the
ENERGYNET Issue 3 – 2019
Mini-Grids are on the Charge in a Bid to
ELECTRIFY RURAL AFRICA
Insights into the future of gas development in
LATIN AMERICA & THE CARIBBEAN
Interview with Alfonso Blanco Bonilla, Executive Secretary at OLADE
Financing power projects in Africa:
FROM PIPE DREAM TO PROJECT BANKABILITY
SUSTAINABLE ENERGY POLICY INTENSIFIES
Africa may not be responsible for the global climate emergency, but the continent’s energy sector needs to be part of the solution.
Africa
Latin America & Caribbean
THe EnergyNet
WELCOME
Welcome to the
ENERGYNET MAGAZINE Dear Friends and Colleagues, Since aef 2019 there’s been so much change in Nigeria, South Africa, Ghana, Mozambique, Senegal and more in sector, in policy and in companies across the board - that at times it’s difficult to maintain clear thought. And so my head is spinning, therefore...
‘an Ode to Post Neoclassical Endogenous Growth Theory’ Men often think of Halcyon days of long ago But much past time was dreary, nasty, full of woe And for this problem no one could think of any good solution Until one day, along came the Industrial Revolution
But then new analyese, oh do subtle Questioned all this and led to its rebuttal A new explanation arrived, over which there was quite a fuss Technical progress – innovation, ideas – were “endogenous”
Man’s labour, engines and his keenest wit Produced all manner of goods, some welded, others knit And in this way Man’s welfare grew at a rapid rate Saving many from a much more horrible fate
Invention was crucial but needed embodiment In people – in skills – and in capital investment So these were important to make growth shine Although others had known this for a very long time
Bright Scotsmen, and some English too Studied hard; and so they thought they knew That this was not just something plainly magical But was due to free markets – and explanation quite classical
All this was important to men in Whitehall Who hadn’t had much luck with growth rates at all Now they had reason to spend on capital, education and skills And made sure this happened through many Parliamentary Acts and Bills
But when, later, wise men asked where all the growth came from Then many, even great economists, were struck dumb All the statistics that they gathered were quite clear The hard toil of people and machinery were small beer Only inventions seemed to have any effect And from where these arose everyone was quite bereft So people then began to get rather weary Of the once almighty neoclassical growth theory
This was very much favoured by one Gordon Brown Who soon became much the biggest man in town And if critics did all this approach then query He answered “it’s post-neoclassical endogenous growth theory” – Sir Derek Morris, Provost of Oriel College, Oxford
Very best,
Simon Gosling 2
2019 The EnergyNet | Issue 3
THE ENERGYNET STUDENT ENGAGEMENT INITIATIVE 2020 (ESEI) Now in its 6th year, the EnergyNet Student Engagement Initiative (ESEI) has supported nearly 100 African students to learn from global energy companies and explore employment prospects.
I want to create a THE ENERGYNET STUDENT ENGAGEMENT network with various people and institutions INITIATIVE 2019 (ESEI) participating, and I ESEI promotes human capital development and job creation across Africa’s power and energy sectors, providing a platform to recognise exceptional African candidates and entrepreneurs.
Selected students from top African universities are sponsored to attend the annual Africa Energy Forum, allowing them to witness first-hand the wider impact of the power sector on global economies and industries. Top class students from Nigeria, Ethiopia, Egypt, Senegal and South Africa will attend the 21st Africa Energy Forum (aef) in Lisbon. These countries have been chosen for their wealth of resources, expertise and movement in the sector over the last 18 months. EnergyNet is committed to shining a light on the path to engagement, aspirations and success for Africa’s next generation of energy leaders.
believe it’s going to be a golden chance to show my potential and get job opportunities Alemi Desta, Corporate Law, Addis Ababa University, Ethiopia
We come from a continent that is behind in terms of renewables. This event has been interesting in terms of adding real life experience and application to our technical understanding. In the future we hope this will relate to more decentralised, positive impacts on rural communities in Africa that are most in need of electrification.
Lead Engineering Partner
Power Developer Partner
Lead Legal Partner
For more information please contact: marketing@energynet.co.uk www.student-engagement-initiative.com
THe EnergyNet
INTERVIEW
Mini-Grids are on the Charge in a Bid to
ELECTRIFY RURAL AFRICA T Three years ago, a World Bank meeting in Nairobi brought together regional government officials, companies from the energy space and a host of prospective investors to discuss the development of green energy and the electrification of rural Africa. The unanimous solution proved to be the role that mini-grids in the off-grid space would play in the years to come.
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his conclusion was met upon the realisation that Africa doesn’t necessarily have a generation problem; rather a transmission and distribution problem across and inbetween vast areas of land.
Despite reaching this potential epiphany, however, governments at the time lacked templates, frameworks, and even – in some cases – an understanding of how to develop, finance and regulate the off-grid sector. More than ever before there was a need for advanced industry data and a more coherent and unified industry voice to drive forward a seemingly pivotal solution. Enter, the Africa Mini-grid Developers Association, more commonly referred to as ‘AMDA’. “AMDA was created out of this need to create an industry data benchmark – to collect data from across the continent in the mini-grid space and present it in a way that is helpful to financiers when they’re going through due diligence,” explains the association’s CEO, Aaron Leopold. “The data centre we proposed when initiating year ago would also be an indicator for governments of how the sector is performing, which would in turn inform how it should be policed and regulated.”
AMDA was subsequently borne with an initial vision to bring onboard not just anyone, but an accumulation of companies already with existing grids who would be able to scale the sector quickly; to serve more as a tangible showcase of what could be achieved if such infrastructures were developed on a broader basis across the continent’s rural areas. “What we’re doing now is working on policy and finance, from a growing number of offices around the continent,” Leopold continues. “We need people on the ground in a regulated sector to work personally with the respective governments and companies involved, and to guide them through a largely unfamiliar sector. “Half the countries in Africa don’t even have regulation around minigrids at present, which lends to a bit of a ‘Wild West’ scenario. So, we’re active in trying to prepare countries for the incoming off-grid revolution, while also working with more prepared countries in regard to regulation and implementation.”
