arising from the Bidco palm oil project.
The project was established following an MOU between InfraCo and the
Government of Uganda in September 2005. There has been significant
advancement in the project since its inception. A project company
Kalangala Infrastructure Services (KIS) has been formed which is wholly
owned by InfraCo. The key milestones achieved for each of the project
components are highlighted below:
4.2.6.1. Ferry
Technical and market studies completed 2006.
The option to purchase the existing ferry was exercised in

December 2006.
Procurement process now at negotiation stage for new

ferry.

nd
Target date for signing for procurement of ferry 2 Quarter
2007.
Formal application for operating licence submitted to

Government.
4.2.6.2. Water
With respect to the pilot project at Kasekulo and Mulabana:
Design specification and market studies completed.
Accepted delivery of solar-powered pump systems.
Contract for installation and operation signed.
NEMA certificate of authorisation obtained.
Performance contract KIS and Ministry of Water pending

approval of Ministry of Justice. MOU with Kalangala local
government signed.
Leasehold and Right of Way over Public land issues being

addressed with District government.
22

Public
With respect to the rehabilitation and expansion of existing

Kalangala town water supply system: Design specification and
market studies completed.
Performance contract between KIS and Ministry of Water

and between KIS and Kalangala local government, target
signing date for both 31 March 2007.
Procurement process instigated for contractor and

operators.
4.2.6.3. Power
Technical, engineering and market studies completed.
Land leasehold interests being finalised.
Land survey for Wayleaves ongoing.
Application for generation and distribution licence to be

filed end March 2007.
An EU Energy Facility Grant for the energy component of

the project is undergoing evaluation with a decision
expected in April 2007.
4.2.6.4. Road
Technical, engineering and market studies completed.
Pre-qualification of contractors completed.
Following confirmation of interest from ORET to co-

finance, a formal application will be submitted by end
March 2007 for an ORET Road Grant of US$4.5 million.
In addition to the above milestones, a full EIA for the project has
been completed.
Fund raising has also commenced with a view to a target financial

closing in 2nd Quarter 2007. The total capital requirement for the
project is US$37 million with an expected gearing ratio of 77:23. It
is anticipated that FMO, through the LDC fund, will take 20-25%,
local investors 65% and InfraCo to retain 10% of the total equity of
US$8.5 million.
The sources of debt will include FMO LDC Fund, Stanbic Bank,
with USAID/GuaranCo credit support. Approaches have also been
made to OBA for ongoing revenue support.
Development funding expended to date is approximately

US$750,000 with an additional US$600,000 required to closure.
This project demonstrates the full added value of InfraCo, in terms

of its innovation, development impact, entrepreneurial approach
and potential for replication. The use of creative structuring and
packaging of these discrete components into one integrated
23

Public
project, in an environment where poverty traditionally limits access

to infrastructure services, together with the underwriting of the
project using a multiplicity of funding instruments, illustrates that full
added value.
Further, it should be recognised that were this project to be

implemented in the traditional public sector/technical assistance
framework, it would have taken a significantly longer time period to
bring to fruition. Additionally the absence of a willing sponsor
and/or champion was a major impediment in the development of
this project. In this vein it should be noted that, without the
involvement of InfraCo, this project would not have been initiated.
InfraCo acted as the pivotal catalyst in engineering not only access
to infrastructure, but also in bringing about direct socio-economic
benefits for the locality as well as the wider Ugandan economy.
It is worth noting that InfraCo is recruiting locally for the Senior

Management of the Company, thus making a contribution to
capacity building.
This project has broad support amongst the key stakeholders at

central and district government level as well as from the inhabitants
of the District.
Key areas that InfraCo clearly recognises need continued sensitive

management include:
Timely payments of compensation to landowners.
Maintaining the aggressive implementation programme.
Endeavouring to achieve a high degree of local ownership

upon exit of InfraCo.
4.2.7. Beira Land Development
The Beira land development project in Mozambique encompasses

development of housing, infrastructure and flood protection in conjunction
with a proposed ORET sponsored port rehabilitation and dredging project
in the City of Beira, Mozambique. Sand, dredged from the shipping
channel, would be used for coastal protection and landfill in the city.
Beira, Mozambiques second city and an important regional port, is subject

to floods, lack of housing, and poor infrastructure. Lack of land for housing
and development, and the lack of appropriate financial mechanisms to
acquire housing, are the key contributors to the high incidence of poverty.
This project supports flood mitigation measures, development of basic
infrastructure and improved access to housing for all segments of society.
The project is also expected to contribute to further improvement in the
economic conditions of the Beira corridor in general. The Beira corridor is
the transportation link connecting the agricultural area of Manica to Beira
and contains the primary road between Zimbabwe and the Beira port,
providing access for the land locked country to the Indian Ocean.
An MOU has been signed between the four shareholders. A JDA has
been negotiated and is awaiting final approvals. It is envisaged that
InfraCo will be one of four shareholders in the project company, each with
24

Public
a 25% equity holding. The remaining shareholders being the City of Beira,
Arcadis, Euroconsult and CETA Limited.
The initial technical review has not revealed any significant technical
constraints. The partners have approached consultants for expressions of
interest to undertake various studies including demand assessment, EIA,
legal framework analysis and technical costings.
The estimated development budget is US$1.1 million. TAF has agreed to

fund US$420,000 of the development costs. InfraCo has made
commitments to fund the remainder. InfraCos exit will be through
recovery of costs plus a premium. Development funding to date, in the
form of legal fees, totals US$4,000. The total capital requirement is
estimated to be in the region of US$7 million.
4.2.8. Antara Cold Storage Facility
The Antara cold storage facility is a US$16 million refrigerated

warehousing and cold storage distribution facility under development in Ho
Chi Minh City, Vietnam. Vietnams seafood exports were estimated to be
US$2.8 billion in 2006. The growth in exports has not been supported by
commensurate growth in the supply of cold storage space. The Antara
cold storage facility will enable seafood processors in the Mekong Delta to
serve export markets more effectively. The facility will augment local cold
storage capacity thus assist in reducing spoilage and waste products, and
provide the opportunity for higher yields through better management of
seasonal price fluctuations.
The project is owned by Antara Holdings Asia Limited (AHA). The

development of the Antara facility is governed by the JDA between AHA
and InfraCo signed in January 2007. InfraCo will accumulate equity
options in AHA by funding the development costs. AHA and InfraCo have
formed a steering committee to implement the development of the facility.
Land lease agreements have been signed with Vietnams Department of

Natural Resources and Environment. An investment certificate providing
various tax incentives has been issued by Ho Chi Minh City Peoples
Committee demonstrating definitive local support.
Technical environment and legal consultants have been engaged to

develop the design, build EPC contract documentation, secure relevant
environmental permits and draw up agreements with potential operators of
the facility.
The funding requirement to financial close is US$1.1 million of which

InfraCo has made commitments to fund US$1 million.
The Antara project is another good example of a project which had stalled
for a period of 10 years before InfraCos involvement in 2006. Preliminary
analysis indicates a robust business case. The total estimated capital
requirement for this project is US$16 million. It is expected that US$10
million of debt financing will be sourced from the IFC and commercial
banks with the US$6 million equity financed from private investors.
25

Public
4.2.9. Kampala Sanitation Rehabilitation
The objective of the Kampala sanitation project is to expand the capacity

and improve the treatment of sewage in Ugandas capital, Kampala. The
project will do so through the renovation and expansion of the existing
sewerage system and a new provision of sewerage services to domestic,
commercial and industrial areas.
A JDA has been signed between InfraCo and National Water and
Sewerage Company (NWSC). It is intended that over 95% of the project
will be debt financed, with a limited tranche of equity-like instruments and
grants.
A steering committee has been established with the NWSC. RFPs for the
procurement of consultants for demand and financial studies as well as
Owners engineer have been completed.
Preliminary estimates for development are approximately US$1 million of

which TAF funding of US$650,000 is available. The total capital
commitment is US$55 million. Funding sources will include local debt
(institutional and commercial) with credit enhancements from GuaranCo
and USAIDs Development Credit Authority (DCA). Enquiries are being
made regarding the eligibility of this project for an OBA 7-10 year transition
subsidy stream to aid affordability.
The developmental value of the project is expected to be substantial.

