ATI to guarantee larger power projects on doubled fundingCredit: Shutterstock/Tukio

ATI to guarantee larger power projects on doubled funding

In November 2017, the African Trade Insurance Agency (ATI) partnered with KfW Development Bank to launch the Regional Liquidity Support Facility (RLSF). ATI underwriter Obbie Banda spoke to Africa Ahead on the achievements so far, the planned doubling of the RLSF and the intention to support larger Independent Power Producers (IPPs) seeking guarantees to address short-term liquidity risks. He also talked about the cutting of RLSF costs, the outlook for the year and the plans to target private sector-focused commercial and industrial power projects

  1. What was the size of funding for the RLSF in the last four years and what were you able to achieve?

The pool of funding that was made available was mainly from KfW Development Bank and from the German government. That was about €31.6m in cash collateral.

To supplement that, we committed guarantees of the same amount to bring the entire pool of funding to €63.2m.

In the last four years, there was a limitation with what we could do with €63.2m. What that meant was that when we were looking for projects that can benefit from RLSF, we could only look at relatively small ones of up to 50MW.

  1. Given the lessons picked and the potential to scale up, what’s the desired funding size going forward?

What we expect is that we should be able to make an announcement from an additional donor that is coming on board. We are yet to finalise the details but we expect it will more than double the current capacity at RLSF. What this will do is mean we should be able to start looking at bigger projects.

  1. RLSF started with seven countries. What is the progress in rallying projects in other ATI member countries to sign up with the expected rise in RLSF funding? 

We are going to allocate some resources as ATI to engage with those governments that have not signed up to the RLSF. We are hoping we can get closer to each and every member of ATI signing up through our memorandum of understanding (MoU). We hope to get at least two or three on board each year during the next three years.

The hope is to try to get to nine or ten by the end of 2022, then keep the number growing depending on the appetite we get from the governments we engage with.

  1. Which additional countries look closer to signing up to the RLSF this 2022?  

There are a few that are robust with discussions. One of them is Ghana, which completed membership about two years ago and we have started discussions with the Ministry of Energy.

Those discussions are advancing well and we think within the first or second quarter of 2022, we should sign the MoU. Another country where we have started discussions is Ethiopia. There was interest from the government and we think during the year, those discussions might be advanced.

5.You said ‘two additional guarantees are on track to be issued by the end of Q1 2022’. Can you give some colour on the location and size of these projects that want to tap into the RLSF.

There are seven countries that have signed for the RLSF – Benin, Burundi, Ivory Coast, Madagascar, Malawi, Uganda and Zambia.

In these countries, we have been discussing with project developers regarding various projects and that is how we have done three policies: one in Burundi and two in Malawi.

Of the two that we expect to close by the end of quarter one, one is in Malawi. It is a solar project. The other project will be in Uganda. It is a hydro project.

6.What has been the proportion of fees for banks issuing letters of credit in the total cost of RLSF? Where do you see the total cost of RLSF as you start direct guarantees this January?

When RLSF was started, one thing we realised is that it will be more effective to have one bank issue guarantee instead of having to go through a procurement process for each guarantee.

The bank that was selected was Absa South Africa. The average cost of its letter of credit comes to about 0.5% on an annual basis. On top of that, ATI then applies fees depending on risk assessment. What will happen in 2022 is that in markets where ATI has already given some price indications, we should be able to reduce our pricing by 0.5%.

7. What do you expect to be the impact of reduced RLSF costs going forward?

The margins on these projects are already small, so if we can make our guarantees cheaper or more price reflective, it should help in getting more IPPs to sign up.

Beyond the reduced pricing is administrative processes. Issuing guarantees through banks means you discuss with developers about the contract and pass it to the bank to review.

Adding another entity to the discussion can mean it takes a bit longer to agree on the final contract. Doing guarantees ourselves will make it simpler and shorter.

8. How soon can the market expect ATI to develop and roll out private sector-focused guarantee instruments to support commercial and industrial power projects, mini-grids and other off-grid initiatives?

It will take some time. Before RLSF was set up, ATI had been issuing these guarantees before, for instance in Kenya. So we took something that was working and made it better through RLSF.

Some of these sectors will be quite new to ATI. The first couple of years will be around understanding what is required and what the gaps are and then developing solutions. We expect to deploy some considerate resources in 2022 towards research and product development. But in terms of having an actual project to bring to the market, we will require a year to 18 months.

9.What is your outlook on RLSF uptake during 2022 as you scale up?

Because of the Covid-19 impact in 2020 and 2021, a lot of projects that were being developed really slowed down.

The pandemic has also had a bad effect on the balance sheet of a lot of utilities as well as overall demand for electricity. So, some projects that were to connect to the grid this year are also being advised to postpone by at least a year. For a combination of these two reasons, we expect 2022 to be relatively slow and we expect to issue one or two guarantees, but we expect normalcy in 2023.


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