Johannesburg: Africa needs to find new ways to finance energy projects as the continent seeks to massively expand access to electricity in the wake of the global financial crisis, experts say. The public-private partnership (PPP) model for building and operating expensive infrastructure like power plants will no longer work as international banks shy away from long-term loans, bankers and industry insiders told the Africa Energy Indaba conference under way in Johannesburg this week.
"We've got to stop kidding ourselves that PPP is the answer," said Anthony Sykes of Japanese bank Sumitomo Mitsui. "Lenders are going to be extremely unwilling to lend long-term to projects."
Africa's governments are desperate to roll out more major power projects.
According to the International Energy Agency, 70 percent of people in sub-Saharan Africa have no access to electricity, compared to 20 percent worldwide -- a fact that is hampering the continent's economic development.
The continent's largest economy, South Africa, is looking to more than double its current electricity supply from some 40,000 Megawatts to more than 89,000 by 2030.
The warning on funding difficulties came as South African Finance Minister Pravin Gordhan presented a budget Wednesday that includes almost two trillion rand ($250 billion, 190 billion euros) in spending on mega-electricity projects in the next eight years.
The country is already building two new coal-fired power plants that will generate a more than 9,500 Megawatts when complete, and also envisions some six new nuclear plants for a combined 9,600 megawatts and major investments in wind, solar and hydro power.
The finance ministry did not specify how the government would pay for the ambitious programme, saying there were various ways to finance public infrastructure.
"No good project will be short of funding," Gordhan said.
But Energy Indaba participants said a new paradigm may be needed. "PPP works for the construction phase but not the overall life of the project," said Frederic Mariette of French investment bank Natixis.
Under the PPP model, dominant for the past two decades, governments entered into partnerships with private-sector backers for the lifetime of a project -- some 20 to 50 years in the case of a power plant.
Banks financing such projects borrow enough money to cover operating and maintenance costs for perhaps five years, then borrowed more money for the next five.
But the model has been eroding since Lehman Brothers collapsed in 2008, triggering the financial melt-down. Banks have become skittish about lending to each other, regulators began tightening capital requirements and PPPs began to look unviable.
Panelists suggested one new investment model could be to build power plants with private financing, then borrow money from pension funds -- which are flush with cash in some large economies such as Nigeria and South Africa -- to pay for running costs and upkeep.
They also cited the 'Chinese model,' already common in Africa, in which the Asian giant gives or lends the money for a large infrastructure project, brings its own workers and materials to build it, then turns it over to the local government as part of a wider deal, usually to source raw materials.
But Mark Beare, an independent consultant, said that approach has a fatal flaw. "Who's going to maintain all of this? The (locals) aren't getting that skills and technology transfer that builds the internal capacity," he said.
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