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Friday, 22 August 2014

Electricity hikes stifle economic recovery in South Africa

Eskom being a public company that monopolises the South African energy generation sector, Eskom’s business model allows it to be able to absorb under-recovery of revenue from its customers. “An increase in competition in the form of private sector companies into the industry would force Eskom to rethink their business model,” says Muneerah Salie, industry analyst for energy and environment at Frost & Sullivan Africa.

“The question that remains is for how much longer the average consumer will be able to pay for, or afford, these tariff increases. Currently, municipalities across the country owe Eskom about R3-billion. Taxpayers that are paying their accounts every month might feel that they are being unfairly penalised by having to compensate for those customers that are defaulting on payments. Privatisation of the industry would allow Eskom to develop a more efficient system with a more accurate invoicing and debt collection system.”

Salie says the additional tariff increases are potentially unaffordable for the average South African consumer. “It is also expected that businesses will suffer, with many companies already taking drastic measures in order to remain profitable. Tariff adjustments play a large part in the sustainability of the South African economy and this additional increase is unlikely to aid in economic growth.”

Thursday, 21 August 2014

Investors to give billions to ‘Power Africa’ initiative - Dangote, Citibank, World Bank amongst others

Citibank has pledged to source US$2.5bn in incremental capital to improve access to electricity for millions of people across Africa as part of the ‘Power Africa’ initiative. Business Day, Nigeria reports that Power Africa is a multi-stakeholder partnership between the US government, governments of several African countries and other public and private sector entities, working to accelerate investment in Africa’s power sector over the next several years. 

The report says Citi will also leverage its financing expertise in renewable energy to encourage the adoption and implementation of the appropriate technologies for specific markets. The bank will work with key stakeholders in local capital markets to introduce innovative debt securities and to enhance financial infrastructure. According to the report, Citi operates in over 40 countries in Africa with offices in 16 countries, including key markets such as Nigeria, Ghana, Kenya, Tanzania and SA.

The World Bank Group has also announced it would commit US$5bn in new technical and financial support for the electricity project. THISDAY reports that the World Bank’s financial commitment was announced on the second day of the inaugural US-Africa Summit by the president of World Bank Group, Dr Jim Yong Kim.

Also from the on fringes of the US-Africa Summit:

The Boss of Nigerian industrial conglomerate Dangote Industries Aliko Dangote has announced a 50/50 partnership with New York private equity company Blackstone to invest US$5 billion in Africa’s energy infrastructure over the next five years.
Mr Dangote, who outlined the deal while at the Power Africa summit taking place in Washington, said there will be a particular emphasis on power, transmission and pipeline projects.
Dangote said: “For too long, inadequate energy infrastructure in Africa has been a major obstacle to the continent as it seeks to fulfill its economic potential. I am pleased to partner with Blackstone and the Black Rhino team, who have experience of successfully developing large-scale infrastructure projects, to address this issue in a socially conscious way.”
The two companies have agreed to jointly incorporate, own and operate a management company that would be responsible for the development and management of projects identified and agreed upon across the sub-Saharan African.
The investment is facilitated by Black Rhino, a portfolio company of Blackstone Energy Partners and affiliated funds managed by Blackstone, and Dangote Industries.

Wednesday, 20 August 2014

Ataf has action plan to address tax base erosion

Multinational companies shifting their profits from Africa to low-tax jurisdictions are only partly responsible for the erosion of the continent’s tax revenue bases. Business Day reports that the African Tax Administration Forum (Ataf) believes some countries have signed away their tax revenue because of weak domestic policies, and ill-conceived tax incentives and mining contracts. 

For two years the Organisation for Economic Co-operation and Development (OECD) has been on a drive to address profit shifting and base erosion and the report says, Ataf agrees with the need for an action plan and has embarked on a drive to address problems that cause base erosion in Africa but are not on the OECD’s agenda. Ataf executive secretary Logan Wort says domestic policies and ofte, badly written mining contracts, erode tax bases in Africa. Ataf will address the tax challenges of e-commerce, hybrid mismatch arrangements, abuse of double tax treaties, the establishment of dummy headquarters and the requirement to disclose aggressive tax-planning arrangements.