THE WINDS OF CHANGE HAVE ARRIVED Across Africa’s 54 countries, the level of preparedness of off-grid solution
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Aaron Leopold
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“It’s one of those chicken and egg conundrums, right,” Leopold muses. “Investors and potential donors are worried about the speed of project mobilisation, but the companies in the space who would love to get things moving, need larger investment to do so.
is inevitably varied. However, one thing that Leopold is happy to have witnessed is the consistent willingness across the board to engage with the trend and its potential. “This has led to many governments actually requesting that mini-grid companies come in to build pilot grids for them, even in the absence of policies and regulation, to get a flavour of the sector,” Leopold says. “It’s a positive sign of intent borne not just out of a vision to electrify their countrysides, but also in anticipation of this being the future of energy and therefore the future direction of potential investment and donors.” In Kenya, Nigeria and an increasing number of other countries, investments are beginning to respond to this intent as well. “The winds of change seem to have ar rived,” Leopold states, acknowledging that previous reticence seems to be waning.
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“In the past 18 months especially, there’s been a resurgence in interest in mini-grids, and much more forthright conversations are now taking place about how to fund something that is quite different to the traditional infrastructure they’re used to,” he elaborates. “However, that doesn’t mean that just because more conversations are being had, but also that the conversations are increasingly more constructive and conclusive.” Leopold refers to a challenging of the status quo, and an inherent difficulty that lies within this. By stating that for rural and remote areas, mini-grids are a faster, more reliable, cost-effective and high performing solution than traditional utilities, the potential exists for these often state-owned utilities to understand this as a direct – and political - challenge to their work. “Our approach however, is a collaborative one. Our message to utilities is that we’ll take the expensive to serve, underperforming rural areas off your hands. We want utilities to focus on
what they are good at rather stretch themselves so thinly that service quality suffers. We tell them to focus on more profitable centres and we’ll take the tough ones, work to grow the loads, and when the grid eventually arrives in ten or 15 years, they’ll be energy consuming and reliably paying communities instead of the money pits they would be if utilities connected them today.”
A CHICKEN AND EGG INVESTMENT CONUNDRUM It’s a balancing act that is perhaps understandable given that both the sector and the countries themselves are trying to find their feet with offgrid. However, this slow and complex transition isn’t always comforting to prospective investors who would love to see the continent grab the bull by the horns and inject some pace into the evolution of mini-grid adoption. “It’s one of those chicken and egg conundrums, right,” Leopold muses. “Investors and potential donors are worried about the cost and speed of project mobilisation, but the companies in the space who would love to get things moving, need larger investments to reach economies of scale on cost, and to hire and train the larger teams needed to move at speed.” However since they are small and costly, funding rounds have remained small as well. The positive news, at least, is that in the same way that a vicious cycle has engulfed the continent until now, a similarly virtuous cycle is bubbling as larger investment rounds are indeed beginning to emerge, bringing with
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them the potential for the sector to truly take off. “What we’re pushing for and have a good feeling about is building an international community that allows funding rounds to actually pack a punch,” Leopold says. “In the next year, I’m 100 percent sure that we’ll begin to see $50 million-plus investment rounds of funding instead of just $9 million. “Once these companies show that they can build 20 grids in a year with small teams, rather than 20 grids over the course of three years as is the traditional rate, interest and investment will snowball from there; leading to a much faster rate of overall infrastructural development.”
PUBLIC SUPPORT This acceleration has been aided in recent months off the back of not just any investment, but high-profile equity investments. Household names such as Toyota, Mitsubishi and a host of French players such as Engie in particular have come into the offgrid market with a combination of motives and agendas.
have required public support due to the comparably small economies and demand levels in rural versus urban areas. Universal access is the goal – and commercially driven companies will only go where demand for their services exist, hence minigrids will need subsidies to get to the last mile, and that should not be a surprise to anyone. We are working with the World Bank, African Development Bank and a range of other development financiers to develop tools to accomplish this equitably across the continent. And investments are already beginning to flow.
ELECTRICITY IS A GATEWAY Once again, the waterfall effect that can occur from watching Toyota, Engie and others take a strategic chance on a rural area of Africa, to great effect, is clear for all to see. What Leopold is most excited to see as a consequence of all this spiralling progression however, relates very little to the energy concern that kickstarted the whole process – and AMDA’s involvement – to begin with.
Firstly, of course, they see Africa as a viable business proposition, and being on the verge of taking off. But, similarly, they’re able to tap into a CSR-resonating, public support that comes inherently with the notion of electrifying rural, underserved communities.
“I do believe that in five years’ time we are going to see rural electrification of Africa really take off, and that’s great,” he concludes. “However, there is a bigger knock-on effect to be seen from this, in unlocking the mystery of the rural consumer in Africa.
“At AMDA, we have a strong message around public support,” Leopold affirms. We tried taking a solely commercial, profit-driven approach to test mini-grid models, but we have found that rural electrification in Africa is the same as in other geographies – all of which
“What all these mini-grid companies are doing is setting up an infrastructure of economy and commerce. They can’t operate if the only power on offer there charges a lightbulb or their phone. They need engineers, carpenters, welders, consumer goods – they’re encouraging
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“What we’re pushing for and have a good feeling about is building an international community that allows funding rounds to actually pack a punch,” Leopold says. “In the next year, I’m 100 percent sure that we’ll begin to see $50 million-plus investment rounds of funding instead of just $9 million.
the development of communities en route to setting up an infrastructure that will help these areas establish their own economies of scale in the future. “It’s not about transforming the energy space. It is about creating a gateway to open up the hundreds of millions of rural Africans who are simply not included in the modern economies because they are not connected to energy and financial ecosystems – both of which unlock dozens of possibilities to grow economically – and both of which minigrids bring with them to every community they go to.”
