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IFC DRAFT March 21, 2009
March 23, 2009
Mr. Qazi Naeem-ud-din
Chairman of the Inter-Governmental Council
Executive Director
IGC Secretariat Kabul
Afghanistan
IFC InfraVentures Project Development Agreement
for the Development of the
CASA-1000 MW Power Transmission Project
Dear Gentlemen:
We refer to the development efforts relating to the CASA-1000 Power Transmission
Project (“Project”) by the Government of the Islamic Republic of Afghanistan, the Government
of the Kyrgyz Republic, the President of Pakistan, acting for and on behalf of the Islamic
Republic of Pakistan, and the Government of the Republic of Tajikistan (collectively,
the “Governments”).
We understand that the Governments would like International Finance Corporation
(“IFC”) acting through IFC InfraVentures, IFC's internal early stage infrastructure project
development unit (“IFC InfraVentures”; together with the Governments, the “Parties”),
to assist the Governments with the development of the Project. This letter agreement sets out the
terms and conditions on which each of the Governments and IFC InfraVentures are willing
to participate in the co-development of the Project.
1. Background to this Letter Agreement
The proposed IFC InfraVentures participation in the development of the Project and the
right to convert the funds it spends on the Project into a capital contribution in the proposed
Concession Co. (as defined below), was accepted in principle by the InterGovernmental Council
(“IGC”) at its first meeting on May 6, 2008. The IGC noted at that time that a written
agreement with IFC InfraVentures will be needed.
The intention of the IGC members was re-affirmed at their meeting in Islamabad (July
st
31 – August 2nd, 2008). The approved summary note, “Outcomes of the Technical Session”,
indicates that: “The Governments and the IFIs recognize that IFC/InfraVentures is contributing
to the development of the Project by preparing appropriate terms and documents and a financial
model for consideration and negotiation by other Project parties.
In elaboration of the agreed principle during the first IGC meeting via videoconference,
for the early stage efforts and the risk taken by IFC/InfraVentures, an amount equal
to 110% of the expenses incurred by IFC/InfraVentures shall, if the Project reaches financial
close with a private investor, be convertible into an equity investment in Concession Co. If the
project does not go forward, the IFC/InfraVentures’ expenses will be written off.
Each of the Governments and the IFIs acknowledge that IFC/InfraVentures is acting
as a surrogate for a private sector project developer and not as an advisor to any Government.
The Government and IFC/InfraVentures will conclude an agreement elaborating this
arrangement at the appropriate time.”
Since the first endorsement by the IGC of the IFC InfraVentures role, IFC InfraVentures
has prepared and presented to the IGC (in English, with Russian translations) a proposed
commercial structure including summary term sheets of the five key contracts which would
provide the legal framework for the Project, together with a financial model of the transaction
from the perspective of the Concession Company and indicating the costs and revenues to each
of the Governments.
2. Agreed Project Structure
The Governments have determined that development, construction, operation and
maintenance of the Project should be undertaken by a private sector company to be selected
through a competitive process , which would result in the awarding of a long-term concession
(the “Concession”) to the company (or consortium) presenting the most attractive proposal
(the “Commercial Sponsor”).
3. IFC InfraVenture’s Role
The Parties agree that IFC InfraVentures can assist the IGC and the Governments in the
co-development of the Project by providing the perspective of a potential commercial partner
until such time as a Commercial Sponsor is appointed and by performing and funding certain
activities described herein that might normally be provided by a Commercial Sponsor.
IFC InfraVentures will coordinate its involvement with the Governments in the development
efforts through the IGC.
IFC InfraVentures will agreed to take a lead role in developing and proposing to the IGC,
the Governments and their respective advisors a structure and draft documents appropriate for
the development of the Project and for attracting private sector investors to compete for
a concession from the Governments to (i) build and operate the Project, (ii) make equity
investments in the special purpose company established by the Sponsor to construct and operate
the Project (“Concession Co.”), and (iii) through Concession Co., make an equity investment in
the special-purpose entity to be established by each Government to own the Project facilities
located within its territory (each a “Line Co.”). More specifically, IFC InfraVentures hereby:
(a) undertakes to perform the Project development activities described herein or
reasonably related thereto (the “Development Activities”); and
(b) commits to spend funds as necessary or appropriate in its discretion in the
performance of the Development Activities, including past, present and future
external costs (including all travel costs, the costs of consultants retained by IFC
InfraVentures to help carry out its Development Activities, and its other out-of-
pocket expenses) and the imputed cost of IFC personnel time devoted to
Development Activities, subject to the terms and conditions described herein
(collectively, the “Development Expenses”); provided that IFC InfraVentures
does not hereby commit to fund more than US$4 million or its equivalent (the
“Maximum IFC InfraVentures Contribution”); and provided, further, that IFC
InfraVentures reserves the right to suspend or terminate further funding for the
Project in the event it concludes that either (i) further expenditures are unlikely to
be recovered or (ii) the Project is unlikely to be implemented in a fashion
consistent with IFC policies and practices.