Access to proper sanitation systems has been limited to the old colonial
centre of Kampala, and no investment has been made in recent years. If
this project succeeds it will demonstrate a unique collaboration between
InfraCo and a public utility, and would be an exemplar deal that could be
replicated in the region and in the wider continental development effort.
4.2.10. Nfrasi Housing
Ghana has a large deficit in affordable housing. The objective of the

project is to increase the supply of affordable housing and demonstrate to
the market that affordable housing can be constructed in a profitable
manner. In addition, it is hoped that the project will also be able to utilise
the credit line provided to InfraCo by the IFC so that longer term, more
affordable mortgage financing can be made available to low income
families.
Databank and InfraCo have established a joint venture to pursue this

project. Ownership of Nfrasi Real Estate Limited is split on a 60:40 basis
between Data Bank and InfraCo respectively. A Steering Committee has
been formed and a project manager appointed.
Two priority developments were earmarked - a housing project with

Newmount Mining in Sunyani, and a student housing scheme for the
University of Ghana in Accra. The former project has suffered delays in
obtaining tenure to the designated land. Initial assessments of the student
housing market in Accra and the overall market demand for housing in
Sunyani have been conducted. Preliminary designs for the housing
project in Sunyani and for student housing for the University of Ghana are
being developed.
26

Public
Approximately US$40,000 of development costs has been expended to

date on local architects, lawyers and travel expenses. Additional
development funding will be required to build show houses for potential
buyers to view characteristics and standards of the proposed
development. The development funding requirement for the student and
low cost housing in Accra is US$0.9 million.
The total capital requirement for each of the two developments is

approximately US$16 million. It is envisaged that the main source of
finance will be from mortgage financing and buyers equity at the
completion of construction.
4.2.11. KIS Renewables
The KIS Renewable Project (the Project) consists of the ownership,

financing, upgrade, construction, operation and maintenance of an
integrated rural electrification system for Bugala Island (Island), Lake
Victoria, Kalangala District, Uganda. The primary source of power for the
project will be a photovoltaic solar generating plant and excess energy
produced locally by a biomass co-generation facility. The objective of the
project is to provide access to the population of Bugala Island to clean,
affordable and reliable electricity. The population and businesses of
Bugala Island do not currently have access to grid-based electricity which
has been a major impediment to the development of this isolated
community.
Technical, market and feasibility studies including detailed design of power

supply system have been completed. In September 2006, Cabinet
approved the revised project development plan. RFP for Procurement of
Power Supply was issued in March this year. Fund raising effort
commenced in December 2006 and financial closure expected by 4th
Quarter 2007.
It is envisage that the InfraCo exit will be provided through investments by

the local private sector and pension funds who may be able to attract
guarantees from GuaranCo. InfraCo recognises that there will be a need
for ongoing regulation of the private sector provider to protect the interests
of consumers.
4.2.12. Chiansi Water Development Trust
The Chiansi Water Development Trust project aims to combine the

resources of large commercial and small scale farmers to establish an
integrated out grower operation allowing for economies of scale in the
provision of bulk water, and knowledge transfer from experienced farmers
to small scale farmers in the growing of premium crops such as sugar
cane.
The ability to lift small scale farmers from poor subsistence farming to a
long term economically sustainable irrigated farming environment will
produce an immediate local and long term, regional, positive sustainable
economic benefit. In addition, the ability to grow winter wheat using the
same system will allow for additional regional food security.
InfraCo has signed MOU with both commercial farmers and small scale
farmers. A JDA with the commercial farmers is agreed in principle.
27

Public
InfraCo is in dialogue with the Ministries of Agriculture and Energy and

Water with respect to implementing the project.
A technical pre-feasibility study has been completed and the financial

model scheduled to be completed by end March 2007. The next stages in
the development plan include securing relevant government approvals,
engineering design and procuring contractors and sourcing the financing.
Financial closure is expected by end of 2007.
Development spend to date is approximately US$100,000 in third party

costs, excluding InfraCo internal expenses. An additional US$400,000 in
third party costs is budgeted to be required prior to financial close.
Total capital requirements are estimated at US$17 million. The sources

for this capital are senior debt from commercial banks and international
lending institutions, equity from entities such as Norfund and Aureos, and
grant funding, from the Zambian government and irrigation funds. The
farmers will contribute land and labour for land clearing and preparation.
InfraCo believes that if this project is successfully closed, it will be

replicable in other parts of Africa where there is a great need to boost
production for the sector. Land and water are available in many countries,
but lack of successful irrigation financing and structuring schemes have
been a major constraint in developing such projects.
4.3. Risk Assessment Summary
A summary of the risks identified with each project is given in Appendix VI. An
outline of typical risks identified is given below.
4.3.1. Financing Risk
InfraCos lack of balance sheet strength could constrain its ability to

develop projects to closure or completion in cases where it is unable to
attract a private partner with whom it can share the development costs.
Additionally, it should be recognised that HDV projects will almost certainly
require some form of targeted subsidy, during the project preparation,
implementation and, to a limited extent, during the operational phase in
order to make services affordable for the poor.
4.3.2. Exit Risk
Attracting suitable buyers for some of the projects (particularly HDVs) may
be a challenging task. This could result in project preparation being
completed but delayed due to securing enough capital for implementation.
In this regard it should be noted that an exit strategy is always identified by
InfraCo prior to embarking on a project and the possibility of delays in
project closings is always factored into InfraCos business planning.
4.3.3. Political Risk
All of InfraCos projects have Central and Local Government support in the
countries in which they are located. This therefore minimises the level of
political risk on a macro level. It should however be noted that elections
are due in Ghana in 2008, and it is in this country that InfraCo currently
has the greatest exposure.
28

Public
As a developer, InfraCo has to cope with changes of personnel in

Government or the civil service administration. There are sometimes no
guarantee of the new incumbents considering the specific project a priority,
or even approving InfraCos involvement or approach.
4.3.4. Sponsor Risk
The Project Sponsor, after benefiting from InfraCos development

capability, i.e. funding and expertise, may request InfraCo to exit the
project because of interests from other potential private sector partners
that maybe more attractive. InfraCo now always seeks adequate
protection from this contractual risk through JDAs
4.4. Assessment of Development Outcomes
An assessment of the development outcomes is summarised in the Table 3 below.

This table compares the target milestones, milestone achieved and the forecast
milestone achievement.
Table 3: Summary of Development Outcome Milestones
Period Target Achieved Forecast
End Year 1 1 exclusive 5 exclusive

agreement agreements
4 feasibility studies
End Year 2 2 project sales 1 sale agreed

agreed 8 exclusive
3 further feasibility agreements
studies 9 feasibility studies
6 exclusivity
agreements
indications sales
cover core costs
End Year 3 Min. 4 projects sold 5 sales

4 projects being 4 exclusive
worked on agreements
2 exclusivity 2 feasibility
agreements core studies
running costs to be
recovered
an indication that at
least 2/3 of fully
loaded cost can be
recouped
Source: InfraCo 2007
End of Year 1: InfraCo had signed 5 exclusive agreements (Beira, Kalangala,

Kpone, Aba and KIS Renewables) and conducted 4 feasibility studies (Kalangala,
Kpone, Aba and KIS Renewables). This achievement is far greater than the
requisite target of 1 exclusive agreement.
29

Public
End of Year 2: InfraCo achieved one agreed sale - Aba (Nigeria). The target of 2
sales agreed was not achieved though it is expected that Kalangala will close in
2007. InfraCo signed 8 exclusivity agreements (Chiansi, Kampala, Antara, Cape
Verde, Sandrandano, Nfrasi, Can Tho and Ninh Thuan) and undertook 9 feasibility
studies (Chiansi, Beira, Kampala, Antara, Cape Verde, Sandandrano, Nfrasi, Can
Tho and Ninh Tuan). This surpassed the target requirements. The agreed cash
sale value of Aba covers its core cost.
Based on the current development status and progress being made, it is

reasonable to assume that InfraCo would be able to sell some or all of its interests
in 5 projects i.e. Tema, Kalangala, KIS Renewables, Antara and Chiansi. All
indications are that they should be able to cover their core running costs and a
portion of fully loaded costs. It should be noted that InfraCos successful exit from
Kalangala would be largely subject to InfraCo being able to access GPOBA
funding in a timely manner.
The type of institutions that could provide the exit for InfraCo on the
aforementioned projects include, international strategic investors and operators,
Africa specific funds, the local private sector including pension funds and insurance
companies.
4.5. Assessment of InfraCos Board and Management Performance
4.5.1. Board Performance
The Board has been instrumental in realising the vision to establish, direct
and develop the growth and pre-eminence of InfraCo to date. At inception
the Board ensured that the various systems, policies, processes and
controls were implemented, and conducted an open tender process which
culminated in the appointment of IMS as the preferred Management team.
The Board initiated and led the strategic planning process which defined
the aims and parameters of InfraCo and the resultant impressive and well
balanced project portfolio. Importantly, the Board has ensured that the
development portfolio has a good mix between projects with high
commercial value and those with low commercial, but high developmental
value, thus ensuring the broadening of the developmental impact on the
one hand and organisational sustainability on the other.
In essence the Board acts as a filter in the project screening and adoption
process and regularly assesses progress reports on the development
activities of the team. Through this process, the Board has made a
significant contribution with respect to the projects selected for
development as well as the development of strategy for each project.
Furthermore, the Board ensures that for each project a full Environmental
Impact Assessment (EIA) is undertaken as part of the development
activity. Many of the resulting innovations and achievements in the project
development activities are stimulated by the probing and challenging
contributions of the Board.
With respect to governance, the Board established an internal audit

committee which operates within an internal audit plan. As part of this plan
an internal audit review was conducted by external auditors. This audit
evaluated risk and tested procedures to ensure that risk mitigation
procedures and internal controls were sound, both in design and
operation. There are currently no material considerations with the
exception of the need to formalise the practice of reporting project risks to
30

