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Energy in Africa – Money, money, money

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The World Bank Group has sufficient resources to finance three to five times more projects than it currently does, according to Alain Ebobisse, the Chief Investment officer at the Infrastructure Department,. But the bad news is the lack of bankable projects. Indeed, most African electricity companies require state guarantees to cover the credit risk of investors who for instance finance infrastructure and need to be reassured about reimbursement, says Ebobisse. In addition state’s credit enhancing is needed since the state guarantee alone is not sufficient. That is where the World Bank’s partial risk guarantees to cover private risk lenders against the risk of a public entity failing to perform its obligations with respect to a private project, either under the form of a Public Private Partnership (PPP) or a Build Operate and Transfer agreement. This mechanism has already allowed to finance projects lke the Azito gas power plant in Ivory Coast and the Bujagali hydropower dam in Uganda, explains Alain Ebobisse. Reforms are also needed. The set includes independent regulators, cost-recovery tariffs, transparent planning of projects and the limitation of government to policy-making, except in the case where the sector is not entirely commercial. According to Ebobisse, Ivory Coast and Kenya are good examples of countries which achieved reforms. Mozambique is also doing fine. But many other African countries have not completed the process.

doc2Cameroon for instance is moving backwards, after it did privatise its electricity sector, pursues Ebobisse who nevertheless remains optimistic about the future because the governments, he says, do not have choice anymore. Financing needs and budgetary constraints are so huge today that they need to do the right thing if they want to attract private investments. The main pressure on African governments will come from the public, because they cannot afford to have people demonstrating in the streets (like in Senegal) against poor services. Another important factor is the pay-back period, which does not play always in favour of hydroelectric projects and has largely contributed to incite Ivory Coast to promote power from gas projects. Ivory Coast also boasts from hydroelectric capacity. But according to the Compagnie Ivoirienne d’Électricité’s General Manager, Flore Konan Djédji, it takes time to harness. The Soubré power dam should have been built 20 years ago. It is easier to get funds for gas projects, says the CIE boss. Moreover, construction periods to harness the gas potential are shorter: it takes between 18 to 24 months to build a gas power station and three to four years in the case of combined cycle gas power station. But it takes six to seven years to build a hydroelectric power station. On top of that, investment costs for a gas power station are lower. Flore Konan mentions the example of the Ivorian CIPREL which managed to mobilise funds from financial institutions and private investors. And then, the construction of a power dam may cause environmental problems, even if at the end of the day, the power which will be produced will be cheaper, says Flore Konan who advocates for a mix of both sources of energy. Ivory Coast has gas in abundance and the regional potential is very important with a large offshore discovery in Ghana. All that should allow building thermal power stations which will enable CIE to cope with the country’s chronic power deficit. And there is a strong progress of gas consumption in the country. In Ivory Coast, 30 to 40% of the consumption consists in associated gas. Then, the regional infrastructure is in place with the completion in 2007 of the West-African Gas Pipeline, linking Nigeria to Benin, Togo and Ghana, which allowed power utilities to replace the more expansive and more contaminating petroleum products.

doc3Combined cycle power stations associating a thermal turbine, a gas turbine and a steam turbine, will also allow higher energy efficiency, claims Flore Konan. Azito which already has a thermal plant, will install a gas turbine and combined cycle production facilities while CIPREL will build a second gas power station of 110 MW whose capacity will be enhanced by 50% by a steam turbine. One of the problems however is that sale prices of electricy must reflect the cost of production in a context of spectacular increase of the gas cost (+ 140% between 2004 and 2008). In conclusion, said Flore Konan Ddjéji, the gas industry can bring an important contribution to the African sustainable development policies. Gas is a clean fuel which can improve the quality of environment and at the same time the living conditions of the populations. But a number of challenges must be addressed. The list includes the adequate planning of the projects, the strengthening of cross border exchanges and the improvement of the management of the public services. Of course, admits Flore Konan, natural gas alone does not offer a sustainable solution but it can provide an important contribution to the African policies of sustainable development, Regardless of the merits of hydropower projects such as Inga III in the DRC, or Mpanda Nkuwa in Mozambique, or of the Kudu gas project which plans to tap offshore gas fields on the Namibian coast to feed a 800 MW power plant, funding is difficult for those projects. The size of the projects does certainly play a role. Another aspect is that the main client for the mentioned projects, the South African company, ESKOM is eager to develop its domestic resources including fossil ones, with the support of the World Bank, which finds it easier to finance project in this country than in the less solvent ones. In April 2010, the World Bank approved indeed a US $ 3.75 billion package to finance the 4, 800 MW Medupi a 100 MW wind power station, a 100 MW concentrated power station and a low-carbon efficiency programme. The decision provoked an outcry in Kinshasa, where a local paper’s headline was “Eskom is killing Inga III, with World Bank funding”. François Misser

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