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OPINION

PIECES
2015
from African INDUSTRY
Ministers of LEADER
Energy & ARTICLES
Infrastructure, from OPIC,
utilities and IFC, FMO,
regulators Norton Rose
Fulbright
& more

RECIPIENT
OF THE
ENERGYNET
LIFETIME
ACHIEVEMENT
AWARD:
Featured power H.E. Hon. Dr Salvador
projects and Namburete, Former
directories of power Minister of Energy,
technology providers Mozambique

In assiciation with
EnergyNet - Africa Investors Portfolio 2015

EnergyNet Ltd. organise a global portfolio of investment meetings, conferences and infrastructure events focused
specically on the power and industrial sectors across Africa. Proven to engage the decision makers and technical
directors behind Africa's most exciting economies, EnergyNet places economic development at the heart of
industrial solutions, helping to generate a more stable and viable investment option for our partners in Africa.
Our up-coming meetings in 2015 include:

POWERING AFRICA: NIGERIA 14 15 September 2015 | Abuja


PA: SERIES Powering Africa: Nigeria 2015 is a two-day private sector-led summit on structured nance, development nance and private equity for
Nigerias Discos, Gencos and power sector leaders.
The programme will feature interactive dialogue between Gencos and Discos, private sector banks, multilateral investors and DFIs, government
and developers to discuss the changing investment landscape placing the critical role of the private sector at the heart of the agenda. The
platform will showcase the vast opportunities that await investment in Nigerias newly reformed energy sector as well as oer solutions to
overcome nancial challenges, deliverables and risks that will ensure the reliability of supply for Nigeria. Participants will also have the
14-15 SEPTEMBER opportunity to attend the black tie gala dinner, honouring some of Nigerias most prolic deal makers.
ABUJA
www.poweringafrica-nigeria.com

PA: SERIES
POWERING AFRICA: GHANA 17 18 September 2015 | Accra
The Powering Africa: Ghana summit will provide a platform for investor insights on the future direction of the power sector in Ghana. The agenda
will focus on the country's electricity landscape following the division of the energy and power ministries, the critical issues facing the government
G H A N A and investors, and the future project pipeline which is rapidly growing under the leadership of the Minister for Power. Meet with 250 decision-
makers including DFIs, banks, developers and EPCs to discuss what is needed to fully support and enable the transformation of Ghanas electricity
sector in the medium to long term.
17-18 SEPTEMBER
ACCRA www.poweringafrica-ghana.com

SOUTH AFRICA: GAS OPTIONS 1 2 October 2015 | Cape Town


The South Africa: Gas Options meeting is a focused 2 day investment meeting taking place from 1-2nd October 2015.
The meeting will take a detailed look at the opportunities available for gas developers and private sector investors as a result of the countrys
growing power demands. Debate solutions to the challenges of raising nance, delivering an ecient transmission infrastructure and the
supporting industry, and the global LNG trends which could realise the countrys vision of a stable and sucient power supply.
1-2 OCTOBER
CAPE TOWN www.southafrica-gasoptions.com

AFRICA INFRASTRUCTURE & POWER FORUM 15 - 16 October 2015 | Beijing


EnergyNets 4th Africa Infrastructure & Power Forum is the annual gathering for Chinese investors and African developers to do deals and develop
Africas infrastructure and power sector.
Taking place from 16-17th September in Beijing, China, the Forum will welcome government representatives, utilities companies, nancial
investors, project developers, technology providers and the advisory sector.
15-16 OCTOBER
BEIJING
www.africa-infrastructure-forum.com

PA: SERIES POWERING AFRICA: FINANCE OPTIONS 5 6 November 2015 | Cape Town
The 9th Annual Powering Africa: Finance Options meeting is an executive briefing designed for CEOs and senior-level directors active in
the energy, finance and consulting sectors and focused on the financing of projects across Africa. The meeting will get to the heart of the
issues and opportunities surrounding project nance, allowing participants to directly engage with key decision-makers over the course of the
concentrated 2 day retreat. This meeting is restricted to two delegates per company to preserve the roundtable format and high quality
networking opportunities.
5-6 NOVEMBER
CAPE TOWN www.poweringafrica-finance.com

PA: SERIES POWERING AFRICA: TANZANIA 3 4 December 2015 | Dar es Salaam


EnergyNet are delighted to present the 3rd annual Powering Africa: Tanzania meeting this November in Dar es Salaam. This meeting will provide
detailed insights into the investment opportunites in Tanzanias power sector in 2015, following on from the success of the 2014 meeting where
senior ocials from the Ministry of Energy & Minerals, TANESCO, EWURA, TPDC and the Dar es Salaam Stock Exchange invited regional and
international power experts to join them in timely discussions regarding the future role of the recently unbundled state utility TANESCO.
3-4 DECEMBER www.poweringafrica-tanzania.com
DAR ES SALAAM

PA: SERIES

Coming
up in 2016: 27-29 JANUARY 17-19 FEBRUARY 21-24 JUNE
WASHINGTON CAIRO LONDON

www.energynet.co.uk
WELCOME

Dear Colleagues
A warm welcome to the ninth annual edition of the Africa Energy Yearbook, the official publication of the Africa Energy
Forum, hosted in Dubai this year for the first time in its 17 year history.

This years publication is split into three broad categories:

In the chapter Investing in Africa, Elizabeth Littlefield, CEO of OPIC, reflects on the renewables projects that have come
online through the support of OPIC and their collaboration with the U.S. Government partner agencies, and discusses the
vast growth potential of the continent.

In the chapter Policies and Best Practices for Africa, Angeli Hoekstra and John Gibbs of Management Consultancy firm
PwC look at the global megatrends currently influencing business models and utilities within Africas power sector and the
need for sector transformation in order to adapt accordingly.

Sustainable Solutions for Africa sees the IFC debate the merits of solar as a viable option for power generation, presenting
its Scaling Solar initiative as a potential solution to the bottlenecks which currently exist within the industry.

The 2015 Yearbook also features opinion pieces from industry leaders from the public and private sector, who reflect on their
experiences and set out their aspirations for the future. Respected contributors include Honourable Dr Salvador Namburete,
Former Minister of Energy, Mozambique, H.E. Cheick Taliby Sylla, Minister of Energy and Hydro-Power, Guinea, H.E.
Ambassador Henry Macauley, Minister of Energy, Sierra Leone, Vinod Kumar Khare, Chief Executive Officer, Ethiopian
Electric Utility, Ethiopia, Dr Mima Nedelocovych, President and CEO, Initiative for Global Development (IGD), Simon
Currie, Global Head of Energy, Norton Rose Fulbright and Rumundaka Wonodi, Managing Director and Chief Executive
Officer, Nigerian Bulk Electricity Trading Plc (NERC).

A sample of featured power projects from EnergyNets Powering Africa: Hub can be found in the middle of the book, as well
as directories of conventional and renewable technology providers at the end of the publication.

We hope you enjoy reading through these articles and opinion pieces which hone in on the opportunities for the development
of Africas power sector. The individuals who contribute span a diverse range of backgrounds and experiences, but share the
common goal of increasing Africas access to electricity to bring about the positive transformation of the continent and the
prosperity of its people.

Best regards,

Amy Offord
Editor- Africa Energy Yearbook
EnergyNet Ltd

2015 Africa Energy Yearbook 1


EnergyNet are delighted to be working alongside
our Legal partner, Norton Rose Fulbright and our
Engineering Partner, Aggreko for the EnergyNet
Student Engagement Initiative (ESEI).
ESEI was established to promote human capital development
and job creation across Africas power and energy
infrastructure sectors. ESEI focuses on three key principles;
Law, Engineering and Finance. The ESEI Leadership
Committee together with our partners are constantly seeking
top performing students from around the African continent-
Africas leader of tomorrow.
EnergyNet have been in operation for 17 years of working
within Africas power sector. Planning for tomorrow is
paramount for any business to succeed, yet knowing where
the opportunities lie is not always straightforward. EnergyNet
is committed to recognising and profiling exceptional African
candidates and African entrepreneurs.
We are delighted to be welcoming back our ESEI 2014
We invite students to this years Powering Africa: Mozambique meeting.

you to support
We hope that during the meeting you will be able to connect
with them.

this exciting initiative


taking the classroom
to the industry.
For more information, please contact:
Veronica Bolton-Smith, E: veronica@energynet.co.uk, T: +44 (0)20 7384 8069

Legal Partner: Engineering Partner: Associate Partners:


CONTENTS
WELCOME
WELCOME 1

INVESTING IN AFRICA
NIGERIAS ELECTRIC POWER SECTOR
converting potential to reality
ABIODUN AINA, SENIOR INVESTMENT OFFICER, IFC
FEMI AKINREBIYO, PRINCIPAL INVESTMENT OFFICER,
IFC 21

YEARBOOK PROFILE PIECE


RUMUNDAKA WONODI, MANAGING DIRECTOR
AND CHIEF EXECUTIVE OFFICER, NIGERIAN BULK
ELECTRICITY TRADING PLC 27

NAVIGATING THE CHALLENGES


USING DATA TO SUPPORT INVESTMENT
of delivering IPPs in Africa
STRATEGIES
ASHWIN WEST, MANAGER - TRANSACTIONS, AFRICAN
In The Africa Energy Sector INFRASTRUCTURE INVESTMENT MANAGERS (AIIM)
MICHAEL HODGSON-HESS, HEAD OF BUSINESS
DEVELOPMENT, AFRICAN FINANCIAL & PAUL FRANKISH, MANAGER - ASSET MANAGEMENT,
ECONOMIC DATA 9 AFRICAN INFRASTRUCTURE INVESTMENT MANAGERS
(AIIM) 29
TAPPING AFRICAS ENERGY LION SHARE
THE CHANGING LANDSCAPE
ELIZABETH LITTLEFIELD, CEO, OVERSEAS PRIVATE
INVESTMENT CORPORATION (OPIC) 13 Moving the Power Sector Forward
DAVID HUMPHREY, GLOBAL HEAD, POWER &
INFRASTRUCTURE, STANDARD BANK 33
YEARBOOK PROFILE PIECE
H.E. HON. DR SALVADOR NAMBURETE, FORMER
MINISTER FOR ENERGY, REPUBLIC OF YEARBOOK PROFILE PIECE
MOZAMBIQUE 17 JUSTIN DEANGELIS, DIRECTOR, DENHAM CAPITAL 37

AFRICA ENERGY YEARBOOK Volume 9, June 2015


Published by: Editor: Articles, Directories & Copyright c 2015
Energynet Limited Project lists EnergyNet Limited
Fulham Green Amy Offord
Bedford House Amy.offord@energynet.co.uk ISBN 978-0-9551943-4-4
69-79 Fulham High Street +44 (0) 20 7384 8068
London All rights reserved. No part of this publication
SW6 3JW Artwork & Design: may be reproduced, stored in a retrieval system
Catherine van Dyk or transmitted, in any form or by any means,
Clear Impressions electronic, mechanical, photocopying, recording or
Publishing & Print Media Design otherwise, without prior permission of
clearimpressions@outlook.com EnergyNet Limited.
+27 79 344 1649

www.energynet.co.uk

2015 Africa Energy Yearbook 3


CONTENTS

POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


H.E. HON. JAMES MUSONI, MINISTER OF
INFRASTRUCTURE, GOVERNMENT OF THE
REPUBLIC OF RWANDA 79
RISKY BUSINESS?
Lower Oil Prices and Africa Energy Projects ANTICORRUPTION, DUE DILIGENCE
KEITH MARTIN, INITIATIVE FOR RISK MITIGATION AND POWER INVESTMENTS:
IN AFRICA 43 getting more from the process
WALTER COURAGE, DIRECTOR, THE RISK ADVISORY
INNOVATIVE FINANCING FOR THE LAST GROUP
MILE: JONNY BRAY, HEAD OF BUSINESS INTELLIGENCE
Output-Based Aid Provides Power to the AFRICA, THE RISK ADVISORY GROUP 93
Poorest Households
SAL E. GONZLEZ, COMMUNICATIONS, GLOBAL LESSONS LEARNED
PARTNERSHIP ON OUTPUT-BASED AID, WORLD BANK 51
In Implementing Off-Grid Electrification
Projects in Africa- Ghanas Example
YEARBOOK PROFILE PIECE FRANK YEBOAH DADZIE, PLANNING ENGINEER,
PAUL KUNERT, HEAD OF BUSINESS DEVELOPMENT, GHANA ENERGY DEVELOPMENT AND ACCESS
GLOBELEQ 59 PROJECT 97

THE ROAD AHEAD YEARBOOK PROFILE PIECE


for power sector transformation in Africa STEPHEN KARANGIZI, DIRECTOR, AFRICAN LEGAL
ANGELI HOEKSTRA, PARTNER, AFRICA POWER & SUPPORT FACILITY 101
UTILITY LEADER, PWC

JOHN GIBBS, ADVISORY PARTNER, PWC 61 POWERING AFRICA:


Small Steps, Giant Leaps
YEARBOOK PROFILE PIECE NIAMH KENNY, ASSOCIATE CONSULTANT,
GAS & POWER, CITAC 103
SIMON CURRIE, GLOBAL HEAD OF ENERGY,
NORTON ROSE FULBRIGHT 65
YEARBOOK PROFILE PIECE
FRANOIS BANGAZONI, CHIEF EXECUTIVE
STREAMLINING POWER PROJECT OFFICER, ENERCA 109
DEVELOPMENT IN AFRICA
by Promoting Standardized Power Purchase
Agreements
DR. MIMA S. NEDELCOVYCH, CEO, INITIATIVE FOR
GLOBAL DEVELOPMENT 69

YEARBOOK PROFILE PIECE


DR MIMA S. NEDELCOVYCH, PRESIDENT & CEO,
INITIATIVE FOR GLOBAL DEVELOPMENT 73

TRANSITIONAL ELECTRICITY MARKET


(TEM)
and investor and stakeholder expectations for the
Nigerian Electricity Supply Industry (NESI)
DOLAPO KUKOYI, PARTNER, DETAIL 75

4 2015 Africa Energy Yearbook


CONTENTS

SUSTAINABLE SOLUTIONS FOR AFRICA


SCALING SOLAR:
Making the Sun Work for Africa
JAMIE FERGUSSON, PRINCIPAL INVESTMENT
OFFICER, GLOBAL RENEWABLE ENERGY, IFC
POWERING AFRICAS FUTURE BY WIND
DAN CROFT, SENIOR INVESTMENT OFFICER,
KASPER DALSTEN, DIRECTOR GLOBAL BUSINESS
ADVISORY SERVICES, IFC
DEVELOPMENT, VESTAS WIND SYSTEMS 133
YASSER CHARAFI, PRINCIPAL INVESTMENT OFFICER,
AFRICA INFRASTRUCTURE, IFC 113
POWERING AFRICAS FUTURE BY WIND
VINOD KUMAR KHARE, CHIEF EXECUTIVE OFFICER,
YEARBOOK PROFILE PIECE ETHIOPIAN ELECTRIC UTILITY, ETHIOPIA 137
H.E. AMBASSADOR HENRY MACAULEY,
MINISTER OF ENERGY, SIERRA LEONE 119
CAN RENEWABLE ENERGY
help to address South Africas energy crisis?
A YEAR OF SOLAR PV IN EAST AFRICA ALASTAIR CAMPBELL, MANAGING DIRECTOR
LAURA KIWELU, SENIOR ASSOCIATE, NORTON ROSE VANTAGE GREEN X 139
FULBRIGHT TANZANIA 121
YEARBOOK PROFILE PIECE
A STEP AHEAD OF THE GAME JOSHUA CHOGE, CHAIRMAN, KENGEN 143
Site Selection and Constraints Mapping through
Geographical Information Systems (GIS) MOZAMBIQUE:
ALAN COCHRAN, SENIOR CONSULTANT: A Future in Renewable Energy?
IMPACT ASSESSMENT & PLANNING PRACTICE, ERM
PAULA DUARTE ROCHA, PARTNER, MOZAMBIQUE
ANDREW BRADBURY, PARTNER AND COMMERCIAL LEGAL CIRCLE 147
DIRECTOR: SUB SAHARAN AFRICA DIVISION, ERM 125
YEARBOOK PROFILE PIECE
YEARBOOK PROFILE PIECE
ARJAN VISSER, FOUNDER, ELECTRICITY4ALL 149
ELVIRA EURLINGS, DIRECTOR OF ENERGY
DEPARTMENT, FMO

BERNHARD VAN MEETEREN, SENIOR INVESTMENT YEARBOOK PROFILE PIECE


OFFICER, STRUCTURED FINANCE ENERGY, FMO 131 REDA EL CHAAR, CHAIRMAN, ACCESS 153

Advertisers
AFRICA FINANCE CORPORATION 8 GLOBELEQ 58
AFRICAN REVIEW 40 GROUPE JEUNE AFRIQUE 20
ANDRITZ HYDRO OUTSIDE BACK COVER HERBERT SMITH FREEHILLS 56
BLOOMBERG NEW ENERGY FINANCE 112 IC PUBLICATIONS 108
CONSTRUCTION REVIEW 168 LOUIS BERGER 118
ENERGYNETS COMMITMENT TO MANITOBA HYDRO 12
EAST AFRICA 122 METKA 84
ENERGYNET AFRICA INVESTORS NEDBANK 68
PORTFOLIO Inside Front and INSIDE back Cover
POWERING AFRICA: MOZAMBIQUE 146
ENERGYNET POWERING AFRICA: HUB 80
POWERING AFRICA: SUMMIT 102
ENGERATI 150
RAND MERCHANT BANK 42
ENERGYNET STUDENT ENGAGEMENT
INITIATIVE (ESEI) 2 SIEMENS 88
ESI AFRICA 39, 151, 158 TCQ POWER 142

2015 Africa Energy Yearbook 5
CONTENTS

Projects
ANGOLA 81 MOZAMBIQUE 86

BOTSWANA 81 NAMIBIA 87

CONGO (KINSHASA) 81 NIGERIA 89

EGYPT 82 RWANDA 89

ETHIOPIA 82 SOUTH AFRICA 90

GHANA 83 TANZANIA 91

KENYA 85 UGANDA 91

MALAWI 85 ZAMBIA 92

With Special Thanks To Energynets


Arts: Energy Partner

BRUCE ONOBRAKPEYA GBENGA OFFO


GALA DAY UNDER THE RIVER I 14 THE QUARTET 128

DISEYE TANTUA SAM EBOHON


MONKEY BY GRADE, SHOE BY SIZE 38 FIGURATION 164

JULIET EZENWA MAJA-PEARCE GORGE EDOZIE


LOST INNOCENCE 50 FOUR FACES OF AGBOGHO MMUO 2, 2 167

GORGE EDOZIE GORGE EDOZIE


FOUR FACES OF AGBOGHO MMUO 2, 1 116 FOUR FACES OF AGBOGHO MMUO 2, 3 172

DIRECTORIES
CONVENTIONAL THERMAL POWER 159 HYDROPOWER 170

TEMPORARY POWER 165 SOLAR POWER 171

WIND POWER 169

6 2015 Africa Energy Yearbook


INVESTING IN
AFRICA
INVESTING IN AFRICA

USING DATA TO
SUPPORT
INVESTMENT
STRATEGIES
In The Africa Energy Sector

Michael Hodgson-Hess, Head of Business Development,


African Financial & Economic Data

Michael Hodgson-Hess is Head of Business Development for African Financial and Economic
Data. Michael has an excellent knowledge of Africas commercial, financial, political, geopolitical
and security ecosystems, having spent a significant part of his working life strongly engaged with
emerging markets, but particularly Africa.

AFRICA, INFRASTRUCTURE, ECONOMIES & ENERGY A MEDLEY OF


STATISTICS
(Please note. SSA = Sub Saharan Africa)

Africa : 12% of world population, 4% of world energy 45% of the 90GTW total is coal, 22% hydro, 17%
demand, 2% of world trade, 1% of global GDP oil, 14% gas
Economic output of 82 million Germans significantly 33% of Africas natural gas production is flared off
exceeds the 940 million people of SSA Since 2009, 30% of world oil and gas discoveries made in
Six of the worlds ten fastest growing economies are in SSA
Africa 18% of world uranium supplied from South Africa
13% increase in 2013 of capital investment into Africa, Solid Biomass accounts for 70% of SSA final energy usage
Africas share of global foreign direct investment 5.7% Africas largest economy is Nigeria, with no grid access for
SSA energy use up by 45% since 2000 55% of the population
SSA - only 290 million out of an estimate population of Ghana 70%+ on grid, Central African Republic <3%,
940 million have access to electricity Chad 4%
SSA access rate for electricity has grown 10% since 2002 IEA estimates renewables will make up 44% of SSA
to 32% today power generation by 2040
Estimated Capex to move the dial from 32% to 70% China invests 14% of GDP in infrastructure; Africa 4%
access - USD$205 billion Annual per cap energy usage (KWH) Liberia 82, Kenya
SSA - 90GW on Grid power generation 150, Ghana 342, USA 12,461
50% of which is in South Africa World Economic Forum country Global Competiveness

2015 Africa Energy Yearbook 9


INVESTING IN AFRICA

The diversity of Africas cultures, ethnicity,


faith, people and language, requires a respectful
acknowledgement that these highly individual factors
will, and must, influence both the business strategy
adopted, and the quantum of investment deployed.

Index of the 25 lowest ranked, 68% are African. The and must, influence both the business strategy adopted, and
infrastructure deficit remains profound. the quantum of investment deployed. Effective investment
in Africas energy space is not a generic, one size fits all
Data driven empirical evidence shows conclusively that in play, but will need sensitivity balanced with logic, research,
emerging markets, structural transformation is closely linked analysis, instinct and intuition. You cant always measure
to an economy with a meaningful natural resources sector. the politics, but you can always measure the outcomes they
Commodities push infrastructure development, which in influence. Look to the data.
turn pulls economic progress, which in itself has become the
catalyst for Africas current (and effective) decoupling from The next phase of development for the energy sector in
resource dependency, the commodity roller coaster and the many of Africas countries is well under way. Infrastructure
resource curse, something its worth noting that Russia has and energy investments have long paybacks. In mature
so far failed to do. economies enjoying stable government (frequently with
a regulator not unsympathetic to the sellers view) this
The data, the statistics, the trend evidence, the Africa Rising makes them attractive investments with a predictable
narrative, all point surely to only one conclusion. Africa, income stream derived from an essential cant live
the next Eldorado for generators, extractors, transmission without commodity. Assess each African country or
& distribution providers, renewables, the attendant region individually based on its own characteristics,
and necessary consultants, engineers, lawyers, funders, then decide whether your organisation commits to
bankers.happy times. But we know its not as simple as increased involvement, or pull back, or indeed first time
that. Lets unpack the reality. participation. Despite the difficulties of drilling down
through layers of political nuance, deploying a data
First up, the meaningless phrase We are doing business strategy will reveal risk and clarify its mitigation. Once
with Africa. Africa is not a single place working to a outcomes have been plotted, these can be mapped back
monocultural set of rules, regulations, customs and practices. to the project fundamentals. Now are you in or out? Not
Africa is immense. The entire land-masses of India, China, sure? Then an Africa precondition investment check list
the United States, Japan and Europes main sovereigns can should at least include the obvious basics, such as:
all be accommodated within this continent of 55 countries,
itself a confusing mix of regional, political and trading blocs The projects high priority for government (political)
that at times appear to have the domestic policy of member The capacity of government to deliver against their
States set at ninety degrees to that of the blocs own grain. commitments (political, economic, commercial)
A clear implementation time line not subject to
The opportunity for business in Africa can more than match interference (political, economic)
the sheer magnificence of the continents size. Remember A sovereign where political stability is not a recurring
the cell phone explosion - the leap over legacy copper issue (political)
wire networks that, in a matter of only years, linked up Revenue certainty (commercial, political)
a continent of over 1 billion people; the transformation
to mobile banking; the sheer innovation that Africans can So, how do African countries stack against this base line?
bring about? Watch renewables follow this path. However, There is now real belief that the Africa Rising narrative
the diversity of Africas cultures, ethnicity, faith, people and has robust foundations. This is a real story of countries with
language (1,250 are spoken in Africa) requires a respectful growing local production and consumption, a fresh, young,
acknowledgement that these highly individual factors will, pan-African middle class comprising discerning consumers,

10 2015 Africa Energy Yearbook


INVESTING IN AFRICA

meaningful external and intra-African trade, with the


whole supported by improving civil society institutions and
structures that give local and international investors sufficient
comfort and confidence in the markets political stability and
governance to proceed. (Rwanda, only 20 years ago ruined
by its horrific civil war, is now judged a better place to do
business than Italy). Still unclear? Unsure what to do or what
to think? Then start by following the money; foreign direct
investment into Africa continues to increase.
The case for using data to
But, without project funding, there is no narrative, no
infrastructure, no energy, no growth, no real hope. Africa support investment strategies is
must move on, and rapidly, from its traditional on balance
sheet model for in country development, one which is overwhelming.
poorly supported by both illiquid local capital markets and
local financial institutions without the resources to fulfil
need, ambition and aspiration. PPP is much talked about, largest data sets, Googles founding principle remains that it is
and sometimes deployed, but cannot bridge the whole gap. foolish to make investments based on gut. It is the science
Multilaterals too have their role, but only form part of the of the deal, not the art of the deal, as expressed in the New
solution. The funding puzzle has a Jury out sign on its door York Times in June 2013. But intriguingly, there is flex in this
whilst Africa innovates and its banks confront their own issues. seemingly rigid position. Google Ventures accepts intuition
plays a role; dont invest in the venture if you have no belief
In the context of Africas enormous opportunities (at times in the Runners and Riders, and equally even if the data says
caveated by complexities which can seem overwhelming) the venture is a mistake, investing in the person may not be.
how would Google, the worlds largest data company, look
at an infrastructural energy investment in Africa? We can Bring all this back to Africa, and the case for using data to
only speculate, however we know Google Ventures spends support investment strategies is obviously overwhelming. To
billions of dollars on acquisitions and start-ups, and does not make informed decisions which have to undergo a weight
believe in luck or instinct when it comes to the success of political assessment interleaved with the measurable, the
of its venture capital funding division. Bill Maris, Managing data, organisations need good analytics, sound information,
Partner of Google Ventures, confirms the primary driver is the focused research and access to data of depth, breadth, detail
numbers, the collection and analysis of data. The Google view and provenance. In this brief discussion alone weve looked at
is; if you cant measure and quantify it, how you can hope a multitude of data driven economic indicators, all of which
to start working on a solution. With access to the worlds are available for African countries. Here are a few:-

Ease of doing business


Foreign direct investment and capital flows
Energy generation capacity
African capital markets liquidity
Electricity transmission and distribution
Resource dependency
Growth in renewables
Civil society governance structures

Unsure what to do or what to Each piece of data builds the picture, makes the case and
leads to a decision underpinned by evidence, either for or
think? Then start by following against. But as the Google analogy shows, at times you will
have to base the call on the person and the politics, and not
the money; foreign direct just the numbers. And that can be brave. Or indeed the most
natural thing in the world.
investment into Africa continues As Ive written before, every Africanologist will confirm that
to increase. those who succeed on the continent first judge weather, wind
and currents, look up to the horizon, and then accept what is
beyond it. Even Google cant bend visible light yet.

2015 Africa Energy Yearbook 11


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INVESTING IN AFRICA

TAPPING
AFRICAS ENERGY
LION SHARE
Elizabeth Littlefield, CEO, Overseas Private Investment
Corporation (OPIC)

Since 2010, Elizabeth L. Littlefield has served as President and CEO of the Overseas Private
Investment Corporation, the U.S. Governments Development Finance Institution. OPIC
mobilizes private capital to help address critical development challenges and in doing so,
advances U.S. foreign policy and national security priorities.
Prior to OPIC, she was CEO of the Consultative Group to Assist the Poor, a policy and
research center dedicated to advancing poor peoples access to financial services housed at the
World Bank. Ms. Littlefield has also served as JP Morgans Managing Director in charge of
capital markets and financing in emerging Europe, Middle East and Africa and as well as the
Boards and Executive Committees of the MasterCard Foundation, Calvert Foundation and
Womens World Banking, among others.
She also spent 1989 1990 in West and Central Africa providing banking consultancy to
several start-up microfinance institutions.
Ms Littlefield is a graduate of Brown University and also attended Ecole Nationale de Sciences
Politiques in Paris.

These are extraordinary times for Africa and for Africas power sector. Were seeing unprecedented international
commitment and collaboration to address the energy poverty that has long constrained business activity, quality
of life, food production and overall economic growth. On a continent of nearly one billion people that is expected
to add one billion more by 2050, access to electricity is quite literally the key to a brighter, more prosperous, more
secure and more connected future.

C onsider that last year, Africa added more renewable energy


than it has in the previous 14 years combined. From Kenya
to Rwanda to Ghana, countries are increasingly tapping the
double access to electricity on the continent. As the U.S.
Governments development finance institution, the Overseas
Private Investment Corporation (OPIC) is playing a key role in
earths resources to generate more power. And this progress pales this effort. OPIC has a long history of supporting investment
in comparison to the potential that remains untapped. Africa is in emerging economies including those of Sub-Saharan Africa.
one of the sunniest places on the planet and also has abundant And our commitment to Africa is growing. OPIC now commits
resources of wind power, geothermal power, oil and gas. In fact, about $1 billion a year in projects supporting healthcare,
Africas proven reserves of natural gas have grown to 509 trillion education, agriculture, clean water and financial services. We
cubic feet since 1980, representing growth of over 140%. understand that at the core of all these development challenges
is power. If we want to address poverty, food insecurity,
The U.S. Government has pledged $7 billion through insufficient healthcare and limited access to financial services,
President Obamas Power Africa Initiative, which aims to we must increase access to electricity.

2015 Africa Energy Yearbook 13


INVESTING IN AFRICA

Bruce Onobrakpeya | Gala Day Under The River I | 2006 | Plastograph on paper | 107 x 79 cm
For price contact Aabru Art / art@aabru.co.uk/ +44 7847 244 217

14 2015 Africa Energy Yearbook


INVESTING IN AFRICA

for tenors as long as 20 years and we provide political risk


insurance to help address and mitigate many of the challenges
common in the developing world.

So how can local governments, foreign governments and


private businesses all help advance the progress weve seen to
date and bring more electricity to the continent?

Local governments can focus on extending many of


the reforms weve seen to date that have improved local
Weve effectively collaborated investment climates. One key area of focus should be the
widespread energy subsidies, which can distort markets and
with our U.S. Government hamstring investment in renewable resources. With falling
fossil fuel prices, now is the time to push for subsidy reform.
partners to help jumpstart more In addition, foreign governments can support businesses
interested in investing in Africa to help them navigate what is
innovation in the renewable often a challenging business environment.

power sector. Heres an example. OPIC and other U.S. Government agencies
collaborated on a document outlining the 10 Elements of a
Bankable Power Purchase Agreement (PPA) to help give both
OPICs work bringing more electricity to Africa spans Kenya, power producers and their bankers enough confidence to
where we provided financing to support the expansion of a commit to a large power project. A PPA, or long-term agreement
major geothermal power plant, to Togo, where we supported between the power producer and the power offtaker, is needed
the construction of a major power plant, to Nigeria, where to ensure the viability of the project. The 10 Elements
we are supporting the first independent power plant to be document outlines what every bankable PPA must contain
built in 10 years, and Free State, South Africa, where we are to give private investors and their lenders the confidence to
supporting construction of a 60 megawatt solar power plant. commit large amounts of funding to projects, while helping
African governments ensure that the contracts they enter are
Weve also effectively collaborated with our U.S. Government written in a way that brings value to the African people.
partners to help jumpstart more innovation in the renewable
power sector. Together with the U.S. Trade and Development Africa is a region brimming with youth, talent, natural
Agency and the U.S. Department of State, we provide resources and potential. Many African countries are today
early stage support to promising renewable energy projects enjoying rapid economic growth as well as population
through the Africa Clean Energy Finance (ACEF) program. growth. According to the International Monetary Fund,
Through ACEF, weve supported many off-grid projects that Africa will account for 80 percent of the population growth
are empowering the people of rural Africa with home solar expected by 2100. Increasingly these people will be living
kits, rooftop solar and other tools to generate electricity in and working in urban areas and demanding more power. To
remote settings. Earlier this year, a major solar power plant support the growth forecast, Sub Saharan Africa will need to
in Rwanda that received initial funding support through the install 7 gigawatts of new power generation per year enough
ACEF program came online powering 8.5 megawatts and to power an additional 7 million homes a year. And we need
becoming the countrys first utility-scale solar facility. to get started today.

OPIC brings some powerful tools to help investors in the Im looking forward to working with many of you as we
sorts of power projects that can require large investments of journey on to this exciting and pivotal moment in the
time and money. We can provide loans of up to $250 million continents development and growth.

Africa is a region brimming with youth, talent,


natural resources and potential. Many African
countries are enjoying rapid economic growth.

2015 Africa Energy Yearbook 15


The rate of
access to
electricity
rose rapidly
from 7%
in 2004 to
45.3% in 2014
INVESTING IN AFRICA

YEARBOOK PROFILE PIECE


H.E. HON. DR SALVADOR NAMBURETE, FORMER MINISTER FOR ENERGY,
REPUBLIC OF MOZAMBIQUE

Born in the southern Mozambican province of Inhambane, Salvador Namburete speaks Portuguese, English, French (fair), as well as
some national languages. Salvador Namburete holds a Masters Degree in International Trade and Finance from Lancaster University,
UK, and a Masters Degree in Corporate Finance from American University, Washington, DC, United States of America. He holds a
Licenciado Degree in Economics from Eduardo Mondlane Univesity, in Maputo, Mozambique, where he later taught International
Economics, including a module in Trade Policy in the Masters in International Trade Law Programme, at the Faculty of Law. He
also holds a Bachelors Degree in Economics from the same University. He was Minister of Energy from 2005- 2015. Before his
appointment as Minister of Energy he held the position of Deputy Minister of Industry and Trade.

