At the Enlit Africa Digital Event, which ran from 26-28 October, a session featuring financial experts discussed why there was an undersupply of bankable projects on the continent, and what businesses can do to make them more attractive
Lebohang Mosetu, senior underwriter at Export Credit Insurance Corporation of South Africa SOC Ltd. (ECIC), said that some of the bankability issues for projects on the continent are around power infrastructure risk. "Some project pitches rely on governments saying they will build the associated infrastructure to enable the distribution of power but can you actually rely on them?"
Mosetu noted he had seen cases where governments had not built the surrounding infrastructure and this caused enormous problems down the line. Infrastructure around the project is therefore key.
Another big issue around bankability currently is environmental and social issues especially around land ownership. This forms a big part of bankability issues and can delay projects or contribute to them not being bankable.
Providing advice for producing bankable projects propositions, Gregg Wheelwright, project and export finance specialist at Standard Bank, explained that banks focused on the continent primarily look for projects with strong credible partners and sponsors. Within this, construction contractors have an important role to play as construction is the most risky part so they will ultimately determine the success or failure of a project. He added that contractors need to have a success history of delivering projects on time and on budget.
Wheelwright continued, “Offtake contracts need to be bankable in every respect and we see a number of projects where the offtake is just not viable enough, making the project not bankable. This is often due to offtake contracts with national utilities with weak fundamentals.”
Mosetu echoed Wheelwright by noting that one of the biggest points is to have developers on board who have experience in developing similar projects as it makes the whole process much easier. Sometimes developers are not experienced in developing projects, 10MW solar is a lot different from a 400MW power plant, and this can cause enormous issues.
He added, “There are a few projects completed on time and on schedule. So for questions around cost overruns and bills, you need completion guarantee to take care of them. You simply need to cater for those cost overruns.”
Mosetu concluded, “Take bankability issues seriously. Appoint the right people early on in stage of development and make sure to have the right financial advisor with proven track record for typical or specific type of project. This will help in terms of executing the project and reaching bankability and financial close on time.
“The ECIC is available to provide important insurance papers to lenders and assist developers to express of interest when pitch projects. Many governments want to see ECIC support before pitching so it is good to touch base with us before going for that.”
