LUSAKA, ZAMBIA – Stanbic Bank is seeing diversification of the energy sector to include upgrading of investment in solar power becoming a significant addition to hydro-power supply thanks to innovative new funding structures.
The bank believes that Zambia’s conducive investment environment puts it in an advantageous position and there is great potential and room for investment and growth in the power sector and related industries.
Speaking at the 9th Zambia International Mining and Energy Conference & Exhibition, Stanbic head of corporate and investment banking, Helen Lubamba highlighted the four ways of funding energy projects: bilateral debt arrangements, concessional funding in partnership with development finance institutions, equity funding and capital markets. She also spoke to the encouraging developments in the growth of solar energy.
Ms Lubamba was participating in a panel discussion on financing bankable energy projects at the event, which was held under the theme “Creating an attractive investment framework to catalyse Zambia’s mining and energy sectors”.
“One of the pillars in terms of our purpose in Zambia is to develop our country with a big focus on natural resources and other areas that help to drive our country forward. Energy clearly sits right in the middle of that in terms of our focus on growing the energy portfolio,” she said.
Stanbic remains committed to providing innovative financial solutions and tangibly contributing to the Zambian economy by solving some of the financing challenges that various sectors of the economy are facing in obtaining long-term funding, and ultimately towards facilitating growth and development in sectors such as mining, agriculture, education, construction and health, she added.
Earlier this year, Zambia was recognised and received congratulations for its GET FiT programme, with the award of 6 solar PV projects at below $5c/kWh, solidifying renewable energy - particularly solar - as the lowest-cost generation. Combined with Scaling Solar, Zambia is a true leader in clean energy development, she added later.
The need to aggregate, manage and optimise the supply and demand balance both now and in the future is strong to ensure a smooth, scalable and self-sustainable integration of intermittent renewable energy supply going forward. The low GET FiT tariffs will also allow for renewable energy to be profitably sold in the regional market.
Speaking to Stanbic’s participation in growing the energy sector, an example is the debt funding that Stanbic provided for ZESCO’s distribution enhancement and rehabilitation power (DERP) projects covering the Copperbelt and Lusaka. The innovative funding was structured to match the progress of the project. For example, it provided a moratorium on repayments at the start of the project to ease upfront cash flow requirements and provided tenor to match the project, explained Ms Lubamba to delegates.
But she added that key to financing an energy project is understanding the full cost and the project’s ability to price and sell the product to off-takers. Tariff levels are therefore key to making projects bankable as commercial-level tariffs provide capacity to service loans and attract new investment. The size of funding needed called for cross-border dollars, but this was becoming prohibitively expensive due to country risk premiums being applied which are directly relating to sovereign rating, she added.
Another example of the public and private sector working together that demonstrates bankability of projects, was Standard Bank/Nordea Bank joint financing for a power transmission line to North-Western Province for US$165 million.
“The project has resulted in the connection of North-Western and Western provinces to the national grid; connection of seven districts in both provinces to reliable power supply for the first time. It has also led to investment and economic development resulting from reliable hydro-power from the national grid. This innovative structure enabled the client to extend the tenor of the loan to 12 years with margins of less than 3.5 percent on the most expensive tranche of the facility,” she said.
She however said there was a need to tackle creditors’ concerns in the energy sector, and that the awaited cost of service study was required to provide independent and scientific reference for tariffs for the electricity power sector.
“There is also need for regulation to provide an enabling environment for commercial tariffs, as well as to consider bringing in more players at distribution and supply levels,” she said.
Stanbic has been a vital part of driving the country’s growth and has financed major projects in the local agriculture, infrastructure, mining and energy sectors.