Powering Africa: a long endeavor

Sean Long, chief executive of Endeavor Energy, speaks to Middle East & Africa Editor Leigh Elston about the company’s latest investments in Africa, and developing the first LNG-to-power project in an emerging market

Sean Long, chief executive of Endeavor Energy, has more than 20 years of experience in the development and financing of power-related infrastructure in emerging markets. He spoke to Interfax about Endeavor’s latest projects, how he picks the countries and technologies to invest in, and Endeavor and GE’s pioneering LNG-to-power project in Ghana.

Interfax: Endeavor is looking to invest in an LNG-to-power plant in Ghana. What are the challenges for getting a project like that off the ground?

Sean Long: In Ghana, if we’re successful, we may be the first LNG-to-power project in an emerging market. The issue to date is that most LNG supply has been to investment-grade offtakers, and obviously Ghana is not investment grade at the moment.

To do the project we’ll need a lot of support from various multilateral agencies [MLAs] to try to shore up Ghana’s power market, as well as government credit to entice LNG suppliers for the long term.

But the MLAs are very interested in doing this and we’re having lots of discussions to consider the best way forward.

Interfax: What kind of support are the MLA’s offering

SL: Today’s agencies are investing loan dollars, but we’ve said they also have to think about credit enhancement.

The biggest impediment to developing projects is not that there’s not capital ready to invest in the market, but that it’s hard to understand the credit risk and how projects should be priced, because [there are only a few] advanced capital markets as in developed countries. An important part of the development agencies’ task is to assist in configuring emerging markets so that capital can flow in.

Interfax: How are you planning to structure the project? Will you guarantee a set volume of LNG offtake from the FSRU? Will the government guarantee power offtake?

SL: It’s not clear exactly what the structure will be. But Ghana has a lot of pressure on its balance sheet, so we’re trying to look at structures that don’t rely on a specific government guarantee. Ultimately, the power market has to be rationalised – it has to work. The other point is that this project could also be seen as a credit enhancement to Ghana, in that it’s lowering the cost of power, compared with power plants running off light crude oil

Interfax: Endeavor looks for power projects in the mid-to-late stage of development – why not invest in projects earlier?

SL: The reason we tend to look at the mid-to-late stage of development is because we want to get projects online as soon as possible. We’re looking for where there is a particular gap in the market, and where junior local developers have been pursuing a project over the preceding two to three years but are at a stage where they need a good sponsor with the ability to continue to spend development dollars and write a large equity cheque to get the project to financial close.

We’re experienced folks with an experienced management team, and we think that’s where there is a need in the market. There’s also a need for new greenfield projects, but the market will change as more projects [are completed], and at the moment we’d like to get projects done as soon as possible to help alleviate the current electricity crises.

Interfax: Have you seen the banking appetite for financing these major power projects in Africa change over the past five years? Is it getting easier to raise finance for these projects?

SL: I would say it’s never easy to raise project finance. There’s a host of issues to consider – in particular, investment around the enabling infrastructure for power generation.

You have to consider pipelines [that are still not built] or coal mining concessions that are not operating yet, or gas supply [that is not yet secured]. The uncertainty over the related infrastructure increases the number of issues you have to deal with for each project. All of that makes it difficult for financers who want to be comfortable with it.

Compare this with the United States, which has a standing pipeline system and a standing gas supply. If you want to build a power plant there, you just connect to a pipeline. No one’s going to question if there’s a secure gas supply. But in Africa you have to enable all the stuff around [a project] as well, which increases the difficulty of getting projects done. This is why having good sponsors like us, who can think about these issues, is important for the market.

In terms of banking appetite, it depends on the country. There is certainly a lot of interest and eagerness from the multilaterals, but again it’s a case of good sponsors getting projects to the point where they are financeable, which takes longer than most people would like.

Interfax: Have you seen a surge in interest in projects since US President Barack Obama’s Power Africa scheme launched last year?

SL: Power Africa is a very important initiative because it’s almost a one-stop place to go to start discussions with a variety of multilateral agencies the US is [using to target] developing countries.

Last year, when we wanted to discuss projects we were looking at, we had a single meeting that had the Overseas Private Investment Corp., the US Exim Bank, the US Agency for International Development, and all the other various agencies as a result of us being a supporter of Power Africa.

So that’s very helpful and enables us, particularly as a US company, to have lots of discussions with the various groups and try to come up with solutions for the projects we’re pursuing, such as LNG in Ghana.

Interfax: South Africa has a huge electricity shortage. Is there any reason you are not investing in projects there?

SL: We are looking at some opportunities in South Africa – and our sister company, BioTherm Energy, has invested in solar and wind projects in South Africa.

I advised BioTherm several years ago on their first project rounds, which are in commercial operation today. They have three projects that have come online in South Africa, so I’m familiar with South Africa’s bidding process, requirements and the market.

We’re actually waiting for their baseload independent power producer [IPP] to come out and are looking at a few possibilities for that market. Baseload projects are likely to be coal, but there are some smaller gas-fired peaking opportunities too.

Interfax: Do you feel Nigeria’s privatisation process has been successful? Is it still a challenge to bring projects online there as private investors?

SL: The first round of privatisation by the Nigerian government was very successful. The National Integrated Power Project programme, which is a little different in terms of its risk profile, has some challenges, but the biggest issue for the government is the gas supply.

Power plants can be built, that’s not the hard part – the hard part is, how do you build the fuel supply infrastructure for the plants? I would think that’s where a lot of the focus from the Nigerian government needs to be.

I take my hat off to the Nigerians. I was involved in the first IPP in Nigeria and a lot of the things that were being discussed then are being implemented today, so I’m really happy to see those changes occurring. It’s a grand plan so it’s not going to be easy for them to do, but they’ve come a long way and I’m hopeful the process will continue.

The next important phase, other than gas supply, is also for the distribution companies to show they work, that they can reduce losses and can pay for the additional power generation that’s needed. Once that happens I think you’ll see it’s a lot easier for new power generation to come into the country, because it will have a fully commercial system.