QUESTION. How has Mozambiques renewable sources of energy (especially of the investors. The first three solar
power sector changed over the past 20 solar photovoltaic) has allowed access photovoltaic power plants were
years? Which of these developments to electricity for more than 5 million commissioned in the country, and
have made the biggest impact on the Mozambicans in the rural areas over are currently generating 1.3MW. The
population as a whole? the past 8 years; 201 small villages and first large scale gas fired power plants
towns were electrified along with 669 were commissioned in the country,
ANSWER. The power sector was rural schools and 623 rural clinics. 77 currently generating 418MW. In
basically dominated by off-grid systems rural public administration buildings the power distribution segment, the
fuelled by diesel generation sets with also benefitted. prepaid power metering system was
a few exceptions, namely the Maputo expanded from around 15% to 85%
City (Countrys Capital), and a few In 2013, the first solar panel assembly of domestic power consumers in the
provincial capitals, especially in the plant was commissioned with the aim same period, and its operating online
southern part of the country - despite of expanding access to these sources throughout the country. In the fuel
the fact that Cahora Bassa, a 2075MW of clean energy in rural areas given sector, 48 new gas stations were built
hydropower plant, already existed in their lower prices, and to replace by the public sector in areas which the
Mozambique. It generated hardly any the unhealthy wood fuels. The first private sector find unattractive, and
power because the transmission lines mapping of renewable energy sources the fuel storage capacity was expanded
had been knocked down during the in the country was performed and from 430 to 830 billion litres between
war. The rate of access to electricity was the first Mozambique Renewable 2005 and 2014.
around 2% to 3% at that time. The Energy Atlas was published. The
tremendous national reconstruction aim was to determine the renewable The first infrastructure to receive
efforts after the war made it possible energy potential of the country and imported LPG by sea was built,
to rapidly improve the situation. By facilitate the decision-making process including a 3.5km pipeline and a 3.000
2004 the rate of access to electricity
had risen to around 7%. It was indeed
over the past decade, between 2005
and 2014, that an exponential growth
was witnessed. In 2004, only 51 of 141
District headquarters had access to
power. Today, 134 District headquarters
have access to electrical power.

The rate of access to electricity rose


rapidly from 7% in 2004 to 45.3% In 2013, the first solar panel assembly
in 2014. 5.700km of power lines, 12
large substations and other associated plant was commissioned with the aim of
infrastructures were erected in the
country. The share of renewable expanding access to these sources
energies in rural electrification rose
from nearly 0% in 2005 to 18.5% in of clean energy...
2014. The rapid expansion in the use of

2015 Africa Energy Yearbook 17


INVESTING IN AFRICA

metric tonnes storage infrastructure


in Maputo and another 2.500 metric
tonnes in Beira. The first infrastructure
for the distribution of natural gas
for use in vehicles was built, and is
now operating with a capacity to
supply 3,000 vehicles in Maputo
and Matola. The first natural gas
household distribution by pipeline
was commissioned in 2014 in Maputo The biggest obstacles facing new investors
and Marracuene, with an extension
of 74km. The developments with the and developers range from lack of financial
biggest impact were rural electrification
through the expansion on the national capacity to shortage of human capital.
power grid and the expansion of
renewable energy into rural areas.

QUESTION: In your opinion, what is 92.7% of the 2075MW Cahora vii. Successful establishment of the
the single biggest obstacle facing new Bassa Hydropower Station by the National Atomic Energy Agency
investors and developers looking to Government of Mozambique, a (ANEA); the signing of the first
enter Mozambique in 2015? process known as the reversion of Country Framework Programme
transfer of control over Cahora Bassa (CPF) for technical cooperation
ANSWER. It is combination of many from the Portuguese government between Mozambique and
factors. These range from lack of to the Mozambican Government, the IAEA; the elaboration and
financial capacity to fund bankable which comprises the political approval by Mozambique Cabinet
studies for the presentation of business negotiations and raising the funding of the draft Atomic Energy Law
and investment opportunities to for the payment of the project. This (awaiting consideration by
investors coming from other countries, has been a tremendous success as one Parliament);
some degree of bureaucratic behaviour of the best performing loans in the viii. Chairing of the Forum of Energy
on the part of civil servants which country and possibly worldwide; Ministers of Africa (FEMA), 2007-
leads to higher transaction costs with ii. Raised the rate of access to electricity 2009;
a negative impact on investors and in Mozambique, from 7% in 2004 ix. Chairing of the Conference of
the investment process, shortcomings to 45.3% in 2014; Energy Ministers of Africa (CEMA),
in integrated planning which lead to iii. Increased the role of renewable 2010-2012;
the misalignment of strategic projects energy in Mozambique from x. Chairing of the Second Assembly of
or to the misuse of scarce resources, almost zero in 2004 to 18.5% in the International Renewable Energy
stringent labour laws and regulations 2014, benefitting more 5.0 million Agency (IRENA) in January 2012,
which discourage investors coming to Mozambican citizens, in addition to being the first African Minister to
the country, and limited skilled labour the electrification of schools, clinics, hold that position;
for some technical areas. In sum, the teachers and nurses homes, and xi. Construction and commissioning
single biggest obstacle is shortage of public buildings in rural areas; of the first natural gas fired power
human capital. iv. Construction and commissioning station in Mozambique, located
of the first solar panel assembly at the town of Ressano Garcia,
plant in Mozambique, with aim to Maputo, Mozambique, with a total
QUESTION: Can you share with the disseminate the use of these devices capacity of 175MW;
readers of Africa Energy Yearbook some in replacement of wood fuels and xii. Introduction of natural gas fuelled
of your career highlights during your other unhealthy sources of energy vehicles in Mozambique, and the
illustrious tenure as Energy Minister? in the rural areas; initial expansion of this business
v. Successful conclusion of the mapping through the construction of the
ANSWER. I was appointed Minister of renewable energy resources, and first 3 fuelling stations, benefitting
for Energy for the first time in 2005 and the subsequent publishing of the more than 3,000 vehicles, including
reappointed in 2010, and some of my Mozambique Renewable Energy Atlas; buses and public transportation
career highlights include: vi. Accession of Mozambique to the units;
i. Successful conclusion of the International Atomic Energy Agency xiii. Introduction and development of
acquisition from Portugal of (IAEA) in 2006; renewable energies in Mozambique;

18 2015 Africa Energy Yearbook


INVESTING IN AFRICA

QUESTION: What do you hope QUESTION: What do you hope the QUESTION: Which projects are you
your legacy will be from your time new Minister of Energy will bring to excited to learn more about at this
as Minister for generations to come? the table for the country considering years Africa Energy Forum?
his financial background?
I am of the view that I will be remembered ANSWER. I expect to hear new
as the Minister who: ANSWER. It is believed that his developments about the following
i. Accelerated the expansion of access to knowledge of how the financial sector projects:
electricity, particularly in the rural areas, operates and the difficulties that energy i. Grand Inga/Inga 3 (44.000MW/
covering 134 District headquarters, sector investors are confronted with will 3.000MW), in the DRC
from 51 in 2004; enable him to better assist those who ii. Morrupoule B in Botswana
ii. Increased the rate of access to electricity are willing to invest, being prevented (600MW);
from 7% in 2004 to 45.3% in 2014 only because the financial sector rules iii. Medupi (600MW) in South
iii. increased the share of renewable are sometimes two stringent. Africa
energies from nearly 0% in 2004 to
18.5% in 2014;
iv. Promoted the construction of Projects in Southern Africa that Added New Generation
5.700km of power lines, 12 new large Capacity in 2013 and 2014
capacity substations, and associated
infrastructures throughout the country; Many projects in the SADC region were planned to be commissioned or begin
v. Successfully conducted the reversion operation between 2013 and 2014, but the vast majority of them did not
of Cahora Bassa in favour of the live up to the expectations created. From the planned 1.477MW for 2013,
Government of Mozambique, which only 807MW came into effectiveness, basically because Morupule (coal) in
brought about a new impetus in rural Botswana for 600MW and Komati (coal) in South Africa for 202MW did
electrification and the expansion of not pass though the tests. Now the contributors of the 807MW are as follows:
access to electricity in the country,
especially in rural areas;
vi. Promoted and monitored the Mozambique (Ressano Garcia, Natural Gas): 232MW (28.7%);
construction of the first solar panel Angola (Lobito and Futila, both thermal): 70MW (8.7%);
assembly plant in the country, which Zambia (Ndola Energy, HFO): 50MW (6.2%);
was commissioned in 2013: Zambia (North Kariba, Hydro): 180MW (22.3%);
vii. Conducted the mapping of D.R.Congo (Inga 1, Hydro): 55MW (6.8%);
renewable energies in the country, Tanzania (Mwanza, HFO): 60MW (7.4%);
and the subsequent publishing of the South Africa (Grootvlei, Coal): 40MW (5.0%);
Mozambique Renewable Energy Atlas South Africa (Koeberg, Nuclear): 30MW (3.7%);
in 2013: South Africa (Solar): 26MW (3.2%);
viii. Promoted and monitored the Malawi (Kapichira, Hydro): 64MW (7.9%);
construction of the first large scale gas Total 807MW (100%)
fired power stations in the country,
generating currently in Ressano Garcia For 2014 an additional generation capacity of 2.894MW was planned, but
418MW; only 440MW came into the system for same reasons as pointed out above.
ix. Introduced the use of natural gas in Of this total added capacity, 175MW (39.8%) was the contribution of
vehicles; Mozambique with the natural as fired power plant in Ressano Garcia. The
x. Conducted the construction of the remaining 265MW are distributed as follows:
first natural gas distribution network
to households in Maputo and Mozambique (Ressano Garcia, Natural Gas): 175MW (39.8%);
Marracuene; Angola (Lomaum, hydro): 50MW (11.4%);
xi. Led the construction of 48 gas stations Angola (Bom Jesus e Biocom, Coal): 100MW (22.7%);
in areas seen as unattractive to private South Africa (Sere, wind): 100MW (22.7%);
investors; Zambia (Kariba North, Hydro): 15MW (3.4%);
xii. Promoted the construction of the first Total 440MW (100%)
solar photovoltaic power plants in the
country; Yours sincerely,

Salvador Namburete
xiii. Conducted the accession of the country
to the International Atomic Energy
Agency.

2015 Africa Energy Yearbook 19


NOTRE CLASSEMENT EXCLUSIF DES 54 PAYS AFRICAINS

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2015 on Africa IL INCARNE PLUS QUE JAMAIS LA RUSSITE

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Spcial 12 pages
Sp

Businesses and governments across Africa LES PRIX NOBEL DE LITTRATURE SACCUMULENT
seize the prot potential at home

SPCIAL 2015 DITION GNRALE

Lanne de tous
France 7,90 Algrie 420 DA
Allemagne 9 Autriche 9 Belgique
Toutes les cls pour comprendre Pourquoi l'Arabie saoudite
les (r)volutions du continent
RD CONGO et les tats-Unis font chuter
9 Canada 12,99 $ CAN tats-Unis
12,99 $ US thiopie 110 birrs

La forteresse
Guadeloupe 9 Guyane 12 Italie

les dfis
9 Maroc 50 DH Martinique 9
Mauritanie 2500 MRO Mayotte 12
Portugal cont. 9 Runion 9
Avec les contributions deII

Paul Kagam, Melinda Gates, Achille Mbembe,


le prix du baril.
Royaume-Uni 8,50 Suisse 15 FS
Moulay Hafid Elalamy, Boualem Sansal, HISTOIRE

Qui a fait tomber le mur de Berlin ?

Kabila
K
Tunisie 8 DT Zone CFA 4800 F CFA
ISSN 1959-1683 Hakim Ben Hammouda, Vronique Tadjo,
Radhi Meddeb, Alain Mabanckou, Felwine Sarr,
Damien Glez, Sophie Bessis, Jean-Pierre Bekolo GroUPE jEUNE AFrIqUE TORTURE, PRISONS SECRTES...
CRTES...

RVLATIONS
TIONS
TIONS
dition gnrale L 17263 - 47 - F: 5,90 - RD
I ix, iie ie, INTERNATIONAL EDITION
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Algeia 550 DA Angla 600 Kwanza Austia 4.90 Belgium 4.90 Canada 6.95 CAN$ Denmak 60 DK Ethipia 75 Bi Fance 4.90 Italie 5,90 Luxembourg 6,50 Maroc 40 DH Portugal 5,90 Royaume-Uni 5 Suisse 8,00 FS Tunisie 9,000 DT Zone CFA 3 000 F CFA
qi eie jeme Gemany 4.90 Ghana 7 GH Italy 4.90 Kenya 410 shillings Libeia $LD 300 Mcc 50 DH Nethelands 4.90 Nigeia 600 naia
Nway 60 NK Ptugal 4.90 Siea Lene LE 9,000 Suth Afica 30 and (tax incl.) Spain 4.90 Switzeland 9.90 FS Tanzania 6,500
e pie. Eqe shillings Tunisia 8 DT Uganda 9,000 shillings UK 4.50 United States US$ 6.95 Zimbabwe US$ 4 CFA Cunties 3,500 F CFA

e ge pphe
lections, Ebola, ptrole, croissance, CAN, modes, BAD, TNT emie ee he. SUR LES PRATIQUES
UES DE LA CIA
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DITION GNRALE Espagne 4 thiopie 65 birrs Finlande 4,50 Grce 4,50 Italie 4 Maroc 23 DH Mauritanie 1 100 MRO Norvge 45 NK Pays-Bas 4 Germany 4.90 Ghana 7 GH Italy 4.90 Kenya 410 shillings Liberia $LD 300 Morocco 50 DH Netherlands 4.90 Nigeria 600 naira
Norway 60 NK Portugal 4.90 Sierra Leone LE 9,000 South Africa 30 rand (tax incl.) Spain 4.90 Switzerland 9.90 FS Tanzania             
   
            
France 6 Algrie 350 DA Allemagne 8 Autriche 8 Belgique 6 Canada 11,90 $ CAN Cte dIvoire 2500FCFA DOM 8 Espagne 7,20 Portugal cont. 4 RD Congo 5,50 $ US Royaume-Uni 3,50 Suisse 6 FS Tunisie 3,30 DT USA 6,50 $ US Zone CFA 1700 F CFA ISSN 1950-1285
6,500 shillings Tunisia 8 DT Uganda 9,000 shillings UK 4.50 United States US$ 6.95 Zimbabwe US$ 4 CFA Countries 3,500 F CFA                             
thiopie 95 birrs Grce 8 Italie 7,20 Maroc 40 DH Mauritanie 2000 MRO Norvge 75 NK Pays-Bas 7,20 Portugal cont. 7,20     
  

RD Congo 11 $ US Royaume-Uni 6 Suisse 11,80 FS Tunisie 6 DT USA 13 $ US Zone CFA 3200 F CFA ISSN 1950-1285
INVESTING IN AFRICA

NIGERIAS
ELECTRIC
POWER SECTOR
converting potential to reality

Abiodun Aina, Senior Investment Femi Akinrebiyo, Principal


Officer, IFC Investment Officer, IFC

Abiodun Aina is currently a Senior Investment Officer with Femi Akinrebiyo is currently a Principal Investment Officer
IFCs Infrastructure Africa team based in Washington DC. with IFCs Infrastructure team based in Washington, DC. He
Abiodun focuses on identifying, promoting and investing has been with IFC for nine years and spent the last two years
in Public Private Partnership opportunities in Infrastructure on Nigeria leading the implementation of the Joint World Bank
projects in Sub Saharan Africa. Prior to IFC, Abiodun spent 6 Group (WBG) Energy Business Plan for Nigeria - an initiative
years in the Energy Financial Services arm of GE Capital, where that is mobilizing WBG resources to support the Government
he worked on equity and debt investments in various energy- of Nigeria to accelerate reforms, attract private investment, and
industry projects, with particular focus on thermal, renewable fast-track key projects. In his current role, Femi is responsible
energy, and midstream oil and gas projects in North America. for business development in Nigeria, including building
Abiodun began his career at Andersen / KPMG, as part of the partnerships with key stakeholders. He has led structuring and
Assurance & Business Advisory team focused on Energy clients negotiation of investments for IFC in Asia, Latin America and
based in Lagos, Nigeria. He holds an MBA from the Yale School Africa. Femis background includes working for ExxonMobil
of Management, an MPA in Economic Policy Management and other multinational companies, including Philips Projects
from Columbia Universitys School of Public and International and Spar Aerospace. He holds an MBA from the Kellogg
Affairs, and a B.Sc. in Economics from Obafemi Awolowo Graduate School of Management at Northwestern University,
University in Nigeria. He is also a CFA Charterholder. Illinois, USA and a Bachelor of Engineering from the University
of Ilorin, Nigeria.

Per-capita electricity consumption from the grid in Nigeria is currently less than 150kWh per year basically
one dim light bulb per person.

I ts hard to square that statistic with the buzz around Nigerias


long-run economic outlook. We know that Nigeria is a
demographic powerhouse: home to half of West Africans and
needs a functioning power sector that provides more, cheaper,
and cleaner energy to power its homes and industries. This
raises 2 critical questions: (1) which interventions does the
one fifth of Africans, its population roughly doubles every 25 sector urgently need; and (2) how should they be implemented?
years. Nigerians arent known for having low aspirations either: In this article, we illustrate how the Azura-Edo IPP, the first
in the face of statistics to the contrary (Nigeria consistently reform-era IPP in Nigeria, grappled with these questions.
ranks in the lowest quintile of African countries ranked by life
expectancy and Human Development Index), they will remind
you that they are the giants of Africa. Is this a case of national 1 MINT, an acronym coined by Fidelity Investments but popularized by former
Goldman Sachss Jim ONeill, for the economies of Mexico, Indonesia, Nigeria
cognitive dissonance? Thats a debate for another day. But on and Turkey, the most populous emerging market countries, with the potential
one point there is virtual unanimity: for Nigeria to truly achieve of being among the worlds largest economies in the 21st century. ONeill also
its potential, for it to fully become the N in MINT1, it coined the term BRICS.

2015 Africa Energy Yearbook 21


INVESTING IN AFRICA

THREE HOURS OF ELECTRICITY PER of US$0.50/mmbtu to circa US$2.5/mmbtu, for


DAY example;
Nigerias power sector has a long history of underinvestment (iv) Award of a 3 year management contract (with
in every segment (generation, transmission and 2 optional renewals of 1 year each) to Canadas
distribution), low tariffs, poor regulatory oversight and Manitoba Hydro International (MHI) to operate and
weak governance each factor compounding the others. manage the national transmission network;
Currently, only about 40% of the population is connected (v) Introduction of a methodology for cost-reflective
to the grid, with only 20% for rural households. The end-user tariffs starting from July 2012 under the
National Integrated Power Projects (NIPPs) initiated by Multi-Year Tariff Order (MYTO);
the Federal Government of Nigeria (FGN) in 2004 to fast (vi) Creation of the Gas Aggregation Company Nigeria
track a series of gas fired power plants by adding 5GW of Limited (GACN) to facilitate access and firm gas
generation capacity to the grid basically doubling the allocation from domestic gas suppliers to existing
currently available fleet has failed to do so due to, among power plants and companies in other industries;
other reasons, inadequate initial planning and a shortage (vii) Establishment of Nigeria Electricity Liability
of gas supply. Privatization of the NIPP plants has also Management Company (NELMCO) to assume and
stalled due to a number of issues. manage PCHNs non-transferrable assets, liabilities
and other obligations; and
(viii) Signing the loan agreements for the Azura IPP, the
Today, the average Nigerian receives an average of 3 first private sector led IPP in the country post-reform.
hours of electricity from the grid a day. The situation is
made worse by dilapidated transmission and distribution
networks, which cause high levels of technical and non- Azura-Edo IPP: On November 28th, 2014, IFC signed
technical losses. The end result is sobering: Nigeria has the Loan Agreements and the Common Terms Agreement
the largest installed fleet of off-grid gasoline and diesel- for US$80 million of senior and subordinated debt
fired electricity generators in the world, estimated at 5GW financing for IFCs own account (US$50 million senior
installed capacity, generating power at a cost of US$ 0.40 debt and US$30 million mezzanine) to Azura Power West
0.75/kWh. Africa Limiteds Independent Power Project (IPP) in Benin
City, Edo State, Nigeria. The Core Lender Group of banks
(Standard Chartered Bank, Standard Bank, FMO, FCMB
REFORMS OPEN DOORS TO PRIVATE and IFC) was led by Standard Chartered Bank. The project
SECTOR-LED IPP entails the construction, operation and maintenance of a
459 MW gas-fired open-cycle power plant, including the
When President Goodluck Jonathan took office in 2010, construction of a short 330kV transmission line and an
he made the strengthening of the power sector one of underground gas pipeline spur connecting the power plant
the key pillars of his administration. The governments to the countrys main gas trunk line.
ambitious reform program, documented in Nigerias
Presidential Road Map for Power, has achieved some
significant milestones: As Azura-Edo IPP is the front-runner IPP transaction to
emerge from Nigerias ambitious power sector reforms, the
(i) Unbundling of the Power Holding Company of hope is to use Azuras transaction documents as templates
Nigeria (PHCN) - the formerly vertically integrated for follow-on IPPs. It is also a cornerstone transaction
state-owned power utility into eighteen successor under the World Bank Groups Energy Business Plan for
companies consisting of 6 generation companies Nigeria, a commitment of the IBRD, MIGA and IFC to
(GENCOs), eleven distribution companies support the Federal Government of Nigerias power sector
(DISCOs), and a national transmission company, the reforms through joint engagement across the energy
Transmission Company of Nigeria (TCN); value-chain, from generation through transmission and
(ii) The creation of a single buyer, the Nigerian Bulk distribution. The Energy Business Plan, covering a 3
Electricity Trading Plc (NBET), as the prospective year period from 2013, seeks to support investments in
off-taker for private generators and seller of power to (i) up to 1,500 MW of new installed generation capacity
the distribution companies with US$ 0.8 1.2 billion either through greenfield or refurbishment/expansion
capitalization - an intermediate solution to address projects; (ii) the recently privatized electricity distribution
the lack of credit history and credit worthiness of the companies, by supporting their capital investment
newly created DISCOs; programs; (iii) a select number of gas-to-power supply
(iii) Implementation of a domestic gas pricing framework projects, thereby unlocking one of the key remaining
aimed at incentivizing local gas production to fuel bottlenecks to power generation in the country; and (iv)
the power sector domestic gas prices for power a select number of pilot off-grid lighting and solar power
production have increased from the historical levels solutions in rural areas.

22 2015 Africa Energy Yearbook


INVESTING IN AFRICA

Figure 1: Nigerias Power Sector - Past, Present and Future

THE FUTURE - HOW DO WE GET sector losses), defeating the purpose of its very establishment.
THERE? Something had to give for the electricity market to function
as designed. This led to a 40% increase in the retail tariff
While the progress made in the last 5 years has been in February 2015 (from US$ 0.11/kWh to US$0.15/kWh),
remarkable, the journey ahead for the incoming government ignoring exchange rate effects. While there was recently
remains daunting. Privatization is not an end in itself the a partial reversal of this tariff increase, market participants
concept only works if market signals are robust enough to expect that the retail tariff will be set at sustainable levels in
attract investment and expertise of new sector entrants at scale. the future. This reflects a simple truth the market simply
However, apart from a few cases, foreign direct investment cannot sustain significant cash deficits over time. At these
(FDI) into Nigerias power sector has not been significant to levels, no market can weaker companies will run out of
date the privatization of the GENCOs and DISCOs was capital quickly, and, without periodic palliative measures,
largely financed with debt from Nigerian banks, with most of even the strongest players will face a non-trivial risk of failure
the equity from Nigerian sponsors. Cash shortfalls in the sector, over time.
insufficient gas molecules to power the existing and expected
generation fleet, and a still weak electricity transmission grid Azura - a marathon, not a sprint: As the first IPP to emerge
have slowed progress, especially in the past 18 months. Absent from the FGNs power sector reform, the Azura-Edo IPP
a clear pathway to resolving these issues, foreign investors will sponsors and lenders have had to be very innovative in
continue to sit on the sidelines, perceiving the ratio of risks to structuring solutions to the complex sector challenges. An
rewards as too high to justify investment. unmistakable aspect of the transaction is the complexity of the
contractual structure (see Figure 2, overleaf ). While project
1. CASH SHORTFALLS IN THE SECTOR, LEADING finance structures are no strangers to complexity, due to the
TO TRANSACTION COMPLEXITY nascent institutional arrangements in Nigeria and absence of
Prior to the review of the MYTO tariff in January 2015, the precedent transactions, the Azura-Edo deal required an even
estimated sector cash shortfall (cash required for all sector more dizzying array of contractual innovations and project
participants to earn a return on, and, of their invested capital, participants than is typical of emerging market IPPs. A lot of
LESS cash inflows into the sector) was approximately US$ these elements were put in place to structure around the lack
700 million a year, mainly due to high technical and non- of a track record of positive cashflows in the sector. A good
technical losses, particularly at the distribution companies. example of this is the credit enhancement that Azuras gas
At these deficit levels, had NBET started performing its suppliers required. This added approximately US$ 50 million
role as the single buyer and seller of power, it would have to the projects cost, and, led to higher overall complexity of
eroded its capital base in 1 year (assuming no improvement in the transaction documents.

As the first IPP to emerge from the FGNs power


sector reform, the Azura-Edo IPP sponsors and
lenders have had to be very innovative in structuring
solutions to the complex sector challenges.

2015 Africa Energy Yearbook 23


INVESTING IN AFRICA

Figure 2: Azura-Edo IPP Project Structure

Way forward Simple is Beautiful: Working towards 2. INSUFFICIENT PROCESSED GAS MOLECULES
simpler documents and project structures, will increase Nigeria has abundant natural gas reserves 180 Tcf but
the number of new IPPs (follow on projects to Azura), to grossly insufficient gas processing capacity. Nigerias current
the benefit of all stakeholders. However, you cannot wish installed power generation fleet is 11GW 4GW existing
risks and issues away sustainable simplification cannot thermal plants, 2GW hydroelectric power plants, and 5GW
be achieved without first addressing the underlying sector new NIPP plants. Approximately 6GW of the thermal
challenges and headwinds going forward. To be sustainable, plants are currently not producing power due to insufficient
the sector badly needs a fully cost reflective tariff, proper processed gas molecules. This is largely due to historically
incentives to distribution companies to reduce their low levels of investment in the domestic gas to power sector,
technical and non-technical losses, and an increase in actual where prices were below US$1/mmbtu until the last 2 years.
power generation. Alongside increasing the availability of Low prices were a disincentive to gas companies looking
gas to existing and new power plants - a low hanging fruit to invest in the domestic gas sector. The recent increase in
(more on that next) - progress on these items would set the the domestic gas to power price to approximately US$ 2.5/
stage for plainer sailing for IPPs in Nigeria. mmbtu basically export parity prices should increase

There has been increased interest in the sector,


particularly from indigenous gas producers 7Energy,
Seplat, Gaslink, among others. But this interest will
take a couple of years to translate into significant new
gas molecules.

24 2015 Africa Energy Yearbook


INVESTING IN AFRICA

the cashflow issues in the gas segment. In doing this, care


must be taken NOT to simply double up on bureaucracy
and to do this with simplification in mind. Creating
another bottleneck will defeat the purpose of creating the
gas aggregator. Once the domestic gas market has sufficient
buyers and sellers, the bulk gas buyer could then be phased
out similar to plans for phasing out NBET once the
electricity market matures.

Until recently, gas producers 3. THE TRANSMISSION GRID


Nigerias transmission wheeling capacity is currently around
have insisted on up to 12 5GW. This means that, for the NIPPs and other new IPPs
to sustainably generate and sell their power to distribution
months of letters of credit from companies, transmission grid capacity must be approximately
doubled. The Transmission Company of Nigeria (TCN) has
power generators... been managed by Manitoba Hydro International under a
management contract for the last 3 years. TCN estimates
that US$ 9 billion of new transmission investment will be
required over the next 5 years. Transmission, being a natural
interest from gas suppliers in the sector. There has been monopoly, is the only segment of the sector still wholly
increased interest in the sector, particularly from indigenous owned by the government. While this is sound policy,
gas producers 7Energy, Seplat, Gaslink, among others. there is room for the private sector to participate and
But this interest will take a couple of years to translate into for competition in the transmission segment as a means of
significant new gas molecules. expanding the grid.

Credit Enhancement in the gas sector is another lingering issue. Impact on Azura: Again, Azuras sponsors were smart on this
Until recently, gas producers have insisted on up to 12 months issue. The plant will be located close to an existing substation,
of letters of credit from power generators, which slowed down which reduces the cost of linking the plant to the grid
the finalization of a number of gas sale agreements. 12 months significantly.
of gas LCs translates to US$ 600 million for the current
installed portfolio of gas generators and an amount that is Way forward: All of the above: US$ 9 billion is a lot
required to be cash-backed by issuing banks when not counter- of money. While TCN can potentially secure all of the
guaranteed by creditworthy entities such as the World Bank. required financing, getting creative could reduce the need
This issue is shaping up to be a temporary but serious one, due for transmission capex. For example, aggressively pursuing
to the sectors poor payment track record. Once there is a track distributed generation, through project-financed utility-
record of positive cashflow in the power sector, gas suppliers scale solar power plants in off-grid locations, could alleviate
should no longer require such long-tenored and expensive - some of the capacity constraints, and reduce the need
credit enhancement tools. for new transmission lines and substations. Separately,
Impact on Azura: Azuras sponsors were smart on this point having a clear Public-Private-Partnership program for the
the plant will be located 1km from a gas transmission transmission segment, where specific new transmission lines
pipeline, and, was able to secure long term gas supply at a are competitively awarded to transmission construction
negotiated price. However, the letter of credit to be issued companies/ infrastructure investors on a time-bound
by Azura to the gas supplier (addressed earlier) has increased concessionary basis, with clear return thresholds, should ease
the overall complexity of the transaction documents. part of the current transmission constraint.

Way Forward take a cue from the power sector: A


way out could be for Nigerias government to create a CONCLUSION
bulk trading entity for the gas sector similar to NBET. The scale of Nigerias power sector reforms is unprecedented
Given that the key issue in the gas sector is similar to in Sub Saharan Africa. The architects and teams executing the
that affecting power generation and supply (significant reforms should be applauded for their work. However, the
sector cash deficits, creating a need for long-tenored credit reforms will not be as effective as they need to be if the lingering
enhancement products and deal complexity), having an sector cashflow, gas and transmission issues are not solved
adequately-capitalized bulk gas trading company that buys simultaneously. This is a once in a generation opportunity for
gas from all of the different gas producers and sells it to Nigerias incoming government to brighten those dim light
IPP offtakers, could be a short to medium term solution to bulbs.

2015 Africa Energy Yearbook 25


Nigerias electricity
market is still the hot topic
because of its huge potential.
Teething issues were expected
but investors have confidence
they will be resolved.
INVESTING IN AFRICA

YEARBOOK PROFILE PIECE


RUMUNDAKA WONODI, MANAGING DIRECTOR AND CHIEF EXECUTIVE
OFFICER, NIGERIAN BULK ELECTRICITY TRADING PLC

Rumundaka Wonodi is the pioneer Managing Director/Chief Executive Officer of the Nigerian Bulk Electricity Trading Plc (NBET), aka
the Bulk Trader. Prior to his appointment, in August 2011, he led the Regulatory & Transactions Monitoring team of the Presidential
Task Force on Power (PTFP), mandated with driving the power sector reform roadmap of the Federal Government of Nigeria (FGN).
He led the team of Bureau of Public Enterprises (BPE) and PTFP experts in establishing the Bulk Trader. Under Rumundakas leadership,
NBET has received N104 billion capitalisation from the FGN. NBET has executed Vesting Contracts with the 11 privatized successor
Distribution Companies for the onward sale of purchased electricity. NBET has also executed nine Power Purchase Agreements. Six are
with the privatized successor Generation Companies; with Egbin Power Plc Nigerias largest power plant with an installed capacity of
1320MW; with Olorunsogo Power Plc, which was sold in a Debt-Equity swap deal with the FGN; and with Azura-Edo IPP, which is
NBETs first greenfield project.
NBET is in negotiations with multiple Independent Power Producers (IPPs) for new generation capacity valued in excess of $6 billion.
These are projects with a variety of energy sources: natural gas, coal, wind and solar. For the creation and development of an effective
transaction environment for power investors, Rumundaka steers NBET with the core values of integrity, transparency, professionalism and
teamwork. Rumundaka is the current and inaugural Chairman of the Initial Stakeholder Advisory Panel of the Nigeria Electricity Market;
the highest ranking consultative panel in the industry. Rumundaka has an MBA from Yale University School of Management, USA and
was a J. Olin Research Fellow at Yale University.

QUESTION: Why is Nigerias and GENCOs bankable how is the QUESTION: Your role as [effectively]
electricity market still the hot topic gap going to be bridged? Nigerias off-taker is critical for both
in Africa considering all the challenges public and private sectors; what are the
being faced in privatising the sector? The current wholesale tariff for hydro biggest hurdles youve had to overcome,
plants are N6.35 per kwh while thermal and what challenges lie ahead for the
It is still the hot topic because of its huge plants are 9.86 per kwh but this is bulk trader?
market potential. Teething issues were subject to change as the new gas price has
expected but investors have confidence not taken effect. The energy component The biggest hurdle the bulk trader has
they will be resolved. Recently, Nigeria that makes up the wholesale price for had to overcome are:
has taken over from South Africa as the thermal plants will change when the new Communicating that NBETs
largest economy in Africa even with its gas price is effected. New Independent working capital is NOT a subsidy for
poor electricity supply. Nigeria with its Power Projects (IPPs) and Generation the industry and is only a temporary
population of over 160 million generates Companies (GENCOs) have the option bridge which it expects to fully recoup
only 4,000 MW of electricity and South of accepting the benchmark tariffs or can from the distribution companies.
Africa with a population of 52 million choose to go through an open book tariff Streamlining the process for the
generates 40,000MW. This capacity gap setting process. evaluation and engagement of viable
demonstrates the investment potential potential IPP projects.
in the next ten years for instance. QUESTION: Having just entered Financing - NBET will do more with
Nigerias government has an economic the transitional electricity market in public and private financing to enhance
transformation agenda that seeks to Nigeria, how does this change the near our ability to meet our obligations in
create more opportunities for local and term bankability of the sector? the market as a critical off-taker.
international investors. Privatization of Continued investment in the grid
the sector has opened it up for foreign Active contracts provide comfort to to enhance better transmission and
investment, and further the recent investors that the flow of funds will be as reduce loss.
peaceful conclusion of the elections has expected and not arbitrary as contractual With the privatised distribution
also boosted investors confidence in the obligations are legal and binding. The companies, the DISCOs lack of
stability in the nation and the market. framework for the market provides for investment in power infrastructure for
a tight coupling of contracts and an electric power distribution to increase
QUESTION: What is todays average alignment of incentives that is expected performance and payment settlement
electricity price in Nigeria and what to yield positive results at every step of which the CBN intervention fund
does it need be in order to make IPPs the value chain in the power sector. has encouraged.

