Co-hosts:
United States Government
African Development Bank

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The forthcoming meeting will follow-up on the ICA Annual and Members Meeting of June 2012 and afford Members the opportunity to review ICA’s progress in relation to the delivery of the ICA Strategic Business Plan (SBP) 2010-2012 which is oriented around three main pillars:

1. Enhancing coordination amongst infrastructure stakeholders: to include both regional and national infrastructure investments, in addition to various sources of funding for infrastructure financing in Africa, such as G8 countries, China, India, Arab Funds and private sector investors.
2. Facilitating regional infrastructure programmes: to promote knowledge and best practices, and to accelerate delivery of priority projects under regional programmes.
3. Increasing knowledge and information on infrastructure in Africa:to help close the infrastructure gap by assisting stakeholders in making informed choices on necessary policy reforms and investments.

Under these three pillars, the November 2012 ICA Members’ Meeting will deliberate on the following topics:

Project Preparation Funds/Facilities (PPFs) Assessment Study Outcomes: The meeting will discuss the outcome of a comprehensive study undertaken by ICA at the request of G20 on PPFs for African infrastructure. Feedback on the study findings from the G20 DWG will also be shared. It is expected that Members and the African Stakeholders will develop a common understanding of the reports contents and agree on the next steps and key events/opportunities in 2013 to take forward the results of the study along with roles and responsibilities.

Review of ICA Strategic Business Plan 2010 – 2012: Members will review preliminary results of the ICA SBP review report assessing the achievements of the ICA with respect to the SBP and provide guidance on the way forward whilst setting the strategic direction for the ICA’s next business plan period.

Brokering for Regional Infrastructure Programmes and Projects: The meeting will discuss lessons learnt from delivering ICA championed programmes and identifying key metrics for monitoring future flows from private sector and emerging donors.

Enhanced Coordination: Members will be presented with the achievements of selected ICA activities in the Sector Platforms (Energy, Transport and Water) and dialogue on future platform activities and 2013 work programme will be facilitated and encouraged at the meeting.

ICA Management Report for 2012: This report which reviews and measures the progress of ICA activities in 2012 in relation to the SBP 2010-2012 will be presented and discussed with Members. The report will also highlight ICA’s key planned activities for 2013. The report and presentations will seek Members’ guidance on the implementation of ICA’s initiatives and overall mandate particularly on the subjects of ICA’s expansion from G8 to G20 and ICA’s role in the G20 MDBs Action Plan on infrastructure development.

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ICA was launched at the G8 Gleneagles summit in 2005, with the mission to help improve the lives and economic well-being of Africans by supporting increased investment in infrastructure in Africa, from public and private sources.

ICA Members include the G8 governments (represented by their national development agencies), the World Bank Group, the African Development Bank Group, the European Commission, the European Investment Bank and Development Bank of Southern Africa. In addition, ICA recently decided to extend membership to all G20 countries.

Theme: Water and Food Security

The Water Platform of the Infrastructure Consortium for Africa (ICA) will join other high-profile African water organizations next week in Stockholm, Sweden to participate in World Water Week, held from August 26th to 31st.

The overall theme of this year's meeting is 'Water and Food Security', and ICA's water financing expert, Sonja Hoess will participate in the special Africa Focus Day, scheduled Tuesday, August 28th. Hoess’s presentation on project preparation and mobilization of financing forms part of Session 3 focusing on “Africa in 2040 – Water as a Catalyst for Pan African Integration and Development”. Sessions begin with introductory presentations followed by panel discussions featuring key resource persons in the sector.

At ICA’s request, the African Development Bank (AfDB) and the African Water Facility will also contribute to the Global Water Partnership session on regional integration.  AfDB chief infrastructure specialist, Shem Simuyemba will be on hand for a presentation on the Programme for Infrastructure Development in Africa (PIDA), while Akissa Bahri, Coordinator of the African Water Facility will serve as a panelist.

Below is a brief overview of the seminars and sessions for the day's events.

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AFRICA FOCUS DAY:     TUESDAY 28 AUGUST 2012

Theme:            Water Security: Opportunities for the 21st Century

SEMINAR 1      Water Security: Opportunities for the 21st Century

Session 1          Water for Growth in Africa: From Marseille - Cairo - Rio +20, the Way Forward

Session 2          Managing African Water Resources: Challenges and Opportunities

SEMINAR 2      Managing Africa’s Water Resources: Challenges and Opportunities

Session 3         Africa in 2040- Water as a Catalyst for Pan African Integration and Development

Convenors:      AMCOW& GWP

Co-chairs:

• Hon. Mrs. Sarah Reng Ochekpe, Minister of Water Resources, Nigeria
• Hon. Betty Bigombe, Minister of State for Water, Uganda

Moderator:       Alex Simalabwi (GWP)

Presentations:

