Ethiopian Energy^Power Business Portal

Apart from regulation, currency and land right issues are two of the biggest concerns for private investors in infrastructure developments in Ethiopia and so much so in Africa.

In Ethiopia for example, there are projects initiated to be developed on a public private partnership, PPP, business model where the private sector will finance, build and operate for a concession period of 20 to 25 years. The recent Scaling Solar tenders could be good examples. Independent Power Producers, IPPs, will generate energy and sell to the public entity with a pre-agreed sales agreement usually called Power Purchase agreement, PPA, for the energy and power sector. The tenders put a requirement for Special purpose Vehicle, SPV, projects to have a local content in the form of shares and using local resources in order to win the projects.

Mandating local contents to projects could be helpful(if it works) to absorb the currency risk and would relieve the main project sponsor to a certain extent but not enough, given the low readiness and the capacity of the local partners to have more shares in such project finance.

Moreover, once projects are awarded, then comes the issue of land which is not usually the easiest way to handle and will be a source of project delay and unplanned cost overrun.

I do have two suggestions for discussion:

1.What if regional governments or municipals be part of the game in providing a small share of equity to the projects? I do think, the land issue would be handled easier if regional or municipal administrations become part of the projects as they will have an ongoing interests to facilitate the land issues of projects in their premises, instead of letting IPPs just stand by their own. In a sense, it would also be perceived as a true public private partnership and the federal government would be saved from political sabotage. 

2.What if Local banks form project Syndicates and finance projects: Local banks would have relatively greater financial capability than the local companies as required by the tender requirements. They could have more shares in the SPV and would absorb more local currency from the cash flow in the life time of the project. Syndicates could help the local banks to share the project risks and generate long term and ongoing profits from the projects. The syndication would even create incentives for more collaboration for projects in the future in the mean time lowering the currency risk concern of the anchor project sponsor and all the players behind it.

 Any Idea?

 

This article was originally published at LinkedIn

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