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THe EnergyNet
INTERVIEW
Insights into the future of gas development in
LATIN AMERICA & THE CARIBBEAN
Interview with Alfonso Blanco Bonilla, Executive Secretary at OLADE Ahead of the Latin America & Caribbean Gas Conference this November, we caught up with partner of the meeting OLADE’s Executive Secretary Alfonso Blanco Bonilla to find out how OLADE members are innovating in the gas space and and learn what governments require from private sector to push forward the role of gas in energy transition.
Can you provide a brief summary of OLADE’s mission and structure, and the value it provides as an organisation? Alfonso Blanco Bonilla: OLADE is the Latin American Energy Organization. OLADE is made up of 27 countries in Latin America and the Caribbean, plus an extra-regional observer country. OLADE in its governance is made up of the energy ministries of its 27 member countries, with the main objective being regional energy integration and supporting member countries in the development of their policies at a sector level. What value did OLADE see in partnering with Energynet, IGU and Arpel to deliver the 2nd Latin America & Caribbean Gas Conference & Exhibition? What are you most excited about regarding this new venture? Alfonso: For some time now OLADE has been working to strengthen ties with the private sector. OLADE is essentially a public body because it is made up of energy ministries of its member countries, but we identify the necessary
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link with the private sector through the organizations which are established in our region. In that sense both IGU and ARPEL have been working with close objectives to our own, fundamentally integrating the activity of private sector actors. In working together with OLADE a very interesting synergy is generated to discuss the fundamental aspect of what is the energy sector in our region, and what is the potential for the introduction of natural gas and the development of natural gas. These questions are part of the specific objectives that OLADE has at the level of energy sources. Can you give an explanation of the future for gas development on the continent? Alfonso: OLADE has long been trying to impose a concept for natural gas. We are trying to develop the concept that our region needs a fuel for energy transition. What does this mean? Incorporating into the energy matrix of Latin America and the Caribbean a fuel
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THe EnergyNet
that integrates into the energy transition, that accompanies the decarbonization of our economies and that represents a significant reduction in greenhouse gas emissions. In that sense, our region has great potential for the development of natural gas. On the supply level, we have countries that offer natural gas but we have a large number of reserves to be developed in terms of conventional and unconventional natural gas. We also have a great demand level challenge. We have to develop a demand that essentially replaces liquid fuels and coal from what are specific uses of energy. In that, our region has great potential. Therefore, natural gas is constituted as that fuel of energy transitions. Who are OLADE’s main country members innovating in the gas space at a project level, and how are they going about this? Alfonso: Natural gas at the supply level in Latin America and the Caribbean has a number of countries that already have fuel in their energy matrix. Here there is a great trajectory at the level of countries such as Argentina, Mexico, Colombia, Peru and Bolivia, which have a market already developed in the field of the introduction of natural gas and can also export this fuel to neighbouring countries. An example of a large exporter of natural gas in our region is Trinidad and Tobago. There is also a very large space for shale gas and the development of shale
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Alfonso Blanco Bonilla, executive secretary at OLADE
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INTERVIEW
For years OLADE, together with other organizations such as the IDB, has been developing the concept of ‘Energy Week’
reserves. In this sense, there are four countries that have great potential in terms of unconventional hydrocarbons. Here we are talking mainly about Argentina, Colombia, Mexico and Brazil, with very important potential for the development of unconventional hydrocarbons in our region. To this end I refer to what was mentioned previously - that our region also has great potential for energy integration from natural gas. There is an integration infrastructure at the level of natural gas that is not being used to its full potential - the potential for integration from natural gas in our region is very, very high.
For the development of the natural gas market, the participation of private actors at the investment level is necessary. However, for these investments to be developed there must be a policy regime, a regulatory level regime, a legal security level regime. On the other hand, the role of the state to promote innovation, to work on research and development issues to support the activity of the private sector is fundamental, so that is the ecosystem that has to be developed. Here what we have to mention is that both the public sector requires joint work with the private sector and the private sector also requires the intervention and establishment of clear norms of an ecosystem conducive to business development in terms of new sources of energy and fundamentally for the incorporation of natural gas. Can you give an overview of what investors can expect at this year’s LGC, and why it’s an event not to be missed?
What does the public sector need from the private sector in order to innovate and push forward the role of gas in energy transition?
Alfonso: For years OLADE, together with other organizations such as the IDB, has been developing the concept of ‘Energy Week’. The Energy Week manages to convene the main actors in the energy sector of Latin America and the Caribbean and that we have been developing for four years now.
Alfonso: I believe that both the public sector requires the private sector and the private sector requires the public sector. They are two agents of our society that are complementary and that somehow in efficient economies must work in synergy.
In that instance we managed to attract decision makers at the political level, to relevant actors at the academy level, at the private sector level. We managed to convene in a single area all the relevant actors in the Latin American and Caribbean energy sector to exchange
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these experiences and to generate a really powerful energy sector network. We have achieved that in the four editions we have had of the Energy Week. On this occasion, following the Energy Week, we are supporting this event (Latin America & Caribbean Gas Conference & Exhibition) promoted by IGU and by ARPEL to work on the issues of incorporating natural gas in our region. A really very positive synergy is generated between organizations because we have, in some way, a wealth of decision makers and sector authorities that are convened within the scope of our governing body - that is the meeting of OLADE ministers - and that we are encouraging and promoting the dialogue for the introduction of natural gas in the region’s energy matrix. What we intend with all this is to deliver a high level of political and strategic dialogue in energy matters Using the different perspectives of the various actors of the sector, both public and private, we also hope to identify opportunities in our region for the development of the energy sector and in particular, the development of natural gas in Latin America and the Caribbean. Any actor that has interests in the energy sector should not miss this type of instance that occurs once a year and that in some way brings together all decision makers, all who are in some way directly related with the energy sector of Latin America and the Caribbean, and that are interested in identifying the different opportunities that our countries present for the development of businesses in the sector.