2015 Africa Energy Yearbook 27


Organised by:

9th annual meeting

FINANCE OPTIONS
5-6th november 2015
The Vineyard
The Vineyard Hotel,
Hotel, Cape Cape
TownTown

It was my pleasure to be part of such an interactive and thought provoking audience


Dar Es Salaam, Stock Exchange

Confirmed speakers include

Jurie Swart Alastair Anton Eberhard Jonathan Berman


Chief Executive Officer Campbell Management of Managing
African Infrastructure Managing Infrastructure Reform Director
Investment Managers Director and Regulation Fieldstone
(AIIM) Vantage GreenX University of Cape Town

For more information about this meeting,


please contact amy.offord@energynet.co.uk
or visit www.poweringafrica-finance.com
INVESTING IN AFRICA

NAVIGATING THE
CHALLENGES
of delivering IPPs in Africa

Ashwin West, Manager - Paul Frankish, Manager - Asset


Transactions, African Infrastructure Management, African Infrastructure
Investment Managers (AIIM) Investment Managers (AIIM)

Ashwin is responsible for originating potential deals, analysing, Paul is responsible for the structuring and development of AIIMs
assessing, structuring and negotiating investment opportunities, managed funds as well as new business initiatives.
as well as the execution, performance monitoring and realisation
Paul led the structuring of AIIMs dedicated renewable energy
of investments.
investment vehicle, Apollo, focused on building out a portfolio
Ashwin has worked on infrastructure project finance deals in of investments in the South African renewables market. Paul
the thermal energy and renewable energy sectors, as well as the has also been involved in the selection and submission of bids
transport sector. Most recently, Ashwin was involved in the supported by the AIIM funds in the South African renewable
successful execution of the 350MW gas fired Kpone IPP power energy procurement programme and led the integration of these
project in Tema, Ghana. During 2011, he was involved in the projects into the AIIM portfolio. Paul represents the AIIM funds
successful execution of two renewable energy investments in on the board of the Cookhouse Wind Farm.
South Africa, namely the 139MW Cookhouse Wind Farm and
Prior to joining AIIM, Paul spent five years working on the
81MW REISA Solar PV investment, both of which reached
alternative assets structuring desk at Credit Suisse in London
commercial operations in 2014.
where he was responsible for the development, structuring and
Prior to joining AIIM, Ashwin spent 8 years with Aurecon. execution of alternative investment products for the pension and
Ashwins areas of focus were the large infrastructure, energy and insurance industries.
water sectors. Before joining Aurecon, Ashwin spent two years in
the UK working for Thames Water in project management and
management systems implementation and review.

It is a well-known and cited fact that sub-Saharan Africa (SSA) is desperately short of electricity, and, from an
access-to-electricity perspective, is considered to be one of the worst regions in the world. SSA has 13% of the
worlds population, but 48% of the global share of the worlds population without access to electricity.1

O nly seven countries in SSA have electricity access


rates in excess of 50%, while the remainder of SSA
has grid access rates of circa 20%1. However grid access
markets.2 Historically, the provision of electricity generation
capacity has been financed by state-owned power utilities with
support from international lenders and agencies. However,
doesnt necessarily equal access to reliable electricity, with with the challenges facing the power sector in SSA, there have
demand outstripping supply, and regular interruptions to been changes in the financing approach, resulting in power
the electricity supply common. Average annual electricity projects being funded by, among others, Chinese companies
consumption per capita in SSA (excluding South Africa) is through concessional Chinese government-backed funding,
150 kWh. If South Africa is included, the average increases development finance institutions (DFIs) and private sector
to 540 kWh/capita, far below the average of other emerging independent power producers (IPPs). This has come as a

1 Castellano A, Kendall A, Nikomarov M, Swemmer T, 2015, Brighter Africa: 2 Non-OECD Energy Statistics, World Bank Group, 2013, World
The growth potential of Sub-Saharan electricity sector, McKinsey & Company Development Indicators, World Bank Group, www.worldbank.org

2015 Africa Energy Yearbook 29


INVESTING IN AFRICA

result of government sector reforms as well as initiatives such


as the Power Africa programme, to promote alternative
sources of financing into the SSA power sector.

African Infrastructure Investment Managers (Pty) Ltd


(AIIM), as the manager and advisor of five infrastructure
funds with circa USD1.3 billion of equity under
management, participates in the financing of infrastructure
projects, on a project finance basis, and through its
investment in power projects in SSA has consequently gained
a wealth of experience and weathered many challenges. The The REIPPPP is considered
lessons learnt stem from engaging throughout the project
lifecycle, from project developer through to equity investor. to be one of the best, if not the
This article highlights some of the key challenges AIIM
has experienced in the pursuit of energy infrastructure best, public private partnership
investments across SSA.
in Africa.
AIIM PORTFOLIO OF PROJECTS
AIIMs experience as a project developer in the power sector for IPPs but the need for renewable energy was strong. AIIM
commenced in 2008, with the development of the Umoya persisted with the development of the project and engaged
Energy wind farm, a 66 MW facility in the Western Cape with several potential off-takers. The introduction and
province of South Africa. Shortly thereafter, in 2009, AIIM subsequent cancellation of Eskoms medium-term power
and Macquarie formed a joint venture called African Clean purchase programme, and the renewable energy feed-in tariff
Energy Developments (Pty) Ltd (ACED) with the mandate programme added uncertainty to the development process,
to develop a pipeline of renewable energy projects in South until the competitive bidding process for renewable energy
Africa. The first of these projects to be delivered to market (referred to as the Renewable Energy IPP Procurement
was the Cookhouse Wind Farm, a 138.6 MW facility in the Programme (REIPPPP)) was introduced by the South African
Eastern Cape in South Africa. Based on the success of its Department of Energy in 2011. The process delays were
South African developments, AIIM leveraged its renewable frustrating for developers, however those who continued with
energy-development experience beyond South Africas project development were rewarded when the REIPPPP was
borders, in the Kinangop (60 MW) and Kipeto (100 MW) launched, and the first round of power purchase agreements
wind farms in Kenya, and the Azura 450 MW open cycle awarded in November 2011. The REIPPPP is considered to
gas turbine power station in Nigeria. As a financial-close be one of the best, if not the best, public private partnership
investor, AIIMs funds have invested equity at financial in Africa, but even this programme has had its challenges
close in Renewable Energy Investments South Africa (Pty) with the announcement of preferred bidders and financial
Ltd (REISA), an 81 MW solar photovoltaic facility in the close being delayed in the various procurement rounds.
Northern Cape in South Africa and Cenpower Generation
Company Limited, a 350 MW combined cycle gas fired The aforementioned IPP projects in Ghana and Kenya were in
power station in Tema, Ghana. the development phase for circa eight and six years respectively,
before achieving financial close. The developers faced uncertainty
and endured numerous government elections before the
PRE-FINANCIAL CLOSE necessary approvals and financing could be secured to achieve
CHALLENGES AND LESSONS financial close. The drawn-out development process creates a
LEARNT drag on developer cash flows, and often results in developer and
advisor fatigue, causing projects that are eventually abandoned.
IPP PROJECTS TAKE A LONG TIME Optimism, realistic expectations, tenacity and a risk appetite
TO DEVELOP to continue investing in project development is required to
overcome the regulatory uncertainty hurdles.
Developing large-scale, capital-intensive infrastructure
projects are time consuming and resource intensive. The KNOW YOUR STAKEHOLDERS AND
situation is compounded by uncertainty in and changes to ENGAGE WITH THEM REGULARLY
regulatory frameworks across SSA.
Stakeholder engagement is critical to the success of a
When AIIM commenced the development of the Umoya power project, which has many interfaces including the
Energy project in 2008, there were no specific opportunities local community, the power purchaser, energy regulator,

30 2015 Africa Energy Yearbook


INVESTING IN AFRICA

construction contractor, operations contractor and fuel compensation, and his children are not compensated directly. A
supplier, among others. Each of the stakeholder groups has well-considered and structured stakeholder engagement plan is
an active role to play in the development, construction and required to map out key stakeholders to be engaged, determine
operation of the project, and must be engaged appropriately. their level of interest and influence, to track when key stakeholders
have been engaged, and to plan all future engagements.
During the development phase, one of the wind farm projects
in South Africa was placed under pressure when, in 2012, in
the lead-up to financial close, the engineering procurement and CHOOSE YOUR LOCAL PARTNER
construction (EPC) contractor was forced to enter into a debt CAREFULLY
restructure programme, due to its inability to service certain The development of a large infrastructure project, such
debt obligations which fell due in mid-2012. ACED, the as a power project, requires numerous permits, licences,
equity investors and senior lenders to the wind farm, as well as exemptions and waivers from a range of government
the EPC contractor, were forced to adopt a pragmatic approach institutions prior to and during the construction process. A
in order to restructure the project and facilitate financial close. local partner who knows the processes in-country and has
Material amendments were made to the EPC contract to experience in undertaking the processes to obtain the various
rebalance the risk profile, which allowed the project to proceed. authorisations is key to the success of a project. Furthermore,
The ability to engage with the key project stakeholders, in this a local partner with stature in the industry and who has the
case the EPC contractor and the senior lenders, in an open and ability to raise the profile of the project is also helpful in

Community engagement is
required to be culturally sensitive and appropriate, in
order to avoid unintended consequences.

frank manner allowed for the necessary changes being brought ensuring that the project receives the necessary attention and
to bear on the contracts and the ultimate success of the project. support from government.

Engaging with the wrong members or structures in a Furthermore, it is critical to ensure that there is alignment
community, engaging too often or not frequently enough, of interest between local partners and international equity
and changes to the political structures are regular challenges investors, particularly when the project is under pressure.
for project developers in SSA. Community engagement is also In AIIMs experience, a local partner may have a variety of
required to be culturally sensitive and appropriate, in order to interests beyond the project in which you are jointly invested,
avoid unintended consequences. From our Kenyan experience, which may be dependent on maintaining relationships with
changes in the local governance and political structures in 2013 government or other stakeholders, resulting in differing
meant that local government stakeholders engaged during the priorities and divergent views. This can be problematic when
project development phase were replaced with new officials who needing to enforce contractual remedies against government.
were not adequately informed about the project at the time
of project implementation, which may have led to additional POST FINANCIAL CLOSE
hurdles needing to be cleared with local government officials CHALLENGES AND LESSONS
and the local communities. Furthermore, understanding and LEARNT
respecting cultural norms is critical; elders and chiefs are typically
consulted on project matters as the head of the communities
and households. However in certain communities it is only GETTING THE CONTRACTOR TO
acceptable for the household head to express an opinion, hence SITE
his family may not be afforded an opportunity to participate The achievement of financial close is a major milestone in the life
in a meaningful way. In such circumstances it is important to of an infrastructure project, which typically signals the start of a
engage affected youth separately to ensure they are afforded an multi-year construction process, often in remote or challenging
opportunity to represent their interests. This is particularly the environments. Completion of the construction works within
case in the family unit where the head of the household receives the negotiated project schedule is the best outcome for both the

2015 Africa Energy Yearbook 31


INVESTING IN AFRICA

investors and the contractor, by avoiding claims against delay (one to three months) to step into the running of the project
liquidated damages, loss of revenue and additional costs, such SPV and to hand over SPV operations to the key staff, once
as interest during construction. Mobilisation of the contractor appointed. No matter which model is chosen, it is important
to site and commencement of construction according to the to appropriately resource the project SPV as soon as possible,
project schedule is key to keeping the schedule on track. Before to ensure it is able to function and does not hamper or delay
a contractor can mobilise to site, there are several activities the implementation of the construction schedule.
that must be completed with respect to health and safety,
and local employment requirements, among others. From
our experience, international EPC contractors who have not DEVELOP A GOOD WORKING
partnered with local contractors or are undertaking work in a RELATIONSHIP WITH THE EPC
new jurisdiction require a longer period of time to mobilise to CONTRACTOR
site, which is typically not factored into their project schedule. The construction of a large scale, complex infrastructure project
The additional mobilisation time is spent modifying their is always challenging, and is never without unexpected hurdles.
existing plans and programme to be compliant with the local The EPC contractor has typically agreed to a fixed price, fixed
country requirements. AIIMs preference is to ensure that schedule project, and assures the quality of work is to the agreed
the EPC contractor is either established/experienced in the standard. Clarifications may however arise regarding the scope of
relevant jurisdiction, or has partnered with a local contractor, work or the project schedule. While the legal agreements between
for a more efficient construction process. Alternatively, ensure the EPC contractor and the project SPV seek to contract for a
that the project schedule includes additional time for site variety of outcomes, having a good relationship with the EPC
mobilisation. This has been particularly evident in the South contractor cannot be overlooked to unlock potential disputes,
African renewable energy market, where many international before having to revert to contractual remedies and measures.
EPC contractors have entered the South African market, with On our South African and Kenyan projects, having a good
varying outcomes and levels of performance. relationship with the key decision makers within the EPC
contractor allowed for the shareholders to apply pressure at
ASSEMBLE THE BEST MINDS TO the right times to minimise project schedule delays, accelerate
DELIVER A PROJECT components of the work (such as turbine erection) and to work
collaboratively on resolving on-site issues when they arose, rather
All of the investments we make are via dedicated stand-alone than reverting to the contractual remedies immediately.
special purpose vehicles (SPV) established to deliver a single
project. AIIM is regularly faced with the dilemma of when
to recruit key staff for the project SPV. The lenders typically CONCLUSIONS
require a resourcing plan and comfort that the key staff such Infrastructure investments by independent power producers
as a chief executive officer, chief financial officer and chief in SSA are not easy, with the hurdles dependent on the type
technical officer will be identified and employed by the time of project and jurisdiction. There are a set of key challenges
the project achieves financial close and funds are disbursed. that will arise on most projects, which in our experience, can
However, it can be challenging to attract key staff to a project often be mitigated.
SPV prior to financial close, given the level of uncertainty
in an employment contract at that point in time. AIIM has Large infrastructure developments typically require more
applied three models to overcome this challenge; namely time than initially anticipated to achieve full bankability
early recruitment underwritten by one of the shareholders, status. As part of the development process, identification
longer-term secondment of shareholder staff to the project and engagement with key stakeholders is a critical success
SPV and temporary step-in to executive roles. factor, and stakeholders must be mapped and managed
appropriately. Selection of a strong local partner is also a
In our experience, the best model is early recruitment, key factor for success but requires an alignment of interests
as it provides an opportunity for the key staff to immerse between all parties to ensure a productive relationship.
themselves in the project prior to financial close and are
fully prepared to run the project SPV following financial During the construction phase of a project, mobilising the
close. This does however require one of the shareholders to EPC contractor to site per the project schedule is helpful if
underwrite the employment contract for a reasonable period project delays are to be avoided. International contractors
of time, to ensure that the key staff are not left exposed teaming up with a local contactor may be the best solution
should the project not achieve financial close. An alternative to this challenge. Securing the project SPV resources to
to this model is the secondment of key staff into the project deliver the project as soon as possible should also minimise
SPV, from the shareholders. This works particularly well for construction delays. Lastly, develop a strong working
the power utility-type investors with specialist resources, relationship with the EPC contractor, to assist in resolving
geared towards project secondments. The last model is for minor disputes amicably, before reverting to contractual
the shareholders to provide resources on a short term basis remedies and protections.

32 2015 Africa Energy Yearbook


INVESTING IN AFRICA

THE CHANGING
LANDSCAPE
Moving the Power Sector Forward

David Humphrey, Global Head, Power & Infrastructure


Standard Bank

As Global Sector Head, Power and Infrastructure David is responsible for developing Standard Banks
involvement in the growth of this core sector in Africa, and helping clients expand their activities into
or within Africa.
David has had a career in asset based deals in Europe and Africa, and has specialised in rail and
telecoms. As Global Head, David oversees industries such as conventional power, renewable energy,
construction and cement, as well as transport.
He was formerly employed at the Strategic Rail Authority and then Babcock & Brown (B&B) in the
UK, specialising in rail finance. He was involved in many of the major projects in the late 1990s and
2000s, including the West and East Coast Main Line developments in the UK, and investment in the
rolling stock market in Europe, including the purchase of Angel Trains from RBS in 2008.

REGIONAL OVERVIEW developments like Pungwe and Kariba South expansion


coming on stream.
Looking at developments in sub-Saharan Africa over the past
18 months, in many jurisdictions it seems like it has been a Zambia is starting construction on the Maamba Power
case of three steps forward, two back. Station, its first IPP coal power station in 50 years, and several
hydro schemes such as Copperbelt Energy Corporations
South Africa has maintained its Renewable Energy (CEC) Kabompo dam, are in project development. Angola
Independent Power Producer Procurement Programme has faced funding headwinds in 2015 following the oil
(REIPPP), with three rounds awarded, a fourth currently price crash in 2014, but several power projects such as the
being evaluated, and tenders out for the first round of base Luachimo dam are underway.
load coal power Independent Power Producers (IPPs). In
excess of 1500 megawatts (MW) of electricity is now being Although the Morupule B power station in Botswana is
generated by the renewables industry. Thats the plus side - on still to be completed, further expansions to the complex are
the minus side, ongoing challenges at Eskom have resulted in planned for 2015. Namibia has some challenges. It has one
its downgrade to junk status by S&P. of the highest solar radiation footprints in the world, yet it
imports most of its power from an increasingly fragile South
The rest of the Southern African Development Community Africa and the power it generates is mostly from the hydro
(SADC) region is generally improving. Mozambique saw its resource in the north of the country. The Kudu gas field/
first two gas IPPs start construction in 2014, while Vales coal power project remains a top priority, as is the Xaris 250MW
power station being built by ACWA continues construction. gas power project. Namibia needs new projects to come on
The grid is becoming constrained, but Mozambiques state- stream in the next few years to give itself a stable base load.
owned utility, Electricidade de Mocambique (EDM), has
a good strategy and understands what needs to be done. Looking further north, the DRC remains high on potential.
This envisaged generation capacity raises the possibility for However, governance and regulatory issues are greatly
EDM to export power to surrounding countries via the hampering private investment in energy outside the mining
SAPP. Malawi is looking to procure its first IPP in 2015. sector. While agreements have been signed to develop the
Zimbabwe is quietly adding extra capacity, with hydro next stage of the Inga project on the Congo, there is little

2015 Africa Energy Yearbook 33


INVESTING IN AFRICA

actual progress in finalising the full technical solution and the developers. It will be fully underwritten by Standard Bank
procurement process that needs to follow. together with a development finance institution.

In West Africa, both Ghana and Nigeria are facing challenges Tanzania continues to struggle as parastatal Tanzania Electric
and opportunities, but for different reasons. In Ghana, Supply Company Limited (Tanesco) tries to improve access to
setting tariffs too low has required enormous subsidies that electricity for the population and to partner with the private
the Government has been unable to fund in full, leading to sector. We may see substantial investment in the following
backlogs in maintenance, plunging plant availability and years if the Millennium Challenge Corporation (MCC), which
severe black-outs. There is not enough gas offshore to provide provides economic assistance from the US government through
all the new base load requirements, so a liquefied natural gas a competitive selection process to developing nations, can sign
(LNG) solution is likely needed as the gas supply from Nigeria its compact with Tanzania this year. Uganda also continues to
is unreliable. There are numerous IPPs under development in make progress, with a sector that functions efficiently. The Get
Ghana - so if the country can solve its fiscal crisis and its base Fit small hydro schemes, sponsored by KfW, have allowed
load fuel supply, the future could be bright. It does make one a great deal of consistency and standardisation into the IPP
wonder if privatisation (if properly followed through) would model that is capable of being exported to other jurisdictions.
now be a better option for Ghana in the long term.

Nigeria stands on the edge of success or failure of its MARKET COMMENTARY


privatisation in 2015. A good regulatory and industry
structure has been put in place, and the distribution Overall then, the regional picture is somewhat ambiguous in
companies (Discos) and generation companies (Gencos) now terms of progress and further uncertainty is caused outside
find themselves in private hands, funded through dollar loans South Africa by the tendency to use dollar funding for power
from the Nigerian banking sector, and implementing the projects whose revenue is in local currency. Unless there is
much needed corporate, billing and technical improvements a user pays for the currency volatility risk (as in Kenya),
slowly. But the Nigerian Electricity Regulatory Commission the increasing local currency funding requirement caused by
(NERC) allowed the regulatory regime to be delayed by over depreciation against the dollar, becomes a real risk, as it is
a year, during which time there was a cash shortfall in the often followed by liquidity and convertibility constraints in
amount the Discos could bill, over well over $1 billion, a the affected country.
gap which the Central Bank agreed to fund in January 2015,
provided the regulated market came into operation. But what is clear is that Africa remains firmly on the radar of
major investors, with significant funding coming through from
Before the election NERC announced tariff cuts of up to big multinationals, including those in America. Economic
50%, throwing the market into confusion and threatening growth in sub-Saharan Africa has exceeded 5% a year for
the financial viability of the Discos, Gencos and possibly the more than decade and US multinationals are noticing. CE of
entire Nigerian banking sector should the loans they provided US engineering giant General Electric (GE), Jeffrey Immelt,
to the sector default. The change in Government following continues to see Africa as its most promising growth region
the election and what it means for the power sector will be his company built a $6 billion position in Africa over the
followed with considerable interest by the market. Should last decade, virtually from scratch. GE Africa now operates
tariffs be allowed to rise to a sustainable level, then the size in 35 countries on the continent and the company recently
of the opportunity is enormous, with at least 20 Gigawatts of pledged to invest $2 billion in new investments in Africa by
new power needed over the next decade. 2018, with the electric power sector seen as a top priority. In
2014, Standard Bank sealed a R3.4 billion financing agreement
East Africa is showing good progress, though again, some with General Electric aimed at increasing access to power and
hiccups are apparent. Kenya leads the way, with the IPP infrastructure across 10 countries.
programme firmly embedded, though some projects have
been delayed because of local issues. These are probably The USs Power Africa initiative, launched in 2013, got the
side effects of devolution. Kenya needs to work out how to ball rolling from a US perspective. It aims to double access
deliver sites to project owners that have all the permissions to power with its six partner countries in Africa Ethiopia,
and local political issues sorted by the construction start date, Ghana, Kenya, Liberia, Nigeria and Tanzania. More than $7
otherwise delays and cost overruns will occur. This, however, billion has been committed via financial support and loan
is probably the only significant issue in a power sector that is guarantees, but that amount almost doubles when private
well run and expanding nicely. sector project finance commitment is added.

Opportunities include an undisclosed 35MW geothermal In this environment, the need for innovative funding
power project in Kenya. The project has the location and steam arrangements is becoming increasingly important, if deals are
field potential for up to 140MW of capacity and is currently structured well, the overall cost of an investment and overall
being developed by a consortium of local and international capital needs are reduced.

34 2015 Africa Energy Yearbook


INVESTING IN AFRICA

Investing in Africas energy sector does not come without The renewable sector will continue to play a more pertinent role
risks, however, and those that take the plunge need to go in in alleviating some of the energy shortfalls across a continent that
with their eyes wide open. But more workable and innovative is struggling to keep the lights on. While progress on the REIPPP
models for project finance are helping fast track projects and in South Africa has been slower than anticipated, recent bidding
bridge gaps that existed previously. rounds have shown some promising signs, like lower tariffs being
achieved due to active competition. The successes achieved can
The development of an environment more conducive to the certainly be replicated across Africa, where opportunities abound
growth of an IPP industry is beginning to take shape and for solar, wind, hydro and gas projects, but where only 20% of
bodes well for the future. The Triumph Power Generating people are connected to power grids.
Company Limited stands out as the first locally owned IPP
in Kenya. Its first project is the development of an 83MW Standard Bank has seen 13 of its projects connected to the
heavy fuel oil power plant and power produced by Triumph grid already, supplying 826MW into the grid. Successes
will be sold to Kenya Power and Lighting Company under a include the 75MW Solar Photovoltaic (PV) Solar Capital De
20-year Power Purchase Agreement (PPA). Aar (Pty) Ltd facility, which was awarded preferred bidder
Electromaxx Limiteds diesel power plant in Uganda, which status under REIPPPP. The project is located near De Aar
began operations in 2010 with 20MW and expanded by in the Northern Cape Province of South Africa and was the
30MW in 2012, is Ugandas only locally owned IPP and first phase of what could become a 300MW solar farm. The
power produced is sold to the national off-taker, Uganda company, which is chaired by Dr Mamphela Ramphele, says
Electricity Transmission Company Limited under a 6 year the De Aar development is part of the larger plan to deliver
PPA. Both the original construction and expansion phases 25 solar farms on 50 000 hectares of land in the Northern
were financed by Stanbic Bank Uganda. Since commissioning and Western Cape provinces. Standard Bank was mandated
in October 2013, Electromaxx Limiteds 50MW diesel power as lead arranger, financial advisor and provided senior debt
plant in Uganda has enjoyed 100% availability based on a funding and interest rate hedging to the project.
contracted capacity of 50MW.
While challenges remain, the upsurge in global interest
Exciting potential lies in hydro power. Mpanda Nkuwa, for to provide funding or to get involved in building projects
example, is a 1 500MW hydro power station situated in the directly, especially when combined with the correct structured
Tete province of Mozambique currently being developed products, is going to improve access to electricity for millions
by Camargo Correa, with offtakers likely to be Eskom and of people that are currently without. The future of the energy
Electricidade de Moambique. sector in Africa continues to flicker brightly as a result.

About Standard Bank Group


Standard Bank Group is the largest African bank by assets with a unique footprint across 20 African countries.
Headquartered in Johannesburg, South Africa, we are listed on the Johannesburg Stock Exchange.

Standard Bank has a 153-year history in South Africa and started building a franchise outside southern Africa in the early 1990s.

Our strategic position, which enables us to connect Africa to other select emerging markets as well as pools of capital in
developed markets, and our balanced portfolio of businesses provide significant opportunities for growth.

The group has nearly 49 000 employees and over 1 200 branches, which enable it to deliver a complete range of services across
personal and business banking, corporate and investment banking and wealth management. Standard Banks Corporate
& Investment Banking division offers its clients banking, trading, investment, risk management and advisory services to
connect selected emerging markets to Africa and to each other. It has strong offerings in mining and metals; oil, gas and
renewables; power and infrastructure; agribusiness; telecommunications and media; and financial institutions.

Headline earnings from continuing operations for 2014 were R21 billion (about USD 1.9 billion) and total assets were
R1 907 billion (about USD 165 billion). Standard Banks market capitalisation at 31 December 2014 was R232,2 billion
(about USD20 billion).

The groups largest shareholder is Industrial and Commercial Bank of China (ICBC), the worlds largest bank, with a
20,1% shareholding. In addition, Standard Bank Group and ICBC share a strategic partnership that facilitates trade and
deal flow between Africa, China and select emerging markets.

For further information go to www.standardbank.com

2015 Africa Energy Yearbook 35


Access to power is the key to
creating a sizeable middle class
in Africa, which will open up
a whole slew of investments.
INVESTING IN AFRICA

YEARBOOK PROFILE PIECE


JUSTIN DEANGELIS, DIRECTOR,

Justin DeAngelis is a Director, responsible for origination, analysis, structuring, valuation and execution of investments for the Power Deal Team.
He joined Denham Capital in 2007. Prior to joining Denham, Justin was a Director at Waypoint Energy and worked as a Manager at Pace Global
Energy and PG&E National Energy Group, after serving as an Engineer at Delmarva Power. He is currently a member of the Board of Directors
of Endeavor Energy, Thesis Energy, and subsidiaries of Rio Energy. Justin received a Bachelor of Science from Drexel University and a Master of
Business Administration from LeBow College of Business at Drexel University.

QUESTION: Denham has garnered a they have reached commercial operations. with a high quota of skill, patience,
strong reputation in Africa with many Investors and strategics alike want to own discipline, experience and inter-personal
successful investments, so Im sure you these core power infrastructure assets communicative abilities.
would be reluctant to disclose your because once operating they provide
thoughts on the next hot investment reliable yield. QUESTION: Ten years from now,
opportunity for Africa. Taking a slightly once Africa has increased its access to
different tact then; what was the hot Thus, the opportunity we see in African
power is the development and construction electricity, what are going to be the big
opportunity in Africas electricity sector trends petrochemicals, housing and
in recent years, and do the rewards look of well-structured power generation assets
across the continent, which we will then construction perhaps?
set to track in line with the original
opportunity? sell to create private equity returns. To
execute on this strategy we have assembled I wont predict the next wave, but
what we believe to be the best teams to certainly access to power is the key to
ANSWER: First, Denham does not originate, develop and build high quality creating a sizeable middle class in Africa,
invest in momentum. That is, we power projects across Africa. which will open up a whole slew of
assess investment themes based on the investments. As evidence of that, the
fundamentals of the theme rather than WEO2014 estimates that $1 invested in
try to time the market. In Africa, its QUESTION: What made that
opportunity so compelling? the power sector in Africa will generate
clear that there is a need for all different $15 in incremental GDP.
types of power generation (e.g., gas fired,
solar, wind and in some instances hydro ANSWER: The need for power in Africa How has the price of oil impacted
generation). The World Energy Outlook combined with the advancement of Africas ability to raise capital for
2014 (WEO2014) estimates the capital financeable contract structures (e.g., long- renewable energy projects?
needs in power at $46 billion per year for term PPAs with government guarantees),
the next 25 years, where power generation the significant presence of an avid buyer
needs are nearly half of the total. So, the market with demand for top quality, The short answer is it has not impacted
power need today and well into the future well-structured power infrastructure-type Africas ability to raise capital for
is significant. projects that we develop and finance. renewable projects. First, unlike
developed markets, renewable energy
Denham Power also sees a tremendous Denham believes that the teams it can be economic, even under-cutting
appetite from investors to buy high has assembled are exceptionally well the marginal cost of power, in most Sub-
quality, well-structured power plants once suited to capitalize on the opportunity, Saharan African countries.

I wont predict the next wave, but certainly access


to power is the key to creating a sizeable middle
class in Africa, which will open up a whole slew of
investments.

2015 Africa Energy Yearbook 37


INVESTING IN AFRICA

Diseye Tantua | Monkey by Grade, Shoe by Size | 2014 | Mixed Media | 122 x 92 cm
For price contact Aabru Art / art@aabru.co.uk/ +44 7847 244 217

38 2015 Africa Energy Yearbook


INVESTING IN AFRICA

Many African countries use liquid fuels


for marginal power generation. Even
with a substantial drop in oil prices,
there is tremendous headroom where
Anything that can help
the marginal cost for diesel power plants
is in the $150-$270/MWh range based
move power projects along
on a crude oil price of $40-$100/bbl. more quickly will help the
Renewable power generation is highly
competitive within this range of power continent.
prices.

What considerations should COP21 Beyond Africa, does Denham see qualities. For example, we are delivering
take into account this year when opportunities in other developing wind power at $50-$60/MWh in Brazil.
deciding on the future of carbon markets? In the Philippines, we helped to build
investments in Africa? a 600MW coal plant that delivers sub
$100/MWh power in a market priced
Absolutely! Africa is only one target at $140/MWh when it has equilibrium,
Anything that can help move power investment area of many to Denham. well above that when it doesnt. Solar
projects along more quickly will Denham Powers primary investment power can also be an economic power
help the continent. Thus, if carbon strategy focuses on the development solution, for example in Uruguay, where
offsets are available and this revenue of power projects in regions that are we previously delivered solar power at
stream relieves some stress from host expected to have high growth rates, under $100/MWh.
countries, offsets should be considered. require new-build power generation
To maximize the impact from carbon and where we can build projects with In all cases, it is Denham Powers
offset/credit sales, long-term sales long-term power purchase agreements goal to help increase reliability of the
contracts will be required to increase at a reasonable equity return. Many power system while reducing the cost
debt sizing. emerging markets globally exhibit those of power.

One of Powertechs key strategies is our expansion into the African markets.
For a number of years already we have partnered with ESI Africa to reach our
target audiences in Africa on their home soil. ESI Africa has proven to be the
publication of choice when it comes to building our brand in Africa. We will
definitely continue our relationships in the years to come.
Regula Niehus, Corporate Communications Client Manager

HTML WEEKLY
MAGAZINES WEBSITE WEBINARS
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ESI Africa allows you to reach your audiences in Africa on their home soil.
Contact Gerald Schreiner on +27 21 700 3533

facebook.com/ESIAfricaNews @ESIAfrica ESIAfricaTV www.esi-africa.com


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POLICIES AND
BEST PRACTICES
FOR AFRICA
POLICIES AND BEST PRACTICES FOR AFRICA

RISKY BUSINESS?
Lower Oil Prices and Africa Energy Projects

Keith Martin1, Initiative for Risk Mitigation in Africa

Keith has been working on project finance and risk mitigation for investments in Africa and Latin
America for over 15 years. He currently advises the African Development Banks Initiative on
Risk Mitigation in Africa, which seeks to improve the availability and use of various mitigation
instruments to, in turn, support project finance for large capital projects.
Keith has also spent the past 8 years working in and with Brazilian companies, particularly in the
area of risk mitigation for their exports to and investments in Africa. From 2007 to 2009, he was
the Vale General Manager for External Affairs, with responsibility for all projects outside Brazil.
He has since also worked for Aon Brazil, heading its International Trade and Investment area,
as well as for the IFC, where he was responsible for a Brazil-Africa initiative. Finally, Keith held
various positions during his 7 years working at MIGA/the World Bank Group, including support
for investments in fragile and conflict-affected states.
Keith holds degrees from Georgetown University and McGill University. He also taught
International Risk Analysis and Management at Georgetown. He has widely published on
various topics related to risk mitigation, South-South investments and project finance, with a
special focus on Brazil-Africa.

1 The author is a consultant to the Initiative for Risk Mitigation in Africa, a donor-funded trust fund housed at the
African Development Bank. The views expressed in this article are strictly the personal views of the author and do
not represent those of the AfDB or IRMA. The author would like to thank Ms. Grace Gabala, who assisted in its
preparation.

The substantial and rapid decline of world oil prices over the past year and the prospect that they may remain
at lower levels over the coming years has focused attention on the winners and losers, in terms usually
linked directly to a given countrys position as an exporter or importer of oil and gas.

