Out-Law News 2 min. read
08 Jun 2017, 3:30 pm
The report, ‘Linking Up: Public-Private Partnerships in Power Transmission in Africa’ (128-page / 3.56 MB PDF), examines private sector-led investments in transmission globally and looks at how that approach is applicable in sub-Saharan Africa.
Estimates of annual investments required from 2015-2040 to expand the continent’s transmission network “range from $3.2 billion to $4.3bn”, the report said. “These investments are critical to delivering cost-effective power to households and industries.”
The report said “there is potential to develop independent power transmission (IPT) programmes in Africa that will be attractive to international bidders”. But the report said but governments must “work with international investors and potential providers of loan finance to build detailed business models that will attract international interest”, that can be replicated across the continent.
The report said the “next key step” is to pilot some projects and “move beyond merely considering how this business model applies within Africa”.
Riccardo Puliti, senior director and head of energy and extractives industries at the World Bank, said: “Private finance has supported the expansion of electricity transmission infrastructure in many regions of the world and the same can happen in Africa.”
Puliti said to attract private sector investment, “governments need to adopt policies supportive of this strategy and establish the right business, regulatory and legal environment to sustain investor interest”.
According to the report, privately-financed IPTs “are the business model best suited to the conditions in Africa”. IPTs “require a lower need for investor confidence” in a country’s regulatory capacity, the report said. “The use of IPTs in Brazil, Peru, Chile, and India collectively raised over $24.5bn of private investment between 1998 and 2015. It also enabled close to 100,000 kilometres of new transmission lines. Just as private finance has expanded transmission infrastructure in other countries, and generation in Africa, it can also expand transmission in Africa.”
The report warned procuring transmission infrastructure through the IPT model requires running frequent tenders, which “generates higher transaction costs than other business models”. This is “especially true if compared to procuring transmission lines through a whole-of-grid concession”.
“Ultimately, global experience shows that the benefits of IPTs outweigh the costs of implementing them,” the report said. “However, successful experience with independent power producers (IPPs) in the generation of electricity, with similar public-private partnership structures, suggests that IPTs could be used to augment investments in transmission in Africa.”
The report said no African countries to date have introduced private finance in transmission through IPTs. Nigeria did undertake “preliminary steps” in 2014, but the move did not proceed because of “the weak financial viability of the power sector in Nigeria and the lack of clarity over the transmission business model”, the report said.
However, new sources of private finance for expanding the transmission network “can be raised provided the business model is right”, the report said. In the generation sector in Africa, investors in IPPs “carry the risk for the cost, timely completion, and performance of their plant”. The report said IPPs have made investments of $25.6bn with an installed capacity of 11 gigawatts.
African Development Bank (AfDB) vice-president Pierre Guislain said earlier this year electricity was “at the top of the list” of infrastructure investment needs for the continent.
Guislain said the AfDB was calling on Africa to “unleash the power of the private sector”. “Governments should not be nervous about the private sector,” he said. “They must fully embrace it, incentivise and enable its full potential... Africa must put in place a conducive and predictable macroeconomic, business, property rights and fiscal environment.”