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Latin America & Caribbean
UNVEILING THE GAS OPPORTUNITY IN LATIN AMERICA AND THE CARIBBEAN By co-locating with OLADE’s Energy Ministerial in Lima, this meeting gathers the Latin American energy ministers alongside major decision-makers of the region to shape future regulations on energy for years to come, proving LGC sponsors extraordinary closed-door access to the OLADE Ministerial Round Table. Join this exclusive conversation which will influence critical decisions in the sector, while building connections to open doors for your business development. KEY TOPICS INCLUDE: Political insights into gas as a key energy source for Latin America and Caribbean LGC Policy Papers: vision 2040 to promote a sustainable energy mix Deep Dives and Round Tables: country specific high level discussions on the energy mix and the role of gas. Gas and Renewables, DFIs and the Private Sector: the future of energy combines gas, renewables and storage – how utilities of LATAM are preparing for the transition. Financing gas strategies: how the international and multinational players are structuring deals to promote cleaner energy and a gas base load
IN PARTNERSHIP WITH:
SPONSORED BY
For more information, contact Thomas Joannou on thomas.joannou@energynet.co.uk or call +44 (0)20 7384 8276 WWW.LGC-EXPO.COM
THe EnergyNet
OFF-GRID MARKET
Ghana’s efforts to develop its energy sector and
ENCOURAGE INVESTMENT INTO RENEWABLE Interview with Mami Dufie Ofori, Executive Secretary, Public Utilities Regulatory Commission, Ghana Mami Dufie Ofori tells James Gavin about Ghana’s efforts to develop its energy sector and encourage investment into renewable “These are exciting times for regulators”
The Public Utilities Regulatory Commission (PURC) has developed a long-term energy policy. How did this happen? The PURC was borne out of an energy crisis that Ghana experienced from 1995-96. Under the country’s economic reform programme the PURC – the economic regulator – and the Energy Commission – the technical regulator – were created. Between 1997 and 2010, regulations were put in place to direct the performance of the utilities. We developed a guideline to let the public know how we would set our rates. In our part of the world, it’s important that you get people to support you, especially when you are preparing to increase tariffs, to ensure the utilities were financially viable. We also established offices nationwide so that people could have access to us, as phone coverage is very low. It has enabled us to access information and, at the same time, become a
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referee between the utilities and the people, enhancing the collaboration between them. We then used our experience to help put in place the National Energy Policy in 2010. This ensured that we had the legal, physical and regulatory environment to attract investment, especially in the renewable energy sector. What are your policies on renewable energy? The PURC’s key contribution was the establishment of a feed-in tariff mechanism to encourage people to invest in renewables, so that they can feed into the grid. People have set up solar systems to feed into the system. Our current target for renewables is to achieve 10% in the generation mix percentage by 2020. That may be overambitious as currently renewables make up just 1%, so it may take us a bit longer to reach it.
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OFF-GRID MARKET
What about encouraging privatesector participation? Because the PURC was set up as an independent regulator, the tariffs we established have given investors the confidence to put money into power generation. In fact, in 1997 we had just one independent power producer. Now we have more than 10, which tells you how rapid the investment has been. In fact, electricity coverage in Ghana stands at 82%, one of the highest on the continent. We have encouraged a wide energy mix. Initially, those coming in were just thermal systems and hydro, but then gas was introduced after off shore oil and gas reserves were discovered. That has impacted positively on the price of power generation, as gas is cheaper than other sources. We now don’t even encourage single-cycle systems – we want dual or combined systems where we can use both gas and crude. This gives us options. Private-sector participation is something we have opened up to. At the PURC we advise the government on what the realistic proposals are in terms of pricing for the various power purchase agreements. That has been very beneficial to the government, enabling it to identify costs that are too high, or giving it leverage to negotiate a better deal. Why are investors interested in Ghana’s power sector? The government has entered into a very aggressive programme for electrification expansion called SHEP (Self Help Electrification Programme), where it wants to connect more and more customers. This means investors
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Mami Dufie Ofori, Executive Secretary, Public Utilities Regulatory Commission, Ghana
reap the benefits of economies of scale through a wide customer base. With economic growth you also get cash cows, which are the industries, the mines and others. That is one of the things that we encourage. Our regulations are designed to support growth and are not just for regulation’s sake. Which is why we set prices for investors to come into a particular sector – especially the industrial and commercial sectors – and small- to medium-scale enterprises. What are the PURC’s future plans? These are exciting times because we are setting up a wholesale electricity market. We will also encourage investors into the sector. At PURC, we’re moving through a phase of stability, growth and consolidation. We are still growing. We’ve had many investors come in and have expanded the base of customers, but now the challenge is to ensure it is sustainable. Because what happens if customers don’t pay their bills or the tariffs that they should?
The PURC is launching programmes to encourage the productive utilisation of the power to enable customers to pay realistic tariffs. We are developing regulations that will foster competition and boost economic growth. This means policies will have to include both consumer and market protections. Getting that balance right isn’t easy, especially when income levels aren’t high. It’s exciting for us as regulators. For the first time in the life of the Commission, we have published on our web-site the decision details of our 2018 tariff, which promotes transparency and enhances confidence from both investors and consumers. We will continue to improve on this transparency path, especially now that we have private-sector participation in the distribution sector.
This article is an extract from the Africa Energy Yearbook 2019, a partnership between African Business and EnergyNet.
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SUSTAINABLE ENERGY
Focus on
SUSTAINABLE ENERGY POLICIES INTENSIFIES A Africa may not be responsible for the global climate emergency, but the continent’s energy sector needs to be part of the solution.
lthough Africa can-not be blamed for the man-made climate change and global environmental dam age that has taken place over the past two centuries, it is nevertheless experiencing some of the worst effects of it and there is a growing realisation that the continent has to play its part in the response.