T he substantial and rapid decline of world oil prices over


the past year and the prospect that they may remain
at lower levels over the coming years has focused attention
to a given countrys position as an exporter or importer of oil
and gas. In general, it is argued (quite logically) that countries
which are exporting these resources are suffering shortfalls in
on the winners and losers, in terms usually linked directly their budgets, which will need to be corrected and that states

2015 Africa Energy Yearbook 43


POLICIES AND BEST PRACTICES FOR AFRICA

wanting to create or expand their hydrocarbon production All of this means that the collective bargaining power of
capacities will need to scale back or postpone their plans. In OPEC is significantly lower now than it was some years ago
Africa, there has hence been much discussion about countries with a tendency to become lower still. Furthermore, the
such as Angola, Ghana, Nigeria, Mozambique and Tanzania. impact on global prices that some politically-motivated supply
interruption in any given country could cause will be more
While this article will touch on this theme, our focus is on a limited. (Obviously, a broader regional conflict particularly
broader question: what will be the impact of lower oil prices on in the Middle East could still cause oil prices to spike; this
risk (and risk mitigation) for energy projects on the continent? is the one scenario under which prices are most likely to rise.)
Here, we refer not only to those projects linked directly to
production of oil and gas, but also to those in power generation Demand Side: While demand growth is expected to continue,
(from fossil fuels as well as renewables). I propose that the particularly from emerging markets and developing economies,
decline in oil prices both due to the decline itself and its newer predictions are that such growth will be slower than was
rapidity poses new challenges to governments in Africa as imagined before7. In particular, China is entering an era where
well as private developers and lenders for all types of energy growth of 7% or less will likely be the norm. Climate change
projects in Africa. The result is an altered risk landscape which and economic concerns are also likely to push China and
will require new thinking on the part of all involved and the other leading emerging economies to do more in the areas of
use of improved and expanded risk mitigation tools. energy conservation and renewables even if not to the extent
that many environmentalists would like to see8. In OECD
THE GLOBAL CONTEXT: countries, by contrast, demand is likely to be stagnant or even
decline, and concerted efforts are being made to both lower
LOWER OIL AND GAS PRICES ARE (MOST LIKELY) energy use and to switch to more renewables.
HERE TO STAY
Supply Side: The recent rapid decline in oil prices, as has WHAT DOES THE NEW REALITY MEAN
been noted elsewhere2, is due to several factors. Together, one FOR AFRICA IN GENERAL?
can term these the democratization of oil. By this, I mean
two separate but concurrent trends. On the one hand, an ever As elsewhere in the world, lower global energy prices are
increasing amount of production is (and will be) outside of producing winners and losers at national and sub-national level.
OPEC countries3. In addition to the emergence in the past In short, the most obvious winners are net energy importers and
decade of major producers like Kazakhstan and Azerbaijan, consumers, while those who depend on hydrocarbon revenues
and the rapid rise of production in the US, a growing number (mostly national governments and state-owned enterprises in
of African countries (Ghana, Mozambique and Tanzania), as oil-producing states) will face the greatest challenges, possibly
well as Brazil and Argentina, among others, are poised to add impacting energy projects (see below).
significant amounts of oil and gas to world production in the
coming years4. Finally, if sanctions on Iran are in fact eased or
lifted, increased production there would add more production
even within OPEC5. Separately, the hydrocarbon production
matrix is changing and increasing the flexibility of the market to
adjust: shale oil production is much more easily ramped up and
down (to reflect global prices) than are conventional oil wells6.
If the price rises too much, Canadas vast tar sands become more
attractive, as does more expensive deepwater production.

2 Numerous studies and analyses ranging from Goldman Sachs to Exxon


have documented the causes of the recent oil price collapse, all identifying
increasing supply as the main factor. See http://www.bloomberg.com/news/
articles/2015-02-11/goldman-here-s-why-oil-crashed-and-why-lower-prices-
are-here-to-stay and http://www.ft.com/cms/s/0/20fda1f8-c285-11e4-bd9f-
00144feab7de.html#axzz3XnW4D7ZB among many others.
3 This apparently is one of the main reasons OPEC decided not to try to
influence prices in November 2014, when it decided not to cut production.
See http://oilprice.com/Energy/Oil-Prices/UAE-Says-Its-Up-To-Shale-
Producers-Not-OPEC-To-Cut-Production.html
4 How much will, in fact, be added from these countries of course depends on Source IMF
the oil and gas prices. It is clear that more expensive (deepwater) offshore fields
will suffer as will those requiring expensive or risky infrastructure to get to
market (e.g., from some landlocked African countries).
7 The IEA has cut its global energy demand growth until 2040 from 56% to
5 See https://www.iea.org/oilmarketreport/omrpublic/ 37% in its most recent annual World Energy Outlook publication. See http://
6 See Christof Rhls November 2014 blog entry, OPECs dilemma: www.iea.org/publications/freepublications/publication/WEO_2014_ES_
https://www.linkedin.com/pulse/20141126202928-259060403-opec-s- English_WEB.pdf, p. 2
dilemma?trk=mp-reader-card 8 Ibid.

44 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

However, oil and gas prices have a ripple effect through the INCONVERTIBILITY AND TRANSFER:
entire chain of energy projects, as I will discuss in detail. In various countries Nigeria, Angola, Equatorial Guinea,
Specifically, they are likely to lead to a reconsideration of more Algeria, Libya and Gabon oil and gas exports are the
expensive renewable energy projects: when thermal power main source of revenue for the government. Hence, the
becomes cheaper, it is harder to argue for more expensive rapid and sustained fall in prices is putting great strain on
ones that use renewables. While climate change arguments national coffers. In some countries, local currencies have
carry some weight, governments in many countries are likely already come under pressure (e.g., Ghana and Nigeria)10.
to re-examine projects when the cost differential becomes too
great. This is particularly true in Africa for two reasons: more
dependence in most countries on fossil fuels for electricity
production; and less tax incentives (and fiscal room for them)
for solar and wind.9 Taken together, this may have wider
ramifications for the energy matrix in Africa: more thermal
power plants and less generation from renewable energy
sources.

RISKY BUSINESS? THE RISKS FROM


THE NEW ENERGY SCENARIO Investors and lenders will be
Investors and lenders will be most interested in the impact
the fall in energy prices is likely to have on their risk/return most interested in the impact
matrixes and prospects for future investments. To facilitate,
the risks are discussed below using categories that are the fall in energy prices is likely
commonly covered by political risk insurance (one of the
mitigation measures elaborated subsequently). to have on their risk/return
matrixes...

If governments are not able to reduce spending (which in


turn may increase other risks), they may find it difficult
to maintain their hard currency reserves which could
oblige them to impose capital controls (like those in place
in Venezuela, or imposed in Russia in 1998)11.
Foreign investors and lenders would then be unable to
convert their local currency or to transfer hard currency
out.
To their credit, countries like Ghana and Angola have already
taken serious steps, such as seeking advice and support from
the IMF and others, to address the issues created by the
shortfall in government revenue12. But decisions on where to
cut public spending will be politically difficult

Source: http://www.internationalpolicydigest.org/2015/01/30/african-energy-
10 In Ghana, the cedis 40% slide (related, in turn, to profligate government
producers-face-oil-price-pressure/ spending) led it to seek IMF support - http://www.wsj.com/articles/ghana-
to-seek-help-from-international-monetary-fund-1407075262 . The naira
slid below 200/US$ as S&P put it on negative watch in part (but not
9 On a global basis, there is no consensus on what the impact of lower oil only) because of the fall in oil prices. http://www.bloomberg.com/news/
prices will be on renewable energy prices. See http://www.carbonbrief.org/ articles/2015-02-11/naira-volatility-jumps-to-6-year-high-as-nigeria-currency-
blog/2015/01/what-falling-oil-prices-may-mean-for-the-future-of-renewable- slides
energy-investment/ for a detailed discussion. The US EIA predicts little 11 Nigeria similarly, and tentatively, imposed restrictions in late 2014 which
impact in the US but that is based on its assumption that tax incentives and even caused JP Morgan in January 2015 to threaten removing Nigeria from
pro-green regulation will outweigh the shift in oil and gas prices. See http:// bond indexes: http://www.bloomberg.com/news/articles/2015-02-05/nigeria-
www.theguardian.com/environment/2015/jan/28/low-oil-prices-wont-hurt- woes-deepen-as-jpmorgan-hits-emefiele-with-debt-warning
renewable-energy-says-us-eia . But Africa is likely to be a different story, even 12 For Ghana, see above. On Angola, which received IMF support during its last
if no detailed analyses are yet available. As an example, South Africa depends crisis in 2008, see the IMFs very direct advice: http://www.bloomberg.com/
on fossil fuels for 96% of its primary energy production. http://www.eia.gov/ news/articles/2015-02-06/angola-must-raise-taxes-cut-fuel-subsidy-as-oil-falls-
countries/cab.cfm?fips=sf imf-says

2015 Africa Energy Yearbook 45


POLICIES AND BEST PRACTICES FOR AFRICA

(for energy, transportation and/or food). However, in


countries where subsidies have long been part of the
economic safety net of the population, or are considered
a birth right of living in a resource-rich country,
removing subsidies often leads to riots, looting and even
the attempted overthrow of governments14.
Beyond subsidies, devaluation and inflation will impact
the populations overall purchasing power and result in an
increase in poverty. This, too, will increase the likelihood
of political violence.
Foreign investors are often prime targets of such violence
particularly if they have highly visible brand names or
if they are seen as being particularly closely associated
with the government (as most foreign oil companies, for
example, are). This may lead not only to more violence
against foreign installations, but also to greater physical
Source: http://www.internationalpolicydigest.org/2015/01/30/african-energy- security threats (including kidnapping) for foreign
producers-face-oil-price-pressure/ personnel.

Also, allowing currencies to fall in value is likely to stoke EXPROPRIATION AND NATIONALIZATION
inflation in those countries. This will reduce the spending
power of ordinary people and may increase other risks In general, it is currently unlikely that falling oil prices will
(see above). lead to a spate of expropriations be it of oil installations
Finally, currency devaluation is not something covered or other foreign investments.
by political risk insurance (though hedges exist). This On the other hand, if private energy companies decide
means that as happened with Argentinas pesefication to alter their investment plans for example, cancelling
foreign lenders and investors may be severely impacted by planned deepwater exploration or production due to the
a sudden, sharp depreciation in the local currency, even if lack of commercial viability there may be pushback
they continue to exchange and repatriate currency13. from governments, and decisions to seize assets. In
Argentina, for example, the government expropriated
the largest private company oil and gas producer YPF
POLITICAL VIOLENCE (WAR, CIVIL WAR, amid allegations it was failing to invest enough15. (Most
TERRORISM, SABOTAGE, STRIKES AND CIVIL risks of this nature, however, are likely to come under
COMMOTION) breach of contract.)
Governments of oil-producing states are now facing In a context of more generalized political violence due to
stark choices. One measure to reduce spending usually increased poverty or removal of subsidies, governments
on advice of IFIs is to remove or decrease subsidies may seize strategic foreign assets in consumer areas such

13 Currency devaluation is considered by PRI providers (rightly or wrongly) to 14 Mozambique one example of many has seen repeated deadly riots over
be a commercial risk. It should be noted, however, that investors can write government attempts to remove fuel and food subsidies: 2008, 2010, 2012
a given exchange rate (or mechanism of adjustment) into their contractual See http://www.economist.com/node/16996835
arrangements with host governments (as often occurs in PPAs). In that case, 15 http://www.energytribune.com/20101/argentinas-re-nationalization-of-the-
the risk can be covered under breach of contract coverage. energy-industry-and-what-it-means-2#sthash.ccCqNIcP.dpbs

Countries like Ghana and Angola have already taken


serious steps, such as seeking advice and support from
the IMF and others, to address the issues created by
the shortfall in government revenue.

46 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

as supermarkets or agribusiness - in order to prove their


support for the people in the struggle against price-
gouging, etc. (Venezuela is a recent example16.)

BREACH OF CONTRACT
Last but not least, in the current context, is the risk that
governments will breach undertakings with (foreign)
private investors. Note that government includes all
levels of government (federal, provincial or state, and Many projects currently in the
local) as well as SOEs.17
This risk becomes particularly heightened during times of planning stages will not be
change and uncertainty, such as the current ones. It is also
highly connected with all kinds of energy projects, which pursued: money spent on project
generally involve a deep and on-going (contractual)
relationship with one or more levels of government18. preparation, feasibility studies,
In energy-producing countries, based on past experience
in Africa and elsewhere, we can predict the likelihood of etc. will be lost.
four specific, heightened risks:
- As government revenues fall, there may be attempts
to renegotiate royalties, taxes and other income from downgrades from the rating agencies20, impacting their access
private (usually foreign) investors in O&G production to financing. A second is that many projects currently in the
- Those same investors may, themselves, seek changes planning stages will not be pursued: money spent on project
in PSAs (production sharing agreements) and other preparation, feasibility studies, etc. will be lost. Some countries
contracts to reflect declining returns from current and which had hoped to become energy producers but whose
especially planned (higher cost) production costs of production or of access to markets are high (including
- Governments are also likely to cancel, postpone or some landlocked African countries21) will have to rethink
renegotiate public works and PPP projects in other their national strategies potentially making it difficult for
sectors, including infrastructure (something that may them to find foreign investors willing to support their energy
well effect EPC contractors as well as investors)19 independence dreams. (On the other hand, some countries
- For new projects in all sectors, governments will be may continue with their plans for renewable energy projects
less likely to provide guarantees which compromise that reduce dependence on imported oil and gas and to diversify
their fiscal position and add to their debt burden their energy matrix even in the new cheap hydrocarbons
particularly those that approach the IMF for context.) For Africas coal exporters, these will be tough times;
support as experience in the US has shown, the lower price of oil and
In all states, there may also be efforts to change or cancel gas will make coal an even less attractive energy alternative
planned projects, based on the new economics of thermal than it already was22. Finally, lower electricity prices are likely
power plants. In other words, plans for wind and solar to have a knock-on effect on the (already precarious) financial
(and to a lesser extent hydro) may be affected. position of many state-owned electric utility companies.

In addition, there are several other risks that may impact energy One looming question for the medium and long term that
projects in Africa but do not directly impact the risks above. this paper does not address is: What of climate change? The
One is that energy producing countries will potentially face cumulative global effect of the above-mentioned changes
(even taking into account use of more natural gas) would be
16 In 2010, Hugo Chavez nationalized a Franco-Colombian supermarket chain.
More recently, Nicolas Maduro, his successor, has taken similar steps (including
forced price controls) against additional supermarkets. http://www.reuters.com/ 20 For Nigeria, see above. Fitch and Moodys have both recently changed
article/2010/01/19/venezuela-nationalization-idUSN1922545920100119 their Angola outlook to negative, while not yet changing their rating:
https://www.moodys.com/research/Moodys-affirms-Angola-Ba2-ratings-
17 In practice, insurers are reluctant to cover SOEs explicitly (on a stand-alone changes-outlook-to-negative--PR_318660 and http://www.reuters.com/
basis) unless they are directly and fully backed by the federal government. article/2015/03/27/idUSFit91780720150327
18 Several of the largest political risk insurance claims of the past 15 years involved 21 A prime example is Uganda, where $60/barrel oil is likely to cast a heavy cloud
breaches of contract in energy projects. These include the Dabhol thermal over its prospects for oil exploration and production: http://observer.ug/
power plant in India (over US$110 million) and the MidAmerican power plant business/
in Indonesia (over US$218 million); the amounts are only those of OPC, as 38-business/35918--low-global-oil-prices-could-affect-ugandas-prospects--
private market numbers are confidential. https://www.opic.gov/sites/default/ analyst
files/files/fy2012-claims-report-web.pdf 22 Even before the decline in oil prices, both thermal and metallurgical coal
19 During the 2008-9 crisis, for example, Angola accumulated US$9 were down 40% from 2011. http://www.carbontracker.org/wp-content/
billion in accumulated arrears, mostly with Brazilian and Portuguese uploads/2014/09/Coal-Financial-Trends-ETA.pdf . It is also one of the
reasons that Vale sold a share of its massive Mozambique operations to
construction companies. https://www.ihs.com/country-industry-forecasting.
Mitsui in December of last year: http://www.mining.com/vale-sells-stake-in-
html?ID=1065997697
mozambique-coal-project-to-mitsui-for-763m-34877/

2015 Africa Energy Yearbook 47


POLICIES AND BEST PRACTICES FOR AFRICA

The best-known product in this area is the A-/B-loan


structure, where commercial lenders participate in
lending to a project on the back of a loan from an
official financial institution.

more greenhouse gases, undermining efforts to limit climate may cover all risks (commercial and political). They can
change. If China, the US, and other major economies decide also provide financing that removes the risk for their EPC
to curb emissions more aggressively, this would again change contractors, for example. The main limitation here is that
the risk-return matrix on a global basis. However, such most ECAs use OECD ratings to determine pricing
a decision is not yet on the horizon a subject for further and most African countries continue to be rated as high
discussion and speculation. risks (5 to 7 on the OECD scale, on which 7 is the highest
risk).
AND THE MITIGATION TOOLS OLD AND (It should be noted that particularly the private market
NEW TO DEAL WITH THEM is very sensitive to claims. So, a spike in claims from a
Investors and lenders have traditionally relied on a series particularly sector or country could lead to higher rates,
of risk mitigation tools for their foreign investments and shorter tenors and less capacity.)
financing (in Africa and elsewhere). These continue to be Involvement of Multilateral Lenders such as the African
available for most African energy projects at the moment Development Bank and the World Bank or IFC also
with some caveats. In addition, new tools have been added mitigates the risks to lenders and investors.
and existing ones modified to reflect new risk realities. The - The best-known product in this area is the A-/B-loan
tools include: structure, where commercial lenders participate in
Political risk insurance for the coverages mentioned lending to a project on the back of a loan from an official
above (as well as non-honoring of sovereign guarantees) financial institution. While this gives some protection
is available from both public sources (such as the World to commercial lenders, there are two limitations. First,
Bank Groups MIGA, the Islamic Development Banks beyond the implicit (halo) effect for the project, there
ICIEC, Africas own ATI and national investment insurers is no explicit risk mitigation for the equity investors
such as the USs OPIC and Chinas Sinosure), as well as themselves. Additionally, some commercial lenders
private insurers23. What has changed in this area recently (especially due to Basel III restrictions) may not find
is the willingness to specifically offer insurance against their risks adequately mitigated by the current structure.
the risk of breaches by subsovereigns (such as state and As a result, lenders and insurers are increasingly working
local governments) and SOES something particularly together to explore providing adequate coverage
relevant for many energy projects that may involve SOEs (through political risk insurance) for investors and
as offtakers in PPAs (power purchase agreements) or as B-loan participants. This process is made more difficult
joint venture partner in E&P contracts. Additionally, by the need for both lenders and insurers to have a right
the private market has become much more familiar with to the projects shares under a possible default/claim,
Africa and now can offer much longer tenors and greater but progress is being made on reaching a compromise
capacity for projects than 5 years ago24. that takes into account all relevant interests25.
- In addition, the African Development Bank and World
Export credit agencies may also provide similar coverage Bank, among others, offer Partial Risk Guarantees (that
for their nationals exports of goods and services and cover specific political and regulatory risks) and Partial

23 Private insurers include the London-based market around Lloyds syndicates, 25 For many years, the competing demands for unencumbered rights to
as well as US- and Bermuda-based insurers like Zurich, AIG, ACE and shares in the case of a claim/default have been an obstacle particularly to
Sovereign. cooperation between MIGA and other official lenders, both of whom have
24 In the past year, the private market has offered PRI for projects in specific a de facto or de jure preferred creditor status that they believe should have
African markets for up to 10 and even 12 years. precedence over all others. Recently, MIGA has moved to a more flexible
position that could result in more cooperation with official lenders.

48 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

Credit Guarantees (that cover a part of a potential debt


service default). These guarantees have only been used
on a very limited basis, but it can be expected that,
under the new conditions, they will be a cost-effective
substitute for some oil-producing African countries to
use instead of full government guarantees. (The AfDBs
PRGs and PCGs, for example, have a 1:4 ratio toward
a given countrys performance-based allocation, or
lending. So, a US$100 million PRG only takes up $25
million of the envelope.)26 Local currency financing is
Other Sources of Mitigation increasingly attractive in
- Many investors and lenders rely on bilateral
investment treaties to support their claims in a possible countries with both sufficient
dispute with the host country. The value of such treaties
was recently underlined in the dispute between Spains liquidity and tenors, and
Repsol and the Government of Argentina over the
expropriation of YPF. In Africa, the use of BITs is still interest rates that are not
limited by the fact that many countries do not have
such treaties in place with major investor countries. prohibitive...
- International arbitration such as ICC and ICSID
is also frequently used for energy projects with a
significant record of success. The major drawbacks to
such arbitration are the high legal costs (not least for the CONCLUSION
government) and the long amount of time required to There is a strong likelihood that lower oil prices are here to
reach a final arbitral award. Also, the system does not stay for a significant period of time. This is already having a
work well for smaller disputes or on-going negotiations direct impact on many African countries particularly those
with the governments. For this reason, there are that are, or want to be, oil and gas producers. Directly and
increasing international efforts to promote voluntary or indirectly, however, this trend will affect all current and future
binding mediation28 in contracts that promote reaching energy projects in Africa, whether they are in the oil and gas
consensus over a protracted legal confrontation. extraction sector, or in energy production, transmission and
- Local currency financing is increasingly attractive in distribution. The impacts are only beginning to be felt, which
countries with both sufficient liquidity and tenors, and means the sector is entering an era of increased uncertainty, as
interest rates that are not prohibitive (such as South private investors and governments alike respond to the new
Africa, Botswana and Namibia). In this case, obviously, realities. Their responses, like their interests, will be different.
the portion financed locally is not subject to exchange
and transfer risk, nor to devaluation. Additionally, local However, if change signifies greater risk of renegotiation of
financing may indirectly mitigate other risks, since contracts (among others), it does not signify that, overall, the
government actions that negatively impact the project risks in Africa have increased or that adequate risk mitigation
may also damage the local lender. tools are not available. On the one hand, African governments
- Structuring tools of various forms may also act as risk today (in general) are better equipped and more willing to
mitigants. These cannot be explored in detail here, undertake the necessary, constructive responses to these new
but could include syndications (bond issues) backed challenges. On the other, risk mitigation tools have evolved,
by project revenues, which in turn can also be insured new ones have been introduced and, above all, risk mitigators
against political risks to enhance their ratings; local (insurers, lenders and others) have gained much more experience
joint venture partners; long-term supply or off-take and comfort with projects in Africa. Additionally, lower energy
agreements; and use of hedges and swaps. prices are likely to stimulate overall economic growth in many
economies, not least through consumer spending.

26 See http://www.afdb.org/en/projects-and-operations/financial-products/ Those who are willing to adapt to the new context for Africas
african-development-fund/guarantees/ . The first AfDB (African
Development Fund) PRG was issued precisely for an energy project: the Lake
energy projects will undoubtedly flourish and find the
Turkana Wind project in Kenya. http://www.esi-africa.com/lake-turkana- necessary financing and risk mitigation. To this end, however,
wind-project-gets-adf-partial-risk-guarantee/
governments and investors alike will need to be flexible,
27 http://www.ft.com/cms/s/0/99d1ead0-9e9d-11e1-9cc8-00144feabdc0.
html#axzz3XnW4D7ZB creative and visionary for Africas pressing energy needs
28 For a detailed analysis, see: http://elibrary.law.psu.edu/cgi/viewcontent. continue to be just as great, whatever the current oil price
cgi?article=1003&context=jlia
may be.

2015 Africa Energy Yearbook 49


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50 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

INNOVATIVE
FINANCING FOR
THE LAST MILE:
Output-Based Aid Provides Power to the
Poorest Households
Sal E. Gonzlez, Communications, Global Partnership on
Output-Based Aid, World Bank

Sal E. Gonzlez has been working in communications with the Global Partnership on
Output-Based Aid (GPOBA) since December 2012, coinciding with GPOBAs ten-year
anniversary (beginning in 2013). In addition to organizing a conference to commemorate
this event, he helped produce a video titled 10 Years of Output-Based Aid Around the
World. Prior to being with GPOBA, he worked as a researcher in the guarantees and legal
departments of the Multilateral Investment Guarantee Agency (MIGA), the unit of the World
Bank that provides investors with political risk insurance. Sal is a former US foreign service
officer, having served with the United States Information Service: in Riyadh, Saudi Arabia
as the former Deputy Information Officer, and in Rabat, Morocco as a junior officer. Sal
pursued an MPA at the Lyndon B. Johnson School of Public Affairs, received a CONACYT
Fellowship for the Colegio de Mexicos Summer Institute for US-Mexico studies, and received
a BA in Spanish from the University of Texas at Austin.

Nearly half of the worlds population without access to electricity lives in Sub-Saharan Africa.1 The current
energy deficit will worsen without massive new investments and threaten long-term economic growth and
competitiveness.

A dequate access to power sources for economic


development and an improved quality of life is a goal
currently beyond the reach of many of these countries,
90 percent of the population without access will reside in
rural areas.3 In either case, the poorest in rural and urban
areas will be the last to be connected without some form of
even more so for its poorest citizens. By 2040, about 950 aid intervention.
million people in the region will gain access to electricity, a
quadrupling in capacity, but this will still be insufficient to
meet the demand as investments are not projected to keep KEY ISSUES IN SUB-SAHARAN
pace with the rate of population growth.2 While the urban AFRICAS ENERGY SECTOR
populations lack of connectivity will be cut in half by 2040, Connectivity rates in sub-Saharan Africa are the lowest
in the world, with one in four people enjoying access to
1 IEA (International Energy Agency) (2014), Africa Energy Outlook
2 ibid 3 ibid

2015 Africa Energy Yearbook 51


POLICIES AND BEST PRACTICES FOR AFRICA

reliable energy compared to 40 percent in other low-income As donor countries demand greater accountability and
countries. Generation capacity is the lowest, with South Africa efficiency in development aid, and developing countries
alone making up nearly half of that capacity. Service delivery face budgetary constraints, OBA is considered a viable
is unreliable, and rolling blackouts and power outages hurt alternative to traditional aid. OBA provides payments linked
businesses, averaging 56 days per year. Private companies to the delivery and independent verification of outputs. For
often purchase diesel generators to guarantee energy security, example, payments to providers will not be made unless
which doubles and sometimes triples the power costs with a connection has been installed and in working order for
harmful effects to the environment. Average tariff rates per a defined period of time. While OBA provides incentives
kilowatt hour are the highest in the world; rates in countries for private sector financing, it does not exclude supporting
relying on diesel-based systems are higher still.4 commercially viable state-owned enterprises. While OBA is
not applicable in all cases, it can provide notable advantages
over traditional development aid.
OUTPUT-BASED AID
Output-based aid (OBA) is an innovative, results-based The World Banks 2002 Private Sector Development
financing mechanism designed to address the problem of Strategy included OBA as a key element to motivate
connecting the poorest in developing countries to basic the private sector and leverage private capital through
services. OBA works with service providers to bridge the gap subsidies targeted to the poor. In 2003, the World Bank
between the cost of service provision and the beneficiaries and the UKs Department for International Development
ability to pay. As private sector companies are profit-driven, (DFID), established the Global Partnership on Output-
they often overlook the poor as viable consumers. The main Based Aid (GPOBA) as an advisory body for OBA, and in
obstacle in most cases, however, is the prohibitive cost of 2005 approved direct funds to pilot projects to test OBA
connection -- even though most households incur greater approaches and evaluate lessons learned.5
monthly costs by using alternative energy sources such as
firewood, charcoal, batteries, kerosene, diesel and others
compared to an electricity bill. 5 Subsequent donors include: the Netherlands Directorate-General for
International Cooperation, the International Finance Corporation,
the Australian Agency for International Development and the Swedish
4 World Bank, Fact Sheet: The World Bank and Energy in Africa. International Development Cooperation Agency.

52 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

OBA schemes provide greater transparency as they


specify the specific outputs against which subsidies are
disbursed, and always target the poor.

GREATER TRANSPARENCY, SPECIFIC private financing is to provide longer-term loans, with


TARGETING future OBA payments as collateral. An OBA project relies
on the private sector expertise to optimize efficient delivery
Critics of development aid cite the difficulty in determining of quality results -- regardless of whether a service provider
whether benefits are reaching the targeted population. OBA is private or public.
schemes provide greater transparency as they specify the
specific outputs against which subsidies are disbursed, and
always target the poor. To reach the poor, the most common ENHANCED INNOVATION,
method is geographic targeting; by design this is the most COMPETITIVE BIDDING
effective way to target an economically homogeneous OBA approaches use competitive bidding, which often leads
population. Output verification by an independent third- to a lower subsidy for the project. There have been instances
party then confirms that the project is reaching the intended when subprojects demonstrated their commercial viability
beneficiaries, making OBA a tool for improving targeting of without the need for a subsidy as a result of competitive
development aid. bidding. Service providers are given the autonomy and
flexibility to determine how to provide the planned outputs
INCREASED ACCOUNTABILITY, using new or innovative methods, encouraging creative, cost-
PERFORMANCE RISK SHIFT effective solutions to reach the poor.

Service providers are held more accountable as their


reimbursement relies on the delivery and independent MONITORING AND EVALUATION OF
verification of service provision, shifting performance risk RESULTS
from the aid agency to the service provider. A 2009 review An integral part to the OBA approval and design process is
of OBA by the World Bank indicated that this shift in the monitoring and evaluation of results. Without tracking
performance risk proved that a project was more likely to and independent verification, service providers cannot receive
meet its objectives before or by the deadline (compared to payment. Clearly defined and monitored outputs, along with
traditional input projects,) and less likely to exceed its budget independent verification, enhances an effective monitoring
or underperform in the delivery of outputs. program.

MOBILIZATION OF PRIVATE CAPITAL EVALUATING OBA SUITABILITY


AND EXPERTISE Even with the preceding advantages provided by OBA,
OBA subsidies motivate the private sector to invest in other externalities are needed to identify its feasibility. A
extending services to the poor. OBA allows these companies supportive legal and regulatory environment (see chart
to expand their customer base and provide more equal below) is key to ensure a sustainable OBA scheme. It is
access. One method used to increase access to additional also more suitable for OBA to be part of a larger service

Without tracking and independent verification,


service providers cannot receive payment.

2015 Africa Energy Yearbook 53


POLICIES AND BEST PRACTICES FOR AFRICA

delivery arrangement already in place, acting as the last CONTEXT


mile to connect the poor, at a level that minimizes the
subsidy amount and enhances project sustainability. OBA A 2008 IMF Report ranked Liberia as the third most
has proven effective in mobilizing the private sector and impoverished country in the world, with two-thirds of its
leveraging capital, as well as explicitly targeting the poorest population below the poverty line and about half living in
beneficiaries with subsidies. extreme poverty. The countrys gross national income per
capita equaled US$160, or about one-tenth the regions
average.8 The country had been wracked by two civil
OBA IN THE ENERGY SECTOR wars in 15 years that destroyed the economy and services
OBA schemes in the energy sector have already benefitted infrastructure. The Liberian Electricity Corporation (LEC),
more than 6.8 million people.6 Given that rural areas are the sole power company charged with electricity generation,
more sparsely populated and/or composed of smaller transmission and distribution, ceased operations during
communities, as well as distant from on-grid access, OBA the conflict, making Liberia the only country in the world
schemes are used to connect end users through off-grid without a public distribution network. The devastation
and mini-grid systems by working with small and medium was such that even in its capital city, where one-third of
private companies (often through solar home systems the countrys population lives, it was estimated that only
SHS, as in GPOBAs project in Ghana7). OBA has also been 0.6 percent of Monrovias 1.13 million residents had access
used in connecting the poor to on-grid systems, mostly by to electricity, with the rest of the population relying on
larger providers or state-owned enterprises, as these are the kerosene, dry cell batteries, diesel generators and candles for
entities with the capacity for pre-financing and capital flows lighting needs, and firewood and charcoal for cooking. With
critical for the project. the scarcity of access to power, the tariff rate of US$0.48
per kilowatt-hour was perhaps the highest in sub-Saharan
6 GPOBA, OBA Approaches Note No. 10, Output-Based Aid and Energy:
What Have We Learned So Far? November 2010. (This figure includes
projects not undertaken by GPOBA). 8 International Monetary Fund. IMF Country Report 08/106,
7 GPOBA News, 08/2008, October 2008. Liberia:Enhanced Initiative for Heavily Indebted Poor Countries.

54 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

Africa, almost three times the cost of the average power first time in Liberias power sector, along with establishing
tariff in sub-Saharan Africa and six times more expensive regulation by contract in the absence of a regulatory agency
that the typical cost in other developing countries. Small (eventually to be established as part of the energy sector
businesses cost for power alone consumed up to 57 percent reform).
of their operational costs.
GPOBAS ROLE
LESEP GPOBAs involvement was a crucial building block in the
To remedy this situation, the World Bank in November reconstruction of Monrovias electricity distribution network.
2010 committed US$10 million through IDA credits to GPOBAs participation ensured the inclusion of the poor in
the US$53 million Liberia Electricity System Enhancement the reconstruction and extension of the electricity network,
Project (LESEP), a program specifically designed to as the market would tend to first connect wealthier areas,
support expanding Monrovias distribution network either due to their ability to pay full costs or to the relatively
and enhance associated power generation facilities. The less expensive connection costs the existing networks. The
World Banks Africa Renewable Energy Access (AFREA) investment to connect the poorest households is entirely
also contributed with a US$2 million grant. Partnering donor-funded, with the service provider not investing any of
with the World Bank was the Norwegian Agency for its own resources, making GPOBA an essential element to
Development Cooperation (NORAD, US$29 million) the success of the project.
and USAID (US$2 million).
The Liberian governments National Energy Plan (NEP),
In December 2011, GPOBA committed to funding LESEP adopted in 2009, aims to provide universal access and
by signing a US$10 million grant agreement. This subsidy affordable, reliable energy to rehabilitate the countrys economy
targeted 16,806 poor households (approximately 80,000 and lend to its stability and social cohesion -- all essential
beneficiaries) in identified priority areas for on-grid electricity elements in a post-conflict situation. The subsidy provided by
connections. The objective was to ensure an inclusive and GPOBA helps meet the goals of extending access to power to
broad-based electrification expansion in the capital city households that would otherwise be the last to be connected,
by providing access to the poor and not just those wealthy if at all, at an affordable price while contributing to the
enough to afford a connection. Until the GPOBA subsidy adoption of international best practices in the electricity sector.
could disburse, NORADs US$29 million pre-financed The households in the 21 identified areas have demonstrated a
LECs investment costs and procured the necessary resources willingness and ability to pay for a monthly electricity bill, as
to implement the connection program. the costs incurred in the other sources of energy are higher still
and consume from one-half to one-third of their disposable
The subsidy per household connection was estimated at income. As an integral part of LESEP and NEP, GPOBA not
US$595 (=US$124/person), equal to 63 percent of the only helped expand the electricity distribution network to
total cost of US$951. This is a comparatively high figure as reach low-income households that demonstrated a willingness
it reflected investments in new connections rather than the to pay but also helped meet the Government of Liberias
usual financing of connection fees for customers; that is, (GoL) objective of reducing tariffs for beneficiaries, leading
the subsidy is to offset the cost of the provider rather than to households saving on energy costs and reallocating limited
supplement the connection fee charged to customers. Eighty disposable income to other important needs.
percent of the subsidy would be disbursed to LEC upon
independent verification of connections, with the remaining PROJECT UPDATE
20 percent disbursed upon independent verification of three
months satisfactory service delivery. New, low-income While LECs goal was to connect 3,000 households per
customers were charged a US$50 upfront connection fee, to quarter, the utility struggled to generate enough capacity
be paid in five monthly installments of US$10. to meet the demand of the reconstructed and expanded
network, leading some households to still not enjoy full
Through a competitive bidding process, the Liberian access to power. In some of the areas, it was discovered that
government selected the Canadian power company some of the connected beneficiaries were unaware of their
Manitoba Hydro International to take operational control newly acquired access, demonstrating the need for a public
of LEC via a five-year management contract to bring the awareness campaign.
utility to a level of full functionality with professionally
trained staff. One important feature of this management While the original grant agreement was set to expire in
contract is the participation of the private sector for the June 2014, the project received an 18-month extension
to allow sufficient time to complete the remaining
connections, and conduct an independent verification to
9 Foreign Policy. Lets Power Africa by President Ellen Johnson Sirleaf. August ensure the delivery of three months service. A preliminary
29, 2013.
GPOBA report indicates that about 45 percent of the

2015 Africa Energy Yearbook 55


LAWYERS WHO
ENERGY SEE MORE
Herbert Smith Freehills advises many of the biggest and most ambitious
organisations across all major regions of the globe.