• The Future of Africa-Water, Climate and Development - Alex Simalabwi
• Programme for Infrastructure Development in Africa (PIDA) - Shem Simuyemba, Chief Infrastructure Specialist (AfDB)
• Infrastructure Consortium for Africa Water Platform- Sonja Hoess ICA Finance Expert

Panelists

• Bai Mass Taal, AMCOW Executive Secretary,
• Dr. Enos S. Bukuku- Deputy Executive Secretary EAC,
• João Samuel Caholo-SADC Deputy Executive Secretary,
• Akissa A.Bahri-Coordinator, Africa Water Facility (AfDB)

 
Session 4         Water and Sanitation Delivery in Africa: Beyond 2015

See complete programme for Africa Focus Day in English or French.

For more details, visit www.worldwaterweek.org

To support AMCOW and AWW activities, the ICA Water Platform provided financing for the event with funds from the German Federal Ministry of Economic Cooperation & Development – an important ICA member and sponsor for all ICA water-related activities. The WP also joined forces with colleagues at the African Development Bank to co-convene two sessions:

• Session on ‘Optimizing Water Infrastructure Investment in Africa’ in Subtheme 2 on ‘Infrastructure for Growth and Climate Resilience Development’
• Session on ‘Financing Transboundary and National Water Resources’ in Subtheme 4 on ‘Governance and Finance’

The ICA Water Platform’s calendar of activities continues to fill as participation in the AWW presented numerous new possibilities for collaboration and support of African water infrastructure.  Future ICA WP activities may include matchmaking and resource mobilization activities with Regional Economic Communities and River Basin Organizations; and participation in the area of knowledge sharing, project preparation and resource mobilization with the AMCOW Water, Climate and Development Programme (WACDEP).

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RELATED DOCUMENTS

OUTCOMES

SUB-THEME 2: INFRASTRUCTURE FOR GROWTH AND CLIMATE RESILIENCE DEVELOPMENT

SUB-THEME 4: WATER GOVERNANCE AND FINANCING

FINAL AGENDAS & CONCEPT NOTES

AGENDA SUB-THEME 2: INFRASTRUCTURE FOR GROWTH AND CLIMATE RESILIENCE

AGENDA SUB-THEME 4 : GOVERNANCE AND FINANCE

PRESENTATIONS

Subtheme II – Session on ‘Optimizing Water Infrastructure for growth’

IIMP FINANCING AND COST RECOVERY
Wicher BOISSEVAIN

COMMUNITIES OF PRACTICE, FINANCIAL AND INSTITUTIONAL TOOLS FOR SUSTAINABLE WATER MANAGEMENT IN AFRICA: THE AGWA PARTNERSHIP
Ruhiza Jean BOROTO | Senior Water Resources Officer | FAO Regional Office for Africa

AMCOW STRATEGIC FRAMEWORK
Alex SIMALABWI  | Global Water Partnership

CHALLENGES & OPPORTUNITIES: BENEFIT SHARING MECHANISMS IN DAM PROJECTS ON SHARED RIVERS
Malte GROSSMANN | GIZ Competence Centre Water

UNLOCKING FUNDING FOR WATER INFRASTRUCTURE: THE ROLE OF PROJECT PREPARATION
Infrastructure Consortium for Africa

OPTIMIZING WATER INFRASTRUCTURE FOR CLIMATE ADAPTATION AND MITIGATION
Sering JALLOW | Director | AfDB Water & Sanitation Department & African Water Facility

ADAPTATION TO CLIMATE CHANGE IN THE WATER SECTOR
Andreas HOLTKOTTE | KfW

RENEWABLE ENERGY FOR RURAL DEVELOPMENT – HOPE OR MIRAGE?
Wael SOLIMAN | African Development Bank

CLIMATE CHANGE, WATER, AGRICULTURE AND ENERGY IN AFRICA
Seleshi Bekele AWULACHEW | African Climate Policy Centre (ACPC)

Presentations Subtheme IV -  Session on ‘Financing Transboundary and National Water Resources’

IMPROVING WATER GOVERNANCE AND FINANCING FOR IRRIGATION IN EGYPT
Dr. Koji KITAMURA  | Japan International Cooperation Agency (JICA) | Advisor to Ministry of Water Resources and Irrigation of Egypt

FINANCING NATIONAL WATER RESOURCES MANAGEMENT
Alan W HALL | EUWI Finance Working Group & GWP

FINANCEMENT DES GRANDES INFRASTRUCTURES HYDRAULIQUES EN AFRIQUE DE L’OUEST (CEDEAO) : ENJEUX ET PERSPECTIVES
Mahamane Dédéou TOURE  | Chargé de Programmes Régionaux  | CCRE-CEDEAO

FINANCING TRANSBOUNDARY WATER INFRASTRUCTURE AND WATER RESOURCES MANAGEMENT IN SADC
Mr Phera RAMOELI | Senior Program Officer | Water Division |Southern African Development Community (SADC)

Plenary Session
13 June 2012

Co-hosts:
United States Government
African Development Bank

Theme:
Unlocking Private Investment in Clean and Renewable Energies in Africa

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1.   INTRODUCTION

The 8^th Annual Meeting of the Infrastructure Consortium for Africa (ICA) was held in Tunis, Tunisia, from 11-13 June 2012. The meeting was co-organized by the African Development Bank (AfDB), which hosts the ICA Secretariat, and the United States government.

