Developing and financing an energy or infrastructure project in Africa is a complex process involving a variety of participants – all of whom will have their own particular requirements and responsibilities. With so many parties involved, how can you make the right choices when it comes to securing investment and selecting project partners?
In order to make the right choices when planning a project, there are several issues that must be given careful consideration:
- Selecting the right jurisdiction. The availability of energy and infrastructure is critical in driving developing economies. Large scale projects are often politically charged, attracting political risks. The particularities and regulatory regimes of each jurisdiction can be varied and complex. Clearly, selecting the right jurisdiction is critical for the success of a project.
- Choosing the right partner and structuring the right partnership. Selecting the right investment partner(s) is key to the success of any project. An effective partner can help resolve many of the difficulties experienced and share appropriate risks. An experienced local partner can help navigate the pitfalls of permits and licences, secure tax exemptions and so on. Equally, selecting the right construction contractor is critical – contractors are often the key to unlocking investment in a project, including by facilitating the financing process. Vendor financings are becoming increasingly common in African projects. The key to building the right partnership is to allocate risks and responsibilities to those best able to bear them.
- Financing. As a result of the global financial crisis, developers have fewer options from which to source project financing. Energy and infrastructure projects in Africa often benefit from financing made available by development finance institutions (DFIs), multilateral organisations and export credit agencies. Such institutions provide financing at preferential rates and also help mitigate aspects of political risk. Each such institution however will have its own particular requirements and coordinating these can prove challenging for developers.
- Managing community relations. The implementation and operation of a project is key to the development of local economies and their communities. It is vital that community relations are managed in an organized and transparent way so as to ensure that the local community benefits from the project. The implications of poor community relations can be serious and financially significant.
- Coordinating project participants. Bringing together all of the various parties – private and public sector partners, contractors and local communities – is a process that requires significant skill and experience. In allocating the benefits, risks and responsibilities to each of your project parties, a set of principles must be established that everyone can agree to in order to be able to create a set of documents that are drafted, negotiated and concluded and that work together in a practical way.
There is huge potential for investment in energy and infrastructure projects in Africa but managing the complexities of project development requires experience and skill to make the right choices.