Interview with Jef Vincent, Chief Underwriting officer at African Trade Insurance (ATI). Jef will address the upcoming EAPIC conference session on Power Project Finance: Attracting Investors & Raising Funds.
Please tell us more about your organisation, The African Trade Insurance Agency, and your activities in East Africa.
ATI is a multilateral institution, majority owned by 10 African countries and other non-country members including the African Development Bank, SACE and PTA Bank.
The Agency has been set up to attract investments and promote trade related to our member countries. We do that by insuring the political risks related to investments 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 the markets.
In the energy sector we are insuring independent power producers (IPPs) against the risks of expropriation, nationalisation and comparable situations. We insure them against the risk of non- payment or the unilateral change of the feed-in tariffs “FIT”) by the utilities.
We insure the banks that are funding the IPPs against default by the IPPs. We also insure EPC contractors of transmission lines, the banks that issue their contract bonds, the suppliers of all the materials, and so on. About 30% of our exposure and income is related to the energy sector.
Any specific projects in the energy sector you are particularly excited about?
Indeed, we are working on a number of very exciting projects. One is a “waste to energy” IPP that will not only generate 80MW, but will also help to resolve the management of industrial and domestic waste in Nairobi.
Another one is in Congo, where a public-private partnership will build a hydro power plant, renovate the distribution network of Kinshasa and install prepaid meters in offices and households. The revenue from these will justify the whole $800 million (ZAR1 billion) investment.
What are the main challenges in project finance in the energy sector in this region?
Private investors in the energy sector can only justify their investment if they are comfortable that the long term contracts that they sign with the utilities and other government agents will be respected.
We’re talking about Power Purchase Agreements (PPAs) of 20 years and longer, and in this period there will be many elections, changes in technologies that can allow other IPPs to produce at a cheaper cost so that there will be a temptation to review the FIT, big fluctuations in the currency exchange rates , and other potential scenarios.
From our perspective the main challenge is the relative weakness of the off-takers of the power that is generated, and the potential political interference in this respect, as access to and the cost of power is a very sensitive political issue.
That is where ATI comes in. We insure the investments and we have the respect of the PPAs because the countries are shareholders of ATI and have given us a recourse in case we have to pay a claim. We give investors and lenders the peace of mind that they need to make such big commitments.
What surprises you about this sector?
As I discovered the sector, I had quite a number of eye openers. First, the importance of understanding the technology and the technical features of a project in order to assess the risks that we are insuring.
Second, I see that a lot of the media attention goes to the power generation, but in fact the transmission and distribution are equally important and the synchronisation of the investments in these 3 areas are extremely important – and not always a big success.
It hurts to see that some IPPs don’t produce at full capacity because the transmission lines have not been upgraded in time, while the continent is power starved.
However the biggest surprise is the importance of the social impact of the projects and the delays that they can trigger. The big projects generate big expectations of compensation for expropriation, intense disputes about land ownership, high expectations with regards to the employment of the local population, and the resulting disappointment generates unrest that can and has delayed important projects for years.
At EAPIC you are part of the programme, discussing project finance, risk etc. What will be your main message at the event?
I had an opportunity to speak at the 2014 conference, and there my main message to the governments was to allow the utilities to build up their balance sheet and to allow them to have tariffs that give them decent revenue, so that the private investors feel more confident to work with them.
There are public companies in the region that are virtually bankrupt and that have defaulted in the past on their contractual obligations and that doesn’t help to attract investments.
What are you most looking forward to at EAPIC?
The learning experience and the interaction with so many extremely professional and knowledgeable participants besides the excellent quality of the presentations.