BMI View : The announcement of a new initiative by US President Barack Obama to improve electricity infrastructure in Africa through a number of US funding vehicles indicates a shift in strategy toward the continent. The comprehensive plan brings together a number of development and funding institutions, addressing a common concern that these institutions are disjointed when it comes to collectively auctioning projects . Importantly, it focuses on enabling the private sector , in the hope of creating a more sustainable platform for investment. The benefits could be significant for US electrical engineering companies, and put US technology and expertise on a more level playing field with Chinese, South Korean and Japanese competitors , by arming companies with a source of financing and guarantees to support projects .
The ' Power Africa ' plan incorporates a number of measures , including : funding , insurance, guarantees as well as technology and knowledge transfer to leverage private investment , in order to address the deficiencies in the Sub-Saharan Africa (SSA) power sector . Announced by US President Barack Obama during a trip to South Africa, the proposal focuses on leveraging the private sector, and is an interesting shift in the country's provision of official development assistance (ODA) to the region.
The proposal includes US$7bn in funding to be dispersed over a five year horizon from a r ange of US government agencies . It also outlines US$9bn in initial commitments from private sector partners as well as a host of measures to help leverage private investment.
T he mandate is to double access to electricity in Sub-Saharan Africa by adding 20mn new households to the grid and adding 10,000MW of clean or more efficient electricity capacity. The proposal will initially focus on a handful of countries - namely, Ethiopia, Kenya, Ghana, Liberia, Nigeria and Tanzania. It will also support the energy sectors in Uganda and Mozambique .
In line with President Obama's recent speech on climate change (at Georgetown University in Washington DC in early June), the focus will be on supporting clean and efficient electricity generation. Indeed, the speech outlined plans to end any ODA for coal power plants. Consequently, it is likely hydropower and renewables will get the bulk of support. Part of the initiative is also better resource management for the region's established and new energy producers ( particularly in Mozambique and Uganda), with a view to enabling greater energy security through the integration of these resources into the power mi x. Therefore we also expect gas-and oil- fired projects to receive support.
|Electrification Data For Selected Sub-Saharan African Countries, %|
Addressing Power Failures
The announcement provides a concerted effort to help address one of Sub-Saharan Africa's key barriers to economic development. The electrification rate for the region is estimated at just 30.5%, with 585mn people not having access to electricity, based on the latest statistics from the International Energy Agency for 2009. This is by far the lowest of any region globally and indicates significant unserved demand for electricity. For those that do have access to the grid, quality of supply is intermittent. Consequently, improvements are needed not only to expand the reach of electricity networks, but to upgrade existing infrastructure. In order to meet untapped demand, and under-serviced existing consumers, significant additional capacity is needed.
Although statistics indicate a bleak picture, we have been seeing improvements on the ground over recent years, making it likely that electrification rates have improved since 2009. Rural electrification programmes across the region have been expanding the consumer base, and a number of countries are hoping to position themselves as power hubs in their sub-region - the Democratic Republic of Congo (DRC) and Mozambique in Southern Africa, Ethiopia in East Africa and Cote d'Ivoire in West Africa. Total installed capacity has increased by around 30% over the last ten years, from 59,639MW in 2002 to 75,680MW in 2012, broadly in line with population expansion. Growth was strongest in the last couple of years, a trend we expect to accelerate in the near term, based on a considerable project pipeline. Much of this is being made possible through the expansion of independent power producers (IPPs) and the support (both financially and technologically) of international investors from China, Japan, South Korea and India.
|Improvements In The Pipeline|
|Sub-Saharan Africa, Electricity Capacity And Generation Per Capita|
The US is looking to support this trend of improving electricity access , whil e creating a larger market for its exports. This is done by implementing a range of measures that utilise a number of government institutions to monetarily su pport projects . The Overseas Private Investment Corporation (OPIC) and USAID will provide insurance and guarantees to allow the pri vate sector to enter the market, w hile the US Export-Import Bank will provide US$5bn to US companies looking to exports power equipment. More traditional aid will also be available, with the Millennium C hallenge Corporation (MCC) providing US$1bn for tran smission and distribution.
T his united effort by the various US agencies in pursuit of one goal is unlike previous attempts to support US exports, where measures were carried out in a disjointed fashion by US agencies. It also differs from its support for the private sector; US government institutions are not only directly aiding private US companies in their aim to enter the African market, but are also assisting local governments to improve regulatory environments in order to attract private investors.