 The ICA Annual Meeting consisted of three separate meetings, namely: the ICA Members’ Meeting, the African Stakeholders’ Meeting and a Plenary Session on the theme of ‘Unlocking Private Investment in Clean and Renewable Energies in Africa’. The current outcome statement is for the plenary session. The outcome of the ICA Members’ Meeting of 11 June 2012 has already been distributed to members. However, highlights of the ICA Members’ and African Stakeholders’ meetings are included in this statement.

The ICA Annual Meeting was attended by representatives from ICA members, the African Union Commission (AUC), NEPAD Planning and Coordination Agency (NPCA), African Regional Economic Communities (RECs), and national governments, along with Africa infrastructure financiers/investors. A full list of participants is attached as Annex 1.

1.1. ICA Members’ Meeting

The ICA Members’ Meeting was opened by Gilbert MBESHERUBUSA, Vice President of Infrastructure, Private Sector and Regional Integration at AfDB, and Mr. Walter C. JONES, US Executive Director at AfDB, noting that the meeting had come at an important time for African infrastructure. The adoption of the Program for Infrastructure Development in Africa (PIDA) by AU Heads of State and governments in January 2012, outcomes from the G20 Cannes Summit and the Mexican G20 Presidency all place high priority on infrastructure projects, particularly those involving low-income countries, Africa and regional projects.

The Members’ Meeting provided important strategic outcomes that will enable ICA to scale up its work, namely:

1. commencing in 2013, to hold only one annual members’ meeting instead of two,
2. to extend ICA’s Strategic Business Plan (SBP) 2010-2012 by one year to 2013, and
3. to include data on agricultural infrastructure in ICA annual reports.

1.2. African Stakeholders’ Meeting

The African Stakeholders’ Meeting sought to strengthen coordination and synergies, and build consensus on issues in African infrastructure development. This year’s meeting focused on issues related to effective implementation of PIDA and its Priority Action Plan (PAP). Discussions focused on resource mobilization and capacity-building needs, particularly those of RECs, to operationalize the Institutional Architecture for Infrastructure Development in Africa (IAIDA).

African stakeholders agreed that the capacity building needs to implement PIDA-PAP must be prepared and structured in accordance with IAIDA. It was therefore decided to establish a thematic Working Group, led by the Southern African Development Community (SADC), to identify capacity building needs and propose a strategy. The group would also be responsible for designing and establishing Project Implementation Units at the REC level.

Stakeholders also identified strong financial and human resource mobilization needs for the PIDA PAP, particularly in project preparation and implementation. ICA members and partners were requested to strengthen the capacity of the NEPAD Infrastructure Project Preparation Facility (IPPF). A Nigerian-led Working Group that is supported by NEPAD-IPPF was established to design a resource mobilization strategy that includes both local and private sector resources.

African Stakeholders also noted progress on the ICA Assessment of Project Preparation Facilities for Africa and confirmed their support of data collection and implementation of subsequent outcomes.

2. PLENARY SESSION

The plenary session was opened by her Excellency, AUC Commissioner, Elham IBRAHIM, and co-hosted by Oren WHYCHE-SHAW of USAID, and Alex RUGAMBA, Director of the NEPAD, Regional Integration & Trade Department at AfDB.

Main outcomes of the plenary session are presented below.

2.1  PIDA INTRODUCTION

The meeting began with AfDB’s presentation on PIDA, its priority projects and the institutional infrastructure to be implemented for delivery of the PIDA PAP. Following detailed discussions, participants unanimously agreed on the following:

1. The need for innovative financing models, including domestic/national financing (e.g. budget, infrastructure bonds, pension funds), and strategies for unlocking private sector financing (need for harmonized regulatory frameworks in the region, e.g. public-private partnerships [PPPs]).
2. RECs should play an important role in providing a common matriculation and mutual recognition framework/agreements (building common markets). To further this goal, ICA was requested to support REC capacity building, thereby enabling RECs to fulfill this role.
3. The adoption and implementation of IAIDA will set the groundwork for PIDA PAP, and ICA was requested to strengthen its focus on PIDA implementation.
4. Successful implementation of PIDA PAP will depend on four critical factors: leadership, commitment and resource mobilization, good project preparation, and regional coordination. Therefore, participants called upon ICA to increase its support of NEPAD-IPPF to obtain sufficient funds for Project Preparation.

