COMMERCIAL FEATURE SUB-SAHARAN AFRICA NEEDS CLIMATE MORE CONDUCIVE TO IPP INVESTMENT N ations in sub-Saharan Africa need to bolster their efforts to create more conducive climates for investment from independent power producers (IPPs) if they are to remedy their severe shortfall in power generating capacity, says Standard Bank Group, Africa’s biggest lender by assets and market capitalisation. ‘Africa’s deficit in power generating capacity is well documented but what is not always realised is that unless this is addressed timeously, other crucial investment activities cannot be actioned,’ said David Humphrey, global head of power and infrastructure at Standard Bank. ‘African governments need to make every effort to create a conducive climate for attracting private sector investment into their respective power sectors, as by themselves they do not have the financial resources necessary for the very high capital expenditure required.’ Excluding South Africa, the entire installed generation capacity of sub- Saharan Africa is only 28GW, roughly equivalent to that of Argentina. The World Bank estimates that between $120 and $160 billion needs to be invested each year – over and above existing levels of expenditure – to bring energy access to everyone in sub-Saharan Africa by 2030. Standard Bank Group is of the opinion that in order to facilitate greater investment from the private sector, governments on the continent need to address five key areas: 1) The development of an integrated power policy 2) Creating an investment-friendly environment 3) Executing a bankable independent power procurement programme 4) Empowering a strong regulator 5) Development of a reliable regional David Humphrey distribution network The first step in developing a generating capacity plan is to assess a particular country’s current installed capacity against its actual maximum demand. That will enable planners to determine the size of the over- or under-supply that prevails in a particular country. Only then can one begin using the country’s economic growth trajectory, rate of population expansion and trends in power demand to determine the likely course of future power use. That process will then enable policy makers to determine what technologies are best able to meet a particular country’s energy requirements. A coherent power sector planning framework also needs a fundable plan to ensure that the procurement and contracting process is resourced with the appropriate skills and technologies. A workable tariff regime that is sufficiently cost reflective to make investment A coherent power sector planning framework also needs a fundable plan 88 worthwhile, while at the same time acceptable to consumers, must also be devised. The fact that power tariffs can become politically charged also highlights the need for clear, consistent and fair regulatory oversight of the power sector. Average power tariffs in most parts of the developing world fall in the range of $0.04 to $0.08 per kWh compared to $0.13 per kWh in sub-Saharan Africa. In countries dependent on diesel-based systems, tariffs are higher still at over $0.20 per kWh. A strong, independent regulator that stands at arm’s length from government, investors, consumers and the state- owned generating entity is a crucial component in any country’s power generating capacity. An adequate and reliable distribution network, and the ability of new investors to access that network, is another key determinant of private sector power investment. Innovative funding arrangements are one area where private sector investors can play an important role in helping to reduce the overall cost of investing in Africa’s power sector, thereby reducing overall capital requirements whilst at the same time making the tariff regime of a particular project more politically palatable. ‘What Africa lacks in generating capacity it makes up for in potential,’ says Mr Humphrey. ‘While that is of natural appeal to potential investors in the continent’s burgeoning power sector, the onus remains on governments across sub-Saharan Africa to put in place the appropriate frameworks to encourage investment and translate their generating potential into increased electrification.’ ESI ABOUT THE COMPANY: Standard Bank South Africa is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank Group had total assets of over R1 497-billion (about $185 billion) at 31 December 2011. Standard Bank’s market capitalisation at 31 December 2011 was R157 billion (approximately $19 billion) ESI AFRICA ISSUE 3 2014