Africa’s infrastructure gap is an investment opportunity

Source: http://africanbusinessmagazine.com/sectors/infrastructure/africas-infrastructure-gap-investment-opportunity/

In 2009, a World Bank report revealed that Africa required $93bn per year to meet demand for adequate infrastructure. This figure has become part of the infrastructure debate, both in terms of the challenge it poses and the opportunity for investment it represents.

Important progress has been made and infrastructure investment has reached record levels in recent years. But there are still significant challenges. Seven years on, less than half of the $93bn annual requirement is being met by existing sources. Furthermore, the limitations of raising funds from multilateral institutions are beginning to show, while China has scaled back funding due to the slowing of its own economy.

This presents a significant opportunity for international financiers to play a larger role in plugging the infrastructure gap – but only if they can locate bankable projects and navigate the inherent risks involved.

Mitigating risk

Early identification and management of the key risks can be the difference between a successful project and unforeseen delays and costs. Risks especially relevant to projects in Africa include the following:

Political risk – These risks arise from the action or inaction of central or local government and include policy or regulatory changes that occur during the life of the project. These changes can adversely impact upon both the risk profile and/or financial returns of the project. Many countries have complex overlapping consent processes, which can involve various ministries and elongated time frames.

Land issues – Land ownership in many parts of Africa is complex and unclear. Land acquisitions can be a slow process and it is common for unregulated third party claims to emerge during the acquisition process.

Local legal issues – A clear understanding of local legal issues relevant to the project is essential. Each jurisdiction will have different legal requirements that will impact upon the structuring of a project. These can include a requirement that all insurances are placed in the local market before being reinsured or a statutory cap on the level of interest that an investor can charge on any facility. Investors will also need to consider their ability to enforce their contractual positions under the relevant local legislation.

To best manage these risks, investors need to ensure that projects are structured thoroughly so as to be “bankable” before significant expenditure is committed. This will involve the input of both an international law firm with experience of structuring complex infrastructure projects and local counsel. Successful coordination between these two firms is essential.

Attracting infrastructure funding

It is critical to consider how a project will be funded and possible funding sources at an early stage. Affordable funding is often a key factor in determining whether or not a project can proceed, and infrastructure assets often require long-term flexible funding solutions matched to the life span of the asset itself.

Potential funding options should be explored prior to committing to a contract structure and supplier. It can be possible to unlock export funding options, but this will depend on the country sourcing of the supplier, and often requires government support. An advisor with experience of raising funding for African projects is a key asset to a sponsor who is looking to ensure that the necessary building blocks for a project are in place or can be made available so that the most attractive funding is secured.

By avoiding common mistakes such as not investigating the level of government support available to a project, failing to seek early advice on a project’s funding options, or not understanding the structuring requirements of potential sources of capital, sponsors will be in a good position to secure funding for infrastructure projects in Africa.

Co-authored by members of the Business Council for Africa’s financial services working group: Andrew Sekandi, associate director, KPMG, Ed Harkins, head of export credit financing Fieldstone Africa and Will Lewis, senior associate, projects and infrastructure, Stephenson Harwood LLP.

It is hypocritical to block us from using coal-fired power- Nigeria's Finance Minister tells western governments

Minister of Finance, Mrs Kemi Adeosun yesterday described as hypocritical efforts by the western government to stop Nigeria from using coal-fired power to power their industries when in fact it is the same coal-fired power system that has helped countries like Britain achieve the kind of industrialization it has now.

Speaking at the International Monetary Fund (IMF) discourse on infrastructure in Africa ‎at the George Washington University USA, Adeosun frowned at the recent blockage of a coal project to Nigeria by some Western powers.