Participants noted that the next steps in implementation of PIDA require establishing milestones for each project/program, with project preparation playing an important role in the planning process.

2.2  FUNDAMENTAL ENABLING ENVIRONMENT ACTIONS REQUIRED TO UNLOCK THE PIDA ENERGY PAP

This session focused on key issues in enabling the infrastructure environment, including proper government sector planning, development of legal and regulatory frameworks, and the necessary participation of regional organizations, such as power pools, in project preparation. The need for an effective PIDA PAP marketing strategy was also underlined.

To establish the proper enabling environment for attracting and fostering investment in the PIDA PAP, panellists and participants agreed that governments must:

• facilitate harmonization of policies and processes (including PPP framework) at the regional level,
• support project preparation, and
• incorporate regional projects into national programs

The private sector must also apply an increasingly long-term view on the energy sector and engage in smaller profitable projects within PIDA PAP and look for opportunities to scale up.

In addition, ICA should play an important role in coordinating PIDA PAP resource mobilization efforts, by using its sector platforms and member network. Future ICA annual reports could also feature information on PIDA project financing by members and partners.

Participants also tabled the need for RECs to focus on marketing PIDA projects and creating multi-country coordination for project delivery.

The ever-growing need to provide online information on PIDA projects (e.g. financing requirements, timeline, background information, etc.) was also discussed, along with the possibility of an implementation scorecard to monitor progress.

Tools should be identified to incentivize PIDA implementation and/or coordination. Examples were discussed, such as the Presidential Championship of Priority Projects and biennial reporting to AUC and other Heads of State to encourage political will/backing.

2.3  POSSIBLE PROJECT FINANCING OPTIONS TO BE APPLIED TO DELIVER PIDA ENERGY SECTOR PAP

Initial discussions focused on the Islamic Development Bank’s approach to private sector financing and private-sector investors’ views on the African infrastructure marketplace. The session also explored country-level implementation of regional projects, International Development Association (IDA) instruments vs. sovereign support, and the use of infrastructure and project bonds.

Given the continual effect of the financial/economic crisis on global financial markets, and thereby capital/equity availability for infrastructure in Africa, participants question the effectiveness and highlight the need to rethink current PPP models.

As next steps, ICA should consider organizing a focus working group to discuss PPP financing models for private sector financed projects and assess scalability to support the PIDA PAP.

Participants also addressed the need for capitalization and increased use of sub-regional development banks (Development Bank of South Africa, the West African Development Bank [la banqueouestafricaine de développement], etc.) to provide long-term local currency financing. Raising local capital through infrastructure bonds and pension funds are also viable options.

2.4  UNLOCKING PRIVATE SECTOR INVESMENT IN SUPPORT OF CLEAN AND RENEWABLE ENERGY DEVELOPMENT IN SUB-SAHARAN AFRICA

Speakers presented case studies on solar photovoltaic, wind and biomass projects in different regions of Africa. Presentations provided a diverse picture of the possibilities and challenges of planning, implementation and financing of renewable energy projects.

During the ensuing discussions, there was consensus among participants that it was not a problem of unlocking private investment, but rather redirecting available capital to the African market. Additionally, given the critical needs and the objective to generate/produce affordable energy, the selection of energy sources (which will still include fossil fuels but also increasingly renewable sources) will depend on the natural resources and the environment of the generating country.

Participants highlighted the significant challenge of transmission and connection to the national grids in the case of renewable power generation projects, and discussed maximization of concessional funding and the use of partial risk guarantee structures for payment or liquidity risks.

2.5  INNOVATIVE RECENT RENEWABLE PRIVATE SECTOR INITIATIVES

The US government presented ”Powering Agriculture”, a new initiative that seeks to integrate renewable energy with food security to help generate innovative ideas for farmers. The US has already committed US$1 billion for renewable energy development, such as solar, wind, and mini-hydro power projects. The US underscored the importance of renewable energy development that could help increase commercial viability of projects and decrease greenhouse gas emissions. The US invited ICA members to become partners of this initiative. USAID also made a presentation on ‘The New Alliance for Food and Nutrition Security’ and the ‘Agriculture Fast Track Facility’.

AfDB presented its overview of AfDB-financed projects with integrated agriculture/irrigation systems and solar power generation in Malawi. AfDB emphasized that reliable and low-cost energy is essential for development, particularly for agriculture, which in turn, benefits food security. AfDB noted the replication of similar projects in Chad and Zambia.