IFC InfraVentures’ performance of the Development Activities and, in particular, its delivery of
a financial model and a set of draft project agreements as contemplated herein are not performed
as advisors to the IGC or any Government but rather solely to support a balanced and sustainable
arrangement for the development and implementation of the Project, with a view to assisting the
Governments in attracting private investors.
A summary of costs incurred to date is attached in Annex I and basis for the calculation of IFC
InfraVentures’ internal staff costs is summarized in Annex II.
3. Conversion of Development Expenses
(a) In recognition of IFC InfraVentures' performance of the Development Activities
and its efforts in helping to develop and implement the Project, Development
Expenses incurred by IFC InfraVentures will be convertible, at IFC
InfraVentures’ option, upon thirty (30) days' notice to the other Parties into
common shares of Concession Co. representing a percentage of the Concession
Co.’s outstanding shares, on a fully diluted basis immediately following the
investment, equal to the ratio, expressed as a percentage, of “x” to “y”, where “x”
is the product of the Development Expenses funded by IFC InfraVentures as of
the Conversion Date multiplied by the Conversion Rate (as defined below), and
“y” is the sum of such Development Expenses plus the common equity
investment that the Commercial Sponsor or other shareholders have contributed to
Concession Co. as of such Conversion Date. This ratio shall be calculated as of
the Conversion Date. IFC InfraVentures’ claim for Development Expenditures
will be supported with reasonable evidence thereof and shall be subject to the
approval of the IGC on behalf of the Governments, which approval shall not be
unreasonably withheld or delayed.
(b) The Conversion Rate shall be 1.1;. i.e., 110 percent of the Development Expenses
incurred by IFC InfraVentures shall, if the Project reaches financial close with a
private investor, be convertible into an equity investment in Concession Co. This
conversion rate, as agreed at the Islamabad meeting, reflects the early stage efforts
and the risk taken by IFC InfraVentures in supporting the development of the
Project.
(c) The Conversion Date shall be a date selected by IFC InfraVentures in
coordination with the Commercial Sponsor that occurs on or prior to the date on
which the Commercial Sponsor makes its initial equity investments to capitalize
Concession Co. (the “Closing Date”).
(d) On the Closing Date, IFC InfraVentures shall have the right to invest an
additional amount in Concession Co. to bring its total aggregate investment up to
the Maximum IFC InfraVentures Contribution. IFC InfraVentures’ investment
will be on terms and conditions equivalent to those of the Commercial Sponsor.
(e) Notwithstanding clause 2(a) above, in the event the conversion of the
Development Expenses as described in such clause 2(a) would result in IFC
InfraVentures’ share exceeding 19.9% of all common equity in Concession Co.,
then only such portion of the Development Expenses as converts at the
Conversion Rate to a 19.9% equity interest shall be so converted, and the
remaining unconverted balance shall be deemed to constitute a loan to Concession
Co., whose repayment will be subordinated to any senior debt financing raised by
Concession Co. for the development, construction and initial operation of the
Project. Any such subordinated loan to Concession Co. held by IFC InfraVentures
shall bear interest at a rate equal to, from the Conversion Date to the first date on
which Concession Co. borrows senior debt, ten (10) percent per annum and,
thereafter, at the sum of the interest rate of such senior debt as of its closing date
(or, in the event of multiple senior loans closed on that date, the weighted average
of the applicable interest rates) plus 2.5%.
(f) IFC InfraVentures will also have a right of first refusal to participate in any
subsequent capitalization undertaken to fund expansion of the Project.
(h) A working example illustrating how the above would operate in a number of
plausible scenarios is attached as Annex II.
4. Consultants
Recognizing the continuing benefits to all Parties from the Project having continued
access to the “Commercial Assessment” consultant team that provided preliminary
analysis with respect to the commercial feasibility of the Project, the Governments
consent to IFC InfraVentures retaining the services of Fieldstone and Chadbourne &
Parke LLP (“Chadbourne” and, together with Fieldstone, the “Consultants”) to advise
IFC InfraVentures as it undertakes to develop and implement the Project. In addition, the
Governments acknowledge and agree that IFC InfraVentures may retain the services of
one or more individuals or firms to assist it in the performance of the Development
Activities of IFC InfraVentures described herein.
