Long Term Financing for Electric Power Projects in Developing Countries
The current hard times facing the global conglomerate has wrecked a havoc in encouragement flexed by developing countries in developing an electric power plant project. The recent economic discoveries has established considerable gains on the highly industrialized nations. Such have only extended to few developing countries. It is interesting to note that there are some attractive success stories of recoveries in Asia and Africa.
The transition to sustain long-term financing for electric power growth for the majority of nations in the developing world will be complex and longer. Havelet Finance Limited offers a wide range of financing in the Electric and energy power sector.
We provide a comprehensive approach to power, addressing the full range of problems associated with the operation of large facilities.
Outlook for Electricity Requirements
Requirements for electricity is relatively higher because of its versatility and efficiency in end-use and the fact that, for some purposes, electricity is the only usable energy source. A clear manifestation of consumer preference for electricity is the cost that industrial users in many developing countries are willing to incur to meet.
Between the 1970s, electricity usage in developing countries rises at about 7% annually but this is mainly in some of the more industrialized countries — such as Brazil, the Republic of Korea, Indonesia, and Thailand. The growth rates have been in the 13—20% per annum range. Over the past few years, the drop down in economic activity has reduced the growth of electricity demand in most developing countries. However, in some countries —such as China (10.9%), India (6.6%), Indonesia (19%), Pakistan (9%), and Turkey (8%) – the growth of electricity consumption has been constrained by supply and there is a large unsatisfied demand, which has a high economic cost for those countries. The future rate of growth in those countries will be, for some years to come, determined as much by the schedule of commissioning of new plants as by the growth in the underlying demand for electricity.
Investment patterns and the energy mix for Electric Power
Electric Power and energy systems gave rise to the means of using coal, and gas to distribute efficient means of using coal, and gas to distribute energy to broad end users Hydropower, nuclear, and, to some extent, geothermal energy can only be harnessed effectively in the generation of electrical power. In countries that have appropriate energy sources, an important objective in the near future will be to modify the pattern of electricity generation, using the power system as an instrument to reduce dependence on imported oil. The large scope for this is evidenced by electricity’s major share in the energy sector.
within many countries, to convert the energy sources from which electricity is produced remains an important fraction of shift towards the higher price of oil. In accordance with the World Bank projections have made it clear that the prices of imported oil for electric power generation will account for about one-third of developing countries’ oil imports. Plants using sources such as hydro, coal, lignite, gas, geothermal, and nuclear energy that may have been uneconomic at lower oil prices may now be developed profitably — even though all but natural gas typically require larger investment per kilowatt than oil-based plants.
The economics for substitution are particularly attractive in countries that have an abundant supply of indigenous gas. The scope for changing the generation mix depends on the size of the system and the country’s specific conditions. A dozen developing countries with a sizeable amount of low-cost coal, lignite, hydro, or geothermal energy might be able to., maintain generation costs of incremental supply at about 4 cents per kilowatt-hour. Examples are Algeria, Colombia, Gabon, Trinidad and Tobago, Zaire, Zambia, and Zimbabwe.
Towards the end, many countries will steadily to rely heavily on oil or expensive hydropower and will be unable to avoid costs of 12 to 24 cents per additional kilowatt-hour. Examples are Benin, Chad, Mali, Niger, Somalia, and the People’s Democratic Republic of Yemen. For this group, not only is the resource too small or costly to develop, but the use of imported coal is not economical because either power systems are modest in size or the countries are landlocked, raising transportation costs.
Efficiency improvements on Electric Power Source
In many industrialized developing countries, the most cost effective way of increase to electricity power supply is to improve the efficiency of existing facilities. This can be done by rehabilitating units out of service, improving the availability and efficiency of existing plants, and by reducing losses incurred in distribution and transmission. The introduction of computer-designed turbine runners can increase the capacity of hydroelectric plants and their efficiency. Significant amounts of fuel can be wasted if thermal plants are not operated at optimal conditions of temperature and pressure. Preventive maintenance should be undertaken, since improving the availability of units reduces investment requirements for new plants. Simple corrective measures, such as cleaning blocked condensers or repairing leaking valves, can have payback periods as short as a few days. Adequate spare parts should be on hand. Staff training programmes need to be improved and expanded.,
Financing Electric power expansion in Developing Countries
To guess, over 6% annual growth rate in electricity requirements, the total investment and financing for over the next decade for electric power facilities (generation, transmission, and distribution) would be about $522 billion for an incremental capacity of about 285 000 megawatts. Average capacity cost on which this figure is based is assumed to be $1830 per kilowatt, of which generating plant would be about $1280 per kilowatt, and transmission and distribution $550 per kilowatt. The generation investment reflects a mix of thermal (51%), hydro (36%), nuclear (12%), and geothermal (1%).
Source of Funding for Electricity Power Projects
There are plenty source to finance an electric power projects. From this perspective, The World Bank Group consists of three international financial institutions — the World Bank itself, officially known as the International Bank for Reconstruction and Development (IBRD) or, in short, the Bank; and two affiliates, the International Development Association (IDA) and the International Finance Corporation (IFC). Each has its own special function, but all are devoted to the same general objective: the promotion of economic development.
Bank loans and IDA Credits
Bank Loan/IDA lending has been the leading source of funding for mainly for transportation (17%), electric power (16%), agriculture (25%), and industry, including development finance companies (14%). The remaining 28% was split up among communications, education, population, tourism, water supply, oil and gas, and urban projects, and general programme loans. The regional distribution has been 24% to Latin America; 21% to Europe, the Middle East, and North Africa; 21% to South Asia; 20% to East Asia and the Pacific; 8% to East Africa; and 6% to West Africa.
Borrowers based on dealing with World Bank that have a borrowing power on commercial terms, export credits and commercial banks constitute the most important source of external financing. Under the traditional arrangement for co-financing with commercial banks, the World Bank and a commercial bank enter into separate loan agreements with the borrowing country. Loans from the commercial banks are on market terms and negotiated directly by the banks with the borrower. The loans are linked to the Bank loan through an optional cross-default clause, and a memorandum of agreement is signed by the Bank and the agent for the commercial bank.
Financing from commercial sources, in addition to making a direct loan The new options are:
• Direct financial participation in the later maturities of a “commercial loan
• ‘Guarantees of the later maturities of a private loan instead of direct funding
• Contingent participation in the later maturities of a commercial loan that, initially, would be financed entirely by commercial lenders.
By providing the commercial banks ways by which they can become more closely associated with the World Bank, their perception of the quality and security of co-financed assets will be increased. The new instruments also strengthen investor confidence, resulting in an increase in net capital flow to developing countries and extended loan maturities.
Looking at the context of new financing for electric power projects. The’ Bank is actively looking at the possibilities for nonrecourse or limited recourse financing techniques as a means of mobilizing additional resources for power development. These techniques, which have so far been used in only a few instances in financing energy development in developing countries, allow commercial firms and lenders to finance attractive projects on the basis of the projects’ own cash flow, rather than on the basis of an overall guarantee offered by the host government or the project owner. ‘ The required conditions for successful project financing of this nature include a reasonable perception of country and project risks; a strong and internationally recognized project sponsor; preferably an export orientation of the project; and generally a long-term purchase contract.
Havelet Finance Limited provides provide funding through our High Net worth Angel investors to both startups and existing businesses. Our funding includes business expansion or to accelerate company growth and alongside working capital loans.
We are also currently structuring a convertible debt and loan financing and other project financing and international loans at of 2% interest repayable annually with no early prepayment penalties.