Public
the Board and establishing a risk register for each project under
development.
The Board also instituted a separate audit on compliance with the anti-
corruption policy of Transparency International. This revealed substantial
compliance. Both the Board and Management have agreed on actions to
ensure 100% compliance.
The Board has additionally been proactive in the following areas:
Engaging in sourcing additional funding for InfraCo. In this respect

the Board members have initiated and participated in discussions
with PIDG members and others.
Development of communications and close working relationships

between InfraCo and other PIDG instruments to secure cross-
functional benefits.
Development of relationships between InfraCo and regional DFIs

such as ADB and local financial institutions such as pension funds.
4.5.2. Management Performance
Following a competitive tender, InfraCo Management Services (IMS) was

appointed in April 2005 to provide management services to InfraCo under
a service agreement for a three year period. The complement of core
development staff was 5 Senior Developers aided by a small support staff.
In a relatively short period of 24 months Management have taken a
concept, overcome substantial hurdles, and built a new business with a
growing potential and recognition. They have established an organisation
and successfully built an attractive portfolio of projects under development
as well as a credible and substantive project pipeline.
It is evident that the Management team have the capability and experience
in the field of project development and have approached their task with
enthusiasm, commercial rigour and a commitment to contribute to poverty
alleviation through the provision of reliable and affordable infrastructure
services. If the momentum of their project development effort is
maintained, additional projects could achieve financial closure within the
next 12 months, thus offering a potential for significant and practical
developmental impact to large numbers of people whose lives and
livelihoods could be substantially transformed.
With respect to corporate support and organisational management, the

team have worked well with the Board to ensure that the policies and
procedures of InfraCo are adhered to and various internal controls put in
place. As previously indicated, the internal audit assessment undertaken
on behalf of the Board revealed no material considerations, with the
exception of the need to formalise the practice of reporting project risks to
the Board and establishing a risk register for each project under
development. However, it should be noted, that as the company grows,
Management will also have to continue to assess the need for better
financial and management controls and, in this regard, consider bringing
into the team accounting and financial management skills.
In terms of building relationships, InfraCo has adopted a policy of

developing a dialogue with the key institutions involved in infrastructure
31

Public
development in the regions in which they operate. Meetings have been

held with the regional institutions and development banks such as DBSA,
ECOWAS, and the Asian Development Bank. A particularly promising
relationship has been established with the African Development Bank who,
under new leadership, are keen to give a boost to infrastructure
development in the Africa region.
InfraCos Board and Management are particularly keen to develop further

relationships with local pension funds and other pools of investment
monies so that national savings can be channelled into profitable
investments and national ownership of assets deepened. For example,
discussions have been held with SSNIT in Ghana and with pension funds
in Uganda and many of the newly formed funds in Vietnam. For the long
term growth of indigenous ownership in projects, such initiatives should be
further developed.
InfraCo have also developed relationships with other PIDG organisations,

the World Bank Group and, in particular, with the IFC. The IFC has, as a
result, made grant funding of US$2 million available to InfraCo and has
also indicated a willingness to explore the possibility of investing in an
expanded capital base for InfraCo.
Overall the assessment revealed that Management have performed well in

accordance with operating procedures and requirements under the service
contract. They have proven their capacity through the portfolio they have
assembled and the innovation which they have brought to the project
development effort.
4.6. Analyses of Sources and Utilisation of Funds
An evaluation of the sources and use of funds is set out below as at 31 December
2006. This is followed by an evaluation of the financial projections of the company
assuming there is no additional funding from PIDG, i.e. base case scenario.
4.6.1. Evaluation of sources and uses of funds
The table below sets out the sources and uses of funds and compares it
with the projections made in the alternative business plan. The alternative
business plan was the term used in the InfraCo/IMS service contract to
denote an extension of InfraCo activities once additional funding became
available beyond the original financing provided by DFID.
32

Public
Table 4: Sources and Uses Statement as at 31 December 2006
Alternative Actual
Business Plan Receipts and Expenditure
Sources of Funds
Receipt from Trust 5,734,102
DFID 10,270,650
DGIS 5,520,951
TAF 2,415,106
Sale of Rights 746,975
Total Sources of Funds 6,481,077 18,206707
Uses Of Funds
Set Up Costs 209,678 600,898
IMS Fixed Fees
Salaries and benefits 2,318,583 2,081,524
Office Expenses 281,235 367,990
Total G&A 77,314 86,690
Tax Legal and Audit 102,219 183,871
Bookkeeping and VAT 83,308 114,187
Total Project Travel 406,251 972,484
Total US /UK Travel 91,728 152,367
Development Costs 609,861 1,864,278
Performance Fee 524,193 526,500
Success Fee 560,233 -
Bank Charges - 17,516
Exchange Variation - 32,886
Total Uses of Funds 5,264,602 7,001,191
Net Cash Flow 469,500 11,205,516

Cumulative Net Cash flow 11,205,516
With respect to sources of funds, DFID committed US$10 million at

inception. This was later supplemented with a similar commitment from
DGIS. As at 31 December 2006, the amount drawn down from the Trust
was US$15,791,601. TAF funds totalling US$2,415,106 were also
received during the same period.
33

Public
The alternative business plan projected additional revenue flows from sale
of rights. InfraCo has achieved a sale with respect to its rights in Aba
Power, the payment of US$480,000 under the agreement is due within 30
days of the signing of the development agreement between GPL and the
new investor - Contour Global - which is expected to be completed by the
end of June 2007.
Under the auspices of the Co-operation Agreement between InfraCo and

IFC, InfraCo has secured from the IFC a direct grant of US$2m to assist
with the social and environmental components of project development
activities. A framework for disbursement is yet to be finalised, however, it
is envisaged that draw down will be on a project by project basis. The IFC
has also approved a standby debt facility of US$30m for private investors
to draw upon in taking forward any InfraCo developed project. This facility
will operate under an accelerated approval procedure.
Further to the above, InfraCo is currently in negotiations with SIDA for the
provision of a 5 year standby guarantee of US$6.5m to support
commercial loans to InfraCo.
With respect to uses of funds, total actual cost as at 31 December 2006

amounts to US$7,001,191. This, when compared to the budget, shows a
variance of US$1,736,589. This increase is due largely to an increase in
project development activity. The alternative business plan had
anticipated that any increase in sources of funds would trigger an increase
in project development activity and concomitant associated costs. The
cumulative net cash balance as at 31 December 2006 was
US$11,205,516. This represents the unused funds available to InfraCo. It
should be noted that this balance plus the remaining US5 million from
DGIS is already forward committed to the development of specific projects.
A summary of the development cost per project is given in Table 5 below.
34

Public
Table 5: Summary of Development Costs per Project to Financial Close
Project Title Total Expenditure Funds Anticipated Sources

Budget to Date Required
Kpone IPP US$4.8m US$0.6m US$4.1m InfraCo US$1.4m
TAF US$0.6m
rd
3 Party US$2.4m
Sandandrano Water US$2.0m US$0.025 US$2.0m InfraCo
Sandandrano Partner and
Operator
Aba Power US$2.0m In Principle Sale Agreed
Can Tho
Cape Verde Wind US$1.5m US$0.050m US$1.5m
Project
Kalangala US$1.3m US$0.75m US$0.6m InfraCo Core Funds
Infrastructure Project
Beira Land US$1.1m US$0.004m US$1.1m TAF approved US$0.42m
Development
Antara Cold Storage US$1.1m US$0.040m US$1.1m Antara Vietnam: US$0.1m
Facility InfraCo: US$1.0m
Kampala Sanitation US$1.0m US$0.025m US$1.1m TAF US$0.65m
Rehabilitation Project
Nfrasi Housing US$0.9m US$0.040m US$0.9m InfraCo and Data Bank
KIS Renewables US$0.55m US$0.15m
Chiansi Water US$0.5m US$0.10m US$0.4m InfraCo
Development Trust
Ninh Thuan Wind US$1.6m US$0.020m US$1.55m InfraCo US$1.1m
power REVM US$0.39m
CCG US$0.078m
Development of infrastructure projects in emerging markets is a high risk

and high cost business, hence the reticence of the private sector to
participate widely in early stage development of projects. Market
expectations are that total development costs are usually between 5% to
15% of total capital costs with HDVs burning more development cash. The
costs indicated above compare with the norms in the market, particularly
given the fact that InfraCo was a new entrant in the market that had to
source deals and establish a portfolio. It should also be noted that
InfraCos development portfolio contains a significant number of HDVs, the
development of which consumes significant financial and management
resources. Additionally it should be noted that between 15% to 20% of the
fixed fee to IMS is expended on following up and screening of projects
introduced to InfraCo. Some of these projects are normally aborted
following assessment of their development potential.
35