5. Conflict Waiver
(a) Each Government acknowledges and agrees that IFC may in the future provide
long-term financing to Concession Co. Each Government waives, on behalf of
itself and each of its instrumentalities that may participate in some fashion in the
Project, any liability to which IFC or IFC InfraVentures might otherwise be
subject as a result of any perceived or actual conflict of interest presented by
IFC's potential further investment in the Project.
(b) Each Government also acknowledges and agrees that IFC and other members of
the World Bank Group currently provide or may in the future provide advice to
any Government or to the governments of other countries with possible interests
in the Project, which advice may have direct or indirect effects on the Project or
on the interests of a Government. Each Government waives any liability to which
IFC or IFC InfraVentures might otherwise be subject as a result of any perceived
or actual conflict of interest presented by IFC's and IFC InfraVentures' potential
involvement in the Project and the above-mentioned activities of the World Bank
Group.
6. Termination
(a) The Governments may terminate this Project Development Agreement, without
cause, by giving IFC InfraVentures written notice at least thirty (30) days prior to
the effective date of termination. In such case, the Governments jointly and
severally agree to compensate IFC InfraVentures for its involvement in the
Project by paying to IFC InfraVentures, within 30 days of such termination date,
(i) reimbursement of all Development Expenses incurred by IFC InfraVentures up
to the date of termination, (ii) interest on such Development Expenses at the rate
of ten (10) percent per annum from the date of each expenditure until the date of
reimbursement, and (iii) a premium equal to 20% of such Development Expenses
in recognition of the IFC InfraVentures project development efforts to the date of
termination. A decision to undertake the Project, based largely on the commercial
framework developed by IFC InfraVentures but on a purely public sector basis,
before a good faith effort has been made to attract private investment to the
Project, will constitute termination within the meaning contemplated herein.
(b) In the event that IFC InfraVentures concludes that differences unlikely to be
reconciled have arisen between IFC InfraVentures and any Government with
respect to the Project, IFC InfraVentures shall have the right to terminate this
Project Development Agreement by giving each Government written notice at
least thirty (30) days prior to the effective date of termination. In such case, in the
event the Project nonetheless is implemented substantially as contemplated
herein, the Governments shall, promptly upon receipt of IFC's or IFC
InfraVentures’s request, reimburse, or cause Concession Co. or the Commercial
Sponsor to reimburse, to IFC InfraVentures all Development Expenses incurred
by IFC InfraVentures up to the date of termination. Provided, however, that if a
Project substantially along the lines contemplated herein has not reached financial
close within two (2) years from the date of termination, IFC InfraVentures will
have no further claim on the reimbursement of such Development Expenses.
7. Independent Due Diligence
(a) Each Government will retain such financial, technical and legal advisors at it
deems appropriate to make its own judgment with respect to the merits of the
Project. Based on such information as it deems appropriate and the
recommendations of those advisors, each Government will, independently and
without reliance on IFC or IFC InfraVentures, undertake its own legal,
commercial, technical and other analyses of the Project and of any documentation
proposed for the implementation or financing of the Project.
(b) Neither IFC nor IFC InfraVentures shall be liable for any loss, damage or liability
that any Government or any other third party may suffer or incur as a result of
(i) any document prepared by, or with the assistance of, IFC or IFC InfraVentures
or any of their consultants or (ii) any advice or recommendation given or made by
IFC or IFC InfraVentures or such consultants, unless an arbitral panel convened
in accordance with section 8(c) below determines that such loss, damage or
liability was the result of gross negligence or willful misconduct on the part of
IFC or IFC InfraVentures.
8. Governing Law, Language and Dispute Resolution
(a) This Project Development Agreement shall be governed by the laws of England
and Wales.
(b) This Project Development Agreement shall be executed in both the English and
Russian languages. In the event of conflict between those two versions, the
English version shall govern.
(c) Disputes, if unable to be resolved by senior level officials from the Parties or an
international mediator selected by the Parties, shall be resolved by an arbitration
convened in London in accordance with the UNCITRAL arbitration rules. Each
party agrees to recognize and enforce the award issued from any such arbitration.
[Signatures follow on next page]
Sincerely,
INTERNATIONAL FINANCE CORPORATION
D/B/A IFC INFRAVENTURES
_________________________________
Full Name: _______________________
Title: ____________________________
In witness whereof, this Project Development Agreement is acknowledged and agreed by the
signature of the Parties below.