RANKED TOP FOR Our energy experts are internationally recognised as market leaders in the power,
AFRICA-WIDE nuclear, renewables and oil and gas sectors. Together they provide the broad range
PROJECTS & ENERGY of legal expertise required by clients across the globe and through every stage of the
CHAMBERS GLOBAL energy project life cycle.
2009-2015
We have a long-established practice in Africa, where we have acted on countless
matters across the whole of the continent over the past three decades and more than
200 in the last year alone. We are consistently ranked top for projects and energy
work in Africa by industry benchmarks and we have also received the highest rankings
in relation to power work.

Contacts

Stphane Brabant Martin Kavanagh Alexander Currie Lela Hubeaut


Partner Partner Partner Partner
+33 1 53 57 78 32 +44 20 7466 2062 +971 2 813 5005 +33 1 53 57 74 19
stephane.brabant@hsf.com martin.kavanagh@hsf.com alexander.currie@hsf.com leila.hubeaut@hsf.com

HERBERTSMITHFREEHILLS.COM
POLICIES AND BEST PRACTICES FOR AFRICA

GPOBA ENERGY PROJECTS IN SUB-SAHARAN AFRICA


GRANT AMOUNT PLANNED
COUNTRY PROJECT
(US$m) BENEFICIARIES
Ethiopia Ethiopia Electricity Access Rural Expansion 8.00 1,142,855
Ghana Solar PV Systems to Increase Electricity Access 4.35 75,000
Kenya Kenya Electricity Expansion Project 5.15 264,000
Liberia Monrovia Improved Electricity Access 10.00 80,000
Mali Rural Electrification Hybrid System 5.00 130,000
Uganda Grid-based OBA Facility 5.50 510,000

planned connections were made by the end of the 2014 of Monrovia. GPOBA can continue to support the poor in
calendar year, with 4,000 of these connections facilitated Liberia by facilitating access to electricity services through
by a reallocation of US$7 million in IDA funds for pre- projects in the governments national energy plans, both in
financing and to speed up the procurement of necessary scaled-up on-grid projects as well as in those involving the
material. Another factor responsible for the slowdown in introduction of renewable and off-grid solutions.
connections was the Ebola crisis in mid-2014, as extension
work was slowed in the poorer areas and independent 10 Donors include the World Bank Group, the Inter-american Development
evaluators were unable to interview households and verify Bank, the European Bank for Reconstruction and Development, the Asian
the connections. Development Bank, and the African Development Bank.

CONCLUSION
OBA has played a vital role in revitalizing the
Liberian electricity sector while the country
recovers from a decade and a half of an
internecine stress, both on its people and its
quality of life. In this post-conflict scenario
GPOBA has played a part in helping the
GoL design the reconstruction of Monrovias
electricity distribution network. OBA has
demonstrated its viability in promoting
the GoLs goal to re-introduce power to its
capital city, anticipated to reach an 8 percent
connection rate by projects end. While there
have been unanticipated but temporary
obstacles to fully adhering to goals as planned,
ie the generation capacity not keeping pace
with consumer demand, mechanical issues,
the need for consumer awareness/education
campaign, and the Ebola virus, efforts are
ongoing to make up for lost time and to raise
the robustness of LEC to more efficiently
deal with setbacks as they occur. Massive
investments still need to be undertaken to
achieve the GoLs goal to connect 35 percent
of the urban and peri-urban households by
2030. In 2013, Liberia was estimated to still
have the lowest nationwide electrification
rate of any country 1.6 percent. Liberia is
one of the eight pilot countries taking part
in the multilateral donor initiative Scaling-
Up Renewable Energy Program,10 which
seeks to expand access to electricity outside

2015 Africa Energy Yearbook 57


Generating power for emerging markets

Supported by a team of dedicated and experienced professionals,


Globeleq is providing more capacity and contributing to the growth
and development of the economies in Africa.

Since 2002, Globeleq has been a leading developer, owner and Jeffreys Bay Wind Farm
138 MW, South Africa
operator of independent power projects in the emerging markets
and has participated in nearly 14,000 MW of generation capacity
in 27 countries. The company develops economically sustainable
businesses that support the continued development of the electric
power sector in Africa.
Droogfontein & De Aar Solar Power
50 MW each, South Africa
Award winning expertise:
ACQ Magazine International Energy Business of the Year (Emerging Markets) 2014
Infrastructure Journal Power Deal of the Year 2013 - Azito Expansion
Project Finance African Power Deal of the Year 2013 - Azito Expansion
ACQ Magazine International Energy Business of the Year (Emerging Markets) 2013

Azito
430 MW gas fired (of which 139 MW
is under construction), Cte dIvoire
www.globeleq.com
2 More London Riverside, London, SE1 2JT, United Kingdom
T +44 (0)20 7234 5400 F +44 (0)20 7234 5486 E info@globeleq.com

Songas
190 MW gas fired, Tanzania

Kribi
216 MW gas fired (expansion to 330 MW
under development), Cameroon

Dibamba
88 MW oil fired, Cameroon

Tsavo
75 MW oil fired, Kenya
POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


PAUL KUNERT, HEAD OF BUSINESS DEVELOPMENT,

Paul Kunert is responsible for coordinating all business development activities in Africa. As a member of the Executive Committee, Paul is
fully involved in the strategy and planning of Globeleqs growth and development.
With 15 years experience in developing, financing and managing power and other infrastructure projects he has been with Globeleq since
its inception. From 2003-2007, he was Vice President for East Africa and the Managing Director of Globeleqs Songas project, managing its
construction, operations and two expansions. Prior to this Paul successfully led the companys power acquisitions for both Tanzania and South
Africa and the acquisition and development of the electricity distribution business in Uganda.
Paul was with CDC Group from 1999-2002 where he developed, financed and managed power projects in India and sub-Saharan Africa.
Prior to 1999, he held positions in project and corporate finance, advising investors and off-takers in UK and European PPP schemes.

QUESTION: What has been the most Songas is special in so many ways. the abundance of domestic coal to
rewarding or memorable project that Its a large project in a smaller generate majority of its power. South
Globeleq has been involved in in Africa economy, so we can see really clearly Africas government realized that it
to date? the massive difference we make; its needed to diversify its energy mix and
saved Tanzania over $4.5billion in introduced a revolutionary renewable
ANSWER: Thats a hard one! Every avoided costs of imported oil; and energy program which during its first
one of our projects is rewarding its its catalyzed gas exploration in the two rounds mobilized $9.5 billion
hard to choose. Every time we bring a region, the use of gas in Tanzanian of private sector capital. Globeleq
project online we know were making a industry from cement to brewing is proud to say that we were a part
real difference in hundreds of thousands to hotels and of course has been of this and we now provide a clean
of peoples lives. Our business is about the back-bone of the electricity source of generation to the South
providing new power generation to generation sector, generating up to African energy grid.
markets where supply is continually 40% of Tanzanias electricity in some
outstripped by demand, so the new years, with world class reliability. And QUESTION: From a developers
generation capacity we add means faster its cost effective: at 6.5 USc/kWh perspective, what are the key
economic development in that country. nothing else in the region comes components required to ensure a
close. successful experience when working
If I had to single out specific projects, I The 50 MW De Aar, 50 MW in a developing country?
would say Songas, with its 225 km gas Droofontein solar and 138 MW
pipeline and 190 MW Ubungo power Jeffreys Bay wind power plants in
station in Tanzania; and, of course, the South Africa were some of the first ANSWER: There are a lot of things that
South African solar and wind power renewable energy facilities to be built need to fall into place to make a project
projects: in a country which always relied on happen policy stability, broad-based

Our business is about providing new power


generation to markets where supply is continually
outstripped by demand, so the new generation
capacity we add means faster economic
development in that country.

2015 Africa Energy Yearbook 59


POLICIES AND BEST PRACTICES FOR AFRICA

government commitment, transparent


and clearly defined procurement
processes, a coherent energy plan, At the core, I believe that were
sustainable cost reflective tariffs and
creditworthy off-takers but, to me, designed to do good: to be
whats critical is the genuine engagement
of key decision makers in government. creative, to make good things and
Without that, despite all the other pieces
being right, projects languish when make them available to others, to
they should get done. It takes two to
tango! And where there is that genuine wisely steward the resources of the
engagement, well, frankly, projects can
get done without all the other pieces earth to provide good goods and
being exactly right.
services that serve.
What is the link between social and
economic development in Africa?
How can the power sector contribute About 1.2 billion people worldwide do knowing that were doing something
positively to this relationship? not have access to electricity mostly in good. At the core, I believe that were
Africa and Asia. So, what were doing at designed to do good: to be creative,
Theres a lot of talk about poverty Globeleq providing reliable, cost-effective to make good things and make them
alleviation. I prefer to talk about electricity directly impacts the prosperity available to others, to wisely steward the
creating prosperity. When a country of the places in the world that most need resources of the earth to provide good
and its people prosper, they can afford it. Accepting the fundamental conviction goods and services that serve. There are
the food, housing, clothing, education that economic growth fairly shared across lots of industries where, when theyre
and health they need. And countries all of society, to be sure is key to creating done well, you can see that. But in our
prosper through economic growth. And prosperity, means that what we do creates business in Africa, we can see clearly
electricity reliable, cost-effective, widely the room for social development. We cant the beneficial impact of what we do.
available electricity is key to making do everything. But what we do creates the The other thing I love is working with
economic growth happen: increasing room for societies to prosper and develop. African industry leaders often under-
energy consumption is directly associated resourced and hard-pressed with vision
with economic and social growth. What do you enjoy most about and energy to lead change in their own
working in Africa- from a professional countries its a genuine privilege to
Electricity gives you the opportunity to work with such committed people.
start a small business, build and operate or personal viewpoint?
a factory, get a decent education, run
hospitals, light and heat or cool your I hope its obvious from the answers The Africa Energy Forum provides a
home, get online and make cities better to the other questions that the biggest meeting place for the key players in
places to live. satisfaction I get from my work is in Africas power sector- both established
and emerging. Who in particular are
you looking to meet with in Dubai
this year?

Electricity gives you the Africa Energy Forum is always a great


place to meet our customers heads of
opportunity to start a small utility businesses, government ministers,

business, build and operate a regulators. Weve attended and sponsored


the AEF every year since 2002. This

factory, get a decent education, conference is the key event for all those
involved in the African Energy sectors

run hospitals, light and heat or and so there are many opportunities
to network with old and new players

cool your home. in the industry. Well be meeting with


representatives from all our target
markets at the conference this year.

60 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

THE ROAD AHEAD


for power sector transformation in Africa

Angeli Hoekstra, Partner,


Africa Power & Utility Leader, PwC John Gibbs, Advisory Partner, PwC

Angeli started her management consulting career at PwC in John is an Advisory Partner based in Johannesburg where
the Netherlands in 1991 and moved to South Africa in 1998. he has particular responsibility for PwCs Capital Projects &
In South Africa she led the Technology Practice for 11 years and Infrastructure Power & Utilities business across Africa. In addition
was part of the Global Technology Leadership team and the PwC John leads the Deals Infrastructure Finance team in South Africa.
Global Emerging Leadership team.
Across a 25 year career in infrastructure John has worked for
Angeli is leading the Power and Utility practice for PwC in Africa public and private sector clients across the globe. A specialist in
and is the Client Relationship Partner on South Africas major the Power & Utilities sector. John brings particular experience in
utility, Eskom. She was the PwC partner responsible for a wide the development of major infrastructure in Africa having worked
range of Power & Utility projects within Africa. extensively in Southern and Eastern Africa. He is currently one of
the lead advisers to the Department of Energy in South Africa on
the Renewable Energy IPP programme, now in its fourth round
of competitive capacity allocation.

A series of megatrends and markets disruptions are creating opportunities for increasing supply and access to
affordable and reliable electricity in Africa. Both countries and companies need to make the right moves in order
to ensure that they can take advantage of these opportunities. To do this will require a clear vision of the new
market and an understanding of which business models will deliver the required success.

2015 Africa Energy Yearbook 61


POLICIES AND BEST PRACTICES FOR AFRICA

Different forces are creating a complete transformation in the energy industry

T he global and regional forces driving radical, disruptive


change in the energy industry can be summarised as
follows:
may provide short term relief to severe electricity supply
constraints, but in the longer term often prove costly and
may act as barriers to the development of more affordable
alternatives. There are however great success stories
Global trends having material impacts on Africas power including the use of business models focussed on behind
sector include rapid urbanisation, population growth and the meter solutions, such as solar heater providers and
demographic change, water scarcity, new technologies prepaid meters, which incentivise energy efficiency and
(including renewable energy and improvements in energy revenue maximisation.
storage) and economic growth (with seven out of the ten
worlds biggest growing economies located in Africa). New business models need to be thought through in terms of
their impact on the wider strategies of the applicable power
These global trends are complemented by Africa-specific company or state-owned entity in order to avoid unintended
pressures arising from an ageing, ill-maintained asset basis, negative consequences, as in the case of a scheme to provide
low rates of electrification, scarcity of skilled labour, especially smart meters to a municipality in South Africa. In this case
in the engineering and construction fields and opportunities the installer/operator of the smart meters shares the electricity
arising through intra-regional transmission and trading of revenue accruing to the meters and this revenue sharing
electricity both on a bilateral governmental basis and through arrangement has impacted materially on the sustainability of
regional power pools. the municipalitys finances.
These megatrends are creating new opportunities and challenges True transformation can only take place with the introduction
driven increasingly by changes in customer behaviour, new of new market models that can facilitate new business models
forms of competition and changes in regulation. that can deliver increased access to reliable and affordable
Fast growing regions in Africa are reviewing and implementing electricity. It is typically the role of the Regulator to identify
different solutions as they seek to enhance and expand their the required market models and to establish the regulations
electricity supply. New business models are being established required around the preferred option.
and in certain parts of Africa, such as Kenya, Uganda and On a high level PwC has identified four major market
Nigeria, we see the establishment of new market models, models:
driven by governments, sector regulators and business.
1. Command and control markets in which governments
Certain new business models, such as the outsourcing own and operate the energy sector and mandate the
of emergency power supply to independent producers, adoption of forms of electricity generation;

62 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

Its not a question of whether new market models


will be adopted but which business models will most
widely be used in the sector.

2. Local energy systems markets in which there is significant and legal frameworks and sector institutions. Perhaps for this
fragmentation of existing transmission and distribution reason, major super-grid projects such as ZIZABONA in
grids and local communities demand greater control over Southern Africa are being implemented slowly.
their energy supply, or markets in which a local approach
is adopted for serving remote communities; The introduction of new business models and market models
(such as the introduction of IPPs) may have major impacts
3. Regional supergrid(s) markets which are pan-national on existing power utilities. For example, existing generation
and designed to transmit renewable energy over long assets could be left stranded as local energy systems and self-
distances, requiring large-scale (renewable) generation, generation by customers eat away at the traditional command
interconnectors, large-scale storage and significant levels & control model with its emphasis on a centralised grid and
of transmission capacity; and large-scale generation. This leaves integrated state-owned
utilities with high fixed costs associated with additional
4. Ultra-distributed generation markets in which generators complexity of managing the transmission grids and
have invested in distributed (renewable) generation, with increasingly stranded assets.
investment decisions based on policy incentives and/or
economic business cases. It is therefore conceivable that sector transformation could
shrink the role of some power utility companies to providers
In Africa, the traditional command & control model of back-up power. Alternatively, where existing grid and
remains the norm although there is an increasing network systems cannot evolve to meet the needs of the new
recognition that change is required if the continent is to decentralised models, countries may be unable to take full
unlock its full potential and bring its power sector up to advantage of advanced technologies.
the standards required to compete in a 21st century global
economy. The disruption taking hold in the power sector is just
the start of a fundamental transformation in the energy
In recent years, local energy systems and ultra-distributed industry. Its not a question of whether new market models
generation market models have gained traction as they offer will be adopted- this is already happening around Africa-
particular potential to increase both quality/reliability of but which business models will most widely be used in the
supply and coverage/access to underserved populations using sector, what steps governments, regulators and other players
affordable and geographically appropriate technologies. will take to achieve structural change and whether existing
The Renewable Energy Independent Power Producer power utilities will be able to adapt with sufficient speed
Programme (REIPPP) in South Africa is a particular and flexibility.
success story that demonstrates how the private sector can
be incentivised to develop a substantial programme of new, About PwC
ultra-distributed generation assets located on a geographical
basis to take advantage of high wind speeds or insolation PwC helps organisations and individuals create the
levels. Power is then evacuated to population centres though value theyre looking for. Were a network of firms
the primary transmission grid. Interestingly the REIPPP in 157 countries with over 195,000 people who are
has been implemented by the Department of Energy whilst committed to delivering quality in assurance, tax and
Eskom, the power utility, remains firmly in state-ownership. advisory services. Tell us what matters to you and find
A feature of the local energy and ultra-distributed models is out more by visiting us at www.pwc.com.
that they can be developed in a scalable manner that may
facilitate both financing of initial investment and recovery of
2014 PwC. All rights reserved.
such investment over time. This contrasts with the regional
super-grid model which, by definition, requires major capital PwC refers to the PwC network and/or one or more of its member
firms, each of which is a separate legal entity. Please see www.pwc.
investment on projects that require close co-operation between com/structure for further details.
countries, often with divergent power systems, regulatory

2015 Africa Energy Yearbook 63


We are seeing a focus on
developing low cost LNG
projects globally.
POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


SIMON CURRIE, GLOBAL HEAD OF ENERGY,

Simon Currie is the Global Head of Energy at Norton Rose Fulbright. He advises clients across the globe on strategy and the development,
acquisition and financing of assets in the energy, natural resources and infrastructure sectors.
Simon has worked on ground breaking and innovative transactions in over 50 countries.
Over the last 15 years he has advised clients on the development of energy projects across Africa. He has worked on several first in country
projects in Africa and understands the changing dynamics and opportunities in the energy sector. He has experience across the entire value
chain, ranging from upstream oil and gas to electricity and gas transmission and distribution.
Simon is a keen supporter of AEF and, in particular, the local content and the student engagement programmes.

QUESTION: I notice youve recently west and north and south, wherever the the opportunity to develop several more
moved to Australia. Surely the move client is located. LNG projects in the future. For now, the
cant purely be a personal one? producers are focusing on getting mega-
Australia has recently reduced the projects like the 3 Gladstone projects and
ANSWER: I was very fortunate to live number of LNG projects under the Gorgon project in Western Australia
in London for 17 years. At the beginning development- what led to this decision? into full production.
of 2015 I relocated to our Sydney office
to help drive our Asia-Pacific (APAC) We are seeing a focus on developing
practice. Australia will soon be the No.1 exporter of low cost LNG projects globally at the
LNG globally. When I left New Zealand moment where field development and
The energy markets in the APAC region in 1997 for London this wasnt just liquefaction plant costs will be controlled.
are of critical importance to the global optimistic but completely unthinkable. The best example right now is Papua New
economy from a supply and demand It shows to me the ability of countries to Guinea which is continuing to see the
perspective. I am working with our global harness their resources and swing towards development of new projects, on the back
clients and our network supporting new markets and customers. of the success of PNG LNG.
the growth of inbound and outbound
investment for the region. However, Australia is now in the position Australia is competing with these countries
where new projects dont make sense as an investment destination. This
I continue to be the global head of our to develop straight away at current gas competition is also facing other new LNG
energy team and I will also continue prices and due to the high construction producers like Mozambique and Tanzania.
focus on the development of the energy costs for the existing projects. As many
industry across Africa. international companies have said about Another interesting trend is focusing
Australia, you can ruin the resources on what can be done with existing
Over the next decade we are going to see story if you dont control labour costs LNG plants which are not running at
APAC-Africa trade grow exponentially. and labour market flexibility. capacity. The push to utilise the almost
We believe it is critical to have our idle Egyptian LNG plants with gas from
leadership team sitting across the globe Australia is lucky to have conventional offshore Israeli and Cypriot fields is a
and enabling clients to look east and and unconventional gas resources and has good example.

Australia is now in the position where new projects


dont make sense to develop straight away at current
gas prices and due to the high construction costs for
the existing projects.

2015 Africa Energy Yearbook 65


POLICIES AND BEST PRACTICES FOR AFRICA

What should African governments


be thinking about when raising debt
against its future LNG based revenue? You can structure debt on a
LNG is a commodity. borrowing base structure so
I firmly believe that we will see a move the level of debt available falls
towards global rather than regional
pricing. The Asian buyers search for when prices fall.
alternatives from the oil price bucket
isnt going to be halted, even with the
fall in oil price over the last six months. happens to revenues when there is a rapid grapples with the technological
European buyers are looking for fall in oil prices. challenges. In an African context
alternative gas supplies for pricing and these include increased penetration of
energy security reasons. You can structure debt on a borrowing renewables, distributed energy, electricity
base structure so the level of debt storage, energy efficiency and demand
However, overall LNG will remain available falls when prices fall (and
connected to oil prices despite the long side management.
accordingly the borrowing base is
term trends towards gas displacing coal reduced). However, this doesnt help The electricity sector is no longer about
in the energy production chain. you if you dont have the money to repay centralised command and control
So you need to prepare your budget so that additional debt when the base is systems but much more customer-centric
you dont spend money before you have reduced. solutions.
it. There are many examples today in A prudent approach is only to borrow on We have seen the benefits in markets
2015 of governments in Africa and other the basis of a low case LNG price and like Brazil and South Africa of building
continents where they expected an oil take into account the risks of delays in local capacity - particularly to kick-start
price of $100+ per barrel and now they are commissioning and initial production, renewable programmes.
struggling to fill the funding gap. Most of especially if you are a new producer.
us in the industry have lived through oil I passionately believe in the importance
being below $10 per barrel. It is tempting of local content requirements and
to believe that things will continue to be Youre passionate about job creation capacity building programmes, as long
rosy but does this help build sustainable and Im delighted that again Norton as they are achievable and not treated by
businesses and economies which are Rose Fulbright will be supporting local and international actors as token
robust enough to sustain the ups and the EnergyNet Student Engagement schemes which can be ignored. Sadly
downs of commodity markets? Initiative. Outside of simply a moral this has often been the case with such
obligation to support your aspiring programmes for the oil and gas industry
This isnt just an issue for Africa - look at individuals, why should the electricity in Africa.
Western Australia, Queensland and Chile. sector take capacity building seriously?
They have all ridden the resources super- What can be the medium to long term If you look at the immediate oppor-
cycle and now are wondering where the benefits? tunities in Africa I would focus on the
tax revenues will come from to meet the following:
commitments made in the good times. Electricity is a people business, right - Rooftop solar: Rooftop solar can be
across the production and supply chain. done on residential or commercial
So if you are raising debt against future roofs. The technology is evolving
LNG revenues you need to understand We are seeing transformational changes constantly and pricing continues
the dynamics of the pricing and what in the electricity sector as the industry to fall. Rooftop solar requires local

I passionately believe in the importance of local


content requirements and capacity building
programmes, as long as they are achievable and not
treated ... as token schemes which can be ignored.

66 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

Countries like Morocco have many of the right


ingredients to encourage the development of a solar
PV manufacturing industry.

delivery and logistics systems and The alternative is to end up with I have only been in Australia a few months
doesnt require the level of specialised white elephants in a range of countries but I am already a growing supporter of
labour of something like, a large gas which are not competitive. This hurts the Japan-Australia initiative pushing the
fired power or an LNG liquefaction everyone as it adversely affects investor merits of clean coal.
project. confidence.
- Ground mounted solar: We continue We are transitioning to a cleaner and
to see more and more utility scale And from a politicians perspective there greener fuel mix globally. And by fuel
solar projects being deployed is nothing worse than promising 100s mix I mean fuels for all sectors - not
globally. The opportunities for local of jobs and then seeing them evaporate just electricity.
involvement are across the value in a few years when the industry wasnt
competitive and the plants had to close. I dont support the view that Africa cant
chain, including site selection and have coal-fired power while the rest of us
development, resource validation, Countries like Morocco have many of drive our gas-guzzling SUVs and push
permitting, civil and electrical works the right ingredients to encourage the renewable energy only solutions for the
and, in the right environment, solar development of a solar PV manufacturing developing world.
module assembly. industry. South Africa has shown the
- Energy efficiency: Many energy way with the development of a local We have the technology to make a
efficiency projects are quite labour renewable energy supply chain. But this difference.
intensive - such as upgrading street cant be replicated everywhere. It helps
lighting. I believe there will be My hope for COP21 is that the US,
to have scale and the potential to export Europe and other OECD countries
increasing opportunities for African beyond the local market.
companies to be seen as leaders in accept the need for rapid transition to
energy efficiency deployment across I do believe that you can impose quite electrification of the transport industry
the continent. We need more African strict requirements on the skills transfer and continuing investment in clean
countries and large industrials with aspects of the industry and require coal technology.
facilities in Africa to get behind very high levels of local participation The reality is likely to be more investment
energy efficiency initiatives. We also in operations & maintenance and and support for renewables. The good
need more entrepreneurs to recognise management. thing for Africa (and anywhere else with
the potential. decent weather) is that solar PV is now
Local content rules must be sustainable
and the best ones take a long term view. competitive with almost every other
Weve talked previously about whether form of power generation. If you look
a local content law would support the As we have seen most recently with
Brazil, you also need to avoid creating an at the lifecycle costs of coal-fired power
electricity sector at this early stage, in markets who dont have ready access to
or perhaps add another hurdle for environment where a few people benefit
and the country loses out. cheap mine-mouth solutions the LCOE
investors that may add additional (levelised cost of energy) for solar PV is
risk. What are your thoughts on this now beating coal in many situations.
a year later? Norton Rose Fulbright is a global
firm advising pretty much across all Solar PV is not the answer to all our
I am generally supportive of local content sectors, including climate change. problems. It may be more dependable
rules in order to make industries do What do you hope decision makers than wind energy but it cant deliver
what they should be doing as a sensible at this years COP21 meeting will baseload power, at least until storage
business. consider when deciding on climate technology is scaled-up and is cheaper.
change policies that will affect That is why I believe that clean coal
I also believe that we must look to Africas ability to raise finance against should be seen as a viable option in the
develop regional hubs of excellence. resources such as coal? countries where is makes sense.

2015 Africa Energy Yearbook 67


11572

MAKING

RENEWABLE
ENERGY
HAPPEN

30 PROJECTS R25 BILLION COMMITTED 13 AWARDS


POLICIES AND BEST PRACTICES FOR AFRICA

STREAMLINING
POWER PROJECT
DEVELOPMENT
IN AFRICA by Promoting
Standardized Power Purchase Agreements

Dr. Mima S. Nedelcovych, CEO, Initiative for


Global Development

Dr. Nedelcovych is the President & CEO of the Initiative for Global Development, a nonprofit
organization that engages corporate leaders to reduce poverty through business growth and
investment in Africa. Prior to joining IGD, Dr. Nedelcovych was the Chairman of Schaffer
International, where he led the development of a number of agro-industrial concerns throughout
Africa, including the Markala Sugar Project in Mali.
Dr. Nedelcovych served in the Administration of President George Bush from 1989 to 1993 as
the U.S. Executive Director to the African Development Bank (AfDB) in Abidjan, Cote dIvoire.
He was instrumental in formulating the private sector initiative at the AfDB, the African
Business Roundtable and the African Export-Import Bank.
Dr. Nedelcovych presently sits on the Boards of Schaffer International, International Green
Structures, the Partnership to Cut Hunger and Poverty in Africa, Afriland First Bank SA
(Cameroon) and is a past Director and President of the CCA and Member of EXIM Banks Sub-
Saharan Africa Advisory Committee.

Power plays an important role in fostering inclusive economic development. While standardizing power purchase
agreements (PPAs) will help accelerate negotiations for independent power projects, its up to all stakeholders
involved to create an environment that will ultimately facilitate greater access to power for both urban and
rural communities.

L ast year 1.2 billion people in the world lived without


electricity, half of them in Sub-Saharan Africa. A lack of
reliable and accessible power often has debilitating social and
long process of negotiating and implementing investments
in independent power projects. The extended discussions can
lead to missed investment opportunities. Overcoming these
economic impacts. Businesses cannot efficiently expand while barriers to much needed investments in power infrastructure
hospitals and schools are unable to properly function at full will ultimately help transform and shape Africas future
capacity. The lack of electricity access is exacerbated by the economic growth.

2015 Africa Energy Yearbook 69


POLICIES AND BEST PRACTICES FOR AFRICA

USING POWER TO CLOSE THE Outside of urban areas, there is little access to power due to
EQUALITY GAP poorly designed, inadequate or often missing national grid
The growing population in Africa will play a driving role in systems, or simply not sufficient power generation. The central
the continents development narrative. The overall population power grid often fails to reach out to those in rural communities,
is expected to double to over 2 billion inhabitants in the next and, in areas where it does reach, many countries lack sufficient
35 years. More than half will be living in urban areas and be generation capacity to provide reliable power year-round. As late
eager for jobs. As such, Africas urban centers can become hubs comers to industrialization, African countries can take advantage
for manufacturing and industrialization. To turn this potential of more recent innovations in technology to incorporate
into reality, there is a need for access to reliable, competitively renewable energy and point of use power generation into their
priced power. Without it, many African countries may face power supply mix and bank on off-grid solutions to bring
social unrest and political instability as they are unable to meet power to rural areas. With the addition of and mini- and off-
the rapidly growing employment demand. grid systems to the often frail national grid networks, electricity
can reach underserved, hard to reach communities and drive
Ethiopias new Grand Renaissance Dam is an example of inclusive growth where there has been virtually none.
one nations efforts to develop the infrastructure necessary to
meet the demand for industrialization. The $5 billion project
is funded by the Ethiopian government with support from THE CASE FOR STANDARDIZED
Chinese banks and will generate around 6,000 megawatts POWER PURCHASE AGREEMENTS
of electricity to meet domestic and regional demand. Once Private investment in the electricity sector in Africa will be
completed and on line, the World Bank estimates Ethiopia fundamental to increasing access in the region. Because any
could earn $1 billion a year in electricity exports, making it Independent Power Project (IPP) must be based upon a
the largest exporter of power on the continent. This project is Power Purchase Agreement (PPA) between the IPP and the
also expected to drive economic development along the Nile off-taker, it will be necessary to facilitate the negotiation and
basin in countries such as Sudan and Egypt. Increasing electric finalization of bankable PPAs.
power in the region will provide Ethiopia and its neighbors
the ability to power homes and businesses, ultimately driving In many African countries, PPA negotiations can take 5-10
regional economic growth. years more than two to three times longer than in other parts
of the world. The result? Fewer projects are successful and
These kinds of projects are necessary to make Africa a ones that are completed can be more expensive due to these
competitor in the global economy. As China moves up the costly delays. Ive been on the four sides of the negotiating
industrialization ladder, the manufacturing jobs that have table: representing the developer, financier, the government,
driven Chinas growth will ultimately move. How can Africa and now an NGO. One of the major initial challenges
compete with Southeast Asia or other regions with low hindering power projects is overcoming a lack of trust and
labor costs for those jobs? Access to reliable, competitively understanding for the perspectives of the other stakeholders.
priced power is the major pre-requisite. That, along with The developer wants profits and the government wants cheap
Africas abundant natural resources and a large, young and power. Without compromise, it can take 2-3 years just to
increasingly urban population, should make it an attractive settle on a minimum price for the power even before any
destination for those manufacturing jobs. further discussions about terms and conditions.
The complement to rapid urbanization is a decreased number A new PPA handbook, Understanding Power Purchasing
of farmers feeding the growing population. At present, Agreements, was produced by IGD in collaboration with
agriculture is the largest employer and major economic the US Department
driver in many African economies. For African economies of Commerce, OPIC,
to take advantage of its vast, arable resources, smallholder USAID, and the African
subsistence farmers must transform to support sustainable Development Bank
productivity. This means expanding the agro-allied industry through the African
to include the full complement of services along the farm Legal Support Facility.
to fork value chain, including provision of inputs and farm The handbook translates
services, offtake of product and aggregation, warehousing, knowledge and best
processing, packaging, branding, wholesaling and retailing practices on PPAs into
food products. Very efficient links along the value chain will an accessible primer on
create higher paying jobs as well as more competitively priced this often complicated
food to the consumer, and will drive sustainable economic and misunderstood legal
growth. But again, these added efficiencies in value addition instrument. It brings
to raw food products will require reliable and affordable more structure to the
power in rural areas. process by increasing

70 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

understanding of important provisions that address risks,


obligations, and remedies. Ultimately, it provides the foundation
for any conversation about an IPP by framing each of the key
issues for the investor, the off-taker, the financing parties and
the consumer him or herself.