Public
4.6.2. Kpone IPP: An illustration of the Project Development Cycle, Value Creation, Costs and Risks
Table 6: Kpone IPP Project Cycle Illustration
MILESTONE CUMULATIVE VALUE COSTS RISKS

CREATION
Signature of MOU 0 External Costs: Nil Project found not technically, regulatory or commercially
feasible
Internal Costs: Travel: US$10,000 Time: 30 man days
Partner not found suitable
Pre-feasibility study 0 External Costs: Technical, Regulatory and commercial Project found not technically, regulatory or commercially
Feasibility studies: US$230,000; Background check: feasible
US$10,000
Partner not found suitable
Internal Costs Travel: US$10,000; Time: 60 man days
Signature of JDA US$500,000 External Costs: Government change of deregulation process, country risks,
Nigerian gas supply risk, Permitting risk, Licensing risk, EPC
Legal: US$15,000 price risk, Financing risk
Internal Costs Travel: US$10,000 ; Time: 30 man days
Secured Site US$1,000,000 External Costs: Site related payments: US$170,000; Legal: Government change of deregulation process, country risks,
US$30,000 Nigerian gas supply risk, Permitting risk, Licensing risk, EPC
price risk, Financing risk
Internal Costs: Travel: US$10,000; Time: 30 man days
Obtained EIA Permit US$1,500,000 External Costs: EIA: US$200,000 Government change of deregulation process, country risks,
Nigerian gas supply risk, Licensing risk, EPC price risk,
Internal Costs: Travel: US$5,000; Time: 40 man days Financing risk
36

Public

CREATION
Secured Generation US$2,000,000 External Costs: Modelling: US$20,000 Government change of deregulation process, country risks,
Licence Nigerian gas supply risk, EPC price risk, Financing risk
*Appointment of US$2,000,000 External Costs: Government change of deregulation process, country risks,
financial and Legal Nigerian gas supply risk, EPC price risk, Financing risk
advisors Internal Costs: Travel: US$5,000; Time: 20 man days
Secured PPA US$5,000,000 External Costs: Financial Advisory: US$50,000 per month Country risks, Nigerian gas supply risk, EPC price risk,
Financing risk
Legal Advisory: US$400,000 per month; Technical Advisory
(1250000) US$50,000 per month
280 man-days Internal Costs: Travel: US$20,000; Time: 120 man days
Secured Fuel Supply US$7,000,000 External Costs: Financial Advisory: US$50,000 per month Country risks, EPC price risk, Financing risk
Agreement
Legal Advisory: US$200,000 per month; Fuel Advisory:
US$50,000 per month
Internal Costs :Travel: US$20,000; Time: 80 man days
Detailed EPC US$7,000,000 External Costs: Financial Advisory: US$50,000 per month Country risk, Financing risk
Specifications and
tender documents Legal Advisory: US$50,000 per month; Technical Advisory:
prepared US$150,000
37

Public

CREATION
Arranger bank US$7,000,000 External Costs: Country risk, Financing risk

mandated
Internal Costs: Travel: US$5000; Time: 20 man days
Partial sale agreed US$10,000,000 External Costs: Financial Advisory: US$200,000 per month Country risk, Financing risk
(i.e. entry of
additional sponsors) Legal Advisory: US$100,000 per month
Internal Costs: Travel: US$20,000 per month; Time: 80

man days
EPC Contract signed US$10,000,000 External Costs: Financial Advisory: US$50,000 per month Country risk, Financing risk
Legal Advisory: US$200,000 per month
Internal Costs: Travel: US$20,000 per month
Time: 60 man days
Financial closure US$15,000,000 External Costs: Financial Advisory: US$300,000
Legal Advisory: US$1,500,000
Internal Costs: Travel: US$100,000
Time: 300 man days
Source : InfraCo, May 2007
* Estimated costs from appointment of financial and legal advisors stage.
38

Public
4.7. Evaluation of Financial Projections and Scenario Analyses
The Management team of InfraCo recently updated the InfraCo business plan for
presentation to its Board and PIDG. This revised business plan incorporates a
series of sensitivity analyses around their Base Case financial projections. This
section evaluates the Base Case projections and associated analyses provided by
InfraCo. The evaluation was limited to the aforementioned assessment.
Consequently, the evaluation does not include any assessment of design, build
quality, integrity or accuracy of the IMS financial model or indeed the underlying
assumptions or accuracy of the input data which could be deemed to fall outside
the scope of this review (this notwithstanding there is no reason to doubt the
veracity of the model).
4.7.1. Base Case Evaluation
The financial projections have been prepared on a project-by-project basis.

As a result, the projected financial outcomes reflect the estimated outcome
of each project in terms of expenditure, both internal and external, and
potential revenues from the sale of each project. The Base Case also
reflects the latest forecasts of the projected time that InfraCo estimates
that it will require for each project to reach financial closure.
The key assumptions of the Base Case are as follows:
(i) 16 Project MOUs will be signed over the five year period of
analysis. 11 of these are expected to progress to the JDA Stage,
with 8 reaching financial closure.
(ii) 25% of the project portfolio and 36% of projects closed will be
HDV projects. (This is a higher percentage than that contained
within the original IMS Business Plan and is strongly supported by
the Board).
(iii) On average, internal/external costs are fully recovered at the time

of financial closure for all projects. (Within the average, it is
assumed that the non-HDV projects will contribute US$4 million in
excess of full cost recovery, thus compensating for a potential
deficit in the sale of HDV projects).
(iv) Non-HDV projects will have a carried interest component that will
make a cash contribution over a 15 year period.
(v) A project mortality rate of 50%, without cost recovery for projects
that do not achieve financial closure.
(vi) A 24 month average development period from signing of JDA to

exit.
(vii) 100% cost recovery at closure(100% of internal and external

costs).
It should be noted that the high level of HDV projects within the portfolio
have important implications for the Base Case financial projections. HDV
projects consume similar resources and levels of expenditure as other
projects. For example, the Chiansi Irrigation Infrastructure Project,
requires approximately the same level of technical, legal and financial
39

Public
resource as a larger project such as Kpone IPP. However, the revenues

from sale of Chiansi are unlikely to generate a significant premium in
excess of cost recovery. Higher premiums from sale of larger, more
valuable projects are required to generate the resources needed if InfraCo
is to be sustainable over time as planned. This is a key consideration of
the InfraCo Board when considering the overall shape of the project
portfolio.
40

Public
Figure 6: Base Case Projections
Total signed MOUs 16 Cash Flows and Funding
Total signed JDAs 11 Total until
- of which HDV 4 30 June 2011
Cash Inputs
Total closed projects 8
Equity injections into InfraCo 19,654,620
- of which HDV 3
TAF Funding 4,335,662
Average Project Expense per Interest 588,460

project US$1,358,149
Cash Sales Proceeds 22,294,744
Average Overhead per project US$3,588,942
Carried Interest 1,519,388
Average Cash Proceeds per
Total Input Flows US$48,392,874
Average Carried Interests per
Cash Outputs
InfraCo Set up costs 573,164
InfraCo G&A 3,068,268
Operating Expenses 25,070,104
3rd Party Project Expenses 10,022,448
HDV Closing Fees 3,000,000
Other Closing Fees 5,006,931
Taxes Paid 0
Total Output Flows US$46,740,916
Cash Balance 30 June 2011
Cash Balance US$1,651,958

Source: InfraCo, May, 2007
41

Public
Cash flow curve shown in US$
2,000,000
(2,000,000)
(4,000,000)
(6,000,000)
(8,000,000)
(10,000,000)
(12,000,000)
30-Jun-05 30-Jun-06 30-Jun-07 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14 30-Jun-15
Maximum Negative Cash* Committed Funds Committed less 5M reserve
Source: InfraCo, May, 2007
The tables above provide a summary of the Base Case financial results for the
period to the end of 2011. The cash flow forecast is based on the aforementioned
assumptions and project development activity. No additional funding from PIDG
other than the DGIS committed balance of US$5 million is expected. The table
identifies by line item each of the major costs of InfraCo: (i) operating costs, (ii)
success fees for closing of HDV projects (iii) success fees for closing of other
projects.
The operating cost is provided as per the InfraCo/IMS Management Services