|Source: Office of The Press Secretary|
|The U.S. Agency for International Development (USAID) will provide $285 million in technical assistance, grants and risk mitigation to advance private sector energy transactions and help governments adopt and implement the policy, regulatory, and other reforms necessary to attract private sector investment in the energy and power sectors.|
|The Overseas Private Investment Corporation (OPIC) will commit up to $1.5 billion in financing and insurance to energy projects in sub-Saharan Africa.|
|The U.S. Export-Import Bank (Ex-Im) will make available up to $5 billion in support of U.S. exports for the development of power projects across sub-Saharan Africa.|
|The Millennium Challenge Corporation (MCC) will invest up to $1 billion in African power systems through its country compacts to increase access and the reliability and sustainability of electricity supply through investments in energy infrastructure, policy and regulatory reforms and institutional capacity building.|
|OPIC and the U.S. Trade and Development Agency (USTDA) will provide up to $20 million in project preparation, feasibility and technical assistance grants to develop renewable energy projects. These efforts will be coordinated through the U.S. - Africa Clean Energy Finance Initiative (US-ACEF) and supported by the recently launched U.S. - Africa Clean Energy Development and Finance Center (CEDFC) in Johannesburg, South Africa.|
|The U.S. African Development Foundation (USADF) will launch a $2 million Off-Grid Energy Challenge to provide grants of up to $100,000 to African-owned and operated enterprises to develop or expand the use of proven technologies for off-grid electricity benefitting rural and marginal populations.|
|In 2014, OPIC and USAID will jointly host an African energy and infrastructure investment conference. The conference will bring investors, developers, and companies together with U.S. and African government officials to demonstrate the opportunities for investment and the tools and resources available from the U.S. government and other partners to support investment.|
|Leverage private sector investments, beginning with more than $9 billion in initial commitments from private sector partners to support the development of more than 8,000 megawatts of new electricity generation in sub-Saharan Africa.|
|An interagency Transactions Solutions Team to provide the catalysts needed to bring power and transmission projects to fruition by leveraging financing, insurance, technical assistance, and grant tools from across the U.S. government and our private sector partners.|
|Field-based Transaction Advisors, to help governments prioritize, coordinate, and expedite the implementation of power projects, while simultaneously building the capacity of existing host government ministries to deliver results.|
Putting The US On A Level Playing Field
The initiative could help to put US companies on a level playing field with major competitors already active in Sub-Saharan Africa's power and energy sector. US companies are in direct competition with counterparts in China, South Korea and Japan, who have long been armed with export financing or the promise of cheap capital for projects.
The Power Africa plan will help US companies expand their footprint in the highest growth region globally, but also the least saturated. Electrica l engineering companies like GE , Black & Veatch and Symbion Power , as well equipment manufactures in green energy - such as First Solar , all stand to benefit from export finance to support operations abroad. The export finance structure is expected to follow previous deals of a similar vein. One of the biggest deals of this type was an US$806mn loan for South Africa's Kusile coal power plant . The project, currently under construction , was awarded by th e US Export-Import Bank in 2011 and tied to the award of a project management contract to Black & Veatch.
|US Playing Catch Up|
|Sub-Saharan Africa Trade Data, US$mn|
We highlight that the announcement of the 'Power Africa' plan follows a number of pledges by various countries to expand their investment into Africa. These pledges are aimed at supporting their domestic companies in gaining a foothold in the region. In June, Japan's Prime Minister Shinzo Abe announced US$32bn in funding for Africa over a five year period (including an undefined portion for infrastructure). In 2012, China upped its investment pledge to the region to US$20bn over the next two years. India is also a growing presence, recently offering US$1bn for infrastructure and logistics to support fertiliser companies, as Indian companies increase their presence in Africa's natural resource sector.
President Obama is hoping to set the US apart from the relationship which China has fostered with Africa. China overtook the US to become the region's largest trading partner in 2009, driven by a substantial expansion in natural resource investment and exports. In his speech, Obama promised a 'Partnership of equals'. This stands in contrast to growing tension between Chinese investors in Africa and local populations. The relationship between both parties has suffered a backlash across the continent in response to concerns over safety, low pay and limited local employment. Indeed, it is our opinion that China's dominance in the region is being gradually eroded, and this announcement will create further competition for the Chinese model.
|General Electric commits to help bring online 5,000MW of new, affordable energy through provision of its technologies, expertise and capital in Tanzania and Ghana.|
|Source: Office of the Press Secretary|
|Heirs Holdings commits to US$2.5bn of investment and financing in energy, generating an additional 2,000MW of electricity capacity over next five years.|
|Symbion Power aims to catalyse US$1.8bn in investment to support 1,500MW of new energy projects in Power Africa countries over the next five years.|
|Aldwych International commits to developing 400MW of clean, wind power in Kenya and Tanzania - which will represent the first large-scale wind projects in each of these countries, and an associated investment of US$1.1bn.|
|Harith General Partners commits to US$70mn in investment for clean, wind energy in Kenya and US$500mn across the African power sector via a new fund.|
|Husk Power Systems will seek to complete installation of 200 decentralised biomass-based mini power plants in Tanzania - providing affordable lighting for 60,000 households.|
|The African Finance Corporation intends to invest US$250mn in the power sectors of Ghana, Kenya and Nigeria, catalyzing US$1bn in investment in sub-Saharan Africa energy projects.|