IDC – Focus and Funding Instruments in CDM ProjectsIDC – Focus and Funding Instruments in CDM Projects

Presented by Rafikh IsmailGreen Industries SBUIDC

The IDC: Corporate profile

Established in 1940, the IDC is a self -financing, State-owned development finance institution

The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to

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The IDC’s Head Office in Sandton(Johannesburg)

Provides financing to entrepreneurs engaged in competitive industries and enterprises based on sound business principles

Pays income tax at corporate rates anddividends to the shareholder

industrial development and innovation to the benefit of South Africa and the rest of the African continent

Aims to maximise developmental and financial returns within an acceptable risk profile

The Role of IDC in the South African Economy

Vis

ion

Mis

sion

To be “the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent”

The IDC is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the

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Growing sectoral diversity

Mis

sion

Obj

ectiv

esO

utco

mes

prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerment

New entrepreneurs

Growing SME sectorRegional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

IDC has aligned its sectoral focus areas with government’s priorities

Green and energy saving industries

Bio fuels

ICT

Healthcare

Mining related technologies

Biotechnology

Industrial infrastructure

Logistics

R26.7 billion (US$3.9 billion)

R5.9 billion (US$0.8 billion)

R11.2 billion (US$1.6 billion)

R7.1 billion (US$1.0 billion)

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Agro-processing

TourismBusiness process

services

Craft and film

Downstream mineral beneficiation

Mining

Metals fabrication, capital and transport

equipment

Automotives, components, medium and heavy commercial

vehicles

Plastics and chemicalsClothing, textiles,

footwear, leatherForestry, paper &

pulp, furniture

Advanced manufacturing

Pharmaceuti-cals

Oil and gas

R5.9 billion (US$0.8 billion)

R20.6 billion (US$3.0 billion)

R22.1 billion (US$3.2 billion)

R8.5 billion (US$1.2 billion)

Role in project development

• Co-sponsors feasibility studies• Identifies project opportunities• Provides and arranges funding (e.g. export and import

finance, equity and loan funding)• Shares project risk with the sponsors and financial partners•

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• Identifies strong operating partners• Off-take and supply agreements

• Assists with the early negotiations of project agreements to improve and ensure their bankability and shorten the funding schedule

• Structures appropriate limited recourse funding packages by allocating project risk to the appropriate stakeholders

• Assists with implementation via steering committee

• Serves on board of directors

• IDC does not seek shareholding control or management participation

• Funding instruments:– Equity– Quasi-equity– Commercial debt – Export/import finance– Short-term trade finance– Bridging finance– Guarantees– Venture capital– Wholesale funding through intermediaries

Finance is structured according to client’s needs – can include moratoria on

repayments to enable business growth

Minimum funding amount of

IDC Products

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– Wholesale funding through intermediaries• Special purpose finance:

– Transformation and Entrepreneurial Scheme (TES) (R1 billion)– Risk Capital Facility (RCF) (����� ������

– Isivande Women’s Fund (R50 million)– Support Programme for Industrial Innovation (SPII) (R50 million/year)– Distressed funding (R6.1 billion)– UIF funding (R2 billion)– Clothing, Textiles, Footwear and Leather Competitiveness Scheme

(R250 million)– Natural Disaster Relief Initiative– The Gro-� Scheme– Clothing and Textiles Competitiveness Programme (CTCP)– Pro-Forestry Scheme (R100 million)– Community Forestry Grant (R20 million)– Pro-Orchards Scheme (R200 million)– Township and Rural Hospital Scheme (R500 million)

