Mövenpick Resort & Spa Mauritius • 12 to 14 November 2008

"The deficiencies on [sub-Saharan Africa's] power sector are a serious drag on long-term growth and competitiveness. If all countries were to catch up with the regional leader, Mauritius, in terms of infrastructure stock and quality, their rate of economic growth per capita would be enhanced on average by 2.2 percent per year."
World Bank's Africa Sustainable Development Department

A new approach is needed to attract financial resources that would create an inclusive and sustainable power sector capable of supporting Africa’s revival in economic growth and integration into the world economy. African government ministers, power executives, and finance experts will examine how major international and domestic changes affect the financing of power plants.

The times they are a-changing

Two important, unrelated events have happened since the successful inaugural PAFO meeting in Mombasa in November 2007: post-electoral unrest in Kenya and the spreading impact of the US securitization meltdown. Their direct relevance for the power sector may seem tenuous, but they illustrate factors that are central to infrastructure financing.

Mitigating risk, including political risk, is a crucial element in financing—and the cost of this can determine the viability of a project. Africa’s risk profile is often cited as a deterent to investment. But new opportunities and competing pressures mean governments are increasingly unlikely to grant counter-guarantees, dispite calls for the contrary.

Traditional project finance models have not delivered the necessary capacity expansion. KenGen’s IPO eschewed the foreign market in favour of domestic capital. Accessing domestic capital can reduce reliance on fickle international markets and improve planning. But investors of any kind require robust management structures to ensure that the utility will meet their expectations.

Utility reform and domestic capital, however, are unlikely to lift power output to levels that will support expanding economic growth. How will additional capacity be financed? Could project financing be losing favour to more hybrid models with elements of public participation or to balance sheet financing?

The search for higher returns has channelled money towards infrastructure funds. But will the global credit crunch halt these much vaunted new sources of capital in their tracks? And how much of this cash will find its way into the Africa power market remains to be seen.