Energy a major hurdle to Africa’s infrastructure development

Energy shortages across Africa continue to hinder the continent from improving its infrastructure, notes advisory firm KPMG global infrastructure and projects group director De Buys Scott.

He explains that the availability of energy has a direct relation to gross domestic product growth, as a lack of power greatly affects a country’s industrial sector and, therefore, decreases growth and technological advances.

Research and advocacy organisation Good Governance Africa (GGA) states in the September 2012 issue of its Africa in Fact journal that more than half of the African population do not have access to grid electricity.

“No one denies that ‘energy poverty’ has short-circuited Africa’s development. The current question is how to reverse it,” the publication asserts.

In some countries, such as Tanzania, Kenya and the Democratic Republic of Congo, 80% of the population are not connected to grid electricity, according to the International Energy Agency (IEA).

“This means that most Africans have to rely on wood, coal and paraffin for heat and light. “Burning these fuels indoors often causes devastating fires that lead to loss of life. It produces appalling indoor air pollution, provoking respiratory and
cardiovascular illnesses, especially among children,” GGA notes.

Research conducted by the IEA and the World Health Organisation reflect that about 1.45-million people die prematurely each year from household air pollution. In addition, growing populations harvesting wood in dry areas promote desertification, leading to further hardship and hunger.

“Electricity is also essential for industry and commerce. But, in many African
economies, grid electricity is expensive and, worse, unreliable,” GGA stresses.

The organisation emphasises that Africa requires a huge increase in electricity generation. In South Africa, which generates 65% of the total electricity supply in sub-Saharan Africa, coal is the source of 92% of all electricity generated.

Nuclear energy provides only 6%. For the rest of sub-Saharan Africa, hydroelectrical plants generate the most power, followed by fossil fuels, often diesel, which is dirty and expensive.

Engineering News reported in February that, according to a panel of speakers at the Africa Energy Indaba 2013, Africa had the ability to solve its own energy challenges and change the face of its economy.

However, for any of the continent’s attempts in the energy sector to gain traction, regional collaboration, strong policy development and the empowerment of its people were required.

Energy Intensive User Group chairperson Mike Rossouw, speaking during a panel session at the Indaba, which included Werksmans Attorneys director for Africa Greg Nott, Deloitte leader for infrastructure and power Shamal Sivasanker and Accenture London industry MD for energy Arthur Hanna, said the continent also had to focus on realising its energy ambitions by identifying and resolving the root causes of Africa’s core challenges.

Rossouw commented that Africa had taken to treating the symptoms of its energy crisis.

Strong leadership was required, asking first why and what the sector needed, before embarking on the how, and discussing what was essential, instead of pursuing the “ought-to-haves”, he said.

A recent World Economic Forum report finds that Africa currently has 15% of the world’s population, but only consumes 3% of global energy.

KPMG, meanwhile, notes that, while a severe shortage of energy is evident in Africa, improvement across the continent is slowly surfacing with more projects rising than before.

Scott highlights that political stability plays a crucial role in the amount of investment a country attracts to fund new energy and infrastructure projects.

“The unrest in a vast part of the African continent has contributed to the lack of investment. “However, the continent is currently at its most peaceful and, therefore, an increase in investment is evident.”

He points out that investors require a stable economy and legal and financial systems that reflect repeated transactions, as that stability lessens the risk profile of implementing new projects in a country.

He highlights the State-owned power utility of Zimbabwe, which does not present a favourable investment environment owing to political instability.

KPMG is undertaking an expansion pro- gramme for the Kariba South hydropower plant, initiated in January 2012, for Zimbabwe Power Corporation (ZPC), which aims to double the energy capacity in the country.

“The end result for this project looks promising, Scott notes, adding that KPMG aims for the project to reach financial closure at the end of the year.

ZPC and hydropower construction company Sino Hydro signed an engineering, procurement and construction (EPC) contract in December, paving the way for the $400-million expansion of the Kariba South power station.

The 300 MW expansion project will take about four years to complete and will significantly narrow the gap between supply and demand, Zimbabwe publication News Day reported in December 2012.

Consequently, in 2012, generation averaged 1 010 MW against a target of 1 085 MW.
ZPC board chairperson Victor Gapare said the project would benefit the country through skills development and local procurement.

“The EPC contractor was required to source financing for up to 90% of the project from banks on behalf of ZPC,” he said.

“The signing of this EPC contract will enable Sino Hydro to start detailed drawings of the power plant, while ZPC and its finan- cial adviser, KPMG, finalise financial arrangements,” News Day noted.

“This expansion project will double the power capacity of Zimbabwe and lessen some of the burden on South Africa, which has been feeding power to Zimbabwe’s grid,” Scott states.

He further highlights that, owing to Zimbabwe’s sovereign risk profile, many potential investors are scared away and, until the country has properly shed the burden of its leadership and past, it will be difficult to attract investment.

“However, KPMG predicts change in Zimbabwe’s future and believes that the country does have the ability to become an attractive investment destination.”

Scott explains that there has been little political interference with the ZPC project and KPMG senses a real desire in Zimbabwe to attract more investment and regain its political stability.