R1 million

Cross sectoral schemes/funds

Sector specific schemes/funds

Recently Launched Schemes

Recently launched schemes•• The The GroGro--�������� SchemeScheme

•• R10 billion made available for 5 years or until the scheme is exhaustedR10 billion made available for 5 years or until the scheme is exhausted•• Loans available at prime Loans available at prime -- 3% for the first 5 years of the loan; 3% for the first 5 years of the loan; •• Expected rate of return and share in upside on equity depends on the development impact of the transaction;Expected rate of return and share in upside on equity depends on the development impact of the transaction;•• Appropriate capital and interest payment holidays will be applied depending on the financial needs of the business;Appropriate capital and interest payment holidays will be applied depending on the financial needs of the business;•• A minimum of R1 million with a maximum of R1 billion per project;A minimum of R1 million with a maximum of R1 billion per project;

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•• A minimum of R1 million with a maximum of R1 billion per project;A minimum of R1 million with a maximum of R1 billion per project;•• Owners contribution will be determined by the financial capacity of the entrepreneur and the cash flow profile of the Owners contribution will be determined by the financial capacity of the entrepreneur and the cash flow profile of the

business;business;•• Qualifying criteriaQualifying criteria

•• Business must have prospects of acceptable profitability to service its obligations;Business must have prospects of acceptable profitability to service its obligations;•• Cost per job created should not exceed R500 000;Cost per job created should not exceed R500 000;•• BB--BBEE certification from an accredited verification agency is required;BBEE certification from an accredited verification agency is required;

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Recent Schemes Lauched

•• KFW Credit LineKFW Credit Line–– New Facility (Presented below)New Facility (Presented below)

•• Natural Disaster Relief InitiativeNatural Disaster Relief Initiative

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•• R500 million made available to assist businesses involved in agroR500 million made available to assist businesses involved in agro--processing and tourism that has been affected by processing and tourism that has been affected by recent floods and droughts;recent floods and droughts;

•• Loan pricing at prime Loan pricing at prime -- 3%;3%;•• Available until February 2012Available until February 2012•• Additional R250m to the Land Bank for onAdditional R250m to the Land Bank for on--lending to producers in primary agriculturelending to producers in primary agriculture

Funding Process

Applications from existing/prospective businesses

Pipeline Assessment and decision

Detailed due-diligence/feasibility study assessing development impact and sustainability of

opportunities:

Monitoring

Ongoing monitoring of client performance after funding is

made available

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Proactive identification and development of projects

opportunities:• Development outcomes• Market for products/services• Technical viability and

competitiveness• Financial viability• Management

Structuring of funding depending on client’s needs

Approval of viable transactions at appropriate committee

Interventions in businesses experiencing difficulties

• Business support• Restructuring of facilities• Etc.

More emphasis being placed on early stage

involvement and development of projects

IDC focus areas: Green industries

Energy efficiencyEnergy efficiency

Heat, Electricity & building efficiency

Cleaner production / Industrial Efficiency

Transport Efficiency

Renewable Energy: Non-Fuel Power Renewable Energy: Non-Fuel Power

Wind Power Generation

Concentrated Solar Power

Solar Photo Voltaic Power

Services related to renewable

energy & energy efficiency

Services related to renewable

energy & energy efficiency

Local manufacturing

Local manufacturing

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Waste to Energy

Fuel Based EnergyFuel Based Energy

Co-generation

Emission and pollution mitigationEmission and pollution mitigation

Air pollution control

Water & treatment

Waste Management/ Recycling

Clean stoves

Bio FuelsBio Fuels

Bio Ethanol Bio Diesel

manufacturing related to renewable

energy & energy efficiency

manufacturing related to renewable

energy & energy efficiency

CDM project process & role of IDC

Project Idea Pre-feasibility Feasibility Implementation Monitoring

CDM process

Project development

Carbon Credit project diagram

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PIN PDDMethodologies(New / Proven)

Registration Verification Monitoring Trading(Claiming & selling)

Local DNA(DME) UNFCCCExperts & experienced PDD writers Independent experts/consultants Carbon Traders

** ongoing **

Project development challenges:Costs / Risk sharingSkills (project risk & commercial)Equity contributionFinancial strength of promotersProject financeAvailability of promoters

