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This Podcast discusses the following:
- The IPP model
- International project financing
- Investments by ABSA
Listen to the interview HERE
TT: Good morning, good afternoon, everybody. Welcome back to Renewables in Africa Channel. We are here at Africa Energy Forum (aef). We are here to talk about energy progress in Africa. Like before, I am very fortunate. I am with a gentleman here, Mr. Theuns Ehlers from ABSA (Amalgamated Banks of South Africa). He is the Head of Resource and Financing. Mr. Theuns, thank you for allowing us to have a chat. I would like to start by finding out more about you. What brings you here today? How has your journey been since you started at ABSA?
TE: What brings me here today Tony is that we’ve had over 18 months of lockdown, so this is really my first trip out of South Africa since COVID hit us all. So, actually it is quite exciting to get out just to see people face to face. As a bank, our staff has been attending the Energy Forum for the past decade. It is good to be back. For my journey, I have been with the bank for about 23 years since back in 1998. Most of that time I spent looking at project finance with the focus being exclusively in Africa. Before that, I actually spent a lot of time in London working at PWC but it’s always good to go back to your home country so after PWC I decided to drop the accounting and auditing and went back to banking.
TT: Still exciting?
TE: Yes, it is. The area of business I do is mining and infrastructure and still getting involved in the dirty oil and gas sector. However, The last decade has been really exciting, dealing with renewable energy. That has kept us all in the project finance space really interested in the business. It is something that has grown exponentially not just in Africa but the rest of the world. It’s a feel-good industry and it has got potential to solve a lot of problems which is really quite exciting.
TT: When I was talking to my sister, a few days ago and I was telling her that I am attending COP 26, initially she did not know what it was but when I described it, she said that she has heard of it. This is just to say that the vision that people have about COP 26 is evolving and people seem to be taking it more seriously. I wanted to know, has there been the same feeling for you?
TE: I haven’t been to COP 26.
TT: Before, were you aware of COP 26 and was it of great importance to you?
TE: Absolutely. Its exciting in a way. It’s a sort of world stage where everyone can come together and share ideas and ultimately make commitments. I know you cannot please everybody but there are small steps maybe but they do challenge themselves by raising issues of global warming. From our side we try to see how we can help our countries and governments to achieve these commitments and their targets. We all have got a role to play in this from a banking perspective. At least we can help to make the capital available required for investments.
TT: Excellent! That’s the same thing that I have also been thinking about. I wanted to hear from you what you think the impact the pandemic had on the IPP model?
TE: I don’t think you can draw a direct line to say it’s the pandemic that has an impact on the IPP model. I think the pandemic firstly had an impact on the amount of power. I wouldn’t actually say that the IPP model is under attack because of COVID. I Think it’s because people have to be isolated causing delays in government plans to roll out these types of programs that would have been done otherwise. If anything, it sought to change the demand profile. It’s delayed the implementation of deals. At the moment South remains South, I do not think it’s going to change.
TT: Okay! Excellent. Do you think that the IPP model is robust enough to handle the turbulence that we can get with international financing with regards to the different sources of power that we have?
TE: Its proven that. The IPP model is not new. It’s been in operation for decades. The reality is that if you look at the alternatives for African governments or any global government, you can either try to build the staff yourself, take all the risks that come with construction, operating and all of that staff or you can get someone else to take the risk. My view is that if you look at the government’s track record that have tried to build staff themselves, it’s not quite as robust as looking into the private sector. Some people say that the private sector is making profit at the expense of the people but they do take the risk for that.
TT: So, I would also want us to move into financing. According to you, what is the role that international financing has for new projects in general?
TE: For the financiers, its quite simple I would think. We are all in the business of helping our clients make money. Where the challenges come in is fossil fuel projects which are becoming increasingly difficult to finance but for anything in other expertise that is green and renewable, there is no shortage for appetite for local or international banks that should come in and provide financing. We have spoken about COP 26 and the targets. The banks want to provide the capital needed to reach these targets. In Africa, the challenge has always been not accessing capital but access to bankable deals, it’s about structure and ultimately the timelines have been quite too close so it has been a bit challenging.
TT: I was talking to a developer in South Africa who we are actually partnering with and one thing that he mentioned was that when they started going outside of South Africa, they realized that South Africa seemed to be the best territory for them in the continent and they did not realize that they were actually blessed. When you go to our side of Africa, a lot of the advantages are lacking. My question is, what is the appetite to invest for ABSA outside South Africa?
TE: That’s a great question. We have our presence in twelve countries across Africa. Africa is our home and its not only South Africa. We have closed projects in Mozambique, Zambia, Kenya, Uganda and Ghana. So, we know those markets. We understand the issues inn those markets and the reality is that from the demand and size perspective they are never going to be as great as that of South Africa or Nigeria probably because of industrialization that is still sought of lacking. South Africa is still going to be the biggest market. Where the challenge comes in if you look outside of South Africa is the depth of those markets and the ability to raise capital in those markets in their currency. This is where South Africa works as we can raise local currency in rand financing. In the other economies, you have to raise funds using dollars or euros which ultimately exposes those economies to 14:50 risk. That’s the last thing you want to do. It can get counties to economic crisis, currencies depreciate and suddenly the economy is subject to increases in the cost of energy. All these things are important when you consider getting into a deal because you also do not want to become a burden to those utilities. That’s where we also feel as a bank, we can help to develop those capital markets so that eventually they can also do a lot more of the financing in their own local currencies. It’s more about helping those countries and communities help themselves by becoming a bit more independent rather than being subject to massive fluctuations in currency and global markets.
TT: I know you are a very busy man but I cannot resist asking you one last final question. If you had one important message to pass on to the younger generation for your country, what would it be?
TE: To the younger generation, to be successful, I think they need to start maybe going back to the way we did things and do the hard work themselves. You have to start somewhere and gain experience. Do not expect to start at the top or a nice job or role and do all the fancy staff. You have to get your hands dirty, start somewhere and get experience and actually work. Some want to put as minimal effort as possible to achieve maximum results not realizing that that is not the right way to do things. If you want to succeed, especially in Africa, you have to do something different. You cannot just be among the masses. You must be able to differentiate your skill from the guy next door. I know that I am not going to be very popular after this.
TT: Ha-ha! Well, Theuns, thank you very much for that conversation. Thank you for the time you have given me and I wish you a nice time during the rest of the summit.