Creating a standardized document minimizes the confusion for


multiple parties within the complex PPA process and narrows
the number of issues that must be negotiated between the
parties. When the negotiation process begins with a previously
agreed document that includes all of the elements necessary
for bankability, the parties will increase the likelihood of
The handbook translates
financing by facilitating the review to be conducted by banks
and other financing partners. By introducing a standardized
knowledge and best
PPA, the intention is that the insights shared will reduce the
PPA negotiation time and lower transaction costs significantly
practices on PPAs into
ultimately facilitating IPPs, lowering development costs and
offtake pricing requirements, increasing the attractiveness
an accessible primer on
of investments in the power sector, and most importantly
increasing the speed of access to power.
this often complicated
and misunderstood legal
INTERSECTION BETWEEN THE
DEVELOPERS AND
instrument.
GOVERNMENT AUTHORITIES:
SEEKING COMMON GROUND AND
ALIGNING INTEREST
GOING BEYOND STANDARDIZED PPAS
Standardized PPAs simplify the development and negotiation
process and facilitate private investment in electricity generation The Africa Rising narrative focuses on the continents
assets. But the PPA is only one piece of the power investment resources which can alleviate poverty, strengthen inclusive
puzzle. Investors require a reliable legal and regulatory regime; the growth, and turn Africa into a major player in the global
off-taker needs a tariff that falls within its budget and accounts economy. Access to power will play a fundamental role
for the (often) low price at which it sells electricity. Politicians in realizing this potential. While the development and
need a deal they can sell to a skeptical public and developers dissemination of the new handbook will go a long way
need to show a rate of return that is sufficiently high to attract toward increasing general understanding of the PPA and its
investors in a potentially risky project. These pieces must all role in a power sector investment, IGD has decided to use
come together for an investment in the power sector to succeed. this document as the starting point for a program focused
on developing and adopting standardized PPAs in select
In addition to aligning interests of invested stakeholders, countries in Africa. Some of the factors that will be looked
we see the process of developing a standardized PPA as at include deal flow, i.e. significant potential for independent
useful to consolidating interest and creating political power production development in the country, as well as for
momentum for increased investments in the sector. Yet the appetite for governments to set the right conditions to
due to the significant legal, economic, and policy matters attract private developers. We will also look at the interest that
at stake, a government- whether in Africa or elsewhere- local and foreign stakeholders expressed in encouraging IPPs.
must have the political will to pass measures that will And of course, it is important to also consider the complex
increase private sector investment. issue of navigating the countrys bureaucracy and regulatory
system to gain traction for establishing a standardized PPA.
A number of measures will be unpopular in the short-run.
However addressing these issues such as using transparent Our goal is to work with governments committed to increased
procurement processes, adopting cost-reflective tariffs, private investment in the sector by crafting a PPA document
ending corruption, implementing fiscal transparency, specific to that countrys unique political and business landscape.
long-term sector planning, and respecting the sanctity of It can form the basis of future negotiations with developers and
contract are necessary for long term economic growth. banks. With a more streamlined approach, the hope is to expedite
When these measures have been adopted in other regions, the power project development process to provide greater power
private investment has increased and where they continue access and ultimately help drive economic development on the
to languish, investment has stalled along with development. continent at a faster pace than has been the case to date.

2015 Africa Energy Yearbook 71


Our main aims are to provide private
sector solutions to the challenges of
inclusive economic growth in Africa
POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


DR MIMA S. NEDELCOVYCH, PRESIDENT & CEO, THE INITIATIVE FOR
GLOBAL DEVELOPMENT

Dr. Nedelcovych is the President & CEO of the Initiative for Global Development, a nonprofit organization that engages corporate leaders to reduce
poverty through business growth and investment in Africa. Prior to joining IGD, Dr. Nedelcovych was the Chairman of Schaffer International, where
he led the development of a number of agro-industrial concerns throughout Africa, including the Markala Sugar Project in Mali.
Dr. Nedelcovych served in the Administration of President George Bush from 1989 to 1993 as the U.S. Executive Director to the African
Development Bank (AfDB) in Abidjan, Cote dIvoire. He was instrumental in formulating the private sector initiative at the AfDB, the
African Business Roundtable and the African Export-Import Bank.
Dr. Nedelcovych presently sits on the Boards of Schaffer International, International Green Structures, the Partnership to Cut Hunger and
Poverty in Africa, Afriland First Bank SA (Cameroon) and is a past Director and President of the CCA and Member of EXIM Banks Sub-
Saharan Africa Advisory Committee.

QUESTION: What are the main aims QUESTION: What is IGDs rela- plants; the issue is simplifying the way
and objectives of the Initiative for tionship with the US Governments and this is where our PPA Handbook
Global Development (IGD)? Power Africa initiative? Were there will hopefully make an impact.
any important outcomes to take away
from the Powering Africa: Summit in QUESTION: The handbook
ANSWER: Our main aims are to provide Washington this January?
private sector solutions to the challenges Understanding Power Purchasing
of inclusive economic growth in Africa. Agreements (PPA) should drive forward
To do so we draw on our leaders ANSWER: We are the NGO partner the development of independent power
experiences worldwide in applying the to Power Africa, working very closely projects and provide clear guidelines
best practices and are convinced that the with the Department of Commerces for investors and governments alike.
right answers to any one country or region Legal Advisory Services, USAID and Can you tell the readers of the Africa
in Africa no longer emanate only from all the USG agencies involved in the Energy Yearbook a bit more about how
Washington, London or Paris, but are Program. Our Power Working Group, the idea behind the handbook came
often found in other recently emerging comprised of developers, lawyers and about, and what the catalysts were for
countries, not to mention other parts of financiers, worked very closely with DOC its creation.
Africa. So cross-sharing experiences is and the Africa Legal Support Facility at
very important to our leadership. IGD the AfDB to compile the document ANSWER: The idea came from our
brings together an influential network entitled Understanding Power Purchase Power Working Group, based on
of senior executives from sector-leading Agreements which offers up standard examples outside Africa where such
companies with the interest and capacity PPAs that countries can adopt as a way standard PPAs are more routine, to find a
to make strategic investments in high- of speeding up the development of new way to speed up the process and get badly
need, high-potential areas of Africa. power plants. The main outcomes from needed power generation into Africa.
Members of our Frontier Leader Network the Washington Summit were that there In fact, we started working on this idea
shape frontier market insights, promote is definitely a will both from developers even prior to the announcement of the
business-driven development, and create and government authorities to speed up Power Africa Program, so our interests
economic growth. the development of new power generation quickly aligned.

We are the NGO partner to Power Africa, working


very closely with the Department of Commerces Legal
Advisory Services, USAID and all the USG agencies
involved in the Program.

2015 Africa Energy Yearbook 73


POLICIES AND BEST PRACTICES FOR AFRICA

a. Rapid growth of the population and


equally rapid urbanization in the
next generation, to the point where
population will surpass 2 billion and
start to approach 50% urban.
b. The youth bulge and population
increase will either be a boon
for growth or a social disaster if
economies do not grow and jobs are
The youth bulge and population increase will not created.
c. To create those jobs, the public
either be a boon for growth or a social disaster. sector really needs to set the right
conditions for and with the private
sector, and that will include finding
QUESTION: What do you consider to satisfaction and ultimately disappointment creative PPP solutions to financing
be the single most important element has come from the Markala Sugar massive requirements for power
for the private sector to consider when Project in Mali, a massive investment in and infrastructure. Industry is what
investing in Africas power sector? sugar processing and co-generation of creates jobs, and industry needs
30 MW of power that I developed with power, as well as large markets to scale
ANSWER: Assurances that long term the Schaffer team and Illovo as the (hence the need for real economic
(up to 25 years) off-take agreements strategic partner in the period 2004-12. integration).
will be honored and that there is an After many years, we finally structured d. Agriculture will increasingly move
appropriate underwriting guarantor in a $640 million deal with 17 financial from smallholder subsistence to
the cases where the off taker/utility is institutions, a mixture of commercial commercial farmers (small and large)
not credit worthy. and concessional financing to cover the and agriculture will be treated as a
small holders pulled into the scheme, and business and not a vocation. Africas
were about to lauch construction of the abundant arable land will position it
QUESTION: Your career has spanned to be an exporter and not importer
a range of experiences relating to trade factory when the military coup hit Mali.
Following the coup, Illovo lost interest of food.
facilitation, project development, e. Accent will be placed on value-
project finance, and public-private and pulled out, and this most innovative
project remains in limbo awaiting a clear addition, be it to food items or
partnerships in Africa - whats been natural minerals.
your greatest or most inspiring memory position from the new Mali government
as to whether to restart! f. Those governments that set the right
in this sector to date? environment and incentives for the
private sector to grow will pull ahead
ANSWER: I take the greatest pride in QUESTION: What major economic in economic growth over the laggards
structuring agro-industrial investments and social developments do you hope that dont get it right and hopefully
that align the interests of small farmers will underpin the continents growth will lead by example.
with the mills and core farms that we over the next 20 years? How will these g. The most important underlying factor
have put up and invested in. That was best be achieved? to all this is that political stability and
the case with 3 such sugar factories whose normal transitions of government
financing I had helped structure, Finchaa ANSWER: I would list the following take root so that business can count
in Ethiopia, Xinavane in Mozambique points as the major movers that will on long tem rules of the game being
and SoSuCo in Burkina. The greatest underpin growth in the next 20 years: accepted.

I take the greatest pride in structuring


agro-industrial investments that align the interests of
small farmers with the mills and core farms that we
have put up and invested in.

74 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

TRANSITIONAL
ELECTRICITY
MARKET (TEM)
and investor and stakeholder expectations for the
Nigerian Electricity Supply Industry (NESI)

Dolapo Kukoyi, Partner, DETAIL

Dolapo Kukoyi currently heads the firms Power Practice and has ample experience working on
Infrastructure and PPP Projects. She is well versed in the legal aspects of the power sector, and is
one of the leading Power lawyers in Nigeria, having worked for government agencies, regulators
and private parties on various power transactions. Her expertise in the power sector is supported by
years of experience advising clients on infrastructure broadly. The breadth of Dolapos infrastructure
experience cuts across the Gas infrastructure, Railway, Housing and Roads sectors. She was recently
part of a core negotiating team nominated by the Disco Roundtable, which negotiated with
the BPE, NERC and NBET on issues that affect the Bidders in the recently concluded PHCN
privatization. She is also currently advising clients on the ongoing NIPP Privatization.

A. WHAT IS TEM? These conditions included but were not limited to1:
One of the objectives of the electricity sector reform, which i. Development, implementation and testing by the System
commenced in 2001 with the National Electric Power Operator (SO) and the Market Operator (MO), of the
Policy, is to create efficient market structures, within clear systems and procedures required to implement the Grid
regulatory frameworks, that encourage competitive markets Code and the Market Rules;
for electricity generation and trading. In line with this ii. Formalization of the trading arrangements - Vesting
objective, the Electricity Power Sector Reform Act 2005 Contracts (VCs) and the Power Purchase Agreements
(EPSRA) provides for a phased and strategic implementation (PPAs) between the companies that will participate in the
of the power sector reforms until optimal capacity generation Transitional Stage Market;
and a full competitive market is achieved. Implementation of iii. Publication of the Initial Transmission Usage Charge by
the competitive electricity market will be through a gradual NERC;
process of increasing competition designed as four market iv. Constitution of the initial Dispute Resolution Panel
stages, namely: Pre-Transition, Transition, Medium Term (DRP)2; and
and Long Term. v. Constitution of the Initial Stakeholder Advisory Panel (SAP)3.

1 See Appendix 2 of the draft Market Rules for all conditions precedent to
The Pre-Transition Stage kick started the end of the monopoly declaration of TEM
in the power sector and the commencement of the unbundling 2 The DRP is the panel responsible for arbitrating or otherwise resolving disputes
and privatization of the Power Holding Corporation of between (1) the SO or MO or Transmission Licensee and any Participant (2)
the MO and any person who has been denied certification as a Participant;
Nigeria (PHCN). The Transitional Electricity Market and (3)Participants to the extent that such disputes are in accordance with the
(TEM) was initially due to commence immediately upon the Market Rules of the Grid Code.
handover of the PHCN assets on the 1st of November 2013 3 The SAP is a panel constituted by NERC, responsible for reviewing the
Market Rules, Grid Code and proposing and/or approving amendments on an
(Handover Date), but some of the conditions precedent to on-going basis and advising NERC on specific technical issues relating to the
the declaration of TEM were yet to be fulfilled at the time. operation of the MO Administered Market.

2015 Africa Energy Yearbook 75


POLICIES AND BEST PRACTICES FOR AFRICA

In addition to the conditions precedent, the deferment of the


commencement of TEM was attributed to other elements
such as the lack of a cost reflective tariff, liquidity challenges
downstream with the Distribution Companies (Discos) and
gas supply challenges upstream in the sector to the Generation
Companies (Gencos).

However, on the advice of the Nigerian Electricity


Regulatory Commission (NERC), TEM has now been
declared by the Minister of Power on the 1st of February,
2015. TEM once effective would imply that the electricity The Interim Rules were a set
market (especially its trading arrangements) will now be
wholly contract governed. It is now expected that there of rules developed by NERC to
would be a fully cost reflective tariff in place that would
ensure investors full cost recovery and confidence for govern trading and commercial
financing and investment in the sector based on certainty
of revenues. Letters of Credit required under the PPAs, arrangements during the
Vesting Contracts and Gas Supply Agreements to backstop
payment obligations under these agreements, are meant interim period before the
to serve as a form of guarantee of revenues for power
supplied by the Generation Companies to the Nigerian declaration of TEM.
Bulk Electricity Trading Plc (NBET)4 and NBET to the
Discos respectively.
conditions for the declaration of TEM, the Interim Rules
B. THE END OF THE INTERIM RULES? continued in existence until the 31st of January 2015 when
effectively by an order of NERC, TEM was declared.
The Interim Rules were a set of rules developed by NERC
to govern trading and commercial arrangements during During the Interim Period, the Discos, Gencos and other
the interim period before the declaration of TEM. The electricity generators continued the existing Pre-Transition
Interim Rules came into effect on the Handover Date of the Electricity Market trading arrangements whereby Discos
PHCN Disco and Gencos which occurred on 1st November received invoices from and made payments to the MO for
2013. The first version of the rules was published on 3rd of power received from the Gencos and other sources. The
December, 2013 and an amended version published on the Discos were given the option of making minimum payments
22nd of April, 2014. The objectives of the Interim Rules on invoices from the MO (Baseline Remittance) for the
include: Interim Period. The Discos were also required to make
i. Establishing a framework to govern trading arrangements payments to the MO for the regulatory charges as well as
during the Interim Period when PPAs between the PHCN service providers charges (MO, SO, TSP and NBET).
Successor Gencos and NBET and Vesting Contracts
between NBET and PHCN Discos will not be effective; The major challenge with this framework was that the market
ii. Managing the probable revenue shortfall in the industry by participants operated more on a best endeavors basis without
determining the revenue allowable to market participants any regard for the existing contracts. The Market Participants
and service providers during the Interim period; were also not being sanctioned for being unable to meet
iii. Establishing the payment arrangements and flow of funds their contractual obligations. This will not be the case once
from Discos through the MO to all beneficiaries; TEM becomes has been declared as the Industry Agreements
iv. Establishing the sources of funds required to ameliorate will be effective and parties to these agreements will be held
the probable shortfall in revenues collected by the Discos accountable to their obligations.
during the Interim Period.
C. CONSTRAINING FACTORS TO
The Interim Rules was initially to be effective up until the OPERATIONALIZING TEM
28th February 2014, but due to delays in fulfilling certain
I. FULL OPERATION OF TEM

4 NBET otherwise known as the Bulk Trader is wholly owned Federal


Following the declaration of TEM on 1st February, 2015,
Government company with a trading license. NBET will be responsible NERC, via its Order No. 13 dated 30th January, 2015, there
in the transitional stage for purchasing bulk power from Gencos and IPPs, were clear indications that TEM would not be operational
and reselling the power to the Discos and eligible customers according to by the 1st of February given the varied status of the market
demand based on a vesting contract it enters into with the Discos and eligible
customers.
participants.

76 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

To illustrate the challenges being faced by the market II. RECOVERY OF AT&C LOSSES
Participants, the Discos are required under the applicable Aggregate Technical and Commercial and Collection Losses
vesting contracts to provide Letters of Credit (L/Cs) as (ATC&C Losses) is the sum total of technical, commercial
financial security to NBET for the trading of electricity in and collection losses due to the non-realization of total billed
TEM. However, even after the declaration of TEM, not amounts to electricity consumers.
all of the Discos have provided their L/Cs. As at 20th of
March, 2015, only 8 out of the 11 Discos had posted L/ As the recovery of ATC&C losses rests on the potential liquidity
Cs to NBET (Source: http://www.thisdaylive.com/articles/ of a Disco or Genco, this problem will continue to limit the
afdb-provides-200m-guarantee-for-nigeria-s-coal-to-power- desired effectiveness of TEM if not properly addressed. In
projects/204604/). tackling the problem of technical, commercial and collection
losses experienced by Discos, it is important that certain measures
NERC therefore deemed it necessary to issue a Supplementary are taken, such as: deployment of adequate and functional
Order (Supplementary Order) to provide for the effective metering systems; replacement of faulty parts, equipment
administration and operation of TEM in accordance with the and transformers; strengthening of preventive maintenance
relevant Rules, Codes and Orders in the NESI catering for the for effectiveness; and zero tolerance for non-payment of bills
market participants at their varied levels of readiness for TEM. and vandalism of power installations. All these will require a
substantial amount of funding which could potentially be raised
Highlights of the Supplementary Order include: where there is a clear path of revenue recovery.
i. The power plants under the National Integrated Power
Project (NIPP)5 whose privatization transactions are yet Although NERC has issued the MYTO 2.1 Tariff Order
to be completed will enter into short-term PPAs with to provide a feasible ATC&C loss reduction trajectory, the
NBET for an initial 6 months which may be renewed recent discount of collection losses from the ATC&C loss
subject to NERCs approval. reduction targets further casts shadows on the clear path for
ii. The NIPP Plants are required to meet their existing supply revenue recovery of the Discos.
obligations to international customers up to a maximum
of 300MW. The balance of energy from NIPP Plants III. SIX MONTH FREEZE ON RESIDENTIAL
shall be sold to the market through the respective Vesting TARIFFS
Contracts. However, this arrangement shall terminate on The MYTO 2.1 also introduces a six-month freeze on tariff
or before 31st December, 2015, after which all energy increase for residential consumers who constitute about 80%
shall be sold to offtakers through the Vesting Contracts. of electricity consumers in the country. To tackle the issue of
NBET will be responsible for any financial shortfalls that under-recovery, it is important that the projected shortfall
may arise from trading arrangements with international created by the six-month freeze be provided for through a proper
customers. cost recovery plan. NERC is to ensure that it creates a balance
iii. Gencos without effective PPAs shall be paid for their between the cost of investment, the quality of service and the
Delivered Energy and Delivered Capacity by NBET. tariffs that electricity consumers are willing and able to pay.
iv. Discos that have not provided effective payment
guarantees to NBET and the MO shall have their IV. SHORTAGE OF GAS SUPPLY
revenues escrowed for remittance according to a payment
waterfall to be approved by NERC. Although Nigeria has the 9th largest Natural Gas reserves in
v. Discos without payment security to activate their the world and the largest in Africa, the limited supply of gas
contracts 3 months after the commencement of TEM to power plants has continually hindered the generation of
shall attract sanctions except Kaduna Electricity electricity in Nigeria, as most power generation companies are
Distribution Company that has been granted an thermal and dependent on natural gas. One of the proposed
extension for 6 months from the commencement of benefits of TEM is the incentive created by the Gas Supply
TEM. Agreement to ensure that the Gas Suppliers6 deliver on their
gas supply commitments to the power producers. However,
The Baseline Remittance principle introduced in the Interim a major challenge in accessing gas still remains regardless of
Rules shall no longer apply. Full payment of quantities settled TEM creating an enabling environment and fiscal framework
by the MO based on invoices issued to Discos by NBET and that encourages further investment in the development of
service providers are now required by all participants; and more gas reserves; as well as processing and transportation
failure to comply will attract interest at NIBOR plus 10%. facilities. Power generation is also constantly affected by

5 The NIPP is a government initiative to add significant generation capacity 6 The current Gas Suppliers include Nigerian Gas Company, Shell Petroleum
to Nigerias electricity supply system along with the electricity transmission, Development Company Nigeria, Chevron Nigeria Limited, ExxonMobil
distribution and natural gas supply infrastructure required to deliver the Producing Nigeria Limited, Total Exploration & Production Nigeria Limited,
additional capacity to consumers throughout the country. Ten power plant Nigerian Agip Oil Company, PanOcean Oil Corporation, Seplat Petroleum
built under this initiative are currently being privatized. Development Company, and Nigerian Petroleum Development Company.

2015 Africa Energy Yearbook 77


POLICIES AND BEST PRACTICES FOR AFRICA

sabotage and vandalism of transportation pipelines used for the penalized / sanctioned in the event of a failure to deliver
transmission of gas and it appears that the declaration of TEM on their gas supply commitments to the power producers,
cannot directly resolve this situation. On 10th March, 2015, in line with the Gas Supply Agreements they have signed.
Vanguard Newspaper quoted the Nigerian Gas Company, who Failure of the Gencos to meet their supply commitment
had reported that Nigeria lost a minimum of N8.04 billion obligations will also be met with consequences as provided
between January and 10th March 2015, to the incessant for in their PPAs with NBET including non-payment for
vandalism of the countrys gas pipelines. Also the Minister energy not supplied NBET. NBET would not be paid for
of Power disclosed on the 6th March 2015 that Nigerias power not supplied to the Discos, who will ultimately lose
3,642MW of electricity dropped to about 3,000MW due to revenue for failing to supply improved electricity to the end
vandalism of the Escravos-Lagos Pipeline System (ELPS) Gas users.
Pipeline in Delta State.7
FULL COST RECOVERY
V. FUNDING CHALLENGE It is also expected by the Investors that there would be a fully
The Discos and Gencos will now need to commit to their cost reflective tariff in place that would ensure investor full
contractual commitments which include rehabilitation of plants, cost recovery and confidence for financing and investment
distribution networks, and ATC&C loss reduction; so therefore, in the sector. A lot of the determinants to ensuring a cost
long term funding will be required. The issues around achieving reflective tariff have been dealt with above.
a cost reflective tariff for the Discos need to be given major
priority to ensure that the Discos are able to access funding that CERTAINTY OF REVENUES
would make the rest of the value chain bankable. Related to enforceable contracts is the certainty of revenues.
The Letters of Credit required under the PPA, Vesting
VI. DEARTH OF NECESSARY MANPOWER Contracts and Gas Supply Agreements to backstop payment
There is the concern that power generation and distribution obligations under these agreements, are meant to serve as
will not attain its desired capacity due to a lack of adequately a form of guarantee of revenues for power supplied by the
trained human resources. Considerable financial and human Gencos to NBET and NBET to the Discos respectively.
resources will have to be utilized in order to recruit and
train individuals that would become experts in the field. The above expectations are desirable, however, in light of the
Although long term solutions have been put in place by the current realities particularly the need for a cost reflective tariff
government through the establishment of the National Power and gas supply challenges there is a need for a firm achievable
Training Institute of Nigeria (NAPTIN), more efficient strategy or plan to address these challenges highlighted.
short term solutions will need to be implemented by both Without cost reflective tariffs and sufficient supply of gas,
the Government and stakeholders in the Nigeria Electricity the value chain will be stunted, and power delivery to the
Supply Industry in order to reverse this dearth in skilled electricity consumers will be negatively impacted.
manpower.
E. CONCLUSION
D. EXPECTATIONS OF Following the privatization of the PHCN Gencos and Discos
STAKEHOLDERS FOR TEM in November 2013, the entry of the NESI into TEM has
The following are some of the expectations of stakeholders. become imperative to unlock the much needed funding
Stakeholders for the purpose of this article include the Federal and growth in the industry. In spite of the myriad of issues
Government, Regulators, Investors, Market Participants, plaguing the industry, steps are being made in the right
Service Providers, Investors and Financiers and Electricity direction by the Federal Government, relevant Ministries and
Consumers. Agencies in ensuring the stability of this very crucial industry
that is key to Nigerias economic growth. A lot of work, as
ENFORCEABLE CONTRACTS highlighted above, however still needs to be done by the
A fundamental expectation of TEM for all stakeholders is NERC, Market Participants and Service Providers to boost
that this phase will ensure strict accountability of the Market investor confidence in the NESI.
Participants. Under TEM, the Industry Agreements8 will
become effective and Market Participants are obliged to 8 Vesting Contracts, Transmission Use of Service Agreements, Grid Connection
commence full trading based on these agreements and will be Agreements, Ancillary Services Agreement, Power Purchase Agreements, Gas
Supply Aggregation Agreements and Gas Transportation Agreement
sanctioned for failing to meet their contractual obligations
to other participants. For instance, Gas Suppliers9 will be 9 The current Gas Suppliers include Nigerian Gas Company, Shell Petroleum
Development Company Nigeria, Chevron Nigeria Limited, ExxonMobil
Producing Nigeria Limited, Total Exploration & Production Nigeria Limited,
7 http://www.sweetcrudereports.com/2015/03/06/%E2%80%8Epower- Nigerian Agip Oil Company, PanOcean Oil Corporation, Seplat Petroleum
generation-drops-again-due-to-pipeline-vandalism/). Development Company, and Nigerian Petroleum Development Company.

78 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


H.E. HON. JAMES MUSONI, MINISTER OF INFRASTRUCTURE,
GOVERNMENT OF THE REPUBLIC OF RWANDA

Hon. James Musoni is the Minister of Infrastructure in the Government of the Republic of Rwanda. Before his present position, he has served
his Government in important positions, namely; Minister of Local Government (2009-2014); Minister of Finance and Economic Planning
(2006-2009); Minister of Commerce, Industry, Investment Promotion, Tourism and Cooperatives (2005-2006); Commissioner General of
Rwanda Revenue Authority (2001-2005) and Deputy Commissioner General of Rwanda Revenue Authority (2000-2001).
Hon. James Musoni is a leader and a motivator with an established personality on public management affairs. He has spearheaded and
guided a number of reforms in Rwanda that have contributed to Rwandas extraordinary performance in socio-economic transformation that
continue to make Rwanda a best practice show case for public management and good governance on the Continent and the Globe.
Hon. James Musoni has an MBA-Finance from Newport International University, California, USA and a BCom-Finance from Makerere
University-Kampala, Uganda. He also obtained other certificates in different areas including a Certificate in Public Finance Management
Executive Course from John Kennedy Harvard University.

QUESTION: What progress has been distribution networks for the power aware that limited access to basic,
made in terms of the development of sector? Are there any upcoming plans affordable and sustainable infrastructure
Rwandas infrastructure under your to improve or add to these networks? services is a factor holding us back
tenure? Can you take us through some from even stronger development. This
personal highlights? ANSWER: Presently, we have only a is no truer than today with a quickly
small network given that our generation expanding private sector, but is still
capacity is at 160 MW, although we are facing challenges in relation to good
ANSWER: Well, I have only worked in road transport access and high costs of
the Infrastructure sector since July last expanding, strengthening and upgrading
all the time as we roll out the grid across electricity and fuel.
year 2014 but I have joined the energy
sector at a very exciting time. The reform Rwanda and connect with other countries.
of the energy sector specifically former There are plans to have interconnections QUESTION: What are your
Energy, Water and Sanitation Authority with Ethiopia, Kenya, Uganda, Burundi, aspirations for the future development
(EWSA) that has three companies now Tanzania and DRC and work is already of Rwandas infrastructure- are there
in existence, a strong recruitment drive on-going in this area. At the same time, any key goals or milestones in place
and reorganisation of the companies to we currently suffer from 21% grid losses, to work towards?
promote the culture of excellence remain and the impact of this will only increase
among priorities. We are continuing to as our network does as well. Therefore a
grid loss reduction programme is being ANSWER: My aspiration is to see a
roll-out the electricity network under thriving business culture in Rwanda
our flagship programme Electricity initiated to reduce losses by 8%, saving the
equivalent of a 15MW power plant, and to a good road network, cheaper fuel,
Access Roll-out Programme (EARP), reliable and sustainable water services,
and developing an interconnection at a cost of $60m represents strong value
for money. The corporatisation of the and an affordable and quality supply
with Uganda this year which will of electricity to both households and
see us trading electricity all the way utility will add to the great work already
being done. businesses. This aspiration is achievable:
to Ethiopia. A personal highlight has steps we are taking such as the reform
been to attend the inauguration of the which is expected to be completed in
recent completed 28 MW Nyabarongo QUESTION: How important is the the new two years, the forthcoming
I hydro power plant,. It means that we development of infrastructure for the creation and adoption of the Least
can supply cheaper electricity and are overall economic growth of Rwanda Cost Power Development Plan, and
able to electrify more households, lifting and the development of a competitive the development of cheap renewable
them out of poverty. private sector? domestic energy resources and access
to cheap imports from the end of 2015
QUESTION: What efforts have been ANSWER: It is fundamental. Rwanda onwards, will all contribute towards
made by the Rwandan government to has experienced strong levels of growth developing a growth enhancing
establish effective transmission and over the last 20 years, and we are well infrastructure sector.