The US presented progress on the ‘UN Sustainable Energy for All (by 2030)’ initiative launched by the United Nations Secretary General. Its main objectives are: 1) universal access to energy by 2030, 2) doubling the global rate of improvement on energy efficiency, and 3) doubling the share of renewable energy. The group sent a field mission to selected countries, including Ghana, Kenya, Uganda, Mozambique, Tanzania, Liberia and Sierra Leone. National action plans have been drafted for presentation at Rio+20.

KfW and the Geothermal Development Corporation in Kenya made presentations on geothermal energy in East Africa to mobilize public and private investment and financing for development of geothermal power plants in East Africa. Funding is generated by general governments and the European Union-Africa Infrastructure Trust Fund. Five countries (Tanzania, Kenya, Uganda, Rwanda and Ethiopia) are eligible thus far.

3.  CONCLUSION

Overall, the ICA 8^th Annual Meeting proved a success. The meeting reaffirmed the need for continued efforts in unlocking private investment in African infrastructure, particularly in clean and renewable energy. Implementation priorities remain within the context of the AU Heads of State endorsement of the PIDA PAP. Participants requested that ICA play a leading role in coordinating resource mobilization efforts via its sector platforms and member network.

Therefore, the ICA Secretariat and ICA members are expected to play a key role in implementing the PIDA PAP, and in exploring ways of supporting the African Union agenda for operationalization of IAIDA.

Download the complete OUTCOME STATEMENT - ICA PLENARY SESSION 2012 WITH ANNEX

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See also:

PRESENTATIONS FROM THE 2012 ICA ANNUAL MEETING

ORIGINAL ANNOUNCEMENT

OBJECTIVE OF THE STUDY

Given the important contribution of regional power generation and interconnection projects to the development of access to electricity in Africa and the increasing contribution of the Regional Economic Communities (RECs) through their respective power pools in promoting regional power projects and trade, the Infrastructure Consortium of Africa (ICA) has taken the initiative of conducting a study with the objective of providing a synthetic overview on the status of the African power sector at the regional level.

As far as regions are concerned, there are primarily five power pools acting as specialized agencies of their respective RECs: (i) the Central Africa Power Pool (CAPP) for the Economic Commission for Central Africa States (ECCAS), (ii) the Comité Maghrébin de l’Electricité (COMELEC) for the Union of Maghreb Arab (UMA), (iii) the Eastern Africa Power Pool (EAPP) for COMESA, (iv) the Southern Africa Power Pool (SAPP) for SADC, and (v) the West Africa Power Pool (WAPP) for ECOWAS.

Changes in the development of the power pools have been so rapid in recent years that perceptions of their status can lag behind the reality. This report captures that reality and provides an overview of power pools in Africa as early 2010. The report covers both current status and key trends. By design, the report does not provide analysis, discuss current issues, or forecast the future.

More specifically, for each of the power pools (section 2 to 6), the report seeks to provide a synthetic presentation on (i) the main characteristics of the power sector (e.g. installed capacity, energy mix, consumption, imports/exports, electricity tariffs), (ii) investment programs in regional generation and transmission projects, and (iii) institutional set up and regulations governing the development of regional investment and power trade, and (iv) main findings and recommendations by power pool.

