International commercial banks are exiting the African oil-and-gas sector to minimise their hydrocarbons exposure. However, a wave of African banks and other innovators are stepping into the gap, and providing the finance to drive the next phase of Africa’s energy development.
This is a key theme emerging from the energy event AOW: Investing In African Energy, being held in Cape Town this week. The event, dedicated to supporting dealmaking in the African energy sector, heard that finance in the African upstream was seeing rapid change and innovation.
As traditional commercial bank financiers reduce their exposure to oil and gas globally, most African upstream assets still require debt finance. This is now coming from African commercial lenders, commodity traders as well as African multilateral banks, who know the environment, have an appetite for risk and are willing to partner in the development of their continent.
“There is appetite and optimism for African oil and gas projects, and there is liquidity available,” said Pascal Nicodeme, CFO of Africa Oil Corp. “The only difference is that the actors have changed. The era of the international banks is over, but the African banks have stepped in. There still a great appetite for quality projects with the right balance sheet.”
“Africa is open for business,” said Babajide Sodipo, senior manager, export development advisory at Afreximbank. “As a development bank, we continue to support fossil-fuel financing, and we do it in a way that doesn’t endanger the environment, and which gives back to the community.
Speakers have rejected the idea that Africa is a high–risk investment destination.
“Africa is a great place to do business,” said Anastacia Deulina CFO Afentra, an independent oil and gas company with interests in Angola. “Most countries on the continent are stable, and even a bit boring. In Angola, we have found a pragmatic, supportive and efficient environment, and were able to secure finance on one of our projects within six weeks.”
“We need to ensure we invest in the current energy system, without tearing it all down while we invest in the new,” said Mike Fidler, CFO of Azule Energy, an international energy company based in Angola. “But there is liquidity available for quality projects with good technical resources, government support, and high ESG standards.”
Another solution energy companies are finding is to structure deals themselves, and to then go and sell them to possible partners such as trader or development finance institutions.
“We are not seeing banks breaking down our door looking to provide finance,” said Akinbambo Ibidapo Obe, general manager, commercial for Nigeria-based energy company Oando. “To deal with this challenge, we are transitioning from a customer-seller relationship, to more of a partnership approach.”
All speakers at AOW have agreed that for projects to find finance in the realignment, management teams need to clearly outline how they plan to minimise the carbon impacts of their operations and to ensure their developments will also positively enrich host communities.
“ESG commitments are very important today,” said Taiwo Okwor, vice president of the Africa Finance Corporation, a pan-African development finance institution. “We are more than willing to partner, but we first need to understand where you are on ESG, and how we can help.”
Energy companies have emphasised that they support the move to decarbonise the sector, and to ensure it maintains high standards in the ESG space.
“There is pressure for ESG compliance from lenders, as well as from shareholders,” said Fidler. “But ESG compliance is easy when you have the right culture, one that cares about the society where it operates.”
Another solution emerging in the African energy sector involves independent commodity traders assuming a growing role as owners and financiers of producing oil and gas assets.
Among these traders is Trafigura, one of the world’s largest suppliers of commodities. The firm’s head of upstream finance, Matthieu Milandri, expressed enthusiasm about the African market.
“The idea of political risk in Africa is exaggerated,” said Milandri. “Traders are doing good business in Africa. We evaluate the quality of the asset, the management team, and the country risk. As long as there is production, we can do business.”