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Monday, 12 May 2014

Mozambique’s growing energy needs have much to offer financiers

Lending to off-grid power projects and companies helping to maintain the grid are probably the most attractive opportunities for financial institutions in Mozambique at present, Standard Bank’s head of power and infrastructure, Ntlai Mosiah, said on Friday.
He said this was not the same as project financing for transmission projects, which, in agreement with Old Mutual portfolio manager Sean Friend, he believed were not generally appropriate for private financiers because they had a 20- to 50-year horizon. This financing was for subcontractors to Mozambique’s energy utility, Electricidade de Moçambique (EDM).
Mr Mosiah was speaking during a panel discussion on funding options at the Powering Africa — Moçambique conference organised by Energy Net and Mozambique’s Ministry of Energy. The conference has attracted about 200 local and international delegates, reflecting interest in developing Mozambique’s substantial coal and gas resources and meeting it’s energy needs. The country’s demand for energy is growing at about 100MW a year.
SCP Africa LDA partner Colin Waugh said there was a huge need to provide temporary power solutions for both big and small companies affected by power outages.
Another issue Mozambique is trying to tackle is the rolling out of electricity to far-flung rural areas. Mr Mosiah said these projects required some credit enhancement and credit support, which meant government needed to play a role so commercial banks would be willing to take an appropriate level of risk. "We have started engagement with a few parties on this," he said.
Peter Ballinger, the MD of Overseas Private Investment Corporation, a development finance institution, said his company was looking to get involved in off-grid projects but it was important to find a developer with the demonstrated skills and ability to execute them and put together a business plan to bring electricity to 500 villages, for example.
Speakers said that when deciding whether to finance power projects in Mozambique some of the key considerations included what the fuel source was, the quality of the offtake, the returns to the developer, the operation and maintenance of the asset and the social, economic and environmental aspects.
Mr Waugh said the regulatory environment was also important. There was a question mark over the financing of Electricidade de Moçambique, which was in a weak financial position. It was charging six to seven US cents per kilowatt hour (kWh) while sourcing power for up to 20 US cents/kWh, or even 70 US cents/kWh from South Africa.
"EDM is losing money and there is no recapitalisation plan," Mr Waugh said. It was a risk outsiders wanted to know about and know how to address before taking on projects, he said.