NCDMB, Afreximbank, APPO chart new funding models for African oil sector

New sustainable funding models for oil and gas investments in Africa are currently being designed by the Nigerian Content Development and Monitoring Board (NCDMB), African Petroleum Producers’ Organization (APPO), and Africa Export-Import Bank (Afreximbank).

The new initiative seeks to leverage resources drawn from the continent and de-emphasizes international financiers.

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The new pathways were some of the key outcomes of the African Local Content Investment Forum (ALIF) hosted by the NCDMB in Lagos earlier in the week and form part of the strategic efforts to overcome the decision of western nations and their financial institutions and international operating oil companies to suspend funding of new investments in hydrocarbon projects because of their relentless advocacy for energy transition and green energy.

The rally by African institutions is also intended to respond to the sustained push by western nations for Africa to abandon her hydrocarbon resources by attracting or deploying funding to the oil and gas industry and is coming on the heels of COP26 event held in Glasgow in late 2021where leading advocates of energy transition made fresh commitments to curb methane emissions, align the finance sector with net-zero by 2050, ditch the internal combustion engine, accelerate the phase-out of coal, and end international financing for fossil fuels.

The Executive Secretary of NCDMB, Mr Simbi Kesiye Wabote, in his welcome address, stated that the African oil-producing countries need to continue exploiting their hydrocarbon resources to fuel their developmental and economic activities, but their actions must be backed by an urgent strategy to address funding, investment, and technological challenges.

He argued that the challenge of inadequate energy is partly the reason why Africa is faced with poverty, conflicts, migration, brain drain and ranks very low on the Human Development Index.

He suggested that the African Export-Import Bank (AfreximBank), which supports several oil and gas deals in the continent, the African Development Bank (AfDB), and other funds from Development Financial Institutions (DFIs) in Africa could be explored for funding hydrocarbon development projects. He also recommended that credible businessmen in the continent could also be motivated to pick interest in the industry, adding that “there must be a means of aggregating the various funds so that big-ticket funding transactions can be carried out.”

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In his comments, the Secretary-General, African Petroleum Producers’ Organization, (APPO), Dr. Omar Farouk Ibrahim pointed out that a major study commissioned by APPO on the Future of the Oil and Gas Industry in Africa in the Light of the Energy Transition revealed that the oil and gas industry in Africa would need a new development model to survive the energy transition.

The new model would emphasize greater cooperation and collaboration among African oil and gas producing countries. He stated that: “the model shall also seek to emphasize a continental-wide approach to addressing the funding challenge, the capacity development challenge, the lack of cross-border and regional energy infrastructure challenge, the technology deficit challenge and the underdeveloped energy market challenge, using the African Continental Free Trade Agreement as an enabling vehicle.”

On sources of finance for energy projects in Africa in the absence of the traditional financiers, the APPO scribe recommended that various oil-producing countries should enact laws that provide for a portion of windfalls from oil and gas sales to be re-invested in the industry.

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According to him, “we need to find ways of getting African oil and gas producing countries’ governments to commit a certain percentage of the windfalls to a special fund for the sustenance of the oil and gas industry during the transition period. A guaranteed source of revenue is the only guarantee for the success of the new order we want to see in Africa.”

Ibrahim added that revenue shall not come from the private sector alone because the issue is a matter of national security. He insisted that “none of the financial institutions operating in Africa today can afford to provide all the funds required for the oil and gas industry in Africa to operate and grow, and at the same time meet its original mandate.”

Acknowledging the impact of the global energy transition on investment philosophies of international operating companies and financial institutions, the President of Afreximbank, Dr. Benedict Oramah, stated that African countries still rely on fossil fuels for growth and sustainable development, hence there is a need to continue financing oil and gas development in the continent to avoid destabilizing their economies.

Oramah who was represented by the Director and Head Advisory and Capital Markets, Mr. Ibrahim Sagna assured of the bank’s commitment to the African oil and gas sector, pointing out that it had extended loans to players in the industry to the tune of $5bn by the third quarter of 2021.

He said the bank would continue to finance economically viable oil and gas transactions and would work with stakeholders to explore the feasibility of the Africa Local Content Development Fund.

Speaking earlier, the Minister of State, Petroleum Resources, Mr Timipre Sylva said that sustainable funding was required in all aspects of the African petroleum industry, including upstream field development projects, pipelines, depots, terminals, refineries, petrochemical plants, and oil & gas research & development and training institutions.

He regretted that several regional development projects have been constrained by funding, including the West African Gas Pipeline (WAGP) and the Trans-Sahara Gas Pipeline (TSGP).

Represented by the Permanent Secretary, Dr. Nasir Sani Gwarzo, the Minister said the Africa Continental Free Trade Area agreement and its growth aspirations can only be actualized if the continent has a vibrant oil and gas sector, in view of the oil industry’s capacity to harness resources from other sectors.