Sub-Saharan Africa’s carbon dioxide emissions have climbed steadily over recent decades as the continent’s population has grown, but they still only
amounted to around 2% of the world total in 2014, according to data from the World Bank. On a per capita basis, they also remain modest, amounting to just 0.8 tons per head in 2014 com-pared to 16.5 tons in the US or 5.0 tons for the world as a whole. While calls remain strong for the developed world to take on the majority of the work and cost of fighting global warming – and to clean up a mess largely of its own making – the voices of those saying that African states must also be part of the solution are growing louder. “It is in our own interest to act to salvage the economic fortunes of the continent, and, more so, to step up our collective efforts to fight decisively climate change,” Ghana’s President Nana AkufoAddo told the Africa Climate Week meeting in Accra in March 2019. “The recent Intergovernmental Panel on Climate Change report concludes that the global community has only 12 years to stop climate change and this requires us to deal with cli-mate change more aggressively than we have in the past,” he said.
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SUSTAINABLE ENERGY
It means that countries must do more to increase the use of renewable power and reduce the burning of fossil fuels in power stations – or in the case of the least developed African nations, to ensure that the dirtiest fossil fuels do not become the go-to feedstocks as they ramp up their fledgling power sectors to back economic growth. The key role of international development finance institutions, funded by the world’s richer countries, in backing this effort is apparent in their support for renewable energy projects of varying sizes across the continent. Some of these efforts to scale up power generation using sustainable renewable energy sources are covered elsewhere in this publication – the increased access to power permitted by village or household-scale solar power and grid-scale renewables is helping to solve Africa’s electricity access problems. And that gives countries a better chance of meeting UN sustain-able development goals by providing light by which children can read books or access the internet, or power to run agricultural machinery and healthcare centres. Africans are also benefiting from the improved efficiency and cost of technology. For example, more efficient and cheaper solar panels can power highly efficient LED lights for much longer than would have been possible 10 years ago.
ACTIVE STATE INTERVENTION Many African governments have bold commitments to implement their sustainable energy-sector policies. The efforts of South Africa are perhaps the
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most important, given that the country’s coal addiction means it accounted for more than half of all sub-Saharan Africa’s carbon emissions in 2014. The drive by President Cyril Ramaphosa’s government to revitalise South Africa’s Renewable Energy Independent Power Producers programme promises to drag down the share of coal in the energy mix (see renewables article pox). Meanwhile, countries such as Senegal and Mozambique are looking to develop efficient gas-fired generation, along with renewables, to expand their power capacity, based in part on gas reserves currently being developed in their waters. Although gas is a fossil fuel and therefore not as clean as renewables, governments argue that it offers a relatively cheap way to scale up power generation more rapidly, with far fewer carbon emissions and reduced levels of local pollution compared to coal and oilfired plants or small diesel generators. Nigeria is also trying to get to grips with another area of climate change concern, stepping up measures to reduce gas flaring from oil fields across the Niger Delta region by encouraging gas demand for power and other uses. The country is the world’s sixth largest emitter of flared gas, just behind Algeria, but has already made progress in reducing flaring. Nigeria flared some 7.6bn cubic metres of gas in 2017, down from 9.3bn in 2013, ac-cording to the World Bank. While power sector emissions globally may be higher overall than those from flaring, eliminating it is still important as the methane emitted from gas flaring is estimated to be around four times more potent as a greenhouse gas than carbon dioxide.
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The Nigerian government has set a deadline of 2020 to eliminate all its gas flaring – 10 years ahead of the World Bank’s target to end flaring globally. Under the Nigerian Gas Flare Commercialisation Programme, incentives are provided to use the gas for other purposes and fines handed out offenders. And the Nigerian Senate passed a bill that toughens up fines and ensures that new developments meet government design requirements in April. Eliminating flaring by next year seems unlikely, but such policies reflect a growing realisation by African states for the need to develop sustain-able energy sources.
INVESTORS SHY AWAY FROM COAL It is not just governments that are applying pressure to make the switch to cleaner, sustainable energy. International development finance institutions, on which many African power projects depend for funding, have largely severed their ties with the most obviously polluting technologies. The last time the World Bank financed a coal project anywhere in the world was in 2010, with more than $3bn of support for the Medupi power station near Johannesburg. And it’s now harder to obtain funding through capital markets too, as stakeholders encourage firms to adopt greener investment strategies. Most of South Africa’s big commercial banks have said they won’t support anything but the most efficient coal-fired power stations. Nedbank, First Rand and, reportedly, Standard Bank, have pulled out of financing the planned 557MW Thabametsi and 306-MW Khanyisa coalfired power stations in South Africa.
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SUSTAINABLE ENERGY
In April 2019, Standard Bank issued a statement laying out its position: “Standard Bank is committed to doing the right business the right way,” it said. “As such, Standard Bank supports the adoption of higher efficiency, lower emission coal fired power plants, and carbon capture and storage technologies (where possible), to reduce the environmental and social impact of coal fired power generation.” The company said its future financing decisions for new coal powered stations would be governed by parameters based on the Organisation for Economic Cooperation and Development’s (OECD) guidelines for assessing the financing of coal fired power generation based on a country’s energy poverty, technology and size of plant.
THE BIOMASS CHALLENGE Just as important as driving the power sector towards sustainable energy use is the need to tackle energy inefficiency and the health damaging pollution caused by the extensive use of biomass for home cooking in Africa. Cooking accounts for around 80% of residential energy use in Africa, excluding North Africa. And the number of people without access to energy efficient cooking stoves continues to rise, with around 780m people across the continent cooking with solid biomass, according to the 2018 Africa Sustainable Development Report published by the Economic Commission for Africa (ECA). “This number has grown by nearly 50% since 2000, as population growth has outpaced the number of people gaining access to clean cooking. Only around 25% of the African population has access
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to clean cooking solutions… the use of biomass is deeply rooted in rural areas, where around 90% of the population cooks with charcoal,” the report said. Burning wood for cooking comes with health risks and is hugely inefficient. The economic downside of relying on traditional biomass in Africa is substantial because of the productive time lost – especially by women – through inefficient means of gathering fuel and cooking, the ECA noted. However, this cannot be resolved by small scale renewable power in the poorest rural areas, even where it exists. While the concept of cooking using power generated from solar panels has been discussed for many years, it remains a challenge – albeit one that could be revolutionary if it can be mastered for mass consumption. Mini and micro-grids can provide power on a sustained basis due to improved panels, rechargeable batteries and equipment efficiency. But, for now at least, powering high-consumption household equipment such as electric stoves, heaters and freezers is generally not practical, given the limited generation and storage capacity of home solar and battery systems – even if rural Africans could afford the technology.
