Making Africa's Power Sector Attractive to Private Investment Now “More Important than Ever”

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African finance officials, power project developers and representatives from global financial institutions agreed that in the current economic environment it was more important than ever for African countries to bring about reforms that make their power sectors more attractive to investment by the private sector.

Gathering in Dakar during the African Development Bank Annual Meeting, participants in the Infrastructure Consortium for Africa’s (ICA) Public-Private Infrastructure working group discussed how to maintain private investment flows in the face of the financial crisis.  They noted the challenges to financing infrastructure in the current market environment but emphasized that the sector continues to offer attractive returns.

Speaking at the conclusion of the meeting, which was convened by the ICA in conjunction with the African Development Bank and the U.S. Treasury Department, Mandla Gantsho, the African Development Bank’s Vice-President for Infrastructure and Regional Integration, said “While the financial crisis has increased the costs of financing for African power projects, it is striking that financing remains available for bankable projects.”

Mr. Gantsho added: “Development finance institutions have stepped into help meet financing needs as commercial financing has become scarcer. In the current environment, it is more important than ever that countries continue to move forward with key reforms that make their power sectors attractive to private investment.”

Africa’s infrastructure gap is a key constraint on the region’s economic growth potential and efforts to reduce poverty. Africa’s power sector alone requires an estimated $29 billion per year in capital expenditure over the next ten years.  Mobilising private investment is crucial if this level of investment is to be achieved.

Participants discussed what action governments, donors, development finance institutions and the private sector could take to help increase the financing available for infrastructure in Africa and for the power sector in particular:

  • Strengthening African governments’ understanding of public-private partnerships (PPPs) and their capacity to negotiate and manage PPPs. ICA agreed to establish a task force with project developers and legal experts to draft a model power-purchase agreement.  Participants also agreed to examine scaling up assistance to help African governments establish offices dedicated to handling the procurement, financing and legal aspects of PPPs.
  • Utilizing emergency financing facilities established to help address financing shortfalls resulting from the financial crisis.  Participants particularly noted the African Development Bank’s Emergency Liquidity Facility, the World Bank’s Infrastructure Recovery and Assets (INFRA) Platform, and the International Finance Corporation’s Infrastructure Crisis Facility.
  • Continuing key reforms in national power sectors to unlock private investment.  Project developers highlighted the need for legislative frameworks to permit private participation in the power sector, independent regulatory agencies, and cost-recovery tariffs.