2015 Africa Energy Yearbook 79


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PROJECTS

Featured Power Projects


This selection of projects are taken from the Powering Africa: Hub, EnergyNets online community where delegates can access all
content from our investment meetings such as presentations, live session recordings and interviews with industry leaders. The Pow-
er Projects portal allows members to add and amend their own projects and keep up to date on what developments are taking place
elsewhere in Africa. Continue the conversation beyond the conference by engaging with other participants in a private members
area. Register for the hub for free by visiting http://www.engerati.com/hubs/powering-africa-hub

ANGOLA

Project Name: Lomaum Dam Hydroelectric Power Plant Angola


Type of project: Renewable Power
Description: Lomaum Dam Hydroelectric Power Plant Angola is located at Ganda, Benguela, Angola. This infrastructure is of TYPE Hydro Power
Plant with a design capacity of 35 MWe. It has 3 unit(s). The first unit was commissioned in 1964. It is operated by Empresa Nacional de Electricidade
de Angola (E.N.E.). Source: http://globalenergyobservatory.org/geoid/4066
Fuel Source: Hydro | Generation Capacity (MGW): 35 | Offtaker: Utility | Project Status: Completed

Project Name: Futila Thermal Power Plant


Type of project: Conventional Power
Description: Consists of two 35 MW gas turbines. The project scope also included the refurbishment of a substation in the city of Cabinda as part of the
double circuit 60 kV and 30 kV distribution lines needed to transport the electricity to end users. Source: http://www.isoluxcorsan.com/en/project/thermal-
power-plant-in-futila-angola.html
Fuel Source: Gas | Generation Capacity (MGW): 70 | Offtaker: Utility | Project Status: Completed

Project Name: Luachimo dam


Type of project: Renewable Power
Description: Contract signed in 2014 for Dams rehabilitation, increasing its capacity to 24 MW. This will be the first refurbishment to take place on the
dam in all its decades of operation. Source: http://www.efacec.pt/PresentationLayer/efacec_press_01.aspx?tipo=4&area=1&idioma=2&id=496
Fuel Source: Hydro | Generation Capacity (MGW): 9 | Offtaker: Utility | Project Status: Completed

BOTSWANA
Project Name: Morupule B power station
Type of project: Conventional Power
Description: In October 2009 the World Banks Board of Executive Directors approved a US$136.4 million loan for the the Morupule B project and
also approved a Partial Credit Guarantee of US$242.7 million of commercial bank financing for the project. In a media release the World Bank stated
that the financing will help secure a reliable electricity supply for the countrys economic growth and poverty reduction programs. Financing will also
help Botswana prepare a robust low-carbon growth strategy (consistent with the current Tenth National Development Plan: 2009-2016), strengthen
management skills in the power sector, and establish a new, independent electricity regulator. Source: http://www.sourcewatch.org/index.php/Morupule_B_
Power_Station
Budget Size (USD): 100 - 500m | Fuel Source: Coal | Generation Capacity (MGW): 600 | Investors & Development Partners: World Bank
Offtaker: Utility | Project Status: Completed

CONGO (KINSHASA)
Project Name: Inga 3
Type of project: Renewable Power
Description: With support from the World Bank, the Democratic Republic of Congo (DRC) has proposed to develop Inga 3 on the Congo River. The
project will consist of a dam and a 4,500MW hydroelectric plant at Inga Falls. Inga 3 comes as the first phase of the construction of the Grand Inga
hydropower project, located 225 km from Kinshasa, and 60 km upstream of the mouth of the Congo into the Atlantic Ocean. Once completed, the final
project would have a generation capacity of 40,000 MW. Source: http://www.internationalrivers.org/campaigns/the-inga-3-hydropower-project
Budget Size (USD): 1Bn+ | Fuel Source: Hydro | Generation Capacity (MGW): 40 000 | Investors & Development Partners: World Bank
Offtaker: Utility | Project Status: Out to Tender

2015 Africa Energy Yearbook 81


PROJECTS

EGYPT

Project Name: Helwan South Power Project


Type of project: Conventional Power
Description: South Helwan project is designed to include 3x650 MW supercritical steam thermal power plant for interconnection to the National
Unified Power System (NUPS) through the new 500 KV GIS Switchyard facility. The power block comprises three identical Rankine cycle turbine
generator units, each with a nominal rated capacity of 650 MW. The units are capable of generating rated capacity using natural gas, residual (mazout)
oil, or a combination of both. The three-unit plant arrangement includes an enclosed turbine building, an open boiler structure, a common control room,
and all associated structures and facilities. Source: http://www.pgesco.com/south-helwan-supercritical-power-plant-3x650-mw/
Budget Size (USD): 500 - 1Bn | Fuel Source: Gas | Generation Capacity (MGW): 1 950 | Investors & Development Partners: AfDB
Offtaker: Utility | Project Status: Under Construction

Project Name: Philadelphia Solar 50 MW PV project


Type of project: Renewable Power
Description: Jordanian PV developer and manufacturer Philadelphia Solar has signed a memorandum of understanting with Egypts New and Renewable
Energy Authority (NREA) to build a 50 MW-ac PV plant as part of the first wave of projects offered by the Egyptian government under its feed-in
tariff (FiT) program. Source: http://www.pv-magazine.com/news/details/beitrag/egypt--philadelphia-signs-50-mw-agreement-_100018667/#axzz3YcBarhXo
Fuel Source: Solar | Generation Capacity (MGW): 50 | Investors & Development Partners: Philadelphia Solar, Egypts New and Renewable
Energy Authority (NREA), Egyptian Electricity Transmission Company (EETC) | Offtaker: Utility | Project Status: Feasability

ETHIOPIA
Project Name: Ashegoda Wind Farm
Type of project: Renewable Power
Description: Billed as the biggest wind farm in sub-Saharan Africa, the Ashegoda wind farm features 84 hi-tech wind turbines and is capable of
producing around 400m KWh per year. It is located in Tigray state, about 475 miles north of Addis Ababa. The government of Ethiopia hopes that
projects such as these will drive forward the countrys plans to become a renewable energy leader, achieving a climate-resilient economy by 2025. The farm
has a generation capacity of 120 MW. Source: http://www.justmeans.com/blogs/africas-biggest-wind-farm-is-operating-in-ethiopia
Budget Size (USD): 100 - 500m | Fuel Source: Wind | Generation Capacity (MGW): 120 | Investors & Development Partners: Vergnet
Project Status: Completed

Project Name: Tekez Dam


Type of project: Renewable Power
Description: Completed in February 2009, this 300 MW hydropower plant cost $360million, which was $136 million over budget. Ethiopias largest
public works project, at 188 metres (617 ft) the Tekez Dam was also Africas largest arch dam. EEPCO teamed up with China National Water Resources
& Hydropower Engineering Corporation (CWHEC) to complete the project. Contractors & consulting services were provided by: CWGSC&B, PB
K&D and Howard Humphreys (engineering)Harza Engineering (consultancy) Source: http://en.wikipedia.org/wiki/Tekez%C3%A9_Dam
Budget Size (USD): 100 - 500m | Fuel Source: Hydro | Generation Capacity (MGW): 300 | Investors & Development Partners: EEPCO,
China National Water Resources, Hydropower Engineering Corporation (CWHEC) CWGSC&B, PB, K&D, Howard Humphreys Harza Engineering
Offtaker: Utility | Project Status: Completed

Project Name: Corbetti Geothermal Project


Type of project: Renewable Power
Description: This will be the first independent power project in Ethiopias history. The $4 billion 1,000 megawatt Corbetti geothermal plant will be built
in two 500 megawatt stages over 8-10 years and when it comes online, will be Africas largest geothermal facility. Source; http://oilprice.com/Alternative-
Energy/Geothermal-Energy/Ethiopia-to-Build-Africas-Largest-Geothermal-Plant.html
Budget Size (USD): 1Bn+ | Fuel Source: Geothermal | Generation Capacity (MGW): 500 | Offtaker: Utility
Project Status: Under Construction

Project Name: Gibe Hydropower III


Type of project: Renewable Power
Description: The project will feed the national grid and increase regional interconnectivity, increasing the generation capacity of Ethiopia by 234 per
cent. As of January 2015, according to Ethiopia Electric Power, the US$1.8 billion project was 88% completed, and the first two generators are expected
to be commissioned in June 2015. Once completed, the dam is expected to supply about half of its power to Ethiopia and export the other half to Kenya
(500 MW), Sudan (200 MW) and Djibouti (200 MW). Source: http://en.wikipedia.org/wiki/Gilgel_Gibe_III_Dam
Budget Size (USD): 1Bn+ | Fuel Source: Hydro | Generation Capacity (MGW): 1 870 | Project Status: Under Construction

82 2015 Africa Energy Yearbook


PROJECTS

GHANA

Project Name: Ayitepa Wind Farm


Type of project: Renewable Power
Description: Set to become Ghanas first utility-scale wind farm, the Ayitepa project could power up to 10% of the countrys electricity demand when
fully operational and is expected to start construction this year. Source: http://www.prnewswire.com/news-releases/mainstream-renewable-power-signs-
deal-to-build-and-operate-ghanas-first-utility-scale-wind-farm-275093541.htm
Budget Size (USD): 500 - 1Bn | Fuel Source: Wind | Generation Capacity (MGW): 225 | Offtaker: Utility | Project Status: Out to Tender

Project Name: Kpone Independent Power Plant (KIPP) project


Type of project: Conventional Power
Description: When it comes on stream in 2017, the KIPP project will be the largest private IPP in the country, accounting for approximately 10%
of Ghanas total installed capacity and approximately 20% of its available thermal generation capacity. As a Combined Cycle Gas Turbine (CCGT)
plant, it will be amongst Ghanas most fuel-efficient thermal power stations. Once in production, KIPP will be become a critical base-load component
in meeting Ghanas growing electricity demand. Source: http://www.businesswire.com/news/home/20141003005027/en/Cenpower-announces-financial-
close-900-MM-project#.VTYeDCFVhBc
Budget Size (USD): 500 - 1Bn | Fuel Source: Gas | Generation Capacity (MGW): 350 | Investors & Development Partners: InfraCo, Sumitomo
Corporation, Rand Merchant Bank, Nedbank, Standard Bank, FMO, African Infrastructure Investment Fund | Offtaker: Utility
Project Status: Final Phase

Project Name: Nzema solar (PV) power plant


Type of project: Renewable Power
Description: Once completed it will be one of the biggest in the world. It will increase Ghanas current generating capacity by 6% and will meet 20% of
the governments target of generating 10% of its electricity from renewable sources by 2020. Scheduled for completion mid-2015. Source: http://www.
blue-energyco.com/africas-largest-solar-pv-power-plant/
Budget Size (USD): 100 - 500m | Fuel Source: Solar | Generation Capacity (MGW):155 | Offtaker: Utility
Project Status: Under Construction

2015 Africa Energy Yearbook 83


E N E R G Y
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PROJECTS

KENYA

Project Name: Olkaria II Geothermal Power Station


Type of project: Renewable Power
Description: The facility is located in Hells Gate National Park, on the eastern edge of the Eastern Rift Valley, approximately 88 kilometres (55 mi),
southeast of the city of Nakuru.

Olkaria II went on-stream in 2003 when Kenya Electricity Generating Company (KENGEN) commissioned two 35MW units manufactured and
installed by Mitsubishi Heavy Industries (MHI). In 2010, a third unit of 35MW capacity was installed, bringing the total capacity to 105 Megawatts.[4]

The project was co-financed by the World Bank, the European Investment Bank, KfW of Germany and KenGen. Designed and constructed with
an advantage of newer technology, this state-of-the-art plant is highly efficient in steam utilization. It works on single flash plant cycle with a steam
consumption of 7.5 t/h/MW. The turbines are single flow six stage condensing with direct contact spray jet condenser. The power generated is transmitted
to the national grid via 220 kv double circuit line. Source: http://en.wikipedia.org/wiki/Olkaria_II_Geothermal_Power_Station
Budget Size (USD): 100 - 500m | Fuel Source: Geothermal | Generation Capacity (MGW):105 | Investors & Development Partners: World
Bank, the European Investment Bank, KfW of Germany and KenGen | Project Status: Completed

Project Name: Lake Turkana Wind Power


Type of project: Renewable Power
The Lake Turkana Wind Project will eventually deliver 300 MW of power to the national grid using a wind resource in Northwest Kenya near Lake
Turkana. Costing a massive Ksh76 billion (EUR623 million), the project will be the largest single private investment in Kenyas history. The project is
expected to be fully operational by 2016, by which time it will produce the first initial 100 MW, with the rest of the capacity due to be achieved within
32 months.The importation of fuel for thermal power generation has cost Kenya an estimated $150 million-annually, which will now be saved if the
Turkana Wind Project is to prove successful. Source: http://www.skyscrapercity.com/showthread.php?t=922856&page=7
Budget Size (USD): 500 - 1Bn | Fuel Source: Wind | Generation Capacity (MGW): 300 | Project Status: Under Construction

Project Name: Lamu coal fired power plant


Type of project: Conventional Power
Description: The power station is a proposed 981.5 Megawatt coal-fired thermal electricity-generating plant, to be built in Lamu County, Kenya. Construction is
expected to begin in September 2015 and last approximately 21 months. Once constructed, it will become the largest single power station in Kenya. The power
generated will be evacuated from the power plant to Nairobi, the countrys capital via a new 520 kilometres (320 mi), 400kV electricity transmission line. In the
initial years, the power station will utilize imported coal, mainly from South Africa and later convert to locally sourced coal from the Mui Basin in Kitui County.
Source: http://en.wikipedia.org/wiki/Lamu_Coal_Power_Station

Fuel Source: Coal | Generation Capacity (MGW): 1 000 | Investors & Development Partners: Gulf Energy, Centum Investment, Sichuan Electric
Power and Design & Consulting Company, Sichuan No.3 Electric Power Construction Company, CHD Power Plant Operation | Offtaker: Utility
Project Status: Out to Tender

MALAWI
Project Name: Kapichira Power Station
Type of project: Renewable Power
Description: The Kapichira Power Station is a hydroelectric power plant on the Shire River in Malawi. It has been designed for an eventual power generating
capacity of 128 megawatts (172,000 hp), enough to power over 86,000 homes[1] with 4 x 32 megawatts (43,000 hp) generating sets, however in Phase 1 only
2 x 32 MW generating sets were installed, with civil structures constructed for the later addition of the remaining two units. Phase I of the power station was
officially opened in September 2000. Each unit operates at a nominal head of 54 metres (177 ft) and discharge of 67 cubic metres per second (2,400 cu ft/s).[2]
Source: http://en.wikipedia.org/wiki/Kapichira_Hydroelectric_Power_Station

Fuel Source: Hydro | Generation Capacity (MGW): 64 | Offtaker: Utility | Project Status: Completed

2015 Africa Energy Yearbook 85


PROJECTS

MOZAMBIQUE

Project Name: Ressano Garcia Power Station


Type of project: Conventional Power
Description: After two years under construction, Electricidade de Mozambique (EdM) and Sasol opened the Ressana Garcia Power Plant, a 180MW
natural gas power station at the end of August 2014. The power station will have 18 gas turbines once fully operational. Although the power plant
is expected to ease power shortages in the region, EDM admitted that the state utility still requires more than US$1 billion investment into power
infrastucture to adequately meet Mozambiques energy needs.*EDM own 51% of the Ressano Garcia power station and the rest is owned by SASOL.
Ressano Garcia power station is the second gas-fired power station at Ressano Garcia. The first one belonged to the Aggreko company, which is a power
company based in Scotland. The Aggreko power is sold to EDM and to the South African and Namibian power utilities, Eskom and NamPower.
Source: *http://www.esi-africa.com/mozambiques-180mw-gas-power-station-opens-doors/
Budget Size (USD): 100 - 500m | Fuel Source: Gas | Generation Capacity (MGW): 180 | Investors & development partners: EDM, Sasol
Offtaker: Utility | Project Status: Completed

Project Name: Mphanda Nkuwa Hydropower Plant


Type of project: Renewable Power
Mphanda Nkuwa Hydropower Plant is a project with strong national relevance which is going to contribute to the social and economical
development of Mozambique and help supplying the energy deficit that the Southern African Development Community (SADC) region is facing.
Located on Zambezi River, between Cahora Bassa and Tete, this hydropower plant will have an annual generation of about 8.600 GW/per year. The
Mphanda Nkuwa hydropower plant site, including the reservoir that is going to be created, will comprise Chita, Changara, Cahora Bassa and Marvia
districts.

A large percentage of power produced by the hydropower plant is going to support the electrification and development of Mozambique, benefiting
the population and its economical activities. The surplus will be exported, reinforcing the role of Mozambique in the regional framework of energy
integration, enabling additional revenues that will help to balance the foreign trade of the country. Another benefit of the Mphanda Nkuwa Hydropower
Plant will be the contribution to the feasibility of CESUL - power transmission line that will connect the Centre of Mozambique to the South - through
the power production based on a renewable resource. Source: http://www.hmnk.co.mz/en)

Budget Size (USD): 1Bn+ | Fuel Source: Hydro | Generation Capacity (MGW):1 500 | Project Status: Under Construction

Project Name: Moatize IPP


Type of project: Temporary Power
Description: Moatize IPP is a coal-fired power station located in the Tete province of Mozambique and owned by ACWA Power Moatize
Termoelectrica SA The project will have a generation capacity of 300MW, 80% of which will be kept by ACWA, and the rest to be sold
back to EDM to feed into the grid. The project is being developed on a BOOT (build, own, operate and transfer) basis, and will become the
only coal-fired power plant in the country. CWAs main shareholders are the Saudi Group Acwa Power, Vale and the Japanese firm Mitsui.
The project is due to be completed in the last quarter of 2016. Source: http://www.acwapower.com/project/16/moatize-ipp.html
Budget Size (USD): 500 - 1Bn | Fuel Source: Coal | Generation Capacity (MGW): 300 | Offtaker: Captive Power
Investors & development partners: ACWA Power | Offtaker: Utility Project Status: Under Construction

Project Name: Ncondezi Power Project


Type of project: Conventional Power
Ncondezi plans to develop Mozambiques first coal fired power plant on the Ncondezi Project area in the Tete Province. This follows the conclusion
of both a Mine and Power DFS which confirmed that a large scale, long life, open pit thermal coal mine and integrated power plant is technically and
economically viable.

This large scale project will be developed in phases, starting with a 300MW integrated mine and power plant (300MW Project), expanding ultimately
to an 1800MW power plant. The Power DFS was conducted by Parsons Brinckerhoff and independently reviewed by STEAG, one of Germanys largest
electricity producers, from an operators perspective.

The power plant will be located about 90kms away from the local transmission network. Construction is planned for 2015, with the power plant targeting
commissioning in H2 2017 and commercial operations in H1 2018. The 300MW project is closely aligned to the Mozambican Governments stated
objective of accelerating the electrification of the country and expanding access to electricity. Currently only 20% of the country is electrified. The power
plant will help Mozambique maximise the potential of its resources in country and will be an important contributor to Mozambiques future development.
Read more: Source: http://www.ncondezicoal.com/power-project.aspx
Fuel Source: Coal | Generation Capacity (MGW): 300 | Project Status: Out to Tender

86 2015 Africa Energy Yearbook


PROJECTS

NAMIBIA

Project Name: Ruacana Power Station


Type of project: Renewable Power
Description: The Ruacana Power Station is a hydroelectric power plant near Ruacana in northwest Namibia, not distant from the Angola border. The first
three 80 MW Francis turbine-generators were commissioned in 1978 and the fourth Francis turbine-generator at 90 MW was commissioned on 5 April 2012.
Source: http://en.wikipedia.org/wiki/Ruacana_Power_Station
Budget Size (USD): 100 - 500m | Fuel Source: Hydro | Generation Capacity (MGW): 330 | Offtaker: Utility | Project Status: Completed

Project Name: Xaris 250MW Gas Power Project


Type of project: Conventional Power
Description: Xaris Energy Namibia is gearing up to build a 300 MW of gas power capacity behind Dune 7 near Walvis Bay, Namibia, after having won
the N$4 billion NamPower tender to construct the plant. Environmental permits are still pending. The plant will run on imported LNG and is considered
as a short-term critical energy supply project until the Namibias Kudu gas power project starts up in 2018. Source; http://gastopowerjournal.com/home/
itemlist/tag/NamPower#axzz3Y7gQJn9i
Budget Size (USD): 20 - 100m | Fuel Source: Gas | Generation Capacity (MGW): 250 | Investors & Development Partners: Xaris Energy
Offtaker: Utility | Project Status: Under Construction

Project Name: Arandis Power plant


Type of project: Conventional Power
Description: Plant will be 120 MW Heavy Fuel Oil (HFO) and 50 MW Solar Hybrid Power Station. The negotiations on the power plant were
temporarily suspended by NamPower in June 2014, pending the latters completion of its tender for another 250MW power station in Walvis Bay.
Arandis Power spent N$40 million to complete the full bankable feasibility study, including full EIA clearance, construction and operations contracts and
fuel supply agreements, amongst others. Currently, Namibia imports more than 60% of its electricity needs from neighbouring countries. Source: http://
www.namibian.com.na/indexx.php?archive_id=133383&page_type=archive_story_detail&page=1

Budget Size (USD): 20 - 100m | Fuel Source: Oil | Generation Capacity (MGW): 120 | Investors & Development Partners: Arandis Power
Offtaker: Utility | Project Status: Under Construction

Project Name: Kudu Power Project


Type of project: Conventional Power
Description: Development of the Kudu gas field and construction of an 800 MW combined cycle natural gas-fired power station at Oranjemund.
When completed, the power station will feed Namibian and South African power grids. The project will be developed by NamPower, a national energy
company of Namibia. The Kudu Power Station will be the first Combined Cycle Gas Turbine power station of this size in Southern Africa and is
expected to be commissioned by end of 2017. Sources: http://www.nampower.com.na/Page.aspx?p=215 | http://en.wikipedia.org/wiki/Kudu_Power_Project

Fuel Source: Gas | 800 | Generation Capacity (MGW): 3 | Offtaker: Utility | Project Status: Under Construction

2015 Africa Energy Yearbook 87


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PROJECTS

NIGERIA

Project Name: Aba Power Station (IPP)


Type of project: Conventional Power
Description: Simple cycle gas turbine - a private integrated power project being built by Geometric Power Systems.The Aba IPP is the first independent
and integrated power utility in Nigeria, which comprises a 141 MW gas fired power plant, a 27km gas pipeline, and a distribution utility, within a
ring-fenced distribution network. It is an embedded electricity facility designed to generate and distribute its own electricity. The Project is presently
owned by the Project Developer/Sponsor: Geometric Power Limited, Aba Power Limited, and other investors. Sources: http://en.wikipedia.org/wiki/
List_of_power_stations_in_Nigeria | http://geometricpower.com/projects/aba-phase-i

Fuel Source: Gas | Generation Capacity (MGW): 140 | Investors & Development Partners: Aba Power | Offtaker: Captive Power
Project Status: Completed

Project Name: Azura Edo IPP


Type of project: Conventional Power
Description: The Azura-Edo Independent Power Plant (IPP) is a 450 MW gas-fired open cycle power plant located in the North Eastern outskirts of Benin
City in Edo, Nigeria (the Project). As of July 2013, the plant is estimated to cost around US$[654] million, and to achieve commercial operations by late
2016. Source: https://ifcndd.ifc.org/ifcext/spiwebsite1.nsf/78e3b305216fcdba85257a8b0075079d/ab51ac85a5858ab985257bdd006499d7?opendocument

Budget Size (USD): 500 - 1Bn | Fuel Source: Gas | Generation Capacity (MGW): 450 | Investors & Development Partners: Nigerian Bulk
Electricity Trading PLC, Federal Government of Nigeria (FGN), International Finance Corporation, FMO | Offtaker: Utility | Project Status: Under
Construction

RWANDA

Project Name: Nyabarongo hydropower project


Type of project: Renewable Power
Description: Nyabarongo Power Station is a hydropower plant in Rwanda, completed in October 2014, with a commissioning date in November 2014.
At an estimated cost of US$110 million, the planned capacity installation will be 28 MW. The project involves a dam, with run of river design, across the
River Mwogo, one of the tributaries of Nyabarongo River. Source: http://en.wikipedia.org/wiki/Nyabarongo_Power_Station

Budget Size (USD): 20 - 100m | Fuel Source: Hydro | Generation Capacity (MGW): 28 | Investors & Development Partners: Export-Import
Bank of India, Bharat Heavy Electricals Ltd. (BHEL), Angelique International Ltd | Offtaker: Utility Rwanda | Project Status: Completed

2015 Africa Energy Yearbook 89


PROJECTS

SOUTH AFRICA

Project Name: Sere Wind Farm


Type of project: Renewable Power
Description: One of the largest wind-farms in Southern Africa. The project is estimated to cost R2.689 billion ($375 million). Sere is Eskoms first
large-scale renewable energy project and forms part of our commitment to renewable energy and reducing our carbon footprint, said the acting chief
executive officer, Brian Molefe. Source: http://en.wikipedia.org/wiki/Sere_Wind_Farm | Source: http://www.southafrica.info/business/economy/infrastructure/
sere-210415.htm# VUD9TyFVhBc
Budget Size (USD): 100 - 500m | Fuel Source: Wind | Generation Capacity (MGW): 100 | Offtaker: Utility | Project Status: Completed

Project Name: Grootvlei Power Station


Type of project: Conventional Power
Description: The first of Grootvleis six units was commissioned in 1969. In 1989 three units were mothballed and in 1990 the other three followed. Due
to the power crisis being experienced in South Africa, Eskom decided to return the station to service. By 2008 two of Grootvleis units were back online,
providing 585MW to the national grid.[2]

Grootvleis units 5 and 6 were the first test facilities for dry cooling in South Africa. Unit 6 has an indirect dry cooling system.

The station consists of six 200 megawatts (270,000 hp) units for a total installed capacity of 1,200 megawatts (1,600,000 hp). Design efficiency at rated
Turbine Maximum Continuous Rating is 32.90%. Source: http://en.wikipedia.org/wiki/Grootvlei_Power_Station
Budget Size (USD): 1Bn+ | Fuel Source: Coal | Offtaker: Utility | Project Status: Completed

Project Name: 75MW Solar Photovoltaic Solar Capital De Aar (Pty) Ltd facility
Type of project: Renewable Power
Description: Cape Town renewable energy company Solar Capital says its 75-MW, R2.1-billion photovoltaic (PV) project in De Aar, in the Northern
Cape, is the first phase of what could eventually evolve to become a 300 MW solar farm. Print Send to Friend 3 0 The project has been named along
with 27 other projects as among the Department of Energys (DoEs) initial batch of preferred bidders for its renewables independent power producer
procurement programme. Altogether a total of 18 solar PV ventures have been listed, with the De Aar project emerging as the largest such development,
along with the Kathu solar energy facility, which also has a proposed nameplate capacity of 75 MW. Source: http://www.engineeringnews.co.za/article/solar-
capital-says-75-mw-de-aar-project-is-first-phase-2011-12-12
Budget Size (USD): 1Bn+ | Fuel Source: Solar | Generation Capacity (MGW): 75 | Investors & Development Partners: South Africa
Mainstream Renewable Power De Aar PV (Pty) Ltd | Offtaker: Utility | Project Status: Out to Tender

Project Name: Kusile Power Station Project


Type of project: Conventional Power
Description: The Kusile power station project, which is located near the existing Kendal power station, in the Nkangala district of Mpumalanga, will
comprise six units, each rated at an 800 MW installed capacity for a total capacity of 4 800 MW. Once completed, Kusile will be the fourth-largest coal-
fired power station in the world.

The Kusile project will include a power station precinct, power station buildings, administrative buildings (control buildings and buildings for medical
and security purposes), roads and a high-voltage yard. Source: http://www.eskom.co.za/Whatweredoing/NewBuild/Pages/Kusile_Power_Station.aspx
Budget Size (USD):1Bn+ | Generation Capacity (MGW): 4 800 | Project Status: Under Construction

Project Name: Medupi Power Station Project


Type of project: Conventional Power
Description: Medupi has achieved a significant stage in its construction by the synchronisation of its 1st unit (Unit 6) on 2 March 2015 to the
National grid. Within the next three to six months, South Africa will see Medupi unit 6s full potential of 794MW being fed into the South African
national grid. While Unit 6 is the first of Medupis six units, it should be noted that all required auxiliary services for the entire power station are ready
to ensure that Medupis total output of 4 764MW is fully synchronised to the South African power grid upon completion and full comissioning.
Source: http://www.eskom.co.za/Whatweredoing/NewBuild/MedupiPowerStation/Pages/Medupi_Power_Station_Project.aspx
Budget Size (USD):1Bn+ | Fuel Source: Coal | Generation Capacity (MGW): 4 764 | Investors & Development Partners: African Development
Bank (AfDB), World Bank | Offtaker: Utility | Project Status: Construction

90 2015 Africa Energy Yearbook


PROJECTS

TANZANIA

Project Name: Songo Songo


Type of project: Conventional Power
Description: The Songo Songo gas field is located on and offshore Songo Songo island, about 15km from the Tanzanian mainland and 200km south of
the commercial capital, Dar es Salaam. The project serves two onshore and three offshore natural gas wells at the island, the gas from the wells being piped
to a plant on the island.* The discovery well, Songo Songo-1, was drilled in l974 by AGIP, now a subsidiary of Italian oil and gas multinational Eni SpA.
Source: *http://www.offshore-technology.com/projects/songosongo/
Budget Size (USD): 100 - 500m | Fuel Source: Gas | Generation Capacity (MGW): 115 | Investors & Development Partners: AES, CDC
Group Plc, Tanzania Electric Supply Company (TANESCO), Tanzania Petroleum Development Corporation (TPDC), World Bank
Offtaker: Industrial | Project Status: Completed

Project Name: Mwanza Power Plant


Type of project: Conventional Power
Description: Semco Maritime A/S entered an agreement to supply a 60 megawatt power plant with TANESCO. Built near the second largest
city in Tanzania, Mwanza, to ensure the power supply of an area in the north eastern corner of the country. This project is Semco Maritimes first
major energy project in Africa - Africa is one of our major focus areas, since there is a great need for energy in order to create economic growth.
Source: http://www.semcomaritime.com/new-order-for-power-plant-in-tanzania.html
Budget Size (USD): 20 - 100m | Fuel Source: Oil | Generation Capacity (MGW): 60 | Investors & Development Partners: Semco Maritime
Offtaker: Utility | Project Status: Completed

Project Name: Ngaka Thermal Coal Project


Type of project: Conventional Power
Description: This Mine-mouth CTP project is being developed by Tancoal Energy, a JV established by Australias Intra Energy (70%) and the NDC
(30%) in Apr 2008. Intra signed an MoU with TANESCO on 12th March to develop and operate. Facility will supply Songea region via 132kV line and
link in to the Makambako-Songea national grid connection. After completion, the 153bn/- project is expected to connect more than 13,000 people with
power around the Ntunduwaro, Ruanda, Paradiso, Amani and Makoro regions. It is expected that TanCoal will generate over 80 million US dollars in
revenue to the government from the mine. In addition, it would generate royalties (23 million USD) plus revenue from stamp duty, VAT and other taxes.*
Source: *http://allafrica.com/stories/201405290841.html
Fuel Source: Coal | Generation Capacity (MGW): 600 | Investors & Development Partners: Tancoal | Offtaker: Industrial
Project Status: Under Construction

Project Name: Ubungo Gas plant


Type of project: Conventional Power
Description: The Ubongo Gas Plant is using locally available Songo songo natural gas as a source of fuel. The Plant is installed with twelve generating
units each with a capacity of 8.73MW totaling an installed capacity of 104 MW. The available capacity for twelve generating units is 102.5 MW. The
Plant is interconnected with the National Grid through Ubungo National Grid Substation. Owing to severe droughts in Tanzania from 2003-2005,
TANESCO was granted a government loan to finance the power project and meet the demand for power caused by the droughts.
Fuel Source: Gas | Generation Capacity (MGW): 102 | Investors & Development Partners: Lahmeyer International, Tanzania Electric Supply
Company (TANESCO) | Offtaker: Utility | Project Status: Completed

UGANDA

Project Name: Tororo Thermal Power Station


Type of project: Captive Power
Description: Ugandas only locally owned IPP, Tororo Thermal Power Station is owned and operated by Electro-Maxx Limited, a private energy provider in
Uganda, who built the power plant at an estimated cost of US$60 million. In August 2012, Ugandan print media reported that the power station was in the
process of upgrading the plants capacity to 80 MW, at an estimated cost of US$60 million (UGX:148 billion). The upgrade was expected to be complete by
September 2012.[7] The actual upgrade however was from 20MW to 70MW. The upgrade was completed in October 2012 and the plants maximum rated
capacity is 70MW (16.4MW from the old plant running Niigata Engines and a further 53MW from the new plant with Sulzer engines).[citation needed]
Upon commissioning of the plant, Electro-Maxx became the first indigenous independent power producer in Africa for power plants with capacity greater
than 20 Megawatts.[1] The power plant is currently licensed by the Electricity Regulatory Authority (ERA) to provide up to 50MW to the national power grid.
Source: http://en.wikipedia.org/wiki/Tororo_Thermal_Power_Station

Budget Size (USD): 20 - 100m | Fuel Source: Oil | Generation Capacity (MGW): 70 | Investors & Development Partners: Stanbic Bank
Uganda Utility | Project Status: Completed

2015 Africa Energy Yearbook 91


PROJECTS

ZAMBIA

Project Name: Maamba power station


Type of project: Conventional Power
A mine-mouth, 300MW Coal Fired Power Plant (CFPP) is being established at Maamba.The capacity will be increased to 600MW in the second phase,
depending on the build-up of demand for power in the region. this will be Zambias first IPP coal power station in 50 years. The first 150 MW Unit
was scheduled to be completed by October 2014, and the second 150 MW Unit was scheduled to be completed by January 2015. The capacity may
be increased to 600MW in the second phase, depending on demand for power in the region. The 300 MW plant is planned for operation by 2016.
Source: http://www.maambacoal.com/power.htm
Budget Size (USD): 500 - 1Bn | Fuel Source: Coal | Generation Capacity (MGW): 300 | Offtaker: Utility | Project Status: Under Construction

Project Name: Kariba North Bank Power Station Extension


Type of project: Renewable Power
Description: Expanding the capacity of the existing Kariba North Bank Power Station, one of the three major hydropower stations in Zambia. Raising
capacity from 600 MW to 720 MW. Source: http://en.wikipedia.org/wiki/Kariba_Dam
Fuel Source: Hydro | Generation Capacity (MGW): 360 | Investors & Development Partners: China Exim Bank, Development Bank of Southern
Africa (DBSA) | Offtaker: Utility | Project Status: Completed

Project Name: Kabompo Gorge Hydroelectric Project


Type of project: Renewable Power
Description: Copperbelt Energy proposes to develop a 40 MW hydroelectric power generation scheme at Kabompo Gorge in the Solwezi and Mwinilunga
Districts of Zambia. The project would be a greenfield hydroelectric power station through limited project finance. Source: http://cecinvestor.com/kabompo-
gorge-hydroelectric-project/
Fuel Source: Hydro | Generation Capacity (MGW): 40 | Investors and development partners: Copperbelt Energy | Offtaker: Utility
Project Status: Out to Tender

NOT LISTED HERE?


Send us the details of your project to be added to our Featured Projects list on the EnergyNet Hub and in the
2016 Africa Energy Yearbook.

E: amy.offord@energynet.co.uk
T: +44 (0)20 7384 8068

92 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

ANTI-
CORRUPTION,
DUE DILIGENCE
AND POWER
INVESTMENTS:
getting more from the process

Walter Courage, Director, Jonny Bray, Head of Business Intelligence


The Risk Advisory Group Africa, The Risk Advisory Group

Walter Courage is one of the founding members of The Risk Advisory Jonny is head of the Africa-focused business intelligence team
Group and is a Director. His career was spent in the army which he at Risk Advisory Group. He has over eight years experience in
joined from The Royal Military Academy Sandhurst in 1961. He the business intelligence sector and has conducted hundreds
retired in 1996 with the rank of Major General. Much of his service of investigations across sub-Saharan Africa. In this role he has
was spent in Germany, interspaced with postings to UK, Canada and travelled widely across the continent and developed up an in-
Libya. Whilst in Germany, he commanded his regiment, followed by depth understanding of the political, regulatory and commercial
the 4th Armoured Brigade. This was followed by a full tour as Chief environments in different countries.
of Staff of the United Nations Force in Cyprus and then back to Jonny is a regular speaker at Africa-focused events, recently speaking
Germany as head External Affairs Division. at a workshop on the Nigerian elections. He has also been quoted
He is a Transatlantic Board Member of British American Business in media articles, including on the subject of the challenges facing
Inc and chairman of the EMEA Forum, Chairman Future Digital companies transporting goods through African ports in complying
Footprint Limited, Director Courage Underwriting Limited, with the UK Bribery Act.
Director Weee Systems Limited and a trustee of Shotover Estate.

Anti-corruption due diligence is increasingly an established part of the investment process for power investments
in Africa. It is sometimes seen purely as a regulatory requirement and an extra cost burden, when if approached
with a broader perspective, can add real commercial value.

POWER SECTOR INVESTMENT IN across the region are such that the World Bank estimates that
AFRICA annual expenditure of $120 to $160 billion will be required
Governments across Sub-Saharan Africa are facing increasing to expand energy access to the whole region by 2030. Though
domestic pressure to increase power capacity in order to meet these sums have not yet been realised, domestic pressure has
the energy needs of their populations. The energy needs resulted in many African governments prioritising investment

2015 Africa Energy Yearbook 93


POLICIES AND BEST PRACTICES FOR AFRICA

in the sector. As a consequence, increasing sums of money interaction between a myriad of state and non-state actors,
are being spent to address the energy gap, while international often operating in an unclear regulatory context. Where vast
finance institutions have also provided significant funds to the public funds are being spent, decision-making in the sector
sector. Given the demand, there is no shortage of companies can be heavily influenced by domestic politics or geopolitical
globally competing to be involved in these projects. considerations.