KEY MESSAGES AND FINDINGS

1. There are primarily five power pools acting as specialized agencies of their respective RECs: (i) the Central Africa Power Pool (CAPP) for the Economic Commission for Central Africa States (ECCAS), (ii) the Comité Maghrébin de l’Electricité (COMELEC) for the Union of Maghreb Arab (UMA), (iii) the Eastern Africa Power Pool (EAPP) for COMESA, (iv) the Southern Africa Power Pool (SAPP) for SADC, and (v) the West Africa Power Pool (WAPP) for ECOWAS.
2. Changes in the development of power pools have been rapid in recent years. Through this report, the Infrastructure Consortium of Africa (ICA) aims to provide an overview of power pools in Africa as of end 2010, including the most recent data and information. The report covers both current status on data and information as well as on key investments trends. By design, the report does not provide analysis, discuss current issues, or forecast the future. Therefore, the report provides also specific conclusions and recommendations for each of the power pools.
3. Installed capacity is 6073 MW for CAPP (2009), 27 347 MW for COMELEC (2009), 28 374 MW for EAPP (2008), 49 877 MW for SAPP (2010) and 14 091 MW for WAPP (2010). The installed capacity per thousand habitants is the highest in North and South Africa in terms of kW per thousand habitants: COMELEC (319), SAPP (311), followed by EAPP (74), WAPP (54) and CAPP (49).
4. As far as electricity mix is concerned, at Africa level, most of the existing capacity is thermal (75%) due to the size of the COMELEC and SAPP systems, which are predominately thermal. Hydropower is predominant in CAPP (86%). In EAPP and in WAPP, the present share of hydro is 24% and 30%, respectively, but this share is expected to grow rapidly as ongoing and future generation investments are mainly in hydropower projects (e.g. Ethiopia: Gibe III with 1870 MW).
5. Access to electricity is still very low: 31% of the countries have an electrification rate below or equal to 10%. Nearly 70% have an electrification rate below or equal to 30%.
6. The electricity consumption per capita is still very low: 54% of the countries have an average consumption below 200kWh/capita, with only 18% having an average consumption over 1000 kWh/capita.
7. As far as power trade is concerned (mainly within power pools), electricity traded is still low for CAPP (0.2% in 2009) and in EAPP (0.4% in 2008). It is relatively higher respectively in COMELEC (6.2% in 2009), in SAPP (7.5% in 2010) and in WAPP (6.9% in 2010). SAPP is at a more advanced stage with 28 bilateral contracts already signed between the member countries and with an active role played by the Short Term Electricity Market (STEM) since 2001 and by the Day Ahead Market (DAM) since 2009. Further development of the regional market is however constrained by the lack of generation capacity linked with congested and insufficient interconnections capacity.
8. Institutional set up and market rules and regulations have already been implemented in SAPP, are being implemented in WAPP and under design in EAPP. However, CAPP and COMELEC have still to design and develop their power market institutions and rules.
9. As for regional projects, all power pools are experiencing concrete achievement in implementing interconnection projects. Up-to-date regional master plans are available for all power pools. Except for COMELEC, the four other power pools have formally adopted their priority projects at the regional level and are mobilizing funding.
10. Given the level of investment required, private sector participation is requested with possible public participation (under PPP set up). However, so far, the pace of mobilizing funding is slow for various reasons and innovative approach is required for mobilizing funding for regional projects.
11. For interconnection projects, some solutions are already initiated: as these projects are benefiting to various countries, their funding could be developed through specific vehicle project (SVP) where the concerned utilities/players could contribute to the assets, provided that proper wheeling charges are agreed upon. This solution is already considered in SAPP for ZIZABONA interconnection project (Zimbabwe-Zambia-Botswana-Namibia). It could be also considered in other power pools such as EAPP for the interconnection Ethiopia-Sudan-Egypt.
12. For Generation projects with regional dimension, they could be developed through a PPP/IPP arrangement with an innovative approach, providing a minimum set of guarantee for investors and securing an acceptable level of competition between the operators of the regional market. This could lead to the following propositions:

• The regional market could constitute a sufficient guarantee for future investments,
• An alternative option could have two main components: (i) the first component could consist in establishing a PPA between the PPP/IPP and the national TSOs through the power pool for part of the generation output (for example, 50%). This would secure a minimum revenue guarantee for the promoter, (ii) the second component would consist in establishing bilateral contracts or in selling on the short-term market the rest of the generation output (remaining 50%). This would secure a minimum level of competitiveness in the regional power market.

The same approach could apply for WAPP with all coastal zones already connected (7 of 14 countries).

Download the complete report with annexes: REGIONAL POWER STATUS IN AFRICAN POWER POOLS

Related publications:

WHEN THE POWER COMES: AN ANALYSIS OF IPPS IN AFRICA

LIGHT INSIDE: THE EXPERIENCE OF INDEPENDENT POWER PRODUCERS IN NIGERIA

EXECUTIVE SUMMARY

Change and hope abound. Nigerian President Goodluck Jonathan has made overhauling the electric power industry the top priority of his administration. Although nearly every single Sub-Saharan African country faces some form of electric power woes, Nigeria’s challenge is distinct, given the sheer size, as well as the repeated attempts at power sector reform. This report examines the current electricity environment in Nigeria, with a focus on Independent Power Producers (IPPs) - past, present and future.* How have the IPPs come into the power mix and what impact have they had to date? What new IPPs are in the pipeline? What is the interface between current and future IPPs and the reform agenda? Finally, how may the Nigerian IPP experience to date come to represent a lesson-learned, for Nigeria, and for other countries, facing similar electricity challenges?

As of 2012, three large-scale IPPs produce approximately 25 percent of Nigeria’s electric power, with the balance provided by the Power Holding Company of Nigeria (PHCN) and State governments, viz. about 1000 MW (IPPs) and 3000 MW (non-IPP), respectively. The introduction of IPPs has been gradual (dating to 1999), but according to the ‘Road Map’, the private power component will more than double in less than 5 years, including via the country’s sale of its generating assets. Given the significant imminent change, a clear understanding of past experience with IPPs is paramount.

To date, all three IPPs have helped to advance the reform process, directly and indirectly. First they have been among the most visible elements of reform, other than the Nigerian Electricity Regulatory Commission (NERC), over the past 13 years. In this regard, the IPPs provide an important example to potential investors of private power at work in the country. Serious transaction experience has been gained, especially by stakeholders in government, with regard to the overal risk allocation in IPPs. With this has come a greater understanding with intepreting contracts, notably the PPA and fuel agreements. Furthermore, the existing IPPs have helped to reinforce the need for cost-reflective tariffs, together with the urgency to reform the gas supply network. In addition, the importance of international competitive bidding and/or more transparent bidding and contracting procedures has been highlighted.

