Donald Watkins, commercial litigation lawyer for 25 years and CEO of Alabama-based waste-to-energy company Masada Resources since 2005, talks to James Wilson about the practicalities of developing and financing waste-to-energy projects in Sub-Saharan Africa.
How important is Sub Saharan Africa to your business?
It is extremely important. We view Africa as an emerging frontier, which means there is plenty of opportunity to contribute to the continent’s growth while growing our business. We also view ourselves as a waste management infrastructure company, where we build an integrated waste management solution to convert the country’s waste into valuable resources that can be used within the country. When we came to Sub-Saharan Africa, we found that there was very little waste management infrastructure. For example, in Sierra Leone, they had about nine garbage trucks servicing 1.2 million people in Freetown. That’s not close to being adequate waste management infrastructure. Other places in Africa may not be as dramatic, but their waste management systems are not nearly as advanced as in the more developed countries.
How do you approach a waste-to-energy project in the region?
What we do is two things: first, we educate the government that garbage is a very valuable asset and is the type of asset that you don’t have to drill or mine for, as it is generally laying in plain view. Once the garbage is converted into either ethanol or diesel fuel, then it can be sold in the local market. That’s the first stage we have to work on, to orientate the national government to see garbage as valuable because they typically see garbage as a problem. The second thing we have to do is to design an effective waste collection system and waste management system. You can’t convert it if you can’t get it to a delivery point where it can subsequently be converted, and you need the proper infrastructure to do that. Even for that short-term phase of the project, when you are planning and developing infrastructure in the region, it takes a very long time to get it where it needs to be.
What are the next practical considerations to getting a project up-and-running?
Once we have designed an adequate collection and conversion system, the next challenge is project financing. That is where we have found Masada spends the most time in connection with our African work, not in places like South Africa or in Namibia, but in less developed areas. The challenges fall into various categories. First, political stability. Financing partners want to know that their money is going into an area of political stability and it is incumbent upon us to demonstrate that. Sierra Leone came out of a civil war 14 years ago and if you are discussing in London, which is where I usually go for financing projects like our $300 million industrial facility, then you have to demonstrate political stability and that is a meticulous job. Once the money is in the ground and conflict of any kind breaks out, you can’t get the money back. You can protect the investment, but you can’t get the money back.
Next, we have to demonstrate compliance with the US Foreign Corrupt Practices Act (FCPA), which means that we do not engage in bribery or kickback schemes with anybody on the planet at any time. We have to be vigilant that we are not approached incorrectly and we have a very active programme that monitors our and our partners’ conduct to make sure that we don’t get caught up in those kinds of activities. Then, there is environmental permitting. Because much of the financing is coming out of European development funds, where they tend to impose the strictest environmental standards, even in Sub-Saharan African countries where standards on the ground are lax, we have to ensure that our project is designed to protect the environment, first and foremost. Proving and documenting the project’s environmental integrity is a time consuming and expensive process. The next challenge is to make sure there is an adequate labour force for the construction of a facility, and when I say adequate, I mean skilled workers who can construct a 21st century facility. Our preference is to use skilled workers in the local workforce to the extent that they available. When they are not available in adequate numbers you have to bring them in from Europe and elsewhere. This is a sensitive consideration because the preference of most national leaders in Africa is that you use their workforce.
The next area of concern when you are building something that is at the $300 million level is the adequate protection of the facilities themselves from any kind of high impact, high threat situation. This generally entails private security in addition to whatever a government can provide because these facilities are designed to run seven days a week for about 50 weeks out of a year in 24 hour shifts. We then look for a qualified local partner. We prefer that it be an established waste management company or a local business with a real track record and a real operation, as opposed to a consultant or an individual.
Where does the finance typically come from?
Development funds mostly, but also from agencies that focus on specific types of projects like waste management in particular or infrastructure development in general. Some of them focus on Sub-Saharan Africa. We also use London-based law firms, which is how I got to know Eversheds. They have established relationships with multiple financing institutions and are able to guide us to those funds that focus on projects like ours in the countries where we are seeking to develop our projects.
Are there particular challenges associated with waste-to-energy?
I think prisons and garbage are the lowest priorities for any government. They typically only get around to reforming or upgrading these services after they‘ve taken care of everything else. So, here Masada comes in as a mainstream American company that has a long history of developing infrastructure projects, and says: “We don’t need to bring American workers over here, we don’t want to take anything out of your country. We can show you how your garbage can be converted into a valuable energy resources that you can use right here in your country. We can use your workers to operate this facility, and we can use key vendors in your country—everyone benefiting from an opportunity that will last the next 45 years, perhaps longer. We’re not asking you to finance our project, we can do that ourselves, all we are asking you for is your garbage”. I have found that this is an easy presentation, especially once they realise they don’t have to finance it because a lot of these places don’t have the credit worthiness or the credit capacity to finance it themselves. We offer ourselves as a vehicle for nation building.