Kenya is to impose capital gains and windfall taxes on oil, gas and mining companies within months to ensure it maximised benefits from its mineral resources. Business Report quotes President Uhuru Kenyatta as saying: ‘This is something that we are very clear about. We want to ensure that we as a country also are able to benefit from both the windfall and capital gains tax.’ Tullow Oil and partner Africa Oil have found oil reserves in northern Kenya and the government wants to avoid a similar situation to that in Uganda, where Tullow is contesting in court the state revenue authority’s demand that it pay capital gains tax following its sale of assets.

Tuesday, 19 August 2014

Glencore eyes Guinea’s iron ore deposits

Glencore has expressed interest in iron deposits in Guinea, although the company said it had not pitched for a stake in Simandou. Reuters reports that Glencore is the latest mining major looking to invest in iron ore assets in Guinea. Most interest is focused on Simandou, one of the biggest deposits, however, any potential investors in Simandou are treading carefully. 

Israeli-owned BSG Resources, which was stripped of its licence to develop part of Simandou following a Guinean corruption investigation, is seeking arbitration and has threatened to sue companies that invest in its former licence area. Three sources close to the government said London-listed Glencore had indicated its interest in investing in Simandou, in a meeting with government officials in Conakry in June.

ArcelorMittal has, meanwhile, announced it had signed deals to purchase stakes in an iron ore project in Guinea. According to an Engineering News report, ArcelorMittal said that it would buy a 43.5% stake in Euronimba from Billiton Guinea, a unit of BHP Billiton and a 13% stake from Compagnie Francaise de Mines et Metaux, a unit of Areva. 

Euronimba holds a 95% indirect interest in the Mount Nimba iron ore project, a deposit with an estimated 935m tonnes of direct shipped ore with an average grade of 63.1% of iron. The site is about 40km from ArcelorMittal’s mine in Liberia. The company should be able to use its Liberian railroad and port facilities, meaning that its capital expenditure would be much lower than otherwise the case, CFO Aditya Mittal said. He added that approval for exporting ore from Guinea to Liberia was critical to the acquisition.

Global heavyweights in the race for $3bn East African oil pipeline project

International firms, some individually and others as consortia, are vying for the contract to build a multibillion-dollar petroleum pipeline connecting the oilfields in KenyaUganda and South Sudan to the proposed Lamu Port, on theKenyan coast.

Designs for the $3-billion Hoima–Lokichar–Lamu pipeline have been received from Tullow Oil and Africa Oil, which has submitted a design for the Lokichar–Lamu route; Toyota Tsusho (Hoima–Manda Bay–Lamu), Tullow, Total and CNOOC (Hoima–Lokichar–Lamu), Lapsset (Juba–Lokichar–Moyale–Lamu) and Total (Hoima–Eldoret–Lamu/Mombasa.

The submission of the designs follow on the request for proposals (RfP) issued by the governments of UgandaKenya and South Sudan in June 2014. The three governments intend to hire a consultant to oversee the feasibility study and preliminary engineering designs of the proposed pipeline.
The consultant will also supervise the imple-mentation of the project, which will include theconstruction of tank terminals in Hoima, Lokichar and Lamu, pumping stations and a 9-km-long pipeline from the Lamu tank terminal to offshore mooring buoys.
“The feasibility study and preliminary design will be jointly financed by the partner States, ensuring that the entire pipeline is designed to the same standards and codes,” the three governments say in a joint communique.
The proposed pipeline will be used to export crude oil from Kenya and Uganda through the Lamu port.
Earlier this month, East Africa Community heads of State (except Tanzania’s PresidentJakaya Kikwete) met in KigaliRwanda, where they resolved to accelerate the project.
Uganda is to submit comments on the RfP to the project steering committee for approval by July 10, 2014, and issuance of an addendum to the RfP [is expected] by July 11, 2014,” reads the communique, which was issued at the end of the summit.
After settling on the design issue, the partners plan to embark on a fundraising campaign. The pipeline project will be one of the largest joint infrastructure projects in the East Africa region.
The pipeline, which is part of the multibillion-dollar Lamu PortSouth Sudan–Ethiopia Transport, or Lapsset, Corridor Project, is a key priority for Kenya and Uganda, which have discovered crude oil reserves in the last few years.Uganda’s endowment is estimated at 3.5-million barrels, while Kenya is determining the level of its reserves.
By John Muchira