Contract on a fixed fee basis. The success fees for closing HDV projects and
other projects are calculated according to the current contract for management
services provided by IMS. This contract includes success fees for HDV projects
and other projects which follow the terms of the original tender documents for
providing management services to InfraCo. These tender documents were
designed to encourage the potential managers of InfraCo to devote their resources
to projects of high developmental value. In particular, the tender documents
provided for a minimum incentive fee of US$1 million per closed HDV project. IMS
adopted the minimum fee in their contract. The incentive fees for other projects
are calculated according to a sliding percentage scale of sales revenue.
It can be argued that the cash balance at end June 2011 has been arrived at
utilising assumptions that are not easily predictable, e.g. a key assumption being
that proceeds from sales will flow on a timely basis to meet funding shortfalls which
could begin to occur from second quarter 2008. Furthermore it should be noted
that, under certain sensitivity scenarios, without additional funding from the
shareholders, InfraCo will not have sufficient funds to sustain its planned level of
operations beyond 2009.
42

Public
The lack of additional funds to continue current and projected level of operations
and project development could impact negatively on InfraCo and the projects
developed in that:
InfraCo could experience liquidity problems and be forced to sell or

abandon its rights in projects under development.
InfraCo will not be able to achieve its objective and will give its projects a
negative perception in the marketplace.
It will amount to a poor use of donor funds as the projects will be stalled
and InfraCo will find it difficult to pass on or sell the projects to other
parties.
To mitigate the above, new commitments for additional funding by end 2008 are
urgently required in order to ensure InfraCo continues its operations with
confidence.
The above notwithstanding, it should be noted that the cash flow deficit described
is mainly related to the fact that InfraCo has rapidly built up a pipeline of projects
and thus is dependant on external funding until revenues from such projects, in the
form of both cash and carried interests, can be secured. Furthermore, DFID DGIS
and SIDA, are considering making new investments in InfraCo. Should this
investment be forthcoming, this will provide InfraCo with the additional financial
resources required to enable it to attain self-financing of its operations beyond
2009.
4.7.2. Scenario Analysis
The sensitivity analysis carried out by InfraCo is limited to a static analysis

of specific scenarios around a base case. The projections comprise a
portfolio of projects whose timing, complexity and financial needs and
returns are very different. Thus by taking a single state failure rate;
mortality, development periods and costs to, and proceeds from, a
satisfactory conclusion, the overall risks and outcomes may be under or
over stated.
The scenarios devised reflect changes in the following:
The ratio of projects started to those reaching a satisfactory sale,

i.e. mortality rate
The average development time taken to reach satisfactory sale

taken as the point of InfraCos partial or full exit.
The level of recovery by InfraCo of both external and internal

project development expenses at the point of partial or full exit.
The scenarios comprise five downside (1 - 5) and two upside (6 - 7)

scenarios around the base case projections as follows:
Scenario 1 - Changes in Project Mortality
An increase in failure rate by 25% to 75%.
43

Public
Scenario 2 - Changes in Development Period
An increase in the average development period

from 24 to 30 months i.e. plus 6 months.
Scenario 3 - Changes in Development Period

from 24 to 36 months i.e. plus 12 months
Scenario 4 - Changes In Cost Recovery
A reduction in the average level of costs

recovered at partial exit/financial close by 50% to
50%.
Scenario 5 - Composite downside case
Additionally, because none of the changes in mortality

rate, increases in development period and reduction in
levels of cost recovery will occur in isolation, InfraCo has
prepared a composite downside case. This composite
downside case has the following adjustments to the base
case:
An increase in failure rate by 10% to 60%.

from 24 to 30 months i.e. plus 6 months.
A reduction in the average level of costs

recovered at partial exit / financial close by 20% to
80%.
Scenario 6 - Changes in Project Mortality
A reduction in failure rate by 25% to 25%.
Scenario 7 - Changes in Cost Recovery
An increase in the average level of costs

recovered at partial exit / financial close by 50% to
150%.
4.7.3. Findings
The primary KPI used to benchmark InfraCos performance is its cash

balance at the end of June 2011. The impact of the changes in scenarios
on secondary KPIs such as the ratio of the number of projects started to
the number satisfactorily completed; the number of HDV projects
satisfactorily completed, has also been considered.
The KPIs abstracted from the InfraCo financial model for the different
scenarios are summarised in Table 7 below. However, the key issues
arising from the Scenario analysis are as follows:
44

Public
In all cases the maximum funding requirement exceeds the level

of committed funds (less the US$5m capital reserve) between end
June 2007 end June 2008.
An increase in the mortality rate shows an improved cash position

during the operating years 2008 to 2010. However, due to the
ultimate failure to achieve satisfactory sale/exit on the majority of
projects undertaken, InfraCo falls into a total cash deficit provision
from late 2010 onwards. It should be recognised that the deficit
arises from a simple projection and assumes InfraCo would not
respond. Indeed InfraCo would, as a matter of course, respond by
slowing project development to avoid a deficit.
Delays in the time taken to achieve completion indicate that

InfraCos financial capacity will be constrained from June 2009
onwards and that should severe delays occur additional funding
would be required in 2009, which could be approximately US$ 4m.
Reductions in the level of capital receipts would severely impact

InfraCos financial capacity by approximately US$ 11m.
Under the downside case assumptions, total expenditure over the

period to 2009 would exceed the currently available resources of
US$20m. Were this situation to be realised, the Board of InfraCo
would be forced to defer expenditures resulting in indefinite delay
in closing of some of the portfolio.
Most importantly the review also revealed that InfraCo has forward
committed to projects under its current development portfolio all
US$20 million that had been provided to the initiative by DFID and
DGIS. This effectively means that InfraCo cannot increase its
development portfolio or indeed participate in new opportunities
without additional financial resources.
In concluding it should be noted that provided InfraCo is:
prudent in selecting the projects in which it participates through

thorough risk analysis;
cautious in its use of development capital;
able to undertake project development work in a timely and

efficient manner;
creates project structures and negotiates a degree of participation

which protects its exit position; then
its base case forecasts could be deemed achievable.
45

Public
Table 7: Key Performance Indicators Scenario Analysis - Key Performance Indicators

Scenario 1 2 3 4 5 6 7
+ 6m + 12m
Base Incr. Dev. Dev. Red. Composite Red. Incr.
Case Case Mortality Time Time Recovery Case Mortality Recovery
INPUT PARAMETERS
Mortality failure rate PCT 50.00% 75.00% 50.00% 50.00% 50.00% 60.00% 25.00% 50.00%
Average Development Time months to Financial Close 24 24 30 36 24 30 24 24
Cost Recovery PCT 100.00% 100.00% 100.00% 100.00% 50.00% 80.00% 100.00% 150.00%
KEY PERFORMANCE DATA
Transactions Completed
Total signed MOUs # projects 16 16 16 16 16 16 16 16
Total signed JDAs # projects 11 11 11 11 11 11 12 11
- of which HDV # projects 4 4 4 4 4 4 6 4
Total closed projects # projects 8 4 8 8 8 6 12 8

- of which HDV # projects 3 1 3 3 3 2 6 3
Transaction Expenses / Receipts US$ millions per Project at 1Q2007 XR
Average Project Expense US$ m 1.36 2.09 1.36 1.36 1.36 1.61 1.18 1.36
Average Overhead US$ m 3.59 7.18 3.59 3.59 3.59 4.79 2.39 3.59
Average Cash Proceeds US$ m 2.79 2.75 2.79 2.79 1.42 2.45 2.65 4.15
Average Carried Interests US$ m 1.47 2.40 1.47 1.47 0.73 1.91 1.56 2.20
Source: InfraCo Management Services May 2007
46
Public
Table 8: Scenario Analysis - Cash Flow