SOLAR ELECTRIC COOKING Solar cookers are a low tech alternative to burning charcoal and other biomass for cooking, but they cannot easily replicate all the uses of biomass cooking. In the short-term, liquefied petroleum gas (LPG) is still regarded as the main alternative to biomass for cooking in many parts of Africa.
However, there are hopes that further falls in costs could make cooking using electricity generated from solar power more practical and that increased scarcity of wood for charcoal cooking as it gets used up could yet persuade rural families to move away from traditional cooking methods. Research into the viability of solar electric cooking carried out for the UK government by consultant Simon Bachelor in 2015 suggested that, even with relatively conservative assumptions, the lifetime cost of a solar electric cooking system could be comparable to the two main alternative fuels – charcoal and LPG – by 2020. However, the report – Solar Electric Cooking in Africa in 2020: a synthesis of the possibilities – stressed that this does not mean that solar cooking would be affordable everywhere. “Context-specific policies, market conditions, service provisions and investment strategies will all affect the feasibility of the proposition in any given location,” it said. The report also raised question marks over whether the rechargeable batteries needed to support solar electric cooking could develop fast enough to be suitable for extreme African conditions. The long-term performance of the most common lithium-ion batteries has tended to suffer in areas with high temperatures, but batteries with new technology are being tested that may yet prove suitable. This article is an extract from the Africa Energy Yearbook 2019, a partnership between African Business and EnergyNet.
2019 The EnergyNet | Issue 3
Africa
The 4th annual Regional Energy Summit: West Africa (RES: West Africa) will arrive for the first time in Dakar, Senegal from 2-3 December 2019. RES: West Africa will bring together over 300 investors, project leaders and government representatives to engage and present the latest developments on enhancing the energy mix within West Africa. The Summit will feature project focused discussions on Gas, Wind, Solar, Hydro and Off-grid and will showcase investment opportunities through regional anchor projects, infrastructure financing and the future of renewable energy within Senegal and beyond.
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AFRICAN POWER PROJECTS
Financing power projects in africa:
FROM PIPE DREAM TO PROJECT BANKABILITY T Many energy schemes across Africa wither because of the absence of effective financing structures. However, both development finance institutions and commercial lenders are committed to finding solutions that could transform the continent’s prospects. James Gavin reports.
he race is on to find new ways of catalysing finance for projects that provide electricity to all Africans. As things stand, about half of the continent’s population do not have access to a reliable electricity supply. This is because too many viable energy projects fail to make the transition from pipe dream to bankability, leaving the continent lagging behind its energy access targets. The problem is not so much a lack of finance; the missing key ingredient tends to be the regulatory frameworks that banks and other financial institutions require. As Mahama Kappiah, Executive Director of the Economic Community of West African States’ Centre for Renewable Energy and Energy Efficiency has noted, poor project management remains a major barrier to private investment in Africa.
“The money is not the problem,” he told an energy access forum held by the African Development Bank (AfDB) and a number of other agencies in Côte d’Ivoire in March. “The way that projects in the energy sector are prepared for financing is the problem.”
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Institutional and regulatory is-sues in the energy sector need to be addressed so that Africa can attract more private investment, he said. He added that focusing on these issues could encourage a wider range of financiers to back energy projects.
MULTILATERALS PLAY KEY ROLE Large multilateral institutions are primed to play a leading role in trans-forming the financial outlook for Africa’s energy sector. The AfDB has said that to achieve universal access by 2025, innovative mechanisms are required to mobilise an addition-al $30bn to $55bn annually in both domestic and international capital. This is a significant increase on the $22.5bn invested in the sector in 2015. To achieve this, the AfDB said that all stakeholders must take collective action to create conditions conducive to financial flows, develop bankable projects, reform utilities and enhance African countries’ absorptive capacities. The AfDB said it will ramp up its investments to provide finance and guarantees, co-financing and syndication.
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AFRICAN POWER PROJECTS
Between 2016 and 2020, it has pledged to invest approximately $12bn and leverage about $50bn in public and private financing for investments in the energy sector. In addition, it will triple its climate finance to almost $5bn per year and leverage about $20bn in privateand public-sector investments in climate mitigation and adaptation by 2020. The bank is committed to developing innovative financing structures in tandem with the emergence of new energy sources. Renewable energy is the key to driving economic development in Africa and combating cli-mate change, and the bank has put its money where its mouth is. Since 2015, the multilateral lender has increased the renewable power share of its energy portfolio to 95% from 59% and the bank said it will continue to drive capital towards green energy projects.
THe EnergyNet
The AfDB said it will ramp up its investments to provide finance and guarantees, co-financing and syndication.
Last year, it closed funding on the Yeleen Rural Electrification Project in Burkina Faso, the first stage in a planned $10bn investment to build the largest solar energy capture zone in the world. The AfDB is looking to link all stock exchanges, pension and sovereign wealth funds, central banks and other financial institutions in Africa to mobilise and incentivise the shift to-wards a lowcarbon, climate-resilient investment. The bank will launch a new facility – Green Baseload – to provide loans that support reliable and affordable renewable energy.
