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Capital demands African regulatory stability

Financial fundamentals and sustainability considerations will also be key to attracting the project financing required to develop recent discoveries

African governments must implement investor-friendly measures and stick to their commitments if they are to attract international capital and develop the recent wave of huge discoveries across the continent to their full potential.

“Country stability and the regulatory environment that we operate in [within] a country, as well as a proper oil development framework, must be part and parcel of it,” said Shirley Webber, managing director and head of natural resources at African financial services firm Absa Group, on a panel discussing capital raising for transformative projects, at Africa Oil Week on Thursday.

“It is very important for countries to ensure that there is a stable environment, for banks to come in to fund and sponsors to come in and increase exploration,” says Webber, adding that country ratings and international relations are also important.

Mozambique is perhaps the biggest recent success story in terms of attracting capital through providing stability—despite being indebted and having low country ratings when the discoveries were made.

“Investors need stability and they need consent. That is the only way that long-term capital flows into projects” Hirachand, Societe Generale

The success was “very much due to an enabling framework”, according to Katan Hirachand, co-head London, energy advisory & finance, at bank Societe Generale.

“The government of Mozambique had a very good vision when its resources were discovered. It put in place a decree law that was designed to facilitate investments. It is what investors want—investors need stability and they need consent. That is the only way that long-term capital flows into the projects of this nature.”

Indebtedness need not be a barrier as “there are multiple structural features that could be introduced to, in many ways, isolate the sovereign rating”, he says.

Stability—over multiple election cycles in democratic countries—is particularly important as investors are not easily able to refinance in Africa’s underdeveloped capital markets. “Clearly, we are not looking at this on a six-month or one-year basis. It is a very, very long time,” adds Hirchand.

Uganda is another example where the government prioritised stability for sponsors and investors, in addition to measures including tax concessions and securing bilateral agreements with neighbouring Tanzania. “We recognise certain things are important to support the project, such as expropriation protection, stabilisation clauses and providing arbitration,” says Gilbert Kamuntu, chief commercial officer, Uganda National Oil Company (Unoc).

“These are all the things that we are discussing with the objective of making the project attractive for both the shareholders and the venture lenders. We strongly believe that the project economics and the fundamentals are good,” he says.

“We are trying to develop a package of incentives and stability that provides comfort for the life of the project. All of these are going to be enshrined in a package of commercial rules. And these are separate from any other taxation discussions that are going on for specific transactions."

The panel agreed that the economic fundamentals of a project are essential and that ESG considerations and local content provisions are also important. The African Development Bank, in line with its mandate, is focused on the effect a project has on the economic development and environment of the host country.

“We do not have a standard set of criteria for which projects would benefit from our support. Any project that aligns with our principles and our strategy is a potential project to be funded,” says Arron Singhe, chief oil sector officer at the African Development Bank. “We talk about uniting, feeding, integrating, industrialising and improving the quality of life in Africa.”

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