Standardization Necessary to Leverage Africa’s Private-Public Partnership in The Energy Sector

A standardized contract process could aid in boosting Public Private Partnerships (PPPs) in Africa’s energy space.  Africa Finance Corporation chief executive, Andrew Alli, said, “One of the reasons is a lack of standardization so every single deal or Independent Power Producer (IPP) is almost starting from scratch; you’re renegotiating all the contracts and all that takes a long time.  If we were able to bring in a much more formulaic thing with standardized templates and, ideally, standardized templates which apply to more than one African country, although that’s very difficult, that should at least speed up the process.”

He also said, “The other issue that takes a lot of time on these IPPs comes back to non-cost reflective tariffs. Because the tariffs aren’t cost reflective, the entities, which are generally state-owned power companies that are buying the power from these IPPs, are not bankable.  Therefore the people who are lending money to these IPP projects need some sort of guarantee or support from the government for this and that makes it more of a challenge.”

Africa’s power requirements have continued to grow in recent times. This has led to a drive to develop widespread, reliable and sustainable electricity.  Public Private Partnerships (PPPs) are seen as a necessity to drive this development however there has been little visible success of them.

Alli went on to explain, “Unfortunately, I don’t think that one can say that PPPs across Africa, as a class, have been very successful. Most of the individual PPPs have been successful in that you’ve had a power plant created and there are very few, if any, that have not been able to meet their financial obligations. At a micro level, you can say they’re quite successful.”

Furthermore, he explained, “On a macro basis, the fact that the average IPP in Africa takes seven years to close, when you look at the costs around legal issues, financing or bringing each of these PPPs or IPPs into operation, they’re not making a significant impact on the power needs of the African continent. Broadly it hasn’t been a success.”

Lazarus Angbazo, chief executive officer of General Electric (GE) Nigeria, also emphasised the importance of PPPs in Africa and further credited the Nigerian government specifically for its efforts in promoting this concept in the country.  He said, “The idea is you align the commercial interests of companies like GE with the priorities, requirements and needs of a country like Nigeria.”

Furthermore, he added, “They basically laid out a roadmap and said ‘if you work on the infrastructure solutions, bring in local content, facilitate financing and bring in training, then there’s going to be a perfect alignment in terms of helping the country achieve its economic goals.”  He concluded, “This is what we’ve done in Nigeria. That alignment in the partnership at macro-infrastructure level, you’ve got to have that otherwise an enabling environment will not be there.”

Source: CNBC Africa