ON BEHALF OF THE GOVERNMENT ON BEHALF OF THE GOVERNMENT
OF THE ISLAMIC REPUBLIC OF OF THE KYRGYZ REPUBLIC
AFGHANISTAN
_________________________________ ___________________________________
Full Name: _______________________ Full Name: _________________________
Title: ____________________________ Title: ______________________________
ON BEHALF OF THE GOVERNMENT ON BEHALF OF THE GOVERNMENT
OF THE ISLAMIC REPUBLIC OF OF THE REPUBLIC OF TAJIKISTAN
PAKISTAN
_________________________________ __________________________________
Full Name: _______________________ Full Name: ________________________
Title: ____________________________ Title: _____________________________
Acknowledged:
INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
____________________________________
Full Name: ___________________________
Title: ________________________________
ISLAMIC DEVELOPMENT BANK
_____________________________________
Full Name: ____________________________
Title: _________________________________
Annex I INFRAVENTURES COSTS INCURRED TO DATE
Item Expenses
Staff Costs 110,347.27
Consultancy 731, 249.12
Chadbourne & Parke - Legal 442,315.38
Fieldstone Private Capital Group 237,333.74
Mercados Energia, 18,000.00
Aman Sachdeva 33,600.00
Travel 23,061.59
Translation Services 11,302.19
Miscellaneous 4,614.38
Total 880,574.55
Annex II CALCULATION OF INTERNAL DEVELOPMENT EXPENSES
“Internal Costs” shall mean all internal costs of IFC InfraVentures (including an
imputed cost of personnel time at the rates set forth below) and out-of-pocket expenses
reasonably and properly incurred with respect to IFC InfraVentures' Joint Development
Activities until Financial Close.
(A) IFC InfraVentures Internal Costs
IFC InfraVentures will be permitted to spend in respect of staff expenses towards the
Project, including staff time and travel, according to IFC policies.
Staff time will be charged at the following hourly rate:
Staff level Staff cost
Principal Investment Officer/ Specialist/ Counsel $2,100 per day
Senior Investment Officer/ Specialist/ Counsel $1,500 per day
Junior staff $1,000 per day
Annex III WORKING EXAMPLES
Total Financing requirement for the project: $600 million.
Funded through the Line Holding Companies with 75 percent debt and 25 percent equity
Implying in aggregate total equity in the Line Companies of $150 million.
If the Concesson requires Concession Co to take a 20 percent stake in each Line Co.
Would need a total of $30 million
Equipment for Operation and Maintenance of the Line: $10 million
Total capital needed by Concession Co: $40 million.
Assume half if borrowed and half must come from shareholder equity
Concession Co. requires $20 million new shareholder equity
Case 1: InfraVentures spent $2 million on project development
New equity shareholding requirement plus development costs amount to $22 million
InfraVentures can convert this into $2.2 million worth of equity at par (110 percent of $2
million), amounting to 10 percent of the shares of Concession Co.
InfraVentures has the option to invest the remaining $2 million not spent, on additional shares at
par, sufficient to acquire an additional 9.1percent of the equity.
InfraVentures becomes a 19.1 percent shareholder of Concession Co.
Case 2: InfraVentures spent $3 million on project development
New equity shareholding requirement plus development costs amount to $23 million
InfraVentures can convert this into $3.3 million worth of equity at par (110 percent of $3
million), amounting to 14.4 percent of the shares of Concession Co.
InfraVentures has the option to invest the remaining $1 million not spent, on additional shares at
par, sufficient to acquire an additional 4.4 percent of the equity.
InfraVentures becomes a 18.7percent shareholder of Concession Co.
Case 3: InfraVentures spent $4 million on project development
New equity shareholding requirement plus development costs amount to $24 million
InfraVentures can convert this into $4.4 million worth of equity at par (110 percent of $4
million), amounting to 18.3 percent of the shares of Concession Co.
As $4 million is the Maximum Permitted Investment, there is no option for further investment.
Case 4: New equity requirement of Concession Co. is just $15 million
If InfraVentures has spent the Maximum Permitted Amount of $4 million, there is no option for
further investment. The total equity requirement is $19 million. InfraVentoures would be
entitled to 23.2 percent (4.4/19*100). However, InfraVentures is limited to a maximum of 19.9
percent requiring $3.8 million. The remaining $0.6 million would be lent to Concession Co. as
subordinated debt.
