African Energy Mega Projects: financing options and study timeframes (1.1)

The “fastest sustained growth rates” in any power sector’s history came from industrialising Vietnam and China. 14 % a year.

“People liked what they saw because of the speed at which it was built,” says Moses Ikaria, the managing director of the Kenya Investment Authority, referring to the eight-lane highway put by the Chinese between Nairobi Kenyan industrial town of Thika. The 45 km asphalt job took less than four years to complete. “The perception here was that roads took a long time to build”

As the Financial Times observes,  in a speech at the official reception for the Japanese emperor’s birthday, Tatsushi Terada, ambassador to Kenya, said: “A Japanese project might cost more but the life cycle cost in the end is much better because it requires less maintenance.” Whereas Japanese investment is usually regarded as reliable and of excellent quality, China quickly catches up on quality and is known for its speed.

In 2015 government officials from 17 Francophone Africa countries pledged to monitor, evaluate and publicly report their public financial management progress on an annual basis. Starting from 2018.

Morocco flips the switch on the world's largest solar facility. When they are finished, the four plants at Ouarzazate will occupy a space as big as Morocco’s capital city, Rabat, and generate 580MW of electricity, enough to power a million homes. Source: CNN.com
Morocco flips the switch on the world’s largest solar facility. When they are finished, the four plants at Ouarzazate will occupy a space as big as Morocco’s capital city, Rabat, and generate 580MW of electricity, enough to power a million homes. Source: CNN.com

It’s a welcome action in line with the IMF urging full accrual-based recording of transactions to capture other economic flows in fiscal reports. “The international community must be ready to assist. This next decade will be pivotal,” stresses Alta Prinsloo, executive director, strategy, and chief operating officer at the International Federation of Accountants. “Enhanced public financial management, including increased transparency and accountability, is a first but fundamental step towards ensuring sustainable economic growth, better public services.”

Electrification rates are as low as 9 – 20% in many Sub-Saharan African countries. “Failure by governments to allow cost-reflective tariffs is the single most important reason for the lack of power development in sub-Saharan Africa,” argues David Humphrey, head of infrastructure and power at Standard Bank.

While utility-scale projects such as Morocco’s 510 MW solar project and Kenya’s 300 MW wind project have secured key financing to begin construction — the first 160 MW phase of Morocco’s project will begin operating later this year — nearly all of the capital was from public sector sources such as the World Bank and African Development Bank.

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Côte d’Ivoire was one of the first countries in sub-Saharan Africa to privatise its electricity sector and, today, independent producers play a significant role in the country’s electricity generation. The country is now willing to prioritise hydroelectric projects, in order to balance the energetic mix. Yet, as demand grows, the private sector still offers substantial potential for independent operators.

Foreign investment has been a feature of the Ivorian electricity market for a quarter of a century, starting with the privatisation that created the Compagnie Ivoirienne d’Electricité (CIE), the power supplier and distributor at the heart of the sector. Eranove, the company that now owns a majority stake in CIE, also owns Ciprel, one of the country’s independent power producers (IPPs). “One of the advantages here is the tradition of private investment in the electricity sector,” says Amadou Ba, managing director of Endeavor Energy, which plans to build a 375 MW power plant. “Even in the middle of the [2002-10 political] crisis the power continued to flow.”

Luc Ayé, managing director at Azito Energie, another IPP, says in a FT interview that a key to success is a defined set of rules for how CIE has to pay the independent power generators. This “waterfall” structure gives IPPs a relatively high place in the payments queue. “That allows transparency in the sector and all the operators know that we are going to get paid. It is the basis for everything that has made Côte d’Ivoire attractive for investment. It has never been called into question,” Mr Ayé says, adding: “There are very few countries that have such a clear organisation and structure.”

Endeavor Energy’s Amadou Ba says another advantage is that the country is “very good at structuring bankable power purchase agreements”. That makes it easier for IPPs to raise project finance.

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