In an era in which raising finance for major hydrocarbons projects is increasingly challenging, the developers of such projects in Africa should consider segmenting them and separately seeking finance for each segment. That advice was given by Africa Finance Corporation Senior Associate Shao Olumide. He was participating in a panel discussion at the 2024 African Refiners and Distributors Association conference, in Cape Town.
Globally, investors were moving away from hydrocarbons projects, including fossil fuel refineries, he pointed out. But investors not willing to invest in a refinery itself might very well be prepared to invest in infrastructure ancillary to, but essential for, the operation of the refinery, such as roads, piers and other port or terminal infrastructure.
Participating in the same panel, Standard Bank global head: infrastructure Dele Kuti reinforced the point. Investing in oil and gas projects created challenges for especially private sector financers. These were ESG (environmental, social, governance) challenges, but particularly environmental. His group faced regular weekly protests from environmentalists because it continued to finance African fossil fuel projects, he noted. To attract funding, such projects really needed strong equity partners.
The Uganda National Oil Company (UNOC) had already successfully adopted the segmented financing approach, for its national refinery project, reported UNOC GM refining Michael Mugerwa, who was also on the panel. The Uganda Refinery project was part of the country’s Kabaale Industrial Park (KIP) project. Among other complexes and facilities, the KIP would house the country’s second international airport (which was now near completion).
He explained that the different elements of the overarching KIP project had received funding from different sources. Thus, the UK had provided funding for the airport, while an unnamed European Union country had financed the construction of the KIP road network. But neither had provided funding for the refinery itself, which was being financed from other sources.
Olumide also advised hydrocarbon project developers to make use of financial advisers when seeking funding for their projects. These advisers knew how the financial sector worked, and who might be interested in funding the specific project proposed. This would save a lot of time for developers, when they started looking for finance.
Addressing the slowness of financial institutions to green-light hydrocarbon projects, Kuti cited the challenges created by ESG issues as the cause. These could be overcome, but it took time. On top of this, most African sovereigns were rated sub-investment grade, meaning that getting government guarantees for a project was also challenging. And, further, in many African countries, financing such major projects posed foreign exchange challenges, as the project was valued in hard currency but the local currency was soft.