Please tell us more about Standard Bank’s Power and Infrastructure division? Any particular projects that you are currently involved in that you can share that you are particularly excited about?
Standard Bank’s P&I division in Corporate and Investment Banking is a leading funder of Power and Infrastructure projects across Africa, whilst it also focuses on a holistic client offering through a universal bank solution to corporate entities and institutional investors as a financial advisor.
Our footprint, expertise and experience of our on-the-ground teams globally, enables us to manage and execute our clients’ strategic financing and banking requirements within and across continents through often challenging and complicated financial and regulatory environments.
The team possesses the core competencies required to advise, fund and transact on various transactions including:
– financial modelling and valuations (underlying asset valuation, enterprise valuation, market analysis, merger ratios, etc.);
– strategy (negotiations);
– documentation (alongside legal counsel);
– regulation; and
– Project finance, trade finance and global market support and funding.
We are currently involved in several energy sector projects in Africa, encompassing all key technologies through various mandates. For example, Standard Bank was the Lead arranger on the 118MW Gigawatt gas IPP in Mozambique. The Project closed last year.
We are currently working on a similar medium-sized coal-based power transaction which, we believe, will in time help Mozambique address any power supply and demand imbalances the country may face.
What would you say are the key trends in project financing options in emerging markets?
• Significant drive towards scalable renewable energy projects through various programmes (e.g. SA, Namibia, Kenya, Zambia etc.)
• Despite an increasingly challenging environment for coal-based power projects post COP21, coal to remain a key feedstock for power projects in Africa. For example, coal is expected to account for 21% of Mozambique’s additional installed capacity in the short to medium-term.
• Need for anchor strategic investors with significant skin in the game
• Multiple shareholding structure as a way to significantly mitigate Sponsors’ risk exposure
• Credit enhancement mechanisms to become more important than before in order to help de-risk projects e.g. ECAs
• PPPs-based power structures
• Increasing Governments’ acceptance for cost reflectivity of electricity tariffs (e.g. Nigeria, Cote d’Ivoire, Ghana etc.). However, implementation remains key to supporting a sustainable power sector in the medium to long term
• Need for a complete strengthening of the electricity transmission infrastructure in many African countries
• Gas as a way to significantly balance the energy mix in key African markets:
o e.g. In Mozambique, Rovuma Basin fields with its recoverable reserves estimated to approx.[185-187] Tcf can help partly “gasify” the country’s generation asset base.
o e.g. 3.7GW of additional capacity expected to be added by gas-based power plants in Ghana – e.g. Kpone’s 350MW, Ghana 1000’s 360MW (Phase 1) etc.
What do the successful investors in power projects in Africa have in common?
• Ability to take and understand wider African risk (in addition to your normal Project Finance-related risks (e.g. offtake, construction etc.) ;
• Typically have a longer term view, with clear strategic objectives;
• Normally prepared to take a certain level of risk depending on acceptable return.
Are infrastructure projects becoming more risk-averse/popular to invest in?
• There is no doubt that 2015 has been a challenging year for the wider infrastructure space in Africa and there is clearly a greater need for regulation that allows for cost-reflectivity of tariffs as well as a culture of user-pay principle.
• A combination of lower commodity prices, China’s economic slowdown, dollar strength and local currency weakness means that today African governments (who remain major sponsors in many large power and infrastructure projects in Africa) have been restricted in their ability to fund projects on fiscus alone.
• Despite this, we believe that infrastructure projects are still as relevant as ever and can provide significant IRRs for driven power project developers and sponsors, with Governments remaining key for utility scale projects.
Are Africans increasingly investing in Africa’s energy sector?
• Africans (public and private sponsors) are increasingly investing in their local electricity market
e.g. In Mozambique, approx. 16 power projects have either been announced or are under development. They are primarily sponsored by a combination of large energy companies (e.g. global mining companies) and local developers (private and public). If they all were to effectively materialise, the additional capacity to the national grid would theoretically be around 5.6GW, with hydropower accounting for 68% of the planned additional capacity. With a total capital cost requirement estimated at approx. $14.2bn (or 89% of Mozambique’s expected 2016 GDP), it is likely that only a few of the above-mentioned planned power projects are likely to come online in the short to medium term.
e.g. In Botswana, 6 power projects are expected to come online in the foreseeable future, including Morupule B (5&6). Together they would add approx. 1.7GW of capacity to the grid for a combined capital cost requirement of approx. $3.4bn. Yet the country’s peak power demand is estimated at only 578MW.
What surprises you about this sector?
Resilience of project sponsors and Government officials in trying to address the imbalance between power supply and demand despite a challenging economic environment in some countries.
What has to date been the most exciting energy project you have been involved in?
• 340 MW gas and oil-fired, combined-cycle power generation plant at Kpone (Ghana). SBSA underwrote approx. $100m of debt.
• 300MW Lake Turkana wind farm (Kenya). SBSA was joint MLA (along with the African Development Bank and Nedbank) on the €623m power project.
• Early South Africa’s REIPPPP projects in which Standard Bank committed significant financial resources during the first four bidding rounds of the country’s renewable energy program and is still involved in the development of the sector at various levels.
What will be your message at African Utility Week this year?
• Several power projects have been either announced or are under development in many African jurisdictions (78 power projects identified in 13 African countries).
• However, an analysis of power plant developments in 13 selected African countries* shows that a majority of these power projects are expected to have medium-sized capacity (Defined as 30-300MW); Roughly 40% are expected to be large-scale power plants (expected installed capacity greater than 300MW), with small-scale power plants (<30MW) accounting for the remaining 10%
• Given a combination of a challenging business environment, liquidity constraints as well as limited number of financially credible offtakers (in some jurisdictions), there may be a need for right-sizing many of these power projects. Furthermore, scalable renewable projects with World Bank support will continue to expand beyond current initiatives.
*Moz, Bot, CIV, Ang, Malawi, Nam, Zam, Zim, Nig, Tanz, Ethiop, Ghan, Kenya
Anything you would like to add?
• Standard Bank are well-positioned to assist our clients in capitalising on any power project opportunity they may want to pursue in our presence countries:
o We are present in 19 countries across Africa (in sub-Saharan Africa), with a market capitalisation of $20.7 billion (as at June 2015) and total assets of $165 billion
o We 1) have an outstanding transaction record in advising and arranging African power projects; and 2) deeply understand African power sector’s dynamics
o We have developed long-term relationships with African power asset developers, operators, investors and key sector decision makers and are therefore able to facilitate dialogues in an effective manner
• Accordingly, we would be pleased to assist clients that have a keen interest in venturing into the African power space as required.