Scenario 1 2 3 4 5 6 7
+ 6m + 12m
Base Incr. Dev. Dev. Red. Compos Red. Incr.
Case Case Mortality Time Time Recovery ite Case Mortality Recovery
FUNDING AT 30 JUNE 2011
Cash Inputs US$ Millions at 1Q2007 XR
Equity into InfraCo US$ m 19.65 19.65 19.65 19.65 19.65 19.65 19.65 19.65
TAF Funding US$ m 4.34 4.34 4.34 4.34 4.34 4.34 4.34 4.34
Interest US$ m 0.59 0.39 0.41 0.19 -0.12 0.21 0.50 1.16
Cash Sales Proceeds US$ m 22.29 10.99 22.29 21.55 11.38 14.67 31.85 33.21
Carried Interest US$ m 1.52 1.32 1.52 1.52 0.76 1.47 2.05 2.28
Total Input Flows US$ m 48.39 36.69 48.21 47.25 36.01 40.34 58.39 60.64
Cash Outputs US$ Millions at 1Q2007 XR
InfraCo Set up costs US$ m 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57
InfraCo G&A US$ m 3.07 3.07 3.07 3.07 3.07 3.07 3.07 3.07
Operating Expenses US$ m 25.07 25.07 25.07 25.07 25.07 25.07 25.07 25.07
3rd Party Project Expenses US$ m 10.02 7.53 10.02 10.02 10.02 8.83 13.30 10.02
HDV Closing Fees US$ m 3.00 1.00 3.00 3.00 3.00 2.00 6.00 3.00
Other Closing Fees US$ m 5.01 3.30 5.01 4.98 3.19 3.80 6.79 6.68
Taxes Paid US$ m 0 0 0 0 0 0 0 0
Total Output Flows US$ m 46.74 40.54 46.74 46.71 44.92 43.34 54.80 48.41
Cash Balance at 30 June
2011 US$ m 1.65 (3.84) 1.47 0.54 (8.91) (2.99) 3.60 12.22
Source: InfraCo Management Services May 2007
47
Public
4.8. Key Successes and Challenges
This final section outlines the success and challenges identified during the review.
4.8.1. Key successes
4.8.1.1. Impressive portfolio development and pipeline
Through a strategic planning, identification and screening process, InfraCo

has built an impressive array of projects in various sectors and countries.
Importantly, the portfolio and pipeline contain a number of HDV projects
which, if implemented, will have a significant developmental impact
particularly for the rural and in some cases urban poor, thus making a
contribution to poverty alleviation and gender equality.
The mix of the portfolio and pipeline also offers the potential for part of the
fees received from the successful sale of the large Kpone type projects to
make a contribution to the development of HDV projects in the future.
4.8.1.2. Development Outcomes
InfraCo has, in many respects, achieved and even surpassed the targets that
were set on establishment and all indications are that it is on course to meet
its third year targets. In terms of agreed sales, it has only achieved one in
principle agreed sale instead of the two that was the target by end of Year 2.
However, in achieving the Aba power sale it has proven the model by
attracting a private sector investor that would not otherwise have been
interested in the deal and secured a return on its relatively small investment.
4.8.1.3. Innovation
InfraCo has contributed to the development of innovative approaches and

practices to infrastructure development in emerging markets, with a potential
for replication. For example:
(a) The development of agricultural related infrastructure, as in Chiansi,

where it is working with over 200 local farmers to form a Special
Purpose Company to develop and operate a water supply project
that will provide water for new farming operations.
(b) The development in Kalangala of an integrated project covering

water, power, road and ferry services for rural communities which, on
an individual project basis, may not have been economically justified
to undertake. In the process InfraCo has broken new ground:-
First private owner/operator licence for a private commercial

ferry service.
First private owner/operator licence for a water supply

service.
First private operator licence for an integrated electric

generation and distribution project under the governments
rural electrification programme.
48
Public
(c) Providing water infrastructure to support indigenous operators such

as is being developed in Madagascar.
(d) Utilising its relatively higher risk tolerance and (limited) patient equity
to reinvigorate long stalled projects as in Kpone and Aba.
(e) Assisting Government in the development and provision of key

infrastructure assets as in Cape Verde and Kampala.
Through such innovation there is now the realistic prospect of providing, on a

timely and cost efficient basis, access to infrastructure services to
populations that for too long have been economically marginalised.
4.8.1.4. Buy-in from Key stakeholders
The InfraCo model has secured buy in from key stakeholders in central and
local government institutions and communities in the locations in which they
are operating. Stakeholders views are particularly positive with respect to its
championing of projects, speed of operations, technical capacity, non-
bureaucratic approach, commitment to pro-poor schemes, mentoring
approach with governments and communities, and its propensity to take on
deals that have been stalled for long periods. All these factors have earned
admiration from various stakeholders. In this respect, the government
representatives that were contacted during the review believe the model is
significantly different and compares favourably with other technical assistance
facilities with which they have had experience.
All of the above demonstrate that the InfraCo pilot is

proven and has in large measure met its target
output and goals, and offers the potential for future
expansion, growth and replication.
4.8.2. Key challenges
4.8.2.1. Lack of balance sheet strength
InfraCos lack of balance sheet constrains its operations and hinders its
credibility. In this sense, some existing and potential public and private sector
partners, cast doubt on its ability to deliver projects to closure. Some argue
that InfraCo needs to be involved post-closure in a meaningful manner (albeit
for a limited period) to ensure stability and hence continuity of the project
implementation and operation. Additionally, it should be recognised that it
may be necessary for InfraCo to remain in the project post-closure, or give
assurances to that, in order to give confidence to the constituents it wishes to
attract.
4.8.2.2. Lack of ready access to grant funding
Successful packaging of HDV infrastructure projects addressing ability to

pay issues - requires an element of grant funding both in the development,
investment and operational stages of a project. In this respect it should be
noted that TAF, which has been instrumental in enabling InfraCo to meet
some of the third party development costs for its project development
activities, will soon be exhausted and there is currently no clear indication of
whether, or if so when, it will be replenished.
It should also be noted that these same types of project will require an
element of subsidy during the investment and operational phases, both in
49
Public
terms of connection and tariff support. In this regard, it is crucial that InfraCo
has ready access to facilities such as GPOBA, to enable it to structure HDV
deals in a timely and successful manner, thus continuing its contribution to
poverty alleviation. In this respect, it should be noted that the increasing
popularity of GPOBA has resulted in a dramatic increase in its volume of
work. The fund is receiving an ever increasing number of applications which
is pressurising its very meagre resources. Furthermore, as a World Bank
administered Trust Fund, it relies largely on WB staffing resources to assist
with the processing of transactions which may not always be amongst the
priorities of the Bank.
4.8.2.3. Optimising Project Exit
A developer with limited resources and developmental mission such as

InfraCo has to consistently balance a number of conflicting objectives. On
any specific project they may be faced with a decision to partially exit, so that
the development cost maybe shared with the new entrant with resultant lower
levels of returns, which may not contribute adequately to the goal of
organisational sustainability. On the other hand, they may be obliged to
utilise a large proportion of their limited resources to develop a project to a
point where it is attractive for a private sector investor, with concomitant
higher returns, although higher levels of sales returns in such situations are
not necessarily guaranteed in respect to HDV deals.
Optimising project exits will be a delicate balance between timing, available

resources, market appetite for purchase, and estimated potential returns.
4.8.2.4. Achieving Sustainability
Sales receipts from HDV projects in many cases could be very low: it may not
even be possible to always achieve full cost recovery for such type of
projects. It may therefore be necessary for InfraCo to have a critical mass of
projects in its portfolio at any one time that would yield significant levels of
return to ensure that, over time, the organisation becomes financially
sustainable whilst at the same time fulfilling its development mission.
4.8.2.5. Enhancement of Operational and Financial Controls
The Operating Procedures are considered by InfraCo to be a living document

to be updated from time to time by IMS in the light of experience and with the
agreement of the InfraCo Board and shareholders. As InfraCo grows in terms
of resource - financial and operational - there will be a requirement for
enhancements of its procedures and controls. The challenge in this respect
would be for the institution to effect controls and procedures that will not be to
the detriment of the commercial and entrepreneurial approach, which is the
hallmark and strength of InfraCo.
4.8.2.6. Entrance of New Initiatives in the same Development Space
Since the establishment of InfraCo a number of new project preparation

facilities, similar in many respects to InfraCo, have been launched or are in
the final stages of being launched.
These include the DFID led AsPIFF, IFCs Project Preparation Facility,
ECOWAS Project Preparation and Development Unit, SADC Project
Preparation Facility and the ADB Nepad IPPF.
50
Public
The challenge for InfraCo would be to redefine its area of focus and modus
operandi so as not to duplicate effort, but rather institute a collaborative
working relationship with these facilities.
This will be more pertinent in the case of the AsPIFF, a dedicated Asian
facility, which may be established under InfraCo.
Given the imminent creation of AsPIFF, consideration must be given to the

following:
Does InfraCo relinquish its Asia operations to AsPIFF?
How will the InfraCo projects currently being developed in Asia be

managed going forward?
4.8.2.7. Expansion and Extension of Participation
Given the limited resources at its disposal, InfraCo has quite rightly focused
on projects in Africa, where the need was greatest. In doing so, they have
obtained a degree of acceptance and recognition. However, from a regional
perspective, InfraCo would have greater credibility if regional institutions and
nationals were admitted to participate at all levels of the organisation. This
would convey greater acceptance and build capacity in a manner which would
be more cost effective for its operations, and be more sustainable in the long
term.
4.8.2.8. Scalingup of Communications
InfraCo is well known within the immediate project environs in which it

