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Asian involvement in Sub-Saharan Africa's electricity industry to increase

afrol News, 29 September - The Asian influence, especially of China, in the sub-Saharan African electricity industry will strengthen over the next five years due to the region's need for additional generation capabilities.

A new analysis from Frost & Sullivan - The Asian Influence in the Sub-Saharan African Electricity Industry - estimates that the total value of Asian commitments in the sub-Saharan African electricity sector was $4.44 billion as of 2008 and projects that Asian companies could be involved in additional are worth over $2.0 billion by 2014. The research covered East Africa, West Africa, Southern Africa and Central Africa.

The intense energy consumption of the Chinese economy, the need for China to build strategic political alliances and expand its export market, the need for sub-Saharan African governments to access low-interest capital, a growing emphasis on technology transfer and the perceived intransigence of Western Governments regarding loans are some of the factors driving this growth, the research found.

"Asian countries, notably China and Japan, are interested in several power projects across the African continent," says Frost & Sullivan Industry Analyst Jeannot Boussougouth. "The majority of these power projects are hydro-based because of China's vast experience in the construction of hydro-power projects."

The analysis also notes that competitiveness of Asian project financing lies in their ability to offer a long payback period, coupled with low interest rates. For instance, it stated that the majority of Asian-funded energy projects are payable over 20 years at interest rates lower than 3.0 percent.

Three projects, namely Sudan's Merowe dam, Ghana's Bui dam, and Mozambique's Mphanda Nkuwa Dam, have an estimated cost of between $400 million and $1.95 billion between them. As observed in other sub-Saharan African countries, Exim Bank is either the main financier or one of the key project financiers of these projects.

"For instance, in Sudan, the involvement of China in the Merowe Dam project is the result of a long and nurtured relationship between the two countries," Boussougouth noted. "Sudan is currently China's third largest African trading partner and accounted for 6.0 percent of China's imported crude. Additionally, China's investments include projects such as Gabon's Grand Poubara hydroelectric dam, Zambia's Kariba North (extension) and Botswana's Dikgatlhong dam. China is also expected to be involved in the funding of Botswana's Mmamabula project and Ethiopia's Genale Dawa 3."

Some of the key challenges that could limit the number of energy projects funded by China in the future are complicated terms of contracts, the import of Chinese labour to sub-Saharan Africa and growing criticism of the resettlement procedures.

"Although China's funding is made available to willing sub-Saharan African public utilities, there are growing concerns on the contract terms," observes Boussougouth. "The challenge for sub-Saharan African governments is to obtain better terms during the contractor procurement process, while ensuring China's eagerness to continue providing these funds."

The Asian Influence in the Sub-Saharan African Electricity Industry is part of the Energy & Power Growth Partnership Services programme, which also includes research in the following markets: Key African Power Plant Service Markets, Key African Power Rental Market, Hydro Turbine Markets in Sub-Saharan Africa, Strategic Analysis of the Cameroonian Electricity Industry, Strategic Analysis of the Botswana Electricity Industry, and Investment Opportunities for Independent Power Producers in West Africa.

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