In the present overhaul of the entire Nigerian Electricity Supply Industry, several important factors are noteworthy in terms of IPP development. While not being replicated, space has been afforded to the three ‘legacy IPPs’; that is, contracts with AES Barge, Okpai and Afam VI will be upheld, unchanged, with the main change that the PPA will be administered by the Bulk Electricity Trader (BET), rather than the now defunct Power Holding Company of Nigeria (PHCN). A transitional entity, the BET is intended to be the present nexus between generation companies (Gencos), IPPs and distribution companies (Discos), as Gencos and IPPs will sell to the Bulk Trader, which will then resell power to Discos through vesting contracts. Despite this institutional change, for the legacy IPPs, by far the greatest difference will be the new entrants in power supply and their anticipated trading arrangements.

Those new entrants are multi-fold and are expected to include the divested Gencos, a slate of National Integrated Power Projects (NIPP), additional capacity from captive plants and new IPPs. The recent past points to a level of skepticism, as no new IPPs have materialized since 2008, when Afam VI came online, despite reforms taking center stage. There are, however, voices of optimism. Citigroup Global Markets projects that “Nigeria, India and Vietnam are expected to experience the highest real per capita GDP growth rates until 2050.” They characterize Nigeria among 11 developing countries noted for their young populations and present poverty, with overwhelming growth prospects, across all sectors. According to the Bulk Electricity Trader, responsible for power purchases for the mid-term, the evolving market conditions will be attractive to new IPPs, provided the multi-year tariff order strikes the right balance, and sends the right signal to investors while simultaneously looking out for consumers. Other key stakeholders nod their heads in agreement: IPPs will present themselves as the existing reform environment settles.

Nigeria is unique, according to some experts, in the African context, due to the strong willingness to pay, together with the abysmal present power situation which hinders public and private sectors in virtually every activity. Bottom line, there is real, latent demand. In addition, there are indications that between 2013 and 2015, up to 1000 MW of additional capacity may be provided by between three to six different IPPs, with a “snowball effect” after 2015. That said, to meet the 2020 goal of 40 000 MW, new investment will need to multiply exponentially, and Nigeria will need to address the real impediments to doing business.

Certain strategies are being adopted to enhance the investment environment, including a critical Partial Risk Guarantee (PRG) being extended to the Bulk Trader, which counters the default risk of the Discos, thus reducing risks for potential new Gencos. Although the planning process has been interrupted by different political administrations and the involvement of different government agencies, the present approach with strong executive oversight may help bring about more coherency. Also in the works is an overhaul of the gas sector, which should move the country towards more dependable fuel supply for its power projects, something that has been a severe hindrance, particularly for the first IPP, AES Barge, over the past decade. In sum, there is a way forward, and the voices of optimism, together with the requisite planning and prudent procurement strategies will hopefully lead to continuous light inside and out for Nigeria. Meanwhile, with the most extensive power sector reforms undertaken by any African country to date, Nigeria has the potential to offer countless lessons and case studies for other countries. The possibilities are endless.

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*For the purpose of this report, IPPs are defined as power projects set up as special purpose project companies with a significant proportion of private equity and/or debt, and long-term power purchase agreements (PPAs) with the national utility or other large customers. The research scope is limited to grid-connected projects, which have reached financial close and are under construction, operational, complete or concluded. Short-term, grid connected, rentals are largely excluded from the analysis, due to the variation in contracting methods. Also excluded are the estimated 4000-8000 MW in off-grid generators, which make up a substantial part of Nigeria’s power supply, as referenced above.

Download the complete report: LIGHT INSIDE: THE EXPERIENCE OF INDEPENDENT POWER PRODUCERS IN NIGERIA

Related publications:

WHEN THE POWER COMES: AN ANALYSIS OF IPPS IN AFRICA

EXECUTIVE SUMMARY
What prompted the development of independent power producers (IPPs) and why are they presently among the most visible elements of power sector reform? Where and why have they taken off and proved successful? And where are the successes less marked?

At the beginning of the 1990s, virtually all major power generation throughout Africa was financed by public coffers, including concessionary loans from development finance institutions. These publicly financed generation assets were considered one of the core elements in state-owned, vertically integrated power systems. In the early 1990s, however, a confluence of factors brought about a significant change. With the main drivers identified as insufficient public funds for new generation and decades of poor performance by state-run utilities, African countries began to adopt a new ‘standard’ model for their power systems, influenced by pioneering reformers in the US, the UK, Chile and Norway. Urged on by multilateral and bilateral development institutions, which largely withdrew from funding state-owned projects, a number of countries adopted plans to unbundle their power systems and introduce private participation and competition. Independent power projects, namely, privately financed, greenfield generation, supported by non-recourse or limited recourse loans, with long-term power purchase agreements with the state utility or another off-taker, became a priority within overall power sector reform. IPPs were considered a solution to persistent supply constraints, and could also potentially serve to benchmark state-owned supply and gradually introduce competition. IPPs could be undertaken before sector unbundling. An independent regulator was also not a prerequisite since the PPA laid down a form of regulation by contract.