operates, however, there is limited awareness within the countries and the
wider regions. Given its potential to add value to infrastructure development,
InfraCo needs to scale up its communications effort. In this regard it should
be noted that InfraCo have appointed Public Relations advisers to support
the company in developing and implementing a communications strategy.
51
Public
5 CONCLUSION - THE INFRACO CONCEPT IS PROVEN
5.1. InfraCo business and performance targets
Through a strategic planning, identification, screening and engagement process, InfraCo has
built an impressive array of projects with signed development agreements, in various sectors
and countries. Importantly, the portfolio of projects under development and pipeline contain a
number of HDV projects which, if implemented, will have a significant developmental impact
particularly for the rural and in some cases urban poor, thus making a contribution to poverty
alleviation and gender equality.
Overall, in many respects, InfraCo has achieved and even surpassed the targets that were
set on establishment. By the end of Year 1, InfraCo had signed 5 exclusive agreements
(Beira, Kalangala, Kpone, Aba and KIS Renewables) and conducted 4 feasibility studies
(Kalangala, Kpone, Aba and KIS Renewables). This achievement is far greater than the
requisite, target of 1 exclusive agreement.
By the end of Year 2, InfraCo achieved one agreed sale - Aba (Nigeria). The target of 2 sales
agreed was not achieved though it is expected that Kalangala will close in 2007. InfraCo
signed 8 additional exclusivity agreements (Chiansi, Kampala, Antara, Cape Verde,
Sandrandano, Nfrasi, Can Tho and Ninh Thuan) and undertook 9 feasibility studies (Chiansi,
Beira, Kampala, Antara, Cape Verde, Sandandrano, Nfrasi, Can Tho and Ninh Tuan). This
surpassed the target requirements. In achieving the agreed Aba power sale it has proven the
model by attracting a private sector investor that would not otherwise have been interested in
the deal, and secured a return on its relatively small investment.
5.2. InfraCo on course to meet targets
Based on the current development status and progress being made, it is reasonable to
assume that InfraCo would be able to sell, by the end of Year 3, some or all of its interests in
5 projects i.e. Tema, Kalangala, KIS Renewables, Antara and Chiansi. All indications are that
they should be able to cover their core running costs and generate a premium on most
projects to finance additional development. Such an achievement would also surpass the
expected target outcomes.
5.3. InfraCos innovative approach
InfraCo has contributed to the development of innovative approaches and practices to

infrastructure development in emerging markets, with a potential for replication. Examples
include:
(a) Development of agricultural related infrastructure, as in Chiansi, where it is working

with over 200 local farmers to form a Special Purpose Company to develop and
operate a water supply project that will provide water for new farming operations.
(b) Development in Kalangala of an integrated project covering water, power, road and
ferry services for rural communities which, on an individual project basis, may not
have been economically justified to undertake.
(c) Development of water infrastructure to support indigenous operators such as is being

developed in Madagascar.
(d) Utilisation of (limited) patient equity to reinvigorate long stalled projects as in Kpone
and Aba.
Through such innovation, there is now the realistic prospect of providing timely and cost
efficient access to infrastructure services for economically marginalised populations.
52
Public
5.4. InfraCos financial projections
The review of the base case and scenario analyses contained in the revised InfraCo business
plan model revealed that, taking the downside case assumptions, the total expenditure over
the period to 2009 would exceed the currently available resources of US$20m. Were this
situation to be realised, the Board of InfraCo would be forced to defer expenditures resulting
in indefinite delay in closing of some of the portfolio.
Most importantly, the review also revealed that InfraCo had forward committed to projects
under its current development portfolio all US$20 million that had been provided to the
initiative by DFID and DGIS. This effectively means that InfraCo cannot increase its
development portfolio or indeed participate in new opportunities without additional financial
resources.
The base case forecasts could be deemed achievable, provided that InfraCo is:
Prudent in selecting the projects in which it participates through thorough risk

analysis.
Cautious in its use of development capital.
Able to undertake project development work in a timely and efficient manner.
Creates project structures and negotiates a degree of participation which protects its
exit position.
5.5. InfraCo secures buy in from stakeholders
Project visits undertaken during the review confirm that InfraCo has secured buy in from key
stakeholders in central and local government institutions and communities, in the locations in
which they are operating.
Stakeholders views are particularly positive with respect to its championing of projects, speed
of operations, technical capacity, non-bureaucratic approach, commitment to pro-poor
schemes, mentoring approach with governments and communities, and its propensity to take
on deals that have been stalled for long periods. All these factors have earned admiration
from various stakeholders. In this respect, government representatives contacted during the
review unanimously expressed the view that the model is significantly different and compares
favourably to other technical assistance facilities with which they have had experience.
5.6. The Value Add of the InfraCo Board
The stewardship and effectiveness of the Board of Directors in governing the activities of
InfraCo has been critical to the achievements of the company to date. With respect to the
governance of the company the Board has established an internal audit committee which
operates within an internal audit plan. The Board has also instituted separate audit on
compliance with the anti-corruption policy of Transparency International.
Another key contribution of the Board, is acting as a filtration mechanism in the project
screening process and in the regular assessment of the development activities of the
company. The Board also ensures that for each project a full Environmental Impact
Assessment (EIA) is undertaken. Indeed many of the resulting innovations and achievements
are stimulated by the probing and challenging contributions of the Board.
The Board has additionally been active in sourcing additional funding for the company, forging
closer relationships between InfraCo and other DFIs as well as between InfraCo and other
PIDG instruments.
53
Public
5.7. The contribution of the Management Team
In a relatively short period of 24 months Management have taken a concept, overcome

substantial hurdles and built a new business, with a growing potential and recognition.
Overall, the assessment revealed that Management have performed well in accordance with
operating procedures and requirements under the service contract. They have proven their
capacity through the portfolio they have assembled and the innovation which they have
brought to the project development effort.
54
Public
6 RECOMMENDATIONS
This review confirms that the InfraCo concept is proven both in terms of its ability to attract private
sector investment and in its added developmental value, to stimulate the provision of access to
infrastructure services in the emerging markets of Africa in particular and, to a more limited extent, in
Asia. A number of challenges have been identified. In this regard, the recommendations proposed
below seek to overcome these challenges and enhance the InfraCo initiative with respect to:
Sustainability.
Development impact.
Operational efficacy.
6.1. Scale-Up InfraCo Pilot to a Full Project Development Facility
The InfraCo pilot programme should be scaled up to a full project development facility. In
doing so, consideration should be given to the following:
(a) Establish separate windows or entities for the Asian and African operations
Subject to additional funding, InfraCo should consider the establishment of these two
windows or entities, to ensure a more comprehensive and focused approach to the
development effort in these two different and distinct regions. This proposed
structure will also better enable InfraCo to secure the participation of Governments
and Regional institutions, whose mandates are normally geographically limited in its
ownership and operations. Additionally such a structure allows for AsPIFF, on its
establishment, to essentially become the Asian window of InfraCo.
(b) Expand InfraCos African operations to include participation in investment and

asset management
InfraCos participation in these stages of a project life-cycle would better enable it to

meet its goals of securing private participation, organisational sustainability as well as
address the issue of long term operation and maintenance which remains an endemic
problem in emerging markets, particularly in Africa.
Given the long gestation period of infrastructure development, the returns normally
accrue at closure with a balloon payment and a small carried interest. This
inconsistency in the revenue stream means that cash reserves are continuously
depleted until the next payment is realised.
Furthermore, attracting participation of co-sponsors in a given deal is much easier if

the original sponsor i.e. the developer is also prepared to participate in some
measure in the financing structure albeit in a minority position. In terms of
organisational sustainability, the potential to accrue dividends could offer InfraCo an
additional revenue stream. It should also be noted that by participating in the
investment, InfraCo will convey to host governments and others, its ability to act as
genuine principal, thus enhancing its credibility.
Additionally, participating in joint ventures to offer operation and asset management

services will further generate a revenue stream for InfraCo and ensure the
sustainability of the asset it has been responsible for developing.
In the longer term, given its capabilities, InfraCo should also consider participating in
joint ventures with others to offer Project Delivery Services. These services could be
delivered on behalf of public agencies in projects where the private sector benefits
55
Public
are limited or uncertain, but private sector expertise in the packaging and operations,
necessary and essential. However, an important element of this service delivery will
be InfraCos control over the development process.
(c) Expand and extend participation in InfraCo
PDIG should authorise InfraCo to extend an invitation to DFIs, region specific funds,
local and international institutional investors to participate in the InfraCo initiative.
The outline of a new structure such as that proposed in Figure 6 below, will allow
potential investors to either participate through PIDG, or, at either of the regional
windows, investment fund or operational entities. This outline structure would require
further examination and detailed design.
Figure 7: Proposed new structure
PIDG
DFIs and regional DFIs and regional

InfraCo
funds funds
Africa Asia
Investment Fund & Development Development Investment Fund &

