Robert Mukiza, director of Hong Kong and Botswana-based energy company Acadia Energy and a former head of the UN Coordination in Botswana, talks to James Wilson about the opportunities opening up to domestic companies, obstacles to successful development of the energy space and the rewards for law firms that work to understand the region’s characteristics.
Why did you decide to launch an energy business?
We wanted to tap into the immense potential of the energy sector in Africa. Africa has very low energy coverage, there are vast resources in renewable energy, coal and oil and gas coupled with a burgeoning middle class, which will demand services that require huge investment in energy. As African countries grow more populated and richer (they are all posting impressive real GDP growth rates), the future unmet demand, i.e. the additional energy/electric capacity that is needed to provide the specified level of consumption for each person added to the population between 2010 and 2030, is projected to be significant. Acadia Energy was set up to meet this demand by leveraging both local knowledge and international expertise.
And what sectors do you primarily invest in?
We primarily focus on oil and gas and the electricity sector. We also engage in coal-fired power plants, due to the vast availability of coal and the significantly lower cost than renewables. At the moment we are, for instance, involved in the oil and gas sector in Angola and in electricity generation in Botswana itself. We are also making inroads into Tanzania and Mozambique. Our focus is on Sub-Saharan Africa. We are engaging in early stage development as well as in equity partnerships. For huge government and international power developer projects we come in at an early stage and leverage the good working relationships we have built over time internationally to attract the requisite financing.
What are the most significant trends in the region at the moment as far as you’re concerned?
Of course there are the discoveries of vast quantities of natural resources and these have been a game changer and increased the potential for Southern African oil and gas, coal and hydro resources. But for me the most significant trend is deregulation and the opening up of space for other players in the energy sectors. There is a realisation within African governments that in order to achieve their national development goals, including budget independence, job creation and industrialisation for example, increased investment in sustainable energy is paramount. There is a wave of legislative overhaul to allow for private investment in the sector where previously public entities had a stronghold on energy generation and distribution. For instance, there is a realisation in South Africa that to meet potential energy demand, they need to deregulate and open the space for private investment in the energy sector as highlighted in their key long-term strategic development policies. We also cannot ignore the massive flow of investment in the energy sector from Asia, especially China and Japan. The closure of nuclear power plants in Japan in the aftermath of the Fukushima disaster has increased their demand for natural gas especially from Africa. This interest allows African countries that had difficulty in raising capital internationally for significant projects to tap into readily available investment from Asia. This is a game changer.
How has government policy been evolving?
On the whole there is a convergence of thought in Africa that policy reform is required to raise confidence in the private sector and to engender competition. Using public resources to invest in huge energy projects in spite of the appetite from the private sector to undertake such projects doesn’t make sense. The public sector needs to be weaned away from being developer, producer and distributor of energy, given the resultant inefficiencies, and open the sector to competition, allowing entities with proven international experience and better value for money to engage in the energy marketplace. What will be needed is a further deepening of enabling legislation to allow for a more open marketplace.
What are the biggest remaining obstacles to the successful development of the energy projects?
One obstacle is the inadequate legislative infrastructure that restricts the private sector’s full participation, especially in countries that have strong public utility companies (for example Eskom in South Africa). Secondly, there is a need for open and transparent procurement processes. A lot of progress has been made in the region but needs to be further enhanced. This is very important in breeding confidence of both international and local investors. A case in point is Botswana: it has a well-developed open and transparent process for power contracts and delivery. Related to this is the capacity to monitor and evaluate the reliability of developers, the absence of which leads to poor execution of projects. There are cases where power infrastructure is built and fails after a year of operation. We need to build the capacity to negotiate and get value for money and have an open and transparent process with clear penalties for non-delivery built in. In Europe the point at which power plants are deemed to have failed thus attracting associated penalties is around 90% of full production level but you have examples in Africa where this point is at 60%. Governments should invest heavily in negotiation to get the best value and to include heavy penalties for non-delivery on agreed goals.
How has Botswana managed to set up the right processes?
Botswana has an established track record of public accountability which has been enhanced by the handling of the diamond sector. This has been built over time and they have a culture of good governance, accountability and of ensuring that the final product is what the government singed up to.
What are the key skills in external legal counsel that you as a developer need?
The most desirable skill I would look at is experience in negotiations and experience in reaching financial and commercial close. Infrastructure development experience in Africa is also desirable. Africa is undergoing a process of integration at different levels (African Union, SADC, EAC, etc) and attracting a convergence of the legal architecture in the energy sector. Legal counsel must be able to understand and navigate those processes.
What local differences do law firms have to be aware of?
It is a different cultural and negotiation infrastructure. There are cultural aspects that need to be taken into consideration, for example if you are building a dam, or a coal fired power plant that includes mining, most of these countries have a very different land tenure system that need to be considered. Good international counsel for big power and infrastructure projects need to have some political clout, and anthropological and cultural understanding of the of the host countries. Good partnerships with local advocates can help plug this gap.
Do you turn first to local counsel or international counsel when you need legal support?
It depends on the size of the project. If it is a huge infrastructure project it is very important to have an international firm with very good experience at the table. It cuts that gap of experience in negotiating and getting value for money. It is not very easy for local counsel to have the experience on such big deals and the necessary contacts to engender confidence from the developer and from the financier and from the consortia to deliver the projects. The law firm brings with it a trusted client list of developers and financiers. Not many local companies have that kind of clout. The local companies wouldn’t have the financiers and the developer all in one portfolio, you have to have relationships for that. For smaller projects (up to 100 MW), which are active in the region, you can engage at the local level and use the local bank, so local knowledge is paramount. Given the circumstances, the ideal remains the mix of both local and international.
How can external counsel develop to better suit the environment of project development in the region?
Fees can be quite exorbitant. Even with government, when you are looking at exploration and early stage development, governments have to report to parliament and it can become very difficult to justify exorbitant fees at the onset. A major challenge for me in terms of counsel is not placing the same timelines for closure as would typically be in the origin countries because there is a different negotiation process and considerations, so you can’t place the same restrictions on a project. The legislative infrastructure especially on energy is still under review, so they need to accommodate the resultant delays and the inconveniences. The goodwill is there in the region but the laws are different, the level of transparency and engagement is different, it demands a bit of patience. Eventually the law firms that take the initiative to understand the local political considerations will engender cooperation from host governments which will result in lucrative business. Africa is thousands of mega-watts short of its needs and that gap has to be filled. There is a huge opportunity for big business. International energy developers and investors need to believe in Africa and realise its potential.
Robert is a co-founder of Acadia Energy Limited (Hong Kong) and currently serves as Director. He has vast experience in the international public and private sector with particular expertise on engagement in Sub-Saharan Africa, specifically in the energy sector. More recently, he worked in Botswana as the Head of the United Nations Coordination Unit and in The Maldives Islands as a Lead Economist for the United Nations. He has also worked for the United Nations Research Institute for Social Development in Geneva. He has engaged closely with high levels of government in the Southern African region and built significant relationships and networks with governments. He provides strategic direction and support for Acadia Energy and leads and delivers energy infrastructure projects, including supporting negotiations with power producers, developers and Governments. Robert also leverages strategic relationships with investors, energy industry experts, government officials, the business community and regional institutional players to deliver value in the Energy and Infrastructure sector in the region. Robert can be contacted at email@example.com