CAPITAL MARKET FOCUS Capital market instruments are also being rolled out, including one that is denominated in New Zealand dollars. In April, the AfDB launched an NZD150m
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AFRICAN POWER PROJECTS
($100m) 10-year Light Up and Power Africa benchmark bond. The deal was driven by a reverse-enquiry anchor order out of Asia. The AfDB also administers a multidonor trust fund – the Sustainable Energy Fund for Africa (SEFA) –
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that has a $60m commitment from the Danish and US governments to sup-port small- and mediumscale renewable energy and energy efficiency projects in Africa. There are other collaborative ventures in the pipeline designed to se-cure
financing for renewable energy schemes. In February, the Board of the Green Climate Fund approved a €100m loan through the West-African Development Bank (BOAD) to finance renewable energy development in six countries from the West African Economic and Monetary Union.
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AFRICAN POWER PROJECTS
The project – driven by the Green Climate Fund and executed by BOAD – is a climate finance facility to scale up solar energy investments in Francophone West Africa’s Least Developed Countries (LDCs), including Benin, Burkina Faso, Guinea-Bissau, Mali, Niger and Togo.
Its aim is to create a market for investments in solar technology, and to incentivise and leverage privatesector players to scale up investment in these technologies. This will involve the creation of commercial and sustainable financing for solar investments through senior debt and standby loans, developing the technical capacity of private- and public-sec-tor players and raise awareness about the benefits of solar technologies. In South Africa, meanwhile, the New Development Bank is to provide a project loan of $480m to the state utility Eskom for an environmental protection project for the Medupi Thermal Power Plant, which is in line with the bank’s focus on supporting clean energy projects. Innovative financing strategies have come to the fore in other energy schemes backed by African multilaterals. This year, the multilateral finance institution Africa Finance Cor poration (AFC) announced the financial close of a bridge loan facility contracted by Ivoire Hydro Energy (IHE) for the construction of the 44MW Singro-bo-Ahouaty hydroelectric power project (SAHP) and associated infrastructure in Côte d’Ivoire. The project aims to create electrification opportunities in the country. Côte d’Ivoire generates 2.2GW of electricity, making it one of the leading generators of power in West Africa, with approximately 70% of its total coming from thermal generation and the remainder from renewables, mainly hydroelectric. The SAHP will increase the country’s overall power capacity, as well as reduce generation
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expense due to the low operating cost of hydroelectric power. The AFC has committed $197m to the project, comprising a majority equity investment of $27.64m and a bridge loan facility of $169.44m. The first disbursement of the bridge loan facility took place in December 2018.
INNOVATION TO THE FORE The innovation in financing comes in the shape of a bridge loan that shortens the project cycle and allows the construction phase to begin. SAHP’s financing structure was designed to shorten the development phase for projects such as this from about 10 years to less than five. The aim of this approach is to accelerate the process of developing power projects in Africa, enabling more of them to come on stream. The AFC arranged the bridge loan facility to kick-start construction while it was waiting for long-term lenders to secure their final credit approvals. The AfDB is arranging the long-term debt financing, most of which already have secured approvals. Oliver Andrews, Executive Director and Chief Investment Officer at AFC, said the company’s goal is to expedite the continent’s growth. “Seeing as SAHP would not have been able to continue with development and construction because it was awaiting the finalisation of its long-term lenders’ credit approval process-es, we decided it was an ideal opening for AFC to get further involved with the project and continue with our participation in Africa’s independent power producer market,” he said.
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AFRICAN POWER PROJECTS
“Finance considerations are not just for energy generation projects,” said van Tonder. “Many utilities are looking at system optimisation and are trying to find ways of getting more out of their current generation assets by managing the load better.
Another boost to energy bankability came with the announcement of a partnership between the International Finance Corporation (IFC) – part of the World Bank Group – and Gaia Energy, a Moroccan-based renewable energy developer. They are collaborating on a joint platform for the growth of wind energy across Africa. The funding has been provided to develop 22 pipelines across nine countries in North, West and East Africa. The pipeline, which was developed by Gaia, will then be extended to other countries. Two IFC funds will be used to implement and support the project: InfraVentures, a $150m global infrastructure development fund, and the €114m Finland-IFC Blended Finance for Climate Program.
COMMERCIAL LENDERS If multilateral players are becoming more innovative, how are commercial banks approaching energy projects?
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There are a number of things that commercial lenders tend to look for when it comes to bankable schemes in Africa, say experts. “There is a strong interest in project sponsors’ track records, as well as the contractors,” said Rentia van Tonder, Head of Power at South Africa’s Standard Bank, which is active in 20 countries across African. “That is becoming more important in an environment where we may see the sovereign under pressure and unable to provide support.” This underscores the sense that payment risk remains a formidable challenge for many power projects. One of the key concerns is finding projects where lenders are comfortable with the off taker, whether it be a corporate or a utility. “It is taking time for us to get our heads around this,” said van Tonder. “Many governments are trying to keep their utilities financially afloat, and that obviously has an impact on off taker risk and risk mitigation.”
Inevitably, where there are concerns around the balance sheet and payment risk, the answer is to create structures where the utility’s cash flows can be ringfenced. “Finance considerations are not just for energy generation projects,” said van Tonder. “Many utilities are looking at system optimisation and are trying to find ways of getting more out of their current generation assets by managing the load better. While such priorities have not been a focus historically in Africa, there is now an opportunity to generate more megawatts by improving the value proposition of the entire system.” You can structure your payment risk by involving direct payments or ringfenced cash flows from those off takers, said van Tonder. “It’s not a unique solution and is not necessarily ideal in all circumstances, but we have already seen utilities participate in these types of structures successfully.” Given the range of funding solutions emerging from both commercial lenders and DFIs, Africa’s chances of securing finance for its energy projects looks to be improving. While challenges remain, the in-crease in the number of deals involving energy projects across the continent – and the innovative financial techniques being employed to get projects both large and small off the ground – suggests that solutions to some of Africa’s longstanding energy generation problems are finally being found. This article is an extract from the Africa Energy Yearbook 2019, a partnership between African Business and EnergyNet.