What is your view of the business environment in the Sub-Saharan region?
When we expanded into Africa in 2009, we found national leaders who understand the country’s problems. We have also found national leaders who work hard to find adequate solutions. They recognise that there is no magic pill and that these solutions need to be phased in over time. They understand that their own government is limited in the contribution it can make to the solution. They are focused on public-private sector partnership, which works for us. That’s a huge first step when you realise not just what your problem is but the approach you must take to address it: you must get the private sector partner involved so that the financial burden and risk of development is shifted to the private sector partner. The key to this is the government’s willingness to award a long-term contract. The private partner is responsible for securing project financing. It takes a long time to amortise this type of debt. The presidents who are currently in office understand this. They oversee the project and stay on top of it because they understand that infrastructure development is critical to national growth, and they become signature or legacy projects of the African leadership.
Is this different to the environment you were anticipating?
Let me tell you our view as an American business. When we first entered the international marketplace, we focused on the Caribbean: it’s close to America, it’s comfortable, and there is a lot of American presence. We next rolled out to developed countries in South America. We then came across the ocean to Europe, and then we went to Asia. So the last place we came to was Africa. A lot of that was shaped by the fact that Americans historically have not done a lot of things in Africa from a business standpoint. I believe much of America’s hesitancy was due to negative stereotypes. For us, Africa was the last place we ventured because we focused first on what we thought, based on our knowledge and exposure, were the more attractive markets. In hindsight, I see that Africa should have been the first place for Masada to venture internationally. There are more opportunities in Africa than there are in all of these other places combined.
Are there changes you would like to see happen on the ground?
What I would like to see happen is the growth in economic independence. Sub-Saharan African countries may have political independence, but the future of economic development in those countries is still in the hands of European financial institutions. Of course, the development funds and various international agencies have been instrumental in directing investment toward the region, but until you have your own financial institutions owned by the indigenous population, and until you have your own Wall Street and control your own financial destiny, your true potential growth will never be realised.
Turning to legal support, what are the key skills you look for in external counsel?
Number one, if a lawyer doesn’t understand the business opportunity and the business deal, he or she really can’t help in documenting the transaction. We look for lawyers who know the business, who have completed projects of this kind in the region, and, perhaps most importantly, who know the people on the ground. When I am talking to the lawyers it should feel like I am talking to a business partner.
External counsel billing and fees are always a bone of contention, what’s the best approach to external counsel fees?
One thing that distinguishes Masada from other businesses is my own personal background. I am a CEO now but I began my professional career as a ‘barrister’. For 25 years, I handled all kinds of commercial litigation and commercial transactions, so I feel as though I am more than familiar with areas where you can be financially exposed. My legal background, coupled with my Masada-related business experience, enables us to minimise various areas where the cost would otherwise spiral out of control. When I hire a lawyer I’m going to describe what I want done. When I receive a budget, I’ll use my legal background to determine whether the legal costs seem reasonable. We do a lot of this stuff on our private and personal dollar, so every dollar to us is sacred.
Are you positive about the future of business in Africa?
I love Africa. I wish I had gone there first. It’s the new frontier for me. If our company is successful in developing a successful and efficient waste management system, I hope that we will become an institutional name in the country. Then, when the next opportunity arises, like contributing to the development of the national grid, I believe we would have an advantage on another company trying to enter the region because we have already demonstrated our commitment to nation building. There are so many other business opportunities made available to you once you are committed to a nation and the opportunities in Sub-Saharan Africa are unlimited.
Donald V Watkins
Chairman and CEO
Masada Resources Group
About the author
Donald V Watkins is an attorney, banker and international entrepreneur. He has founded, managed, and owned many successful businesses across a variety of industries and disciplines. Watkins serves as Chairman and CEO of Masada Resource Group, a global waste-to-ethanol/diesel fuel company. Masada has a pipeline of waste-to-energy projects in varying stages of development in 47 countries across four continents, including Africa. Watkins also serves as Chairman and CEO of Nabirm Global, a US-based energy services company that is engaged in the exploration of oil and gas, as well as the mining of uranium and other natural resources in Namibia. In 2000, Watkins founded Alamerica Bank, a state-chartered bank headquartered in Birmingham, Alabama, USA. Watkins serves as a member of the board of directors of State Mutual Insurance Company in Rome, Georgia, USA. He is a lifetime member of Alpha Phi Alpha Fraternity, Inc, an international leadership fraternity.