Expectation from IDC:Project development / risk assessmentFacilitation / Partnering / AdvisorsRisk capital provider (equity & debt)Advisory & support role (CDM process)Funding of PDD & registration process

External Challenges:Availability of skills in developing PDDLengthy & costly registration process Verification & monitoringMethodology writers & developersPost 2012 commitments & priceRegistered DOE’s

IDC CDM Projects

1. Kanhym Project– CDM Registered – Flaring Methane in Phase 1 of the project– 1MW electricity production in Phase 2 of the project

• IDC’s Participation

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• IDC’s Participation– Funding the underlying project capex cost for the construction and lining of sludge dam– Working Capital– Assisting project promoters with the funding to avoid selling CER’s upfront and loosing out on higher furture

potential income

CDM Registered Project 2

2. Low Pressure Solar Water Heater (Programmatic CDM)– CDM Registered (April 2011)– Mass Roll Out of Low Pressure SWH on Free Offer Basis

• IDC Participation– Working Capital Facility for the underlying business model

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– Working Capital Facility for the underlying business model– Providing a financial guarantee in lieu of the future CER’s to the ERPA off-taker to faciltate additional cashflow

into the project making it more sustainable. – The CER Prepayment allows the project sponsors to provide for the routine repairs, maintenance and

warrantees required per the Eskom EEDSM programme.

IDC (Industrial Development

Corporation) Carbon Credit

Off-Taker

Equipment

Suppliers

ERPA

Prepayment

Guarantee

Prepayment

Funding of the

working capital

requirement

Illustration of Low Pressure SWH Project

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Project Carbon

Developers

ESKOM

Rebate

Municipality

Households

(Beneficiaries)

ERPA

MOU Signed

(Guaranteed By the

IDC)

Net

Prepayment

After Costs

Free Direct

Low Pressure

Solar Water

Heater

Cession Of Rebate and

Cession of the Carbon

Credits

KFW FacilityIDC Credit Line Energy Efficiency andRenewable Energy• Overview

• Target Segments

• Scope of Work

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• Implementation Plan

• Example of Program of Activities CDM– El Salvador Industrial Energy Efficiency

Overview

• KFW Facility– Rand 500 million– Fixed Interest Rate at Preferencial Rate– Use of funds 36 months– Private Industrial and Commercial Sector– Aimed to support projects that otherwise would be difficult to finance through standard commercial financing

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– Aimed to support projects that otherwise would be difficult to finance through standard commercial financing– Serve as demonstration to other lending institutions, especially for Energy Efficiency finance

Target Segment

• Energy Efficiency 60%– Industrial & Commercial

• Biomas & Biogas 35%– Biomass over 10 MW (sugar, P&P)– Dual Fuel Cogeneration

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– Dual Fuel Cogeneration– Landfill and Agricultural waste

• PV and SWH 10%

CDM Programme of Activities

• How can we use carbon finance for small projects?

– Repetitive small projects with similar features

– Too small to carry by their own all the preparation costs

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– BUT, they can be grouped together in a PoA

• Examples– In South Africa: Solar Water Heaters– In El Salvador: Industrial Energy Efficiency VDS, and lighting– Singapore: Building Energy Efficiency

Thank youThank you

Green Industries SBUGreen Industries SBURafikh IsmailRafikh Ismailrafikhi@idc.co.zarafikhi@idc.co.za011 269 3297011 269 3297

JoseJose--Luis BobesLuis Bobes

Industrial Development Industrial Development CorporationCorporation19 19 FredmanFredman Drive, SandownDrive, SandownPO Box 784055, PO Box 784055, SandtonSandton, 2146, 2146South AfricaSouth AfricaTelephone Telephone 011 011 269 3000269 3000Facsimile Facsimile 011 011 269 2116269 2116EE--mail callcentre@idc.co.zamail callcentre@idc.co.za

JoseJose--Luis BobesLuis BobesGFA Senior ConsultantGFA Senior Consultantjoseb@idc.co.zajoseb@idc.co.za