“The case, if you look at the numbers of business cases in Africa, is quite a huge one. Yes, we do need macroeconomic stability. We also do need consistency of policies by the multilateral institutions and western countries. Let me give you an example. In Nigeria, we have coal and it doesn’t take a genius to work out what it will take to get coal-fired power. Yet, we are being blocked. I think there is some hypocrisy in that. We have an entire western industrialization that was built on coal-fired energy and that is the competitive advantage that has been used to develop Britain, where I grew up. Now, Africa wants to do it and they saying it’s not green, we can’t do and that we should go and do solar, wind, which are the most expensive power projects. The West cannot say that after polluting the atmosphere for 100 years, and when Africa wants to explore its resources, they say no. If we want to stop coal, those who started it over 200 years ago, should first stop using coal before telling us to stop”‎she said

National Assets: To Sell Or Not To Sell?

By Bayo Adeyinka

I have strong reasons to believe the decision to sell off ‘national’ assets has been concluded and that the government is just flying a kite to gauge public opinion. Why do I think so? I think it is not mere coincidence or happenstance that Aliko Dangote, Saraki, Godwin Emefiele, Emir Lamido Sanusi and Senator Udo Udoma will make similar comments in one week. Aliko Dangote flew the kite on behalf of the private sector. Saraki rode on the kite so as to assure the Executive that there will be no blockade. Godwin Emefiele gave his input as the Federal Government’s banker. There was a royal and establishment assent from Emir Sanusi. And Senator Udo Udoma nailed it by being the voice of the Executive. We now have the quintuple- private sector, legislature, financial sector, royalty cum establishment and the executive in uncommon unison. What is left is just to gauge public opinion so as to determine how best to proceed. My opinion.

To the question: should we sell our assets? Now, to the question: why do we need to sell?
Nigeria is in a cul de sac. Recent reports revealed we have borrowed N2trillion naira in one year already. Can we sustain this level of borrowing? What is there to show for the borrowing? Are we borrowing to pay salaries and finance consumption? If we were borrowing to stimulate growth and finance capital expenditure, then that will be fine. If we want to get out of recession, there are two major options: either we borrow like we have been doing (debt) or we look for assets we can easily convert to cash. We cannot sustain this level of borrowing. Nigeria is getting into the debt trap again. That is where the sale of assets come in.

We need to define the national assets. In my opinion, they include the presidential fleet of 11 aircraft, NNPC, NLNG, the refineries, JVs held by NNPC/FG, all federal airports, stake in financial corporations like AFC, etc.

Before I give my opinion on the sale, I think it is best we go down memory lane. What happened in the past can be a guide for the present and the future. Obasanjo had sold two refineries to Aliko Dangote and his Bluestar Consortium for $750m. Umaru Yar’adua reversed the sale immediately he got into office. That was when naira was N127.50 to the dollar. Today, no one will buy those refineries for $100m. Dangote has moved on and he’s building his own refinery. The story of Nigeria Airways is not any different. During it’s hey days, the national carrier was managed by KLM and it had 32 aircrafts in its fleet. By the time, Obasanjo liquidated it in 2004, it was riddled with debts and had only one aircraft left. Curiously, Skypower Catering was sold for N3b. Skypower provided in-flight catering services to Nigeria Airways. What if Nigeria Airways had been put for sale or concessioned earlier?

And this brings us to what has turned out to be a national discussion: shall we sell our assets or at least concession them now that we are in a conundrum?
My answer is yes but selectively. I believe we should sell off the refineries or concession them. I believe we should greatly reduce our holdings in AFC to free up some badly needed cash. I believe we should sell at least half of the presidential fleet. I believe we should reduce our shareholding in those oil and gas joint ventures. I believe all federal airports should be concessioned. If London Gatwick Airport which is Europe’s 9th busiest airport and the 37th busiest airport in the world can be sold off, there is no point retaining those airports that are more or less conduits for corruption and a drain on the nation’s resources. FG’s stake in NNPC should be greatly reduced so the behemoth can be more effective. There is an integrated oil and gas company called OMV with headquarters in Vienna, Austria. OMV over the years has divested and greatly reduced government holding and today, the company is in 11 countries, produces over 300,000 barrels per day, has a global workforce in excess of 24,000, 2 gas powered power plants, 3 refineries and 3,800 filling stations. OMV started in 1956 while NNPC started in 1977.