2019 The EnergyNet | Issue 3
ENERGYNET NEWS
THe EnergyNet
ENERGYNET NEWS NEW MEMBERS TO THE TEAM:
Jennifer Arnau AFRICA ENERGY FORUM TEAM WINS “ORGANISER OF THE YEAR” FOR MAURITIUS ANNIVERSARY EDITION EnergyNet received the ‘Organiser of the Year’ award from the event industry’s leading association the Association of Event Organisers (AEO), for the Africa Energy Forum (aef) 2018 in Mauritius. The award recognised the outstanding commitment from the team in taking aef to Mauritius in celebration of the event’s 20th anniversary.
Producer Jenny joined EnergyNet in June 2019 and her first day was spent flying out to Lisbon for aef 2019 – not your standard first day! She is working closely with Shiddika Mohamed and Simon Gosling to deliver exciting conferences in Latin America. Jenny holds a MSc in Political Research from the University of Strathclyde (Glasgow), where she did her dissertation on Government Policy and Income Inequality in Latin America.
“The operational complexity of delivering such a high quality event to this scale with limited local event services and facilities on the island was a challenge. We had to be exceptionally resourceful whilst still keeping in mind our ethos of supporting local communities and being sustainable. It was a tough but extremely rewarding accomplishment that the team are very proud of.” Charlotte Wood-Dow, Senior Operations Manager, EnergyNet
Natacha Girard Senior Producer Surprisingly passionate about Russia, Natacha graduated from a Master degree in International Affairs between Moscow and Bordeaux (France). Competing with Google Translate, Natacha speaks fluently English, French, Spanish, Russian and is learning Italian! Natacha is heading up the content for the Africa events, always searching for exciting projects, innovations and insightful speakers to present. She has 3 years of experience in producing conferences and is excited to apply her skills to something she is really engaged and passionate about !
2019 The EnergyNet | Issue 3
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THe EnergyNet
aef HIGHLIGHTS
Highlights from the
AFRICA ENERGY FORUM IN LISBON THIS JUNE F From 11-14th June 2019 2,010 attendees, 10 ministers, 9 Secretaries of State and 312 speakers gathered in Lisbon for the 21st edition of the Africa Energy Forum.
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ollowing an incredible 20th anniversary celebration in Mauritius last year, the Forum returned to Europe in 2019 - gathering influential decision-makers to delve into the multitude of challenges and opportunities facing power generation across the continent.
Project finance was of course a key theme of the conference, with panels focusing on emerging investment trends and latest indicators in private investments and IPPs. The growing prominence of renewables across the continent was explored in fuel-specific sessions, including progress updates regarding renewable energy targets. Gas-to-power
strategies and discussions around the development of gas infrastructure also featured heavily in this year’s discussions. The Innovation Theatre explored the development of battery storage across the continent and the innovative solutions it can provide for rural communities. Country-focus sessions explored project pipelines and unique investment opportunities in countries such as Ghana, Morocco, Mozambique, South Africa and Nigeria. Senior Business Development Manager at DLA Piper Nicolas Stofenmacher commented; “aef feels better here – smoother and more seamless.”
2019 The EnergyNet | Issue 3
aef HIGHLIGHTS
2019 The EnergyNet | Issue 3
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THe EnergyNet
aef HIGHLIGHTS
We have signed an MOU with utility companies in some member countries which allows us to launch the product, including... Burundi, Benin, Madagascar, Zambia and Malawi... this allows the IPP to share the PPA with us so we can assess and monitor the transparency tool
The ATI team
Over the years, aef has become a platform to announce industry developments. Several of these deals and project announcements took place during the conference, including the revealing of the ‘Transparency Tool’ by ATI & KfW – an energy solution to quicken the pace of electrification in Africa. CDC Group launched new transmission & distribution company Gridworks, and DBSA committed US$4.9m of Development Funding to Joule Africa’s hydropower project in Sierra Leone. AfDB launched the report “Revisiting Reforms in the Power Sector in Africa, while Wärtsilä launched a Modular Block solution for providing ready-to-go power plants. FIRST (Facility for Investments in Small Renewable Transactions) announced a financing update for a ZAR245m facility for Building Energy’s Kruisvallei Hydroelectric Project. Frank Tinarwo, Principal Energy Development Officer at Zimbabwe’s Ministr y of Energy & Power Development commented, “aef was a great opportunity for my Ministry to interact with potential investors to attract foreign direct investment into the energy sector… the parties that attended indirectly drive the policymaking process in any country and
30 JUNE - 3 JULY 2020
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there is no better platform for that kind of interaction than aef. I’m looking forward to the 2020 edition and to having a success story from the relationships I formed with some of the companies I met this year.” The 2019 edition of the Forum also launched the Africa Challenge Cup – a football tournament in partnership with Kohler, Principal Partner of Manchester United, Kohler-SDMO and Clarke Energy, raising £30,000 for victims of Cyclone Idai. The event was a major networking platform for attendees, who were able to meet the Manchester United legends managing the two Africa & ROW teams. One of the most innovative changes in 2019 was the move towards gender diversity in the energy sector. As a business with 75% female leadership, all sessions in Lisbon were moderated by 52 of the most brilliant women in the energy sector. Matteo Brambilla, Managing Director, Building Energy summed up the mood of investors in Lisbon; “Meetings that usually take place over six months can be completed in three days… we only do one show a year and it’s this one. We do one and do it well.”
aef 2020 will take place in Barcelona, Spain between 30th June and 3rd July 2020. To find out more visit www.africa-energy-forum.com or email aef@energynet.co.uk 2019 The EnergyNet | Issue 3
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UPCOMING ENERGYNET MEETINGS IN 2019/20 INCLUDE:
ENERGYNET LATIN AMERICA Latin America & Caribbean
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EnergyNet’s Latin America portfolio focuses on investment opportunities within the energy sectors of Latin America and the Caribbean.
14-15 NOVEMBER 2019
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14-15 NOVEMBER 2019 PERU
25-27 FEBRUARY 2020 MIAMI
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2 - 3 DECEMBER 2019 • SENEGAL
2-3 DECEMBER 2019 SENEGAL
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