Asset Management operations operations Asset Management
The advantages of securing the participation of additional entities as described above is that
they will:
Bring additional financial resources.
Provide a conduit for project origination.
Consolidate credibility and positive perception.
6.2. Commit Additional Funding to the Initiative
InfraCos lack of balance sheet strength has been identified as a key weakness in its business
model. Furthermore analysis of cash flow projections reveal that InfraCo would need a
substantial cash injection by 2008 to meet its operational commitments. In this respect, the
following are proposed:
(a) Additional funding for development operations
PIDG should, in 2007, provide InfraCo with an additional US$40 - US$60 million
funding commitment for a 5 year period for its Africa development operations with
nd
draw down to commence from 2 Quarter 2008.
This additional funding commitment should allow InfraCo to address a substantially

increased volume of projects, including a number of costlier projects with shorter
development schedules, returns from which in turn can be used to subsidise a higher
56
Public
number of HDV projects. Commitment for this additional funding should be secured
as soon as is practicable. Draw down from any additional funding should continue to
be on the demonstration of a case of need basis.
(b) Additional funding for investments in infrastructure
Given InfraCos present geographic focus, PIDG should support InfraCo to raise an
Africa-specific infrastructure investment fund to be managed by InfraCo.
The interest of financial investors in making investments in infrastructure projects at

financial closure has increased since the inception of InfraCo. Whilst the majority of
these investments have taken place in mature markets, there is an increasing interest
in emerging markets. It may well be feasible to raise an Africa-specific investment
fund managed by InfraCo if the support of the PIDG is given to the operations of the
Fund. The potential syndication of such a Fund would have to be studied further, but
it may well be possible to raise funding through a mix of the following elements:
(i) A subordinated equity layer of funding provided by PIDG members.
(ii) A mezzanine equity layer supported by IFIs and bi-laterals.
(iii) A senior tranche of capital from selected private investors.
The role of the PIDG in the capital structure of the Fund would be to demonstrate
support and provide subordinated capital to provide an incentive for others to join in
the initiative. The exact sizing of each level of capital would be determined after a full
study of the likely capital structure of such a fund and consultations with potential
investors.
(c) Enhance accessibility to grant funding for HDVs
(i) TAF Funds
PIDG Members should commit to the replenishment of TAF directly or

through a special window within InfraCo.
TAF supports InfraCo by providing funding for third party costs. This funding
is reportedly close to exhaustion with no confirmed commitment for
replenishment. Should this source of funding not be renewed, this would
have a detrimental impact on the development of HDV projects.
(ii) GPOBA
The development of HDV projects requires an element of subsidy during the

development, investment and operational phases. In this regard, it is crucial
that InfraCo has access to facilities such as GPOBA, to provide it with the
flexibility to appropriately structure HDV deals in a timely and successful
manner, thus continuing its contribution to poverty alleviation.
In this regard PIDG should, with its other development partners, examine the
adequacy of the resources within GPOBA with a view to adequately
resourcing the Fund so that it can efficiently process applications, better
engage with its increasing client base, and thus increase the poverty
reduction benefits of its projects.
InfraCo should also endeavour to liase with GPOBA as early as possible

when developing projects that may require GPOBA participation. The
envisaged collaboration of InfraCo and GPOBA in the Kalangala project
57
Public
could offer the opportunity for the two institutions to learn more about the
workings of each other and to develop a modus operandi for their effective
co-operation in the future.
6.3. Enhance Operational Efficiency
(a) Establish regional offices in Asia and Africa
Subject to the availability of additional funding, InfraCo should consider the

establishment of two regional offices for Africa and Asia respectively. This will enable
InfraCo to have a permanent presence in the markets in which they are operating.
This would yield cost efficiency gains in its development operations and increased
market awareness. It will also send a positive signal to Governments and Regional
institutions about InfraCos intent and commitment to the regions.
(b) Devise and implement regional marketing strategies
InfraCo should devise and implement a regional marketing strategy with a view to
promoting awareness, building networks and forging partnerships subject to
additional funds being committed.
Whilst it is recognised that Management in the first two years had to focus on the
practicalities of building a new company and at the same time identifying deals, it is
now appropriate that consideration be given to a scale-up of marketing and
communications activity, particularly with respect to building relationships and
alliances with governments, regional institutions, regional project preparation facilities
and local financial and commercial private sector institutions. To this end, there is a
need for a scale-up of communications and regional relationship building activity.
The Chairman and Managing Director should be instrumental in directing and leading
this activity supported by the communications team InfraCo are currently recruiting.
(c) Institute financial and operational systems and controls in line with
organisational growth and market benchmarks
In particular, formalise the current practice of assessing and reporting risks by

incorporating the following within the operating procedures:
(i) Establishment of a risk register for each project.
(ii) Incorporate, within quarterly progress report to the Board, quantitative and
qualitative information regarding risks associated with each project.
(iii) Establish a financial manual to include financial procedures and controls.

This should also take into account the treatment of contingent investment
(and liabilities) in cases of failure to sell a project.
6.4. Build on the Existing Management Team
InfraCos Board and Management have, over the last two years, achieved a large measure of
success and acquired the unique market and transaction experience relevant to this initiative.
Subject to new funding, the InfraCo Board should review the terms of the existing contract
and renegotiate with IMS a new contract which will take into account new additional funding
secured and the fact that the market conditions, under which the existing contract was
concluded, have changed due largely to the demonstration effect of InfraCo and concomitant
reduced risks.
58
Public
The above notwithstanding, it is recommended that going forward the Board retains the
flexibility to negotiate arrangements for developer and fund management services which will
ensure the optimal use of the financial resources at its disposal, and advise PIDG
accordingly.
59

InfraCo Review 2007 PDF

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

InfraCo Review 2007 PDF

Hochgeladen von

Copyright:

Verfügbare Formate

InfraCo

Mid-Term Review 2007

InfraCo Mid-Term Review Report 2007 - Public

4.2.11. KIS Renewables .................................................................................................... 27

InfraCo Mid-Term Review Report 2007 - Public

5.5. InfraCo secures buy in from stakeholders ............................................................. 53

InfraCo Mid-Term Review Report 2007 - Public

ADA Austrian Development Agency

InfraCo Mid-Term Review Report 2007 - Public

PMU Project Management Unit

InfraCo Mid-Term Review Report 2007 - Public

Development of integrated infrastructure Kalangala

Support for indigenous water operators - Sandandrano Water

Providing water infrastructure to support indigenous operators in Madagascar.

Reinvigorating stalled projects Kpone, ABA, Kalangala

Development of key infrastructure Cape Verde, Kampala

Assisting Government in the development and provision of key infrastructure assets as in

InfraCo Mid-Term Review Report 2007 - Public

A key challenge is the imminent establishment of a number of project preparation facilities,

Subject to securing additional funding, InfraCo should consider the establishment of

PIDG Members should broaden accessibility to grant funding for HDVs.

InfraCo Mid-Term Review Report 2007 - Public

The recommended actions above have been designed to overcome the

InfraCo Mid-Term Review Report 2007 - Public

1.1. Purpose of Report

In this respect the Mid-Term review assesses and evaluates the:

Potential for scaling up InfraCo.

This review was undertaken in February-March 2007.

The review methodology executed was as follows:

Desk research and examination of all relevant background documents

InfraCo Mid-Term Review Report 2007 - Public

Visits to the Uganda/Ghana projects to solicit views from government, local

1.3. Structure of the Report

This report provides an assessment on the salient issues to be addressed by a

Chapter 2 outlines a background of the initiative, mission, structure, approach,

In Chapter 6 recommendations for future action are proposed.

InfraCo Mid-Term Review Report 2007 - Public

2 THE INFRACO INITIATIVE

The objective of InfraCo is to contribute to PIDGs aims to stimulate greater private

2.2. The Approach

InfraCo operates as a private sector project development company, acting as

Undertake pre-financial close development activities for its own account

Operate at arms length from government with a Board of Directors from

Seek to structure opportunities in a way that balances the interests of host

Seek in the early days of its life to produce a demonstration effect so as to

InfraCos approach is markedly different from much of the traditional technical

InfraCo Mid-Term Review Report 2007 - Public

markets. InfraCo takes a pioneering development role and offers a full

2.3. InfraCo Structure

Figure 1: Governance and operating arrangements

PIDG Donors: DFID,

ADA, DGIS, SIDA, Other Sponsor if any

Source: Operating Policies and Procedures, 2006

2.4. InfraCo Funding

InfraCo Mid-Term Review Report 2007 - Public

InfraCos main geographic focus is projects in Sub-Saharan Africa and Southeast

Benefit from the focus and commercial impetus of InfraCo.

Reach financial close in a reasonable timeframe.

InfraCo Mid-Term Review Report 2007 - Public

3 EARLY STAGE INFRASTRUCTURE DEVELOPMENT IN EMERGING

3.1. The Development Process

The activities normally undertaken by commercially driven project developers

Figure 2: The Project Preparation Process Phase 1