ESMFs support bankability of SADC power projects

Over a two-year process, SRK reviewed regulations and laws with regard to several countries’ power projects The South African Power Pool (SAPP) provides a forum for the development of a stable interconnected electrical system, including the identification of priority power projects, in the Southern African Development Community (SADC) region.

Many of these projects need to fulfil bankability requirements by adequately assessing environmental and social safeguards.

By Kirsten Kelly

SRK Consulting was awarded an open tender by SAPP to develop an Environmental and Social Management Framework (ESMF), which the World Bank approved.

Created in 1995, SAPP is a SADC structure and one of the oldest power pools in Africa. It develops systems and agreements that help member states to trade power – to generate, transmit and distribute power at the most affordable price. Over the years, there has been an increased demand for power due to the growing economies of countries within the SADC region. Darryll Kilian, partner and principal environmental consultant at SRK Consulting, adds that power projects typically require large investments. “Power plant upgrades and new builds, interconnectors to transmit power from one country to another, as well as hydropower schemes are capital intensive. Therefore, many of these countries must seek international funding. It can take years to produce these funding proposals, which can be constrained from reaching bankability.”

Most of these proposals include exhaustive data on the location of the project, specifications by engineers on the power configurations, the amount of power required and a detailed cost estimate. However, environmental and social sustainability aspects are often left out of the proposal or are not adequately covered.

Safeguards

Environmental and social safeguards refer to policies, standards and operational procedures designed to first identify and then try to avoid, mitigate and minimise adverse environmental and social impacts that may arise in the implementation of development projects.

“They hold significant weight when determining the bankability of a project. There must be sufficient planning and screening in the beginning of the project to make sure that cultural, biodiversity, water and compensation

Darryll Kilian, partner and principal environmental consultant at SRK Consulting

issues are adequately addressed. For example, if applying for funding for a hydropower plant, one needs to consider whether people are living off the area to be inundated. Will they need to be relocated? Will they need to be compensated? If there are no environmental and social international impact assessments at the early design and feasibility phase of a project, there is a risk of losing millions of dollars in creating a funding proposal that will not be bankable,” adds Kilian.

The ESMF

In response to the intensified need for power projects in the SADC region and the small percentage of these projects reaching bankability, SAPP created a Project Advisory Unit, of which the ESMF was a key deliverable. SRK Consulting was tasked with creating an ESMF for the whole energy sector in 14 countries within the SADC region (excluding the island states). The ESMF includes a set of tools to assist utilities’ personnel, including: a screening checklist, management plan examples, and terms of reference.

“It was a two-and-a-half-year process where we reviewed each country’s regulations and laws, and consulted ministries, utilities, independent power producers, nongovernmental organisations and academics involved in power projects from different countries. We also visited several countries to assess different types of power projects (such as hydropower, geothermal, solar power, wind power, coal power and nuclear power) and identify common environmental and social issues, as well as insights associated with each,” explains Kilian. According to Kilian, the ESMF requires a multidisciplinary approach. “While an engineer may flag an area as the best location for a power project, as it is close to existing infrastructure, for example, that preferred location may be occupied by many people whose potential relocation could undermine the financials of the project and cause major social disruption. This is why the ESMF calls for technical, environmental and social disciplines to work together at a strategic level during the early stages of design and concept development. This will assist with defining the scope of environmental and social impact studies. But importantly, it will help a project reach bankability.”

“The ESMF deals with the core safeguards that a client or funder considers when looking at the viability of a project because environmental and social issues have a huge impact on the financials that can adversely affect a project. Banks have recognised the need to integrate environmental, social and governance factors into their investment decision-making, lending, and project finance approaches and decisions,” concludes Kilian.