Sorry for the lack of posts recently. Provinceroot has temporarily relocated to Lagos, Nigeria and I am getting up and running.
The frequent power outages here (10-15 times per day, with the sound of small generators a constant across the city) are a strong reminder of both the need and difficulty of developing and financing power projects and other critical infrastructure.
More posts soon.
Tuesday, October 25, 2011
Tuesday, October 4, 2011
Links: West Africa Piracy, China in Africa (?), Kenya 2-year note, more
1. Piracy on the rise in Gulf of Guinea
2. Watchdog group Platform issues report on Shell’s activities in the Niger Delta; and the Guardian’s follow up here
3. Vale SA adjusts to Guinea’s new mining law
4. Africa’s latest Miss Universe hopes to change perceptions of her country and the continent
5. More China in Africa (?): No visit to RSA for Dalai Lama
6. Kenya reopens 2-year T bond at 10.50%
2. Watchdog group Platform issues report on Shell’s activities in the Niger Delta; and the Guardian’s follow up here
3. Vale SA adjusts to Guinea’s new mining law
4. Africa’s latest Miss Universe hopes to change perceptions of her country and the continent
5. More China in Africa (?): No visit to RSA for Dalai Lama
6. Kenya reopens 2-year T bond at 10.50%
Monday, October 3, 2011
Long-term developmental focus is key to IPP success in Africa
I recently downloaded a paper by Dr. Anton Eberhard and Dr. Katharine Nawal Gratwik at the University of Cape Town called “IPPs in Sub-Saharan Africa: Determinants of Success”. Very interesting read with a lot of good info compilation. I’ll quote the main conclusion from the end of the paper:
The role of firms with development origins such as Aldwych, Globeleq and IPS, and DFIs, such as IFC, Proparco, FMO and DEG, is increasingly important in the development and bringing to financial closure of new IPPs in Sub-Saharan Africa. Furthermore, the fact that projects with participation of these firms and DFIs were less likely to unravel signals two points: such projects may have been more balanced from the outset, and when an exogenous stress struck, they may also have been better equipped to resist any form of host-country government pressure.
I’ve described my own increasing awareness of the development impact of Provinceroot’s work in some of my recent posts, and to that extent I largely agree with the paper’s thesis.
The paper also perhaps explains some of the hesitation that international capital feels about investing large amounts in Africa – there still has to be an overriding sense of development purpose to manage and finance the long and risky process of implementing any kind of infrastructure project in Africa right now, and that’s simply not consistent with the more streamlined goals of many private equity funds. At the end of the day, the IRRs of many projects are consistent with PE fund targets, but amongst all the opportunities in the world it would be easy to pass on a power plant if Africa if the sole motivation is chasing IRR. One often hears that Africa needs “patient capital.”
Even if a developer (or investor) is resolutely “private sector” or does not identify as an “impact” business as such, the reality is that the actual endeavor ofputting an infrastructure project together is consistent with the “triple bottom line” framework; the difference, in my opinion is self-identification and marketing.
The role of firms with development origins such as Aldwych, Globeleq and IPS, and DFIs, such as IFC, Proparco, FMO and DEG, