Please tell us more about your organisation, The African Trade Insurance Agency, and your activities around Africa?
ATI is a multilateral institution, majority owned by 10 African countries (Benin, Burundi, the Democratic Republic of Congo, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia) as well as other non-country members including the African Development Bank, SACE and PTA Bank.
Ethiopia, Cote d’Ivoire and Zimbabwe are at advanced stages of completing their membership. Also, the Economic Community of West African States intends to join as a block.
ATI was been set up to attract investments and promote trade related to our member countries. We do that by insuring investments in member countries and by insuring the commercial risks when companies are doing business with each other. Over the years we have developed a whole range of products that meet the needs of our markets.
Any specific projects in the energy sector you are particularly excited about?
ATI is also seen as an important intermediary and partner by development partners including the European Investment Bank, KfW and the International Finance Corporation in their efforts to develop products to support SE4ALL projects in Africa.
We are particularly excited about the opportunity to support such initiatives to address the energy gaps in Africa on a programme rather than project level; whether it is in generation, transmission, access or efficiency.
On a transaction basis, we are working on a number of very exciting projects. Without going into specifics, these include several mini and medium sized hydros, solar and wind projects across many of our member states and “non-renewable energy” projects.
ATI has an established track record in underwriting energy projects and we provide power producers, and suppliers, with risk mitigation (non-payment, arbitration award default and other investment risks).
What are the main challenges in project finance in the energy sector on the continent?
To us, the main problem is project bankability. We have a pipeline of over $ 1.4 billion but many projects have not yet reached financial close because there are significant hurdles to make them bankable. ATI can play a crucial role in achieving bankability by absorbing risks the private sector is not eager to take; but often these risks do not represent the only barrier to bankability and all gaps need to be addressed before financial close.
Our product range helps to make these projects bankable either by insuring project cash flows (utility risk) or covering the political risks such as non-honouring of sovereign/sub-sovereign obligations and guarantees. In addition, we are working with Banks to address liquidity challenges.
Size is not important; we can work with power projects that are small as we are looking at the bigger picture with regard to solutions. Small projects can play a big role in addressing Africa’s challenge of energy scarcity.
But besides these gaps, which we can help to fill, often overall limited financial viability of projects, non-bankable documentation like PPAs and/or high resource/operational risk represent deal breakers. ATI knows the energy market in Africa well, including its challenges, and therefore takes a patient approach and sees its mission in contributing solutions to reduce challenges for the private sector.
Which regions are facing the biggest challenges?
Africa cannot be broken down into regions. From our profile we currently mainly cover East and Southern Africa and even here we see different challenges. Nevertheless we can say that the balance sheet and payment history of utilities is a challenge in most countries – whether this is real or perceived.
When we take a holistic view then, generally, the challenges are related to the health of a country’s macroeconomic environment; the health of the energy sector and its dependency on subsidies, the energy policy support (REFiTs, other incentives); the IPP framework; the existence of a good pipeline of bankable projects) and the resource potential of a country/region. I have to reemphasize, every country will be different.
Internally we have done significant work to review these indicators in selected African countries including most of our member states. As underwriters, we have to understand the risk we absorb but also the instruments to mitigate it. It is crucial for us that governments have and communicate a clear strategy for the energy sector, which can form a basis for cooperation between them and ATI.
Developing the energy sector is, and has to be, a priority for most governments, with very different key challenges in their countries. ATI stands ready to discuss with governments how ATI products can support them in achieving their targets.
What surprises you about this sector?
Despite the challenges, there is a real effort to address the energy deficit in the sector (supply side). Most financiers we talk to confirm that funding is available (with subjectivities of course) while many developers say financing is a main challenge.
The complexity/diversity of the barriers on a project level, the often missing information or poor communication as well as the lack of unbiased advice often contributes to this. ATI is building capacity to close this gap including by removing some of the perceived risks for investors including lenders.
At African Utility Week, you are part of Finance and Investment conference track. What will be your main message at the event?
I am very excited about this year’s event. I will be talking about “Scaling up finance for sustainable energy investments”. Here my message is that ATI has an existing portfolio of products that mitigate some of the risks on power projects and can play a crucial role to create win-win situations for government on the one hand and private sector investors on the other.
I recently summarised my experiences on underwriting energy projects into three simple concepts – The Good, The Bad and The Ugly! I think we all have to learn from each other on how we can make projects bankable and I hope to play my part in this discussion.
What are you most looking forward to at African Utility Week?
The 2015 event was a great networking opportunity and at least one of the initiatives I mentioned above was a direct result of my interactions last year. I am looking forward to meeting more potential partners in our common vision to address Africa’s energy needs.