This brings us to the proposed sale of NLNG. So far, it has been a discussion that, in my opinion, has been more emotive than logical. I agree that NLNG contributed about significantly to the national coffers. However, what’s the future of oil and gas? Japan, South Korea and China are the 3 leading liquefied natural gas importers but their import has declined over the last one year. All of them are going nuclear. I believe Nigeria needs to be weaned off reliance on oil and gas. That is certainly not the future. We are still dependent on what is under the ground when we should be concerned about what is on the ground. Silicon Valley which is just a stretch of 50 miles between San Jose and San Francisco is the richest land mass in the world- with at least 99 listed technology companies that are together worth $2.8trillion and account for almost 10% of corporate America’s profits. The future is technology.

While I understand the fears of possible misuse of whatever proceeds are generated from the sale, I believe if Buhari with his famed incorruptibility cannot be trusted to handle this process, then no one else can. This even makes the sale more imperative. We need to sell now so we can kill the geese that lays all the corrupt golden eggs. Why do we need to continue to sustain what is essentially an ATM for politicians? I also believe government has no business in business.

My take: sell off 20% of our stake in NLNG. We will still retain 29% stake (to make us feel emotionally comfortable and be in the driver’s seat- for anything that is worth). The second highest shareholder will be Shell Gas BV with 25.6%. But mark it- in less than 10 years, NLNG may be worth nothing.

Source: http://thenewsnigeria.com.ng/2016/09/national-assets-to-sell-or-not-to-sell/

Rwandan economic growth to slow to 6.8 percent in 2016 - World Bank

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KIGALI (Reuters) - Rwanda's economic growth rate will ease to 6.8 percent in 2016 from 7.1 percent in 2015, the World Bank said on Friday, noting the slow implementation of the country's budget.

Rwanda maintained "steady growth and macroeconomic stability" for much of 2015, the bank said in a report, adding that the aid-dependent country had benefited from low oil prices.

"Downside risks have been increasing, both externally and domestically," Yoichiro Ishihara, the bank's senior economist for Rwanda, said in a statement. "On the domestic front, delayed execution of the budget and inadequate financing for development are of concern."

Rwanda is one of the economies in the region that investors have hailed for solid fundamentals, including low debt and inflation.

The growth rate averaged 8.2 percent from 2006 to 2012 in the landlocked state, which has become a favourite with international investors two decades after the 1994 genocide.

(Reporting by Clement Uwiringiyimana; Editing by Edith Honan and Hugh Lawson)

Source: http://af.reuters.com/article/investingNews/idAFKCN0VZ1TB

IFC and Ghana Stock Exchange partner to adopt sound business practices in capital market

The International Finance Corporation (IFC) the private sector wing of the World Bank is partnering with the Ghana Stock Exchange (GSE) to promote adoption of sound business practices within the capital market.

In a press release copied to ghanabusinessnews.com, the IFC said the partnership is one of the many interventions under its Africa Corporate Governance Programme intended to improve business performance on the continent.

“It will also help raise awareness of the cross-sectorial reach of activities and set a programme outline that will encourage improved policies, standard-setting, network events, and outreach programmes within the Ghanaian business community,” it said.

“GSE is committed to helping businesses access capital especially through listing on the Ghana Stock Exchange. One sure way for companies to stand out is by adopting sound practices that make them more attractive to local and foreign investors. We have partnered with IFC to help us achieve this goal and boost growth in our capital markets,” Kofi Yamoah, Managing Director of the GSE, was quoted as saying.

Commenting, the IFC Country Manager for Ghana, Ronke-Amoni Ogunsulire, said, “IFC is constantly seeking ways to help Ghanaian businesses grow so that they can contribute meaningfully to economic development. A key priority is to help companies adopt good corporate governance practices which will improve their performance and better access to investors. Working with GSE will help us support a wider range of businesses in adopting these practices.

