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Citi Perspectives for the Public Sector |
2014
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infrastructure “deficit case” in the world.
Yet bankable power projects in Africa are
few and far between. Projects suffer from an
ever-changing regulatory environment, the
weak credits of off-takers, high-volatility of
energy input prices, sub-investment-grade PPA
counterparties, and perhaps most importantly,
long duration local currency funding needs in
countries where bank markets only provide
short tenor lending, and where capital markets
are undeveloped. Without efforts to develop
local capital markets, and without mitigation
tools from the policy community that directly
address the above challenges, we will struggle
to move forward.
There is, however, light at the end of the
tunnel. Many of the above challenges are now
well recognized by the international policy
community. The World Bank, for example, has
announced its Global Infrastructure Facility that
will both help governments take infrastructure
While the depth of
potential credit appetite
for long-duration
infrastructure projects
lies in global dollar
markets, infrastructure
– at its core – requires
long-term local
currency financing.
projects from the drawing board to the bankable
deal stage, as well as step in to mitigate the
plethora of risk challenges raised above.
The IFC, African Development Bank, European
Bank for Reconstruction and Development,
the Asian Development Bank and the
InterAmerican Development Bank are all
working to develop funds and structures
that will credit-enhance projects to make
them capital-markets-viable, address the
refinancing risk issues, including the arcane
(but economically dilutive) issue of “negative
carry,” and support the development of long-
term local currency funding solutions. Citi
is proudly working hard in partnership with
sponsors, governments, development banks
and debt investors to continue to craft these
solutions to close the infrastructure gap. It will
be a long journey, but momentum is building.
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