However, a multitude of overlapping risks confront This risk can take various forms. The power sector is
investors in the power sector in Africa. In particular, there characterised by a significant degree of interaction between
is a widely held perception that the continent presents a companies and government. An obvious point, but one
uniquely difficult investment environment from a corruption where there is a lot of nuance. Government can have
standpoint. In Transparency Internationals 2014 Corruption multiple roles in any power project from the commissioning
Perception Index, a global comparative tool, 60 percent of of a project to its management, acting as partner and/or a
African countries fell outside the top 100 places. The region regulator. These roles can be fulfilled by different parties:
consequently appears on TIs map as a swathe of red and the executive, ministries, government agencies and state
orange, giving the impression that corruption is inescapable. companies. In some cases, the functions might all fall under
one roof, in others, the responsibilities might be dispersed.
ANTI-BRIBERY LEGISLATION In either case, there may be a lack of clarity over the mandate
The perceived level of corruption is a particularly important of these different bodies. There can also be differences in
challenge for investors given the reach and increasing roles as stipulated formally, and what happens behind the
enforcement of international anti-bribery legislation. The US scenes on an informal basis. This can create confusion and
Foreign Corrupt Practices Act (FCPA) was passed in 1977 as the opportunity for malpractice.
worlds first extraterritorial law to combat the bribery of foreign Moreover, an unclear regulatory environment frequently
officials. Over the past 15 years in particular the FCPA has been translates into limited transparency in relation to decisions
stringently enforced, with corporate penalties in 2014 totalling around the allocation of contracts, with all companies not
$1,566 million, the second highest on record. Many of the most always working to the same rule book. The result can be a
significant fines have targeted investors in African markets. preference for politically-connected companies; for national
In parallel, anti-corruption legislation passed in other contractors as a result of indigenisation policies; or companies
jurisdictions, has become more stringent and placed greater from countries providing development assistance. To
compliance obligations on companies. For instance, the compete in such an environment may create internal pressure
2010 UK Bribery Act created a new offence of corporate for companies to bend their rules to gain a competitive edge.
failure to prevent bribery, from which a company can Finally, consider also the diversity of actors in the private
protect itself by having adequate procedures in place to sector involved in bringing a project from inception to
prevent malpractice. completion. Delivering a project might entail a company
The emergence of an international compliance regime, which working with agents, consultants, contractors, intermediaries
demands zero tolerance of corruption in company policies and joint venture partners. It is a central, and growing focus of
and appropriate due diligence measures, combined with enforcement agencies, that companies will be held accountable
the seemingly ubiquitous nature of corruption, presents a for corrupt acts where they are an ultimate beneficiary.
particular challenge to companies investing in the region. Combined with the multiple layers of government interaction,
However, meeting compliance obligations should not be seen this can create a complex control and compliance environment.
as a purely tick-box exercise. Corruption is a deeply complex
phenomenon, shaped by local economics and politics, and THE TENDER PROCESS: A MEETING
manifesting itself very differently across countries and sectors POINT FOR RISK
in Africa. In practical terms, these vulnerabilities can lead to potential
Investors and actors in the energy sector therefore face distinct exposure to corruption and wider business risk in different
risks. If a business can also go some way to understanding ways. The public tender process can be a meeting point for
the driving forces behind corruption risk, the benefit can be all of the drivers of business risk, and more specifically, the
twofold: a deeper appreciation of the commercial context and drivers of corruption highlighted above. High-value, high-
a regulatory obligation fulfilled. stakes, and involving numerous government and private
sector actors, this is an area where the multitude of problems
can combine.
THE COMPLEXITY OF THE POWER
SECTOR AND BUSINESS RISK Working through a typical tender process, the graphic below
The power sector in Africa frequently represents a complex matches points in the cycle with possible corruption and
investment environment, marked by intense competition and wider business risk pressure points:

94 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

The potential for a company to be drawn into a difficult a goal in itself. A selection process which on the surface
situation can begin at the project conception stage. If is open, may have been pre-determined, such as through
the project is instigated for the wrong reasons, such as an collusion by bidding parties.
opportunity for personal political promotion, the dispersion
of patronage, or because of an attempt to provide energy to an If the risks at the project conception and bid phases have not
area constituting the governments support base, the risks will been adequately analysed and addressed, they will likely flow
likely be extended throughout the investment cycle. If the into the project execution stage. To illustrate this point, if a
project is conceived for the wrong reasons, the likelihood of change of government occurs, a wholesale review of major
the project being reviewed following a change in government contracts awarded by the outgoing government is likely to
is further significantly enhanced. occur. If a project is seen as too closely associated with the
interests of the outgoing regime then it is likely to find itself
While concerns from a corruption standpoint can under scrutiny. Similarly, if a company selects a partner or
often focus on contractor selection, that process can be agent with close connections to the outgoing government,
manipulated before it begins. Bias can be built into the then the identity of this company could prove an impediment
process in the preparation of technical specifications, or from the perspective of project execution.
in the selective disclosure of tender information, to favour
particular bidders.
A BROADER APPROACH TO
The selection process is a potential venue for malpractice. COMPLIANCE
Where multiple agencies have input in the decision-making
process, confusion over mandate and responsibilities Direct or indirect participation in a public tender process, or the
can create opportunity for influence-peddling behind provision of financing to projects formed around such processes,
the scenes. Similarly, the involvement of agents as can therefore pose a challenge from a compliance perspective.
representatives in negotiations, or where government How should companies approach managing these risks?
contact is handled by joint venture partners, might involve
wrongdoing without a companys knowledge. Transparency A typical, compliance-driven approach would consist of
in the selection process is a means to mitigate this risk, but well-developed internal anti-corruption policies, outlining
investors should be wary when transparency is held out as expectations and guidance for employees on corruption

2015 Africa Energy Yearbook 95


POLICIES AND BEST PRACTICES FOR AFRICA

issues, with due diligence on external parties. Appropriate Taking the major drivers of corruption risk discussed above,
due diligence checks on third parties such as agents and the table below illustrates where additional intelligence-
joint venture partners will focus on identifying potential gathering might be focused:
issues of concern, such as prior sanction by regulatory Getting insight on issues such as these will allow a business
authorities, indications of past involvement in malpractice, to place the core components of compliance work into their
or potential links to public officials. This is particularly proper context. Awareness of the problem areas can also prevent
important as under existing anti-bribery legislation, companies falling into potential pitfalls before they appear.
companies are potentially responsible for the actions
of agents or companies acting on their behalf. As such, These are also all questions which have clear commercial
adequate procedures must extend beyond the engagement relevance. Proper business planning centres on understanding
process. Anti-bribery training and continued monitoring the commercial environment and the actions of those around
of partners is also a key on-going aspect of compliance the business. Better informed about the local environment,
procedures. intelligence on these issues will help the business understand
their government and private sector counterparts and provide
These are the fundamentals of an effective company the competitive edge of inside knowledge. Knowledge of
anti-corruption programme, and an important part these areas will ultimately help companies make the right
of demonstrating to regulators that due care has been commercial calls.
taken. However, if undertaken in isolation from broader
research around the commercial, political and regulatory It can be the case that anti-corruption compliance is
environment, a purely compliance-driven approach may be approached as though detached from the commercial aspect
too narrow. As we have discussed, corruption risk for power of an investment: essentially a regulatory box to be ticked, and
sector investment is an issue shaped by a number of factors. a source of unwelcome costs. However, if properly integrated
If the business can develop a broader appreciation of these into business planning, treated as a collaborative process and
points, then it will ultimately be better protected against an investment of resources, then the commercial value of this
the risks. work is self-evident.

96 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

LESSONS LEARNED
In Implementing Off-Grid Electrification
Projects in Africa- Ghanas Example

Frank Yeboah Dadzie, Planning Engineer,


Ghana Energy Development and Access Project

Frank Yeboah Dadzie is an expert in off-grid and grid connected solar installation, marketing
and financing. He began his career in renewable energy as a trainer at the Deng Solar Training
Centre, Accra (an ISP certified centre).
From October 2008 to September, 2014, he served as Project Manager for Ghanas biggest off-
grid Solar Project which was aimed at financing solar systems for remote deprived rural dwellers
through an innovative microfinance system supported by the Rural banks. The project financed
over 16500 solar systems to the poorest households of Ghana. This project also stimulated the
market for Solar PV sales in the remotest districts of Ghana.
Frank Yeboah Dadzie is presently the Planning Engineer for the Ghana Energy Development
and Access Project. He is tasked with the supervision of the development of a computer based
GIS supported electrification master plan for Ghana and the Management of project activities
for the development of Ghanas first island based Mini-grid electrification project on four Islands.
Frank Yeboah Dadzie is passionate about his work and is eager to see the day where everybody in
Africa will have access to sustainable energy for all their energy needs.
Map of Islands along Volta Lake

Ghana, a country in West Africa with a population of about 25 million, has an electrification rate of about
72%. Ghana began its national electrification scheme in 1990 (when the electrification rate was 15%) with
an aim to achieve universal coverage by 2020.

A s of 2015, the country has an electrification rate which


is over three times the average for Sub-Saharan Africa.
Ghanas electrification success has been due to donor support
for grid extensions and the Self Help Electrification Project
(SHEP) which connects all communities which can purchase
low voltage poles at a connection fee of less than 1 US dollar
per connection.

Ghanas main challenge in electrification supply largely


remains in electrifying its remote dispersed rural communities
in the northern part of Ghana and island communities along
the Volta Lake where economic activities cannot justify huge
investments in grid extensions. Map of Northern Part of Ghana

2015 Africa Energy Yearbook 97


POLICIES AND BEST PRACTICES FOR AFRICA

BACKGROUND one in which consumers would specify the level of electricity


service that they wanted from PV units. The units were
The Ghana Energy Development and Access Project then installed and the consumers would then pay a monthly
(GEDAP), which began in 2007, included a component fee for the operation, maintenance, and part of the capital
for Electricity Access and Renewable Energy to assist the costs for the system. However, the monthly fee collected
Government in developing a commercially-oriented and was inadequate to meet the operation and maintenance
sustainable framework for increasing access to electricity obligations of the project. Batteries and system components
throughout the country. It complements the Governments were neither repaired nor replaced. In addition, some of the
efforts to achieve its electrification goals through villages that were deemed unreachable with the grid at
intensification of unconnected customers in existing the time of the projects initiation were provided with grid
electrified areas, grid extension to new areas, and off-grid electricity just as the PV systems were being installed, with
renewable energy options. Since the extension of the national the net result that the PV systems had to be moved or else
grid to the remote and island un-electrified communities in were never used. The RESPRO project provided a series of
Ghana will involve substantial up-front investment costs by lessons, both positive and negative, that could be built into
the Government, one sub-component of the Ghana Energy future projects. On the positive side, the project proved that
Development and Access Project focused on providing PV technology clearly worked and can provide a lower-
electricity through the installation of stand-alone solar cost electrification alternative to grid connection for very
systems to these community dwellers. The project targeted remote population centers. On the other hand, the issues of
remote communities that will not be served by the grid for ownership, maintenance, cost-recovery, and financing i.e.,
at least 5-10 years; these communities were relatively low the business model could play an important role in rolling
income. The project was financed by Global Partnership out any future, more sustainable PV-based program for rural
for Output Based Aid (GPOBA), Global Environmental Ghana.
Facility (GEF) and International Development Association Building upon these project lessons, the GEDAP project
(IDA). was designed to operate through private sector sales to
The overall goal of the project was to enable the rural dwellers rural consumers who could be provided with favourable
to have access to electricity using solar PV systems. This financing through rural and community banks. Members of
was to be achieved by obtaining consumer credit through a the Association of Ghana Solar Industries (AGSI) had been
Rural/Community Bank and an output-based grant to enable operating in Ghana to provide solar systems and components
eligible consumers to pay for a Solar Home System (SHS) for many years. While all these businesses served other markets
through an accredited dealer. The partial grants were to make as their primary business (e.g., stoves or electrical services),
the systems affordable by reducing the amount that had to the leading three companies had all received international
be borrowed. recognition for their work with renewable energy, but had
no significant local presence in the target off-grid market in
A total amount of 6.53 million USD donor funding was Ghana.
disbursed under the project, made up of more than 4 million
USD from GPOBA, 1.83 million USD from IDA and 0.7 Financing of solar PV systems was a key issue in designing
million from GEF. a new model because (i) consumers bore the up-front
investment costs; (ii) solar PV companies did not yet have
GEDAP is not the first project aimed at supplying PV- a presence in rural areas; (iii) financial services in rural areas
generated electricity to rural Ghanaians living in areas not were weak and did not include term lending products; and
served by the grid in Ghana. The Renewable Energy Services (iv) the costs of servicing debt for purchase of solar systems
Project (RESPRO) operated in Ghana from 1999 to 2003. Its exceeded what people were paying for other sources of energy,
business model that was intended for use in the project was especially at the lower end of the income scale (e.g., kerosene

Building upon these project lessons, the GEDAP project


was designed to operate through private sector sales to
rural consumers who could be provided with favourable
financing through rural and community banks.

98 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

for lighting). While output-based grants provided by GPOBA where preferred by beneficiaries although they were more
covered part of the cost of solar PV systems in eligible off- costly. The main drivers for the sale of the systems were the
grid communities, this was not sufficient to make the initial ability to watch television and charge mobile phones. There
costs affordable for most of the targeted beneficiaries. An is a surprisingly high willingness to pay for energy services
IDA line of credit was available for Rural and Community from solar home systems in remote, rural areas of Ghana.
Banks (RCBs) to refinance 80% of loans given for a three- All of the vendors participating in the project were surprised
year period. to find the size and depth of the market facing them once
they began serving the remote rural areas. This relatively
The ARB Apex Bank, a mini central bank for all Rural high willingness to pay is especially reflected in the high
Banks in Ghana, was designated as the implementing demand for large solar home systems that can supply or
agency for the grant and loan financing, to be handled at come supplied with an LED Color-TV, reflecting consumer
the retail level through Participating Rural and Community aspirations for modern energy services. Sales of these larger
Banks (PRCBs) that serve targeted communities and meet systems exceeded all targets and expectations established at
eligibility criteria. the beginning of the project.
It was expected that implementation of the project will
improve the access to electricity for about 90,000 rural 2. Affordability of Solar Equipment:
dwellers in about 15,000 households. However, the actual During the design stage, solar home systems being sold in
number of households that benefited from the project was Ghana were considered to be quite expensive when compared
16,822 which was estimated to benefit over 100,000 rural to similar products being sold in East Africa and Asia. While
dwellers. this was attributed to the incipient nature of the market, the
costs due to consumers fell (in absolute or US $ terms) over
According to the independent report of the Beneficiary the life of the project. These declines are attributed to the
Assessment of the GPOBA project undertaken by a increasing lighting output obtainable by deploying LEDs
research team from the University of Ghana, 93.8% of the in lanterns and solar home systems; continued declines in
beneficiaries under the project were satisfied with the solar the price of PV panels and the balance of system; and some
equipment provided. improvements in the quality and price of products being
supplied by local suppliers. Nevertheless, little progress was
The project clearly showed that with good management and made in the price reduction of batteries by the end of the
financing plan, it was possible to provide electricity to remote project.
rural dwellers through solar energy.

In delivering this successful project, many lessons were 3. No need to re-invent the wheel. New projects need to
learned and these include the following; learn from earlier project implementers to reduce the
possibility of project failure;
1. Rural off grid people need more than just lighting and In the first two years of the implementation of the project,
are willing to pay for it: less than 500 systems had been sold. This was largely due to
In designing most rural based electrification projects, project the project trying to start implementation from the scratch.
designers have mostly considered lighting as the main need Study tours to Sri Lanka and Bangladesh were undertaken by
of the rural people. In this project we found out that that the project team in the 2nd year and the information received
was largely not the case. Over twenty two (22) different from the tours were very helpful in refining the project and
products ranging from only lighting producing products to finding solutions to the challenges the project was facing.
products that allow you to watch a TV or use a radio were Application of the lessons from the tours led to a massive
provided. It was noticed that the products that provided improvement to sales which led to the achievement of the
more functionality (ability to watch TV or listen to radio) project targets.

2015 Africa Energy Yearbook 99


POLICIES AND BEST PRACTICES FOR AFRICA

4. Financing Beyond Consumer Loans:


The project was designed to provide credit
to consumers to improve their ability to
afford PV systems. However, what was not
considered at the time of project design
was the relatively limited experience of the
solar PV dealers with obtaining financing
for their own operations. The project team
spent nearly one year working with the
dealers to help them obtain trade finance
and working capital to be able to purchase
systems in bulk and to build up their
retail networks up-country. Without the
financial facilitation, all suppliers would
have remained in a low-level equilibrium
trap and the project would never have
reached or exceeded its targets.

5. Quality after sales service is essential 8. Re-payment plans must be well designed to meet the
to the success of such projects; cash flow pattern of the target people.
The provision of electrification through off-grid solutions In designing off-grid credit based projects for rural people it
does not end with the connection of the client. The client is necessary to design the repayment plans to meet the cash
will require education on the use of the products and quick flow of the expected beneficiaries. Most rural dwellers are not
response to faults when they occur. Supplying efficient off- monthly earners and therefore the application of monthly
grid systems without efficiently designing how after sales repayment plans used for formal salary workers will lead to
service will be provided to beneficiaries will lead to a failed low repayment rates.
project. Beneficiaries must be clear on the number of days it
will take for a fault to be repaired and what warranties they Repayment periods must be agreed on based on a careful
enjoy and this has to be provided as promised to make the study of the cash flow of the beneficiaries. It was noticed in
project successful. this project that repayment periods should be flexible and
beneficiaries must have the opportunity to choose which
Ensuring that repairs and maintenance are done correctly is repayment period best fits them.
key for the sustainability of the project. Non-working systems
will lead to poor repayments at the banks. 9. Eliminate all form of Direct Government interference;
One key lesson from this project was that to ensure the
6. Dedicated Project Manager and Rural Solar Project sustainability of the project and ensure high repayment rates,
officers were key in moving sales forward: the involvement of government functionaries should be
The engagement of a dedicated Project Manager with minimized. The project should be private sector led. Private
technical knowledge and experience in solar PV systems sector institutions should play all key roles in the project.
design, installation and marketing enabled the project team to
correctly anticipate the possible challenges and find suitable 10. Private sector players must be well screened and selected.
solutions quickly. The rural bank-based dedicated solar project The provision of electricity to remote off-grid communities
officers also made a strong, positive impact on the operation is not just a business but a social intervention and therefore
of the project. They improved sales, accelerated the processing all players in the project must be well screened to identify
of paperwork, enabled loan recovery and established working their willingness to make the sacrifices required to deliver
relationships with local dealer representatives. such projects. A mindset of using the project for only money
making will lead to difficulties in performing all the many
7. Beyond education, products must be designed to sacrifices required in delivering such projects.
prevent tampering
In designing off-grid systems, it is necessary to consider the
behavior and the abilities of the prospective beneficiaries. CONCLUSION
Beneficiaries must be well educated on the expected In conclusion, it is important to note that many ingredients
performance of the systems and all their roles in operating are necessary for the successful implementation of off-grid
the system. Systems should be designed to be very simple and projects. Project designers must therefore learn from other
require very minimal roles for beneficiaries in the operation of projects to prevent the pit falls and implementation delays
the systems. Preferably, systems must be designed to prevent most off grid project encounter.
the possibility of tampering by beneficiaries. Email: engineerfyd@yahoo.com

100 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

YEARBOOK PROFILE PIECE


STEPHEN KARANGIZI, DIRECTOR, AFRICAN LEGAL
SUPPORT FACILITY

Mr Stephen Karangizi has been the Director of the African Legal Support Facility since October 2011. The African Legal Support Facility,
hosted by the African Development Bank, was established to support African Countries in negotiating complex commercial contracts and in
assisting them with creditor litigation.
Mr Karangizi is a lawyer with extensive experience in International Commercial and Trade Law. He was Deputy Secretary General
(Programmes) of the Common Market for Eastern and Southern Africa (COMESA) from 2008 to 2011. He was also the Legal Advisor for
COMESA from 1997 to 2008.
Over a 30 year career as a lawyer, he also served as a Legal Advisor for the Governments of Antigua and Barbuda (West Indies), Uganda and
Zimbabwe after starting off in private legal practice. He is enrolled as a Legal Practitioner of the High Court of Zimbabwe and an Advocate
of the High Court of Uganda.

QUESTION: Why was the Facility countries and the continents economic will reduce the needs for renegotiations and
originally established? Were there and social fortunes. create a more sustainable environment.
any key catalysts which prompted its The current interventions of the ALSF
existence? help to bridge the gaps in legal capabilities QUESTION: How is eligibility decided
leveling the negotiating playing field. With upon- what are the criteria for accessing
ANSWER: The African Legal Support the assistance of the ALSF, governments the services of the Facility?
Facility (ALSF or Facility) is a public can engage specialist legal representation
international institution hosted by the for negotiation purposes and participate in ANSWER: Any African country is eligible
African Development Bank (AfDB). We innovative capacity building programmes. to benefit from the services of the Facility.
were originally established as a response Governments are more informed and Transitioning states and ADF (African
to calls from African Finance Ministers cognizant of their contractual obligations. Development Fund) eligible countries
to assist African countries in vulture fund An informed government has the ability receive priority funding.
litigation. to plan strategically and formulate
development programmes that best fit The Facility is open to all sovereign nations
When establishing the Facility, it was their circumstance and need. and international organizations. Currently
recognized that one of the key reasons there are 59 signatories to the ALSF Treaty
for vulture fund litigation was poorly This will be measured by monitoring the including 52 countries and 7 international
negotiated and drafted contracts. The number of projects that are successfully organizations.
underlying reason for this was a lack completed on the continent, the amount
of capacity for contract negotiations. of benefits to local communities and
Addressing these key areas is why the governments, and the ability of governments QUESTION: What value is ALSF
Facility is established. to attract additional investments by having hoping to gain from attending the Africa
bankable project documentation in place. Energy Forum this year? Are there any
particular countries or private sector
QUESTION: ALSF has been partners you are hoping to meet?
supporting African governments QUESTION: Why is there a need to
in the negotiation of commercial provide support and advice to African The Africa Energy Forum provides an
transactions since 2010- a relatively governments when doing business with opportunity for the Facility to highlight
short lifetime. What are the long-term international investors- what are the the availability of this valuable resource, not
goals of the Facility, and how will these potential risks? only to member states but to investors who
be successfully measured? seek contractual certainty. We hope to have
ANSWER: Companies have shareholders, an open dialogue with investors to better
ANSWER: The long-term goal is to ensure and governments have stakeholders. understand the challenges they face when
that governments have the capacity to International investors should be interested negotiating with African governments.
negotiate fair and sustainable contracts that in getting a deal that will be fair and We also hope to increase awareness of
will benefit their countries. These contracts balanced; a deal that all shareholders and the pressures governments face in these
will in turn lead to improvements in the stakeholders will be happy with. Such deals negotiations.

2015 Africa Energy Yearbook 101


Building Partnerships Transforming Economies
As Africas power sector increases in capacity, the ripples of these developments are felt throughout the global
economy. With the Power Africa Initiatives objective to double the number of people with access to power in Sub
Saharan Africa over the next 10 years, the much needed investment into the sector will not only increase power
generation but also unlock a wave of opportunities in bilateral trade between Africa and the United States.

Join us again in 2016


For more information about how to get involved in next year's Summit, please contact:
Veronica Bolton Smith | Programme Development Manager | EnergyNet | +44 (0)20 7384 8069
POLICIES AND BEST PRACTICES FOR AFRICA

POWERING
AFRICA: Small Steps, Giant Leaps
Niamh Kenny, Associate Consultant, Gas & Power, CITAC

Niamh Kenny is an associate consultant with CITAC, specialising in the African power and
gas sectors. Niamh has over 20 years experience as a journalist and consultant in the energy
sector, focused primarily on electricity, although she has also gained extensive knowledge of the
global oil and gas markets through her previous role as executive editor of Energy Intelligence
Groups research department. Prior to joining EIG, Niamh concentrated exclusively on
the power markets. She was a long-serving editor of Financial Times Energys influential
fortnightly newsletter Power in Europe, as well as a founding editor of Power in Latin America,
and consultant editor to Power in Asia. She has also worked with Argus Media, where she was
involved in creating and populating a power plant and utility database. She is a graduate of
Trinity College, Dublin.

Massive generation and infrastructure programmes have proliferated across Sub-Saharan Africa in recent years, as
national governments and international agencies look for rapid solutions to the immense development challenges
facing the regions power sectors - inadequate capacity, frequent outages, electrification and consumption rates
almost inconceivably low by developed world standards.

CHALLENGES
I n the longer term, the scale of Africas power requirements
will dwarf all but the most ambitious of these, but CITAC
argues that a more effective and less costly initial approach
On average, only 32% of people living in Sub-Saharan
Africa have access to electricity, a level that has barely
to boost African supply should entail a prosaic combination changed in a decade, compared to over 99% in North
of improvements to plant efficiency, maintenance and fuel Africa. Excluding South Africa, total installed capacity
supply, reduction in losses, especially in the distribution grids, across the continent at the end of 2013 was 44.2 GW,
and, above all, the establishment of strong and transparent which delivered roughly 172 TWh, an effective average
regulatory structures. Small steps that could deliver impressive utilisation rate of only 44%. Load-shedding and
results. unscheduled black-outs are a common occurrence, despite

2015 Africa Energy Yearbook 103


POLICIES AND BEST PRACTICES FOR AFRICA

the modest electrification rate, while consumption after


losses was 142 TWh, equal to per capita usage of just 146
kWh. To put these figures into perspective, in 2013, the
UK, with a population only 1/16 the size, alone produced
and consumed twice as much electricity (337 TWh and
307 TWh respectively).

To compound the situation, there is a sharp divide between


some of the better performing economies such as Ghana,
Nigeria and Botswana where electrification rates range from
50% upwards and those such as Malawi, DRC and Chad,
which barely stretch to 10% penetration.

STRONG GROWTH
Despite these headline figures, the power situation in Africa
has improved markedly in recent years power production
has risen by over 30% since 2009, more than twice the rate
of population growth and in line with GDP growth. And
critically, although actual gains have been small, electrification are proposed, but these are dominated by large hydro or
has gained a new political urgency with economic expansion integrated fuel-to-power projects, and it is questionable,
in the region. Boosting power supply is now one of the key if many of these will be underway, let alone completed by
priorities of almost every government, for a raft of political 2025. At present, only around 20 GW of planned capacity
and security reasons, in addition to the more obvious societal looks firm.
and economic advantages that widening access to power will
bring. Assuming committed and firm projects are completed on
time and have secure fuel supply a concern, particularly
Assessing exactly how much is needed in the short and for natural gas this will leave the industry short of 18
medium-term is open to much debate, but using a simplistic GW of capacity on the base case scenario, a level that
model based on historic power growth and projected GDP implies additional financing needs of at least $27bn for
growth indicates that capacity outside of South Africa generation, plus funding to install associated transmission
will need to rise by 26 GW by 2020 and by more than 60 and distribution infrastructure. Including South Africa, the
GW by 2025 just to cover an anticipated 10% per annum shortfall rises to over 20 GW by 2025.
rise in demand. Boosting electrification rates, absorbing
existing levels of suppressed demand and delivering healthy Moreover, this is a minimum shortfall, if ultimate
system margins would require far greater expansion, but it electrification goals are to be met. Even with an extra 45 GW
is questionable if many domestic or commercial consumers in place, Sub-Saharan Africa will still be languishing at the
would be able to absorb the tariffs that would be necessary to bottom of the global per capita power consumption league
underpin considerably higher levels of investment. table by 2025, with average rates of 360 kWh per capita.

Around 23 GW of this expansion is already underway This fact is one of the key motivations behind multilateral
(36 GW including South Africa) and scheduled to be infrastructure programmes and behind the 2013 US-led
operational by 2020, although 70% is concentrated in just Power Africa initiative. This programme aims to expand
four countries 6 GW in Ethiopia, 4 GW in Mozambique, capacity by 10 GW and electricity access by 20mn people
3 each in Nigeria and Angola. More than 70 GW of other across six partner countries. It will be financed by $7bn of
projects are also either in the pipeline or planned for aid and soft loans pledged by the US via various agencies, in
construction within the next decade, and further 100 GW addition to private sector investment.

Around 23 GW of this expansion is already underway


(36 GW including South Africa) and scheduled to be
operational by 2020.

104 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

amongst which is its woeful


overall efficiency levels.

African hydroelectric stations


demonstrate utilisation levels
close to the regional best, once
rates are adjusted for the effect
of seasonal rainfall. But levels for
thermal generation, at an average
of 35%, are extremely poor and
represent an enormous loss in
potential power deliverability.
Across the OECD, for example,
thermal power utilisation is
around 45%, but this number
reflects heavy seasonal use in the
northern hemisphere. In South
Africa, as in OECD countries
with little seasonal demand
change, the industry operates at
over 60%. To put these numbers
into perspective, a shift in thermal
utilisation to South African levels
would defer around 19 GW of
capacity expansion.

Although some of the utilisation


constraints are beyond the
power of the generators alone
to rectify such as interruptions
to fuel supply and insufficient
transmission capacity others
could be resolved. One of the
There has been a degree of scepticism about this initiative, but main problems is simple lack of maintenance, many plants
whatever its underlying political and commercial motivations, having been wrecked by war or cannibalisation of parts.
there is little doubt that it has been a catalyst for change. The These could be repaired, bringing effective capacity back up
question is whether this, and similar programmes, are likely to to nameplate levels relatively cheaply and quickly. In Nigeria,
deliver the most fruitful and cost-effective solution to Africas for example, half of the nameplate capacity is shut in at any
power problems. The key concern is the extent to which the given time.
funding commitments appear
to be targeted at developing new
capacity, rather than investing
in existing infrastructure and
assistance to regulatory reform.

OPERATIONAL
WEAKNESS
A close look at the power
situation in Africa shows that, as
necessary as additional capacity
is, exclusive focus on this misses
other priorities; notably, the
industrys pressing need to
address some fundamental
operational weaknesses, first

2015 Africa Energy Yearbook 105


POLICIES AND BEST PRACTICES FOR AFRICA

operation. At the most simple level


of cost analysis, this would have
eliminated most oil firing over
the past few years, given the high
price of the fuel. Recent price falls
have transformed the economics
of oil generation, although diesel
remains uneconomic.

Nevertheless, oil generation is likely


to remain necessary in hinterlands
where it is either not feasible
or economic to use other fuels.
Logistics are a key constraint to
fuel choice in Sub-Saharan Africa,
particularly inland, where there is
limited pipeline or indeed transport
infrastructure, but where mines and
raw materials processing industries
are often located. A holistic
approach may still point to gas
generation in centralised locations,
with electricity then transported to
more remote locations - but this
would require enhancement of the
electricity transmission grids.

Transmission and distribution losses are also a major supply Much of the recent growth in SSA power has been in
constraint. Average implied losses in SSA are roughly smaller-scale, off-grid renewable generation, notably
20% compared to 12% in South Africa or Europe but solar. But, while renewables are a very effective means of
are considerably higher in some regions. There are many delivering immediate power to areas without grid access,
technical and commercial reasons for these losses, but some and are operationally CO2-free, ultimately these are an
of the most critical technical issues are lack of maintenance, expensive and often unreliable form of power. Enthusiasm
vandalism and cable theft. On the commercial side, the for renewables tends to focus on their minimal fuel costs,
critical problems are power theft, tampering with meters, rather than their capital costs, which are usually steep
inefficient and sometimes corrupt billing procedures. compared to conventional thermal plants.

Simply reducing technical losses to typical international levels


could defer almost 3 GW of capacity expansion. COST-REFLECTIVE TARIFFS
A further imperative is to ensure that generation costs and
transmission operations are actually covered by domestic
NOT ALL POWER IS EQUAL power tariffs. The power industry is aware of the importance
Sub-Saharan Africas chronic power shortfall has tended in the of this, but there is a long way to go before the industry is on
past to push implementation of effective fuel usage strategy into secure economic foundations. Tariffs to end users in SSA are
a very distant second place to access to supply. But clarifying on average around 14 US cents/kwh, around the cost of oil-
what are the optimum generation fuels is a priority for efficient fired generation at current prices. In the few markets where

Sub-Saharan Africas chronic power shortfall has


tended in the past to push implementation of effective
fuel usage strategy into a very distant second...

106 2015 Africa Energy Yearbook


POLICIES AND BEST PRACTICES FOR AFRICA

oil dominates the generation mix, end use tariffs


are higher, but are typically still insufficient to
cover full generation and transmission costs for
diesel.

Costs for gas generation are lower than the tariff


base, particularly if fuelled by local gas. But, while
gas looks to be the obvious medium term route
to expanding generation capacity particularly
in East and West Africa on cost grounds and
through faster project lead-times, many countries
will struggle to secure reliable domestic supplies.
Ghana, for example, continues to endure
shortfalls from the West African Gas Pipeline,
and new supplies from the Jubilee field and from
TEN/Sankofa will be insufficient to supply any
power project beyond those under construction.
Similarly, declining output from Cte dIvoires Foxtrot field
should be partly offset by output from new fields, but will still for the power industry that can deliver investment. There
leave the country ultimately short of gas. is a popular view that guaranteeing sufficient investment,
especially from the private sector, will necessitate widespread
Imported gas is being touted as the solution, bringing in LNG deregulation to enable market forces to run the industry. But
from other parts of Africa or even from the Middle East and the in reality, movement towards free-market pricing is the last
US. Several operators are examining the possibility of installing thing Sub-Saharan Africas power businesses need. Rather, a
regasification facilities or, as a lower risk option, floating firm and transparent regulatory regime is needed to assure
storage and regasification units (FSRUs). However, shifting returns on capital and security for investors.
to imported LNG would be one of the biggest challenges for
the power sector. The capital intensity of the LNG industry Competitive markets with unbundled (functionally-
means that financing across its phases needs absolute security segregated) utility ownership, guaranteed third party access
of offtake and price. Notably, power purchase contracts have to to the transport infrastructure and pricing driven by supply/
be aligned with gas purchase contracts. demand fundamentals are a luxury for mature industries and
even here, partly by virtue of the market volatility they create,
The massive investment needed will require private sector do not necessarily deliver appropriate investment signals.
involvement and this will be conditional upon market and Power pricing in many OECD countries remains regulated
regulatory changes, in particular towards liberalising market by price structures in one form or another.
entry, asset ownership and the right to operate concessions.
Power Africa and other major initiatives are to be welcomed
but this should not distract from the more pressing needs of
REGULATION IS THE KEY the Sub-Saharan African power sector: the need to address
To pull all the elements of a complex power supply chain first the industrys structure and regulation; and second, the
together, from securing fuel supply to delivery of electricity basic flaws in its infrastructure and operations, which reduce
into homes and industry, there is one overarching issue that markedly the value of any investment in headline generation
needs to be addressed. This is to ensure a regulatory structure capacity expansion.

About CITAC
CITAC Africa Ltd is a UK-based, independent consultancy founded in 1998 to focus on the downstream African
energy sector. It has extensive experience in projects relating to refining, storage, trading and distribution of petroleum
products in English- and French-speaking Africa, and has recently expanded the scope of its operations to cover African
gas and power market fundamentals and analysis. Its services include bespoke studies, subscription and retainer-based
products, including access to its award-winning African Downstream Database, as well as commercial, operational and
financial training courses in London and Africa.

For further information about this article or about CITAC, please contact Karen Chevalier, +44-207-343-0014,
karen@citac.com.

2015 Africa Energy Yearbook 107


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Will Africa profit from the global chocolate crisis?
Will Africa profit from the global chocolate crisis?
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