By Emmanuel K. Dogbevi

Source: https://www.ghanabusinessnews.com/2016/06/24/ifc-and-ghana-stock-exchange-partner-to-adopt-sound-business-practices-in-capital-market/

Nigeria looks to coal,solar and biomass to achieve national energy security

The Minister of Power, Works and Housing, Mr. Babatunde Fashola, has said that the Federal Government is increasingly looking to alternative sources such as coal, solar and biomass for power generation in a bid to achieve national energy security.

He said the 700-megawatts Zungeru hydropower project would soon be completed, adding that construction of the 3,000MW Mambilla hydropower plant would commence shortly.

Fashola, who spoke at an annual lecture organised by the Nigerian Institute of Electrical and Electrics Engineers in Lagos on Thursday, noted that the nation had over the years relied heavily on natural gas for power generation.

The nation’s power generation and supply have dropped significantly in recent months on the back of the resurgence of militant attacks on oil and gas facilities in the Niger Delta.

Fashola said, “Our vulnerability to gas has become apparent to the development that we are seeing. And so, one of the things that the energy mix will do is not just taking power plants closer to fuel sources, but to also help in achieving national energy security. So, we are going beyond solar to coal and to a lot of hydro.

“We will soon finish hydro power plants like Zungeru and start the biggest hydro power project, the Mambilla, which will give us in one place about 3,000 megawatts. We are finalising the procurement now.

“We will use biomass because there is a sugar processing plant and sugarcane plantation somewhere in Adamawa, and we are talking to the proprietors to see how we can use some of that also for producing energy.”

Beyond power generation, the minister said it was important to engage electricity consumers on the demand side management, also known as energy conservation.

The minister added, “Beyond all of this generation of power, what is important is the demand side management, which we have come here to talk about, which is energy conservation. There is capacity to conserve between 1,000MW and 2,000MW by actions that all of us should take in our homes, in our offices, the way we build, the way we use energy.

“We have seen that air-conditioning and kitchen equipment constitute the largest consumer of power. So, how we build our houses, how we use less of air-conditioning, how we air our homes using nature, more wind, working with our architects, how we shape and situate the angle of our house so that we conserve less energy, how we use less water by being efficient in conserving water to transfer energy to cost.”

Source: http://naija247news.com/2016/06/nigeria-looks-to-coalsolar-and-biomass-to-achieve-national-energy-security/

Nigeria Petroleum subsidy removal

#SubsidyRemoval

WHY DO WE SUFFER FUEL SCARCITY IN NIGERIA?

1. We do not have enough refineries to satisfy our domestic need, so we depend on fuel importation

2. Fuel is bought at the international market with US dollars and importers need USD to buy and import fuel

3. There is variability up to N121 bewteen the official USD exchange rate and the parallel market rate in Nigeria.  

4. The government determines the price for fuel because the CBN is the only source of US Dollars for Marketers who import fuel. 

5. If marketers source for dollars themselves, they cannot sell the product at the government price because of the N121 difference. 

6. When the CBN gives US dollars to importers to buy fuel and import, they opt to selling the US dollars in the parallel market since they will make more profit, say about 50 times more than buying fuel and importing.

7. Most of the few marketers and dealers who use the dollars they got from CBN to buy fuel and import, divert the fuel to neighbouring countries like Chad and Benin Republic etc because fuel costs more in these countries since their Petroleum Market is free, and they will sell at a higher price and make more gains.  

8. The CBN as a result of over 60% decrease in the price of crude leading to a reduced foreign reserve cannot afford to give enough dollars to marketers and dealers to import enough quantity of fuel for domestic consumption in the midst of all the leakages

9. These factors combined with a few others always lead to a shortage in the quantity of fuel that will satisfy Nigerian domestic consumption. 

WHAT HAS THE MINISTRY OF PETROLEUM DONE?