This report analyses the outcomes of IPPs, focusing primarily on Sub-Saharan Africa.* Approximately 23 such medium- to large-scale projects have taken root to date, concentrated mainly in 11 countries. All totaled, approximately 4.1GW of IPP capacity has been added. With few exceptions, they represent a small fraction of total generation capacity and have mostly complemented incumbent state-owned utilities. Nevertheless, IPPs have been an important source of new investment in the power sector in a number of African countries; consider for instance Togo, in which Centrale Thermique de Lomé (CTL), the country’s first IPP raised installed capacity by approximately 40 percent (from 149 MW to 249 MW); meanwhile, at 250 MW, Bujagali is expected to increase the Uganda’s installed capacity by approximately 30 percent. The projects covered in this report account for the majority of installed IPP capacity and investment in Sub-Saharan Africa.

The majority of projects have delivered and their contracts have largely been upheld (namely CIPREL and Azito in Côte d’Ivoire, Takoradi II in Ghana, Iberafrica, Tsavo, OrPower4 and Rabai in Kenya, Afam VI in Nigeria, CTL in Togo, and Namanve in Uganda). A number of additional IPPs have reached financial closure and are under construction (Bujagali in Uganda and Itezhi Tezhi in Zambia). Furthermore, in Kenya, financing is presently being arranged for three more IPPs, following an international competitive tender (as well as three directly negotiated projects). Finance is also being sought for the long-awaited addition to Ghana’s first IPP, Takoradi II, as well as over a 1000 MW of new power generation, via three different plants, in Zambia. Finally, although not the 1000 MW that were initially envisioned, Eskom is harnessing 376 MW via its Medium Term Power Purchase Programme to help avert power shortages in South Africa, with a range of independent producers.

There have, however, been some high profile mishaps that may have prejudiced the record in SSA. One project has recently concluded its arbitration (AES Barge in Nigeria) and for a second project (IPTL in Tanzania) arbitration is ongoing, however, both projects still form important parts of the power supply in these countries. The costs of another IPP in Tanzania (Songas) escalated as a result of the unplanned, and later disputed, contracting of IPTL. A dispute over escalating investment costs also marked the Okpai project in Nigeria. In addition, in Senegal, GTi Dakar is under financial distress, and the country’s second IPP, Kounoune I, is also facing challenges due to its inability to procure adequate quality fuel, among other challenges. Changes may be noted in the contracts of one Kenyan plant (OrPower4, which reduced its tariff for the second phase of the plant). One project (Westmont in Kenya) had an initial 7-year contract that was not renewed. The other early IPP in Kenya (IberAfrica) renewed its contract, albeit with much lower capacity charges, and has recently doubled its capacity.

Post contract-changes, projects have largely gone on to make a significant contribution to the country’s generation mix (the exceptions being Westmont, which ceased operation, and IPTL, which operated intermittently during and subsequent to its arbitration proceedings). What is different about those projects that have seen no change to date? To what extent may the development and investment outcomes be perceived to be in or out of balance? What are the contributing elements to success in each of these projects?

A suite of country level and project level factors have emerged as playing a critical role in determining project success, chief among them: the manner in which planning, procurement and contracting are coherently linked, the role of development finance institutions along with the development origins of firms and credit enhancements. These and other such factors are spelled out in detail, along with detailed project appendices on each of the 23 IPPs profiled.

In sum, while there is evidence for contract unravelling across the pool of Sub-Saharan African IPPs, where an imbalance is perceived between development and investment outcomes, the incidence of such unravelling does not necessarily signal the end of a project’s operation. New agreements may be reached that prove sustainable. Meanwhile, efforts must continue to close the initial gap between investors and host country governments’ perceptions and treatment of risks (or else examples of further contract unravelling will continue). Finally, the means of closing the gap may not be only, or mainly, via increasing the sort of new protections, including partial risk guarantees or political risk insurance, and may instead lie in systematic treatment of the numerous contributing elements to success defined by this report.

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^*The decision to focus on Sub-Saharan Africa, rather than expand the analysis to the whole continent of Africa, was taken primarily due to the markedly different investment climate of North African countries, which impacts the size and scale of projects and their associated development. On average, North African IPPs have been more than double the size of their SSA counterparts (at an average of 491 MW vs. 177 MW for SSA).

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