Local content provision has long been a hot topic in the oil and gas industry, but many delegates at the 3-4 October Africa Investment Exchange: Nairobi event were surprised at how far the issue could generate controversy and block support for electricity projects. Several African delegates spoke of building local content into projects to drive industrialisation that, in turn, will improve living standards and stimulate demand for power. But one major funder insisted their institution could not support projects that created “market distortions” contravening the European Union’s standard procurement procedures. “At its most egregious, local content is a means of enrichment for local elites,” another financier told the event, organised by CbI Meetings.
For local content to make economic sense, investors must have a clearly defined client base. In Morocco, which has sought to build an ‘ecosystem’ around its ambitious renewables programme, the Siemens Gamesa Renewable Energy wind turbine plant in Tangier Automotive City has completed its first export order, sending turbine blades to the Laxaas wind farm in Sweden from the TangerMed container port in mid-September. The plant opened in late 2017 – a first such facility for Africa – and has also supplied blades to the Aftissat wind farm at Boujdour, also transported by sea from TangerMed. The investment in northern Morocco cost over E100m ($114m), which was only possible in a country with a major procurement programme underpinned by large-scale financing (AE 360/6) and export infrastructure such as TangerMed. Big-ticket exports to Sweden from a previously marginalised region is the sort of news all African governments would love; but few countries offer the conditions to support such substantial investments.
South Africa has a strong local procurement policy and substantial local market; its government has sought local content and ownership to drive industrialisation and implement (through empowerment policies) greater social justice nearly three decades after the end of apartheid. The scale of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme has been sufficient to encourage some industrial investment. However, as REIPPP stalled during the latter part of the Zuma presidency, investments made following the programme’s very successful initial phases proved insufficiently robust; created to feed the REIPPP, they lacked other clients and many companies have gone bust.
Ethiopia, Ghana, Tanzania and other governments are committed to driving industrialisation via local content but seem to lack large enough markets to support rational investments. Protracted negotiations between Enel Green Power and the Ethiopian government for the 100MW Metahara solar PV plant are believed to include controversy over the level of local content (AE 356/8). Ghanaian governments have pushed what one analyst calls “ludicrous amounts” of local content and ownership. “It is an industry size question: if national issues were overcome in West Africa, then regionally focused plants might work, but that still seems some way off,” the analyst said.
“Kenya sees industrialisation as important, of course, but the government is not wedded to linking local content to projects as we are focused on getting the lowest cost tariffs,” one official told African Energy. This will encourage donor interest, especially among those who see rigid local content demands as distorting the economy. The European Investment Bank supported the first round of South Africa’s REIPPP, but held back from subsequent rounds after demands for local content and ownership were seen to contravene EU rules. Other agencies have taken similar stances, but that is not to say developers should not work hard to identify credible local partners. The same financier who criticised local content distortions for enriching elites also observed that “the best, most proactive developers know they should be out there seeking the maximum local input to make their projects sustainable in the long term”. Meanwhile, governments should be encouraging local entrepreneurs in sectors such as rooftop solar and operations and maintenance that can create jobs in the real world beyond grandiose industrialisation plans.
Africa Investment Exchange: Power & Renewables
14 November 2018 to 15 November 2018, RSA House, London
Over the last five years AIX Power & Renewables has become one of the meeting places of choice for Africa’s power sector stakeholders, including leading private and public sector investors, African officials and project developers.
Last year KfW and the Africa Trade Insurance Agency chose AIX: Power & Renewables to launch their Regional Liquidity Support Facility, while the 2016 meeting was chosen for the launch of the Africa Infrastructure Development Association (AfIDA), a think-tank and network to promote and enable project development in Africa.
Co-produced by consultants African Energy and held under the Chatham House Rule, the meeting is structured around panel-led discussions with the participating audience, with the main meeting limited to around 180 to preserve the networking environment.
This year’s meeting is sponsored by Actis, DEG, Denham Capital, DLA Piper, ENGIE Africa, FMO, InfraCo Africa, Joule Africa and Themis Energy.
It features two main conference streams, additional break-out sessions and an evening reception and has been expanded to include additional side events:
• The third annual Off-grid Investment Exchange.
• AIX: Gas 2018 Update.
• AfricaHardball – a roundtable focused on political risks and governance issues that impact on projects and investment decisions.
There is a 10% final discount which runs until 31 October.
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