1. Stopped the CBN from giving USD to marketers and dealers and gave them freedom to source for foreign exchange in the parallel market

2. Allowed the pump price of fuel to reflect the international price of fuel using the foreign exchange at the parallel market

3. Given all marketers and dealers the right to buy and import fuel while sourcing for foreign exchange from the parallel market

WHAT WILL BE THE IMPACT OF THIS?

1. Marketers and dealers can no longer collect dollars from CBN and sell at the parallel market instead of importing fuel and then causing fuel shortage

2. Marketers and dealers can no longer divert fuel to Chad, Benin and other neighbouring countries since they will not make extra profit in doing so

3. Everyone can now buy fuel and import. There are no more cabals in the Petroleum industry.  Anyone can join and do business.

4. More fuel will be brought to Nigeria and there will be competition among marketers that fuel stations will be begging and giving incentives to customers to buy their fuel

5. Competition will drive down the price of fuel as seen in the case of diesel. 

6. Government will use its

 resources and time to develop infrastructure. 

This is the choice we have to make now that we have a Government that we can entrust our resources to and go to sleep. 

President Muhammadu Buhari has shown a high level of uprightness,  prudence,  determination to kill corruption and develop Nigeria.  

Oil firms’ cash flows worsen, banks jittery

Femi Asu

Nigerian indigenous oil and gas firms are recording negative cash flows as the plunge in global oil prices lingers, a development that has sent shivers down the spines of many banks.

Nigerian banks have in recent years increased their exposure to the nation’s oil and gas sector, providing financing for asset acquisitions and development by indigenous firms.

Industry players, who spoke at the 13th Aret Adams Annual Lecture Series in Lagos on Thursday, lamented that the low oil price had severely affected their operations, leading to huge cuts in capital expenditure and affecting their ability to repay loans.

The Managing Director and Chief Executive Officer, Seplat Petroleum Development Company Plc, a major Nigerian independent oil and gas firm, Mr. Austin Avuru, said, “Exploration and production companies are now constrained. I think the banks are more nervous than the operating companies in Nigeria.

“We saw a profit warning yesterday (Wednesday) from First Bank describing impairments that are likely to erode their P&L bottom line when they publish their 2015 results. That is a warning to shareholders and investors and that is because of their exposure to the upstream segment of the oil and gas industry.”

He said exploration investments had almost dried up, adding that the implications would become evident later as addition to reserves would flatten out.

Avuru said, “When people ask me how we are doing, I say we are under water. If you can survive at the end of 2017 under this regime, you will be in business for all time. I suspect that there will be a lot of dead bodies by the end of 2017.

“The biggest problem with the independents is that we are all heavily leveraged. You borrowed to buy our assets. You borrowed to work the assets, and deployed critical capital expenditure so that you can ramp up production; so that you can repay your debts. Then came the drop in price. You cannot grow production because you don’t have the free cash flow to do that. You need production, even more production in this price regime.

“So our biggest problem is our discussion with our bankers. Most of us are now cash negative. As I said, you need more cash to do investment to grow oil production to be able to meet your obligations and that is exactly what you don’t have. For the majors, usually what they need to do is cut capex, fire some employees to balance their books and explain to their shareholders why they are reducing marginally the dividend payout.”

Avuru said the service companies had been hardest hit, adding, “57 per cent of the land rigs in Nigeria today are idle. Each of these will ordinarily be employing some 210 people. In 2013, we were operating seven rigs in Seplat, we dropped our last rig in November 2015. We don’t have a rig working for us now. Service companies are in serious trouble.”

The Managing Director and Chief Executive Officer, Chevron Nigeria Limited, Mr. Clay Neff, who described the drop in oil prices as dramatic by any scale or stretch, said, “We are going through challenging times. Development work has dropped significantly. New projects are being slowed down because the economics don’t justify going forward.”

He stressed the need to address the funding challenge facing joint venture oil and gas assets in Nigeria, putting the cash call arrears owed by the Nigerian National Petroleum Corporation at over $5bn.

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