By Chibuzor Nwaneri
With growing uncertainties for oil and gas projects across the world, Nigeria and other African countries may face fresh hurdles in attracting investment given the lack of proper Environment, Social, Governance (ESG) considerations.
In the upstream alone, Nigeria has over $160 billion worth of investment yet to see Final Investment Decisions (FIDs).
This is just as the African Refiner and Distributor Association (ARDA) put needed fund for refinery upgrade across the continent at $15.7 billion, while additional $7.5 billion investments, including debt, equity and grants are required to build clean cooking stoves and downstream infrastructure that would support the attainment of the United Nations (UN) Sustainable Development Goals (SDGs).
Although there are windows of investment for oil and gas projects despite global actions on climate change, access to such funds has been tied to proper considerations for projects that would reduce public health and environmental hazards on Africans, while boosting cross-border trade of petroleum products via implementation of the African Continental Trade Agreement (AfCTA).
Former Management staff at Nigerian National Petroleum Corporation (NNPC), who now heads ARDA, Anibor Kragha, at a workshop organized by the Association on Sustainable Financing, noted that African countries must deploy measures to secure the needed financing to develop and add value to hydrocarbon resources, which are fundamental for the continent’s industrial development and overall energy security.
Last month, the International Energy Agency (IEA), insisted that achieving net- zero emissions by 2050 would require complete transformation of the global energy system, and called for a total halt of investments for upstream oil development.
Against this backdrop, Kragha recommended that the continent develop a Sustainable Finance Plan for Africa that would be used to execute a unique, robust African Energy Transition Plan.
ARDA and Aldersmead, an EU-based corporate finance advisory firm, at the workshop presented a jointly-prepared Resource Mobilization Plan to support implementation of the AFRI Clean Fuels Roadmap. The roadmap targets to cut the level of sulphur in petroleum products and establish harmonized regulation across the continent.
The Resource Mobilization Plan comprised near-term framework arrangements with traditional and alternative funding counterparties and a longer-term ARDA Credit/Investment Fund whereby ARDA members can benefit from credit advanced from the fund.
Africa Finance Corporation’s Shayo Olumide, who presented the innovative financing solutions that were deployed in the €578 million financing of the SIR Refinery in Cote d’Ivoire, said the plan includes credit enhancements and a multiple tranche structure to appeal to a wide range of investors.
Olumide added that successful project financing strategies must also include integration of projects with phased implementation, partnership with the right domestic investors and engineering, procurement and construction (EPC) contractors and Development Finance Institutions (DFIs) with structuring and capital mobilization experience.
Director & Global Head Client Relations, Afrexim Bank, Rene Awambeng, noted that climate change reduces African countries’ gross domestic product (GDP) by 1.5 per cent annually.
He said Afrexim Bank has a robust Climate Financing Strategy to bridge the climate finance gap, while it remains committed to funding cleaner fossil fuel projects as part of the overall energy transition programme for Africa.
Business Development Experts for Vitol Services Ltd, Richard Egan and Guillaume Quigiver, who shared case studies of flare reduction projects in Nigeria and the United Arab Emirates (UAE), noted that ESG pressures create a new opportunity for African countries to generate carbon credits.
According to Egan, Africa has the lowest cost of generating carbon credits in the world and as such a case should be made for a framework whereby its carbon emissions submissions are accepted in the global marketplace. “ESG brings new potential revenue streams that can be incorporated into a financing package.”
Partners at Latham & Watkins, a top global law firm with vast experience with project financing across Africa, Messrs Paul Davies and J-P Sweny, indicated that ESG considerations are currently driving shifts in lending policies for various financial institutions and under what terms they are willing to lend.
They also noted that while several key financial institutions like the World Bank and several Export Credit Agencies (ECAs) have pledged to end support for fossil fuel projects, Asian ECAs and some European ECAs have not made any such policy proclamations.