Creative Energy Resources

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26999
Company name	Creative Energy Resources
Country	MENA Region
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Active

Date SPI disclosed	August 21, 2008
Projected board date	September 25, 2008
Previous Events	Invested: July 23, 2009 Signed: May 19, 2009 Approved: October 30, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Creative Energy Resources (CER or the company) is a newly formed investment holding company that will acquire, develop, build, own and operate power sector projects (i.e., generation, transmission and distribution), primarily in the Middle East and North Africa (MENA) region, with a secondary focus on opportunities in South Asia and Turkey. Within the MENA region, the company will primarily focus on investments in the non-Gulf Cooperation Council (GCC) countries. CER intends to become a leading power company in the MENA region by building a diversified portfolio of greenfield and existing power assets, including renewable energy assets.

Project sponsor and major shareholders of project company

The project sponsor is Swicorp Joussour, a MENA focused $1 billion private equity vehicle, which is managed by the Swicorp group. Swicorp is a leading independent corporate finance advisory, private equity and principal investment firm with a specific regional focus on the MENA region. Swicorp was founded in 1987 and is licensed by the Capital Market Authority of the Kingdom of Saudi Arabia, and the Dubai Financial Service Authority of the United Arab Emirates. Since initiating its private equity activities in 2004, Swicorp has also developed into one of the leading players in the private equity sector, raising nearly $1.4 billion in its three private equity vehicles.

Swicorp launched Swicorp Joussour, its largest fund, in 2005. Constituted as a Saudi joint-stock company, Swicorp Joussour invests in the petrochemicals, energy-intensive manufacturing industries, oil & gas and the infrastructure sectors. Swicorp Joussour’s strategic objectives are to leverage regional comparative advantages, such as easy access to lower cost energy and feedstock, to build successful businesses. It invests in both existing and greenfield projects. Swicorp Joussour has already committed $100 million in equity to CER, representing approximately 20% of the company’s total expected equity.

Other major shareholders in CER are likely to be GCC-based industrial and financial institutions (including potentially some current investors in Swicorp Joussour) and possibly some international investors.

Total project cost and amount and nature of IFC's investment

CER’s management expects to mobilize around $1.5 billion over the next five years to invest in greenfield and existing power projects. The company is currently in the process of raising approximately $500 million in total equity commitment. The proposed IFC investment in the company will be for up to $50 million, through the subscription of common shares of the company.

Location of project and description of site

The core scope of the company’s activities will be in the non-GCC MENA region, with secondary focus in the South Asia and Turkey power markets. The company may also invest up to 20% of its total committed capital in the GCC countries.

CER has already closed its first transaction, taking a 20.14% equity stake in Uch Power Limited, which owns and operates a 586 MW combined cycle, gas-fired power plant in Baluchistan, Pakistan.

Anticipated development impact of the project

The project is expected to deliver significant development impact in its markets by:

- helping meet strong electricity demand growth in the regions where it operates;
- promoting the mobilization of much needed private investment in the power sector;
- contributing to sustainable economic growth and improved living standards by supporting the provision of additional power and by increasing reliability of supply through the projects it acquires or develops;
- assisting in the promotion of long-term capital, as opposed to short-term capital, that is not readily available in the MENA region;
- supporting deregulation and sector reforms to encourage private investment in the power sector, particularly in the MENA region; and
- helping release public resources for investments in high priority social sectors.

IFC's expected development contribution

- Support a new private sector power developer with a primary focus on the MENA non-GCC countries

With the proposed investment, IFC will support a new entrant, CER, to establish its business in a region that is seeking significant levels of private investments in the power sector.

- Leverage IFC industry experience and network

IFC will seek to leverage its knowledge and experience in the power sector to support the company as it enters new markets, particularly the frontier countries in MENA.

- Help achieve high environmental & social (E&S) standards

IFC’s presence in the company as a shareholder will allow CER to develop a robust environmental and social management system (ESMS), ensuring the implementation of IFC’s Performance Standards on environmental and social aspects at the project level.

- Promote South-South investments

Capital commitments to CER, including from the Sponsor, are predominantly coming from MENA based investors. By supporting CER to invest in the power sector in non-GCC MENA and secondarily in South Asia and Turkey, IFC is playing a vital role in promoting South-South investments in the MENA and neighboring regions.

- Stamp of approval

As CER is still an early stage venture, CER’s management sees particular value in IFC’s participation, which will enhance credibility in its dealings with various counterparties, including new equity investors, lenders, potential off-takers, and other industry participants.

- Debt funding and mobilization

CER’s preliminary estimates envisage the raising over time of around $1 billion of debt at the project level, to complement and leverage its equity base. CER considers IFC’s proposed equity investment, as a foundation for a long-term partnership, which could open the possibility for IFC to directly co-invest with and provide a role in future debt mobilization, especially in the more challenging markets in MENA, where long-term, limited or non-recourse debt might not be easily accessible.

Environmental and social issues - Category B

IFC’s funding for this category B project will, except for Uch Power, support future, but as yet, uncommitted projects. The principal Performance Standards (PS) applied to this investment at appraisal are PS1: Social and Environmental Assessment and Management Systems; and PS2: Labor and Working Conditions. The key issue for IFC going forward is the effectiveness of CER’s corporate ESMS and the ability of the organization to ensure compliance with appropriate host country regulatory requirements and IFC PSs in the various assets it acquires or develops. A condition of IFC’s investment will be that all projects undertaken shall consider all relevant social and environmental risks and impacts, including the issues identified in PS1 through PS8.

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