Sowing the seeds in Africa
The AFC is committed to providing financial support for energy infrastructure development across the continent in a difficult investment climate
The Africa Finance Corporation (AFC), backed by states on the continent, is striving to beef up its role as a facilitator of financing to indigenous companies and domestic infrastructure projects that would otherwise be hard to come by.
"In the oil and gas sector, we've done both export and domestic projects, but our focus has increasingly become domestic projects, where we get more bang for our bucks in terms of our mandate and our credibility on the continent," Osam Iyahen, who heads the AFC's natural resources division, told Petroleum Economist.
Established in 2007, the Lagos-based multilateral institution, with 15 states on board, has total assets of around $3.4bn. It has mobilised investment from both public and private sectors across 28 countries, often in partnership with other institutions, such as the International Finance Corporation and major banks. Zambia became the latest country to become an AFC member, in October 2017.
In the oil and gas sector, the AFC's portfolio totals around $0.6bn. In Nigeria, it has invested or arranged financing for Seven Energy, Megadrill Nigeria Services and Nigeria LNG's Bonny Gas Transport shipping arm.
Elsewhere on the continent, in 2014, AFC helped arrange a $1.4bn financing for Glencore to provide a loan to Chad's state energy firm to buy Chevron's stakes in the country's oilfields. In 2016, AFC co-led a $425m senior secured loan facility for UK-based, Africa-focused New Age, which has production interests in Nigeria and Congo-Brazzaville.
Meanwhile, in 2017, AFC agreed to provide a $28m subordinated loan facility to Tunisian independent energy firm Topic for the development of the El Menzel offshore oil concession block in northern Tunisia. The aim is to achieve first oil production in early 2018.
The corporation's financial credibility and its hands-on experience of operating on the continent put it in a good position to bring together both local and international financing for projects that may be deemed too risky or difficult by major companies, according to Iyahen. "We understand the risks a little better, because we are funded by African investors, who know the lie of the land and we are able to take the risks that others will not take in many countries," he said.
$3.4bn - Africa Finance Corporation's total assets
Iyahen cites success stories from the Niger Delta. As Shell divested onshore in Nigeria during the past decade amid disruption of production by hostile local communities, little known Nigeria-focused start-up firms were keen to step in. "We took a bold step and said we needed to support them, because that's what was required to operate these assets—you need local competence from companies that will actually go into those restive regions where the oil is and drive production," he said.
Seven Energy, founded by Nigerian investors in 2004, was one firm to receive AFC backing in its formative phase. The institution made an equity investment of $20m in the company in 2010, as part of a $200m equity and debt financing by the company.
Seven Energy now has stakes in several onshore oil and gas production projects in the southeast and northwest Niger Delta, netting the company around 11,000 barrels of oil equivalent a day when operating at capacity. It also has three undeveloped assets in the adjacent Anambra Basin, as well as midstream operations supplying gas to the domestic market. These include the Uquo gas processing facility, which has a processing capacity of 200m cubic feet a day, as well as a 260km (161 miles) gas pipeline network.
The AFC is keen to increase its presence in midstream activities, and is assessing gas transport projects, including pipelines. Under study, too, are the possibilities offered by liquefied natural gas imports to energy-deficient sub-Saharan Africa countries from the region's own LNG exporters. The development of regasification terminals and associated infrastructure is a potentially attractive option at a time when a global LNG glut has forced prices down and left spot market cargoes searching for homes. The choice of suppliers that LNG imports offer also make sense when compared to the pitfalls of projects such as the West African Gas Pipeline, where countries along its route have been dependent on erratic supplies of Nigerian gas.
The continent's underdeveloped refining sector is another area where the AFC is keen to act as a catalyst for investment, along with power generation and fertiliser manufacturing.
Investments in post-conflict countries are seen as a key part of the Corporation's development finance brief. Earlier this year, AFC was part of a consortium that provided $205m to Guinea Conakry to fund development of bauxite reserves. Iyahen said the AFC was also considering investments in Sierra Leone, which is seeking to attract financing for hydrocarbons exploration.
Iyahen conceded that cash commitments in capital-intensive projects in some African countries is still a leap of faith for investors. However, he said the AFC is determined to continue carrying out its development finance mandate, albeit prudently.
"We are increasing our footprint across Africa, wherever there are resources to be developed and projects are bankable—that's the key requirement, bankability of the project, as well as the economic benefit," he said.