“We are not investing in the coal value chain”, says the co-director general of AIIM

Vuyo Ntoi, a 45-year-old Oxford-educated South African and Co-Managing Director of African Infrastructure Investment Managers (AIIM), is an expert in private equity investments in infrastructure, clean energy, transport and digitization .

He was only 18 when Nelson Mandela became South Africa’s first democratic-era president in 1994. Madiba recognized that infrastructure finance cannot be funded only by governments, banks and multilateral agencies. ; private sector investments and partnerships also have a vital role to play.

AIIM, a subsidiary of Old Mutual Alternative Investments (OMAI), a member of the global Old Mutual group, was inspired by this ambition. In 21 years, she has built an investment portfolio of over $ 2 billion in South, West and East Africa.

Ntoi, who was at the forefront of this development, spoke to our correspondent Mushtak Parker.

Would a pan-African set of regulations for private equity investments alleviate transnational problems?

I don’t think continent-wide regulation is a realistic solution. We continue to encourage countries not to reinvent the wheel and to focus on developing regulatory environments that have worked well in other markets. We have seen the harmonization of transnational issues on the TRAC N4 toll motorway project between South Africa and Mozambique, where regulations were harmonized between them, and risk allocation was optimal.

If you hand projects over to the private sector with the right incentives and oversight, they are in a good position to do it. This is what has happened to independent power producers (IPPs) to date.

Africa’s infrastructure, it is often said, currently has a deficit of $ 100 billion. If you look at the total stock of African pension funds, it stands at around $ 400 billion – a single year of infrastructure spending is a quarter of the total stock of pensions. Of the $ 100 billion in infrastructure investment required, more than half will have to come from abroad.

How important is a credible risk mitigation and credit improvement strategy in making projects “bankable” for developers and their bankers?

There are typical triple “A” risk guarantees behind governments and their obligations, either through MIGA, the World Bank’s political risk insurance agency, or other credit agencies in the world. export (ECA). These projects still give additional returns that are commensurate with the risk in the country.

We are risk mitigation at market entry. The projects we invest in have incurred cash flow. The entity derives profit from its income.

Responses around Covid-19 – reduced interest rates, discounting and increased asset valuation while income has remained constant – have enabled our infrastructure portfolios to perform well due to low risk.

Is co-financing with development finance institutions (DFIs) important for AIIM?

We have good relations with MIGA and the Islamic Development Bank (IDB) and its entities, with which we have cooperated in projects in West Africa. Confidentiality rules prevent us from disclosing projects. We see good potential in using Islamic finance to support African projects. This could free up significant amounts of capital from the Middle East.

DFIs are a key proponent of increasing renewable energy and a major funder of infrastructure projects in Africa. They have helped unlock long-term capital through extending debt terms and as credit enhancement tools. They remain a key private equity partner in Africa through investments in private funds and the provision of long-term debt capital.

What is your investment strategy for the future?

Our strategy includes funding in dollars in projects in Sub-Saharan Africa (SSA), excluding South Africa and investing South African pension funds in local, national and regional project opportunities. SADC.

Recent investments include a significant stake in Sodigaz, an LPG distributor in Burkina Faso and Benin, through our pan-African infrastructure fund, AIIF3. We increased our stake in MetroFibre Networx in South Africa; and acquired Onix Accra 1, the only Tier IV data center in Ghana.

We have a three-pronged investment approach: digital infrastructure, energy transition and physical infrastructure. Our priorities beyond 2021 focus on demographic change in Africa. People are moving to cities at an increasing rate, which means that some public services need to be provided on a sustainable basis.

Another priority is to be a key digital catalyst for living in large metropolitan areas. This means the provision of infrastructure – data centers, fiber optic networks and cell phone towers.

We also seek to participate in logistics corridors by investing in ports, storage and handling facilities and links between ports and terminals which are the arteries of commerce. AIIM is one of the largest investors in the private roads program in South Africa.

AIIM is a major investor in renewable energies. Are governments doing enough to shift to a low carbon environment as part of their commitment to the Paris Climate Agreement?

We are the largest investor in the Renewable program in South Africa, which makes us one of the largest renewable investors on the continent. South Africa enjoys some of the lowest renewable energy prices in the world, as low as 50 cents ($ 0.034) per kWh, I believe.

Renewable energy is an important component of the government’s Integrated Resource Plan. A more proactive deployment of renewable energy projects is necessary. The new total electrical capacity required is 33,364 MW until 2030. Wind power will represent 17,000 MW and photovoltaic (PV) 8,000 MW.

This means that 25,000 MW of the 33,000 MW are renewable energies. Among the new generation capacity, PPIs could provide more electricity.

Under the Pretoria Independent Renewable Power Generation Program (REIPPP), we see a short-term total pipeline of projects of around 2.5 GW in commercial and industrial space.

Elsewhere, we are the pioneers of PPIs through the Lekki Concession Company. We have invested in the Cenpower IPP power project, Tema Ghana and the Albatros Energy Mali power plant, the first IPP in Mali.

We are also participating in the South African Renewable Energy Projects for Rural Access program. Our message is for the government to have projects within the framework of a larger national development plan and to come up with a process based on international competitive bidding with best practices that becomes a repeatable process.

PPIs and public sector output can account for a 4% contribution to GDP. This is important and bodes well for renewables and the growth of PPIs.

South Africa is Africa’s largest emitter of CO2 and among the top 20 in the world, in part due to its dependence on coal and oil. How can this be changed?

We support reducing the impact of climate change. We do not invest in coal or in the coal value chain. We have developed a framework to ensure that any investments we might make in the gas sector, for example, contribute to meeting the Paris targets. If the country replaces coal and uses gas as a base to bring more renewables to the grid, then we will support that. We understand that the momentum towards net zero by 2050 is a big theme internationally, although it could be an issue for many carbon-rich African countries.

The inability to move towards clean energy has an impact on costs, as renewables are cheaper. There is a risk that our major trading partners will introduce carbon tariffs, which penalize products made from carbon-intensive energies.

Do you have a drawdown agreement with the besieged South African power company, Eskom?

Eskom did not miss any payments to the PPIs. Eskom’s obligations under these power purchase agreements are guaranteed by the South African government. Granted, its balance sheet is currently under strain, but operationally Eskom remains cash rich, with revenues of R108 billion ($ 7.4 billion) in 2020, and does not suffer from liquidity issues.

Eskom will eventually settle its balance sheet. It is also being restructured into its constituent elements to ensure greater transparency and better risk management. Eskom and the IPPs will be successful in providing electricity, including renewables, which currently requires an investment of R200 billion to provide 3,000 MW of electricity.

Should South African President Cyril Ramaphosa open up the energy sector to more PPIs? Should he have gone further when he allowed PPIs to generate 100 MW of electricity under the amended Energy Regulatory Act?

It’s not a cap on PPIs – it’s a cap on PPIs requiring licensing, which is a bureaucratic process. We asked the government to increase the capacity to 10 MW. As load shedding has increased over the past year, we have requested that the cap be raised to 50 MW or 100 MW. Going for the full 100 MW was quite a bold move on the part of the president.

As the power cuts and blackouts show, Eskom’s record has virtually prevented it from procuring an additional new generation. The private sector can take the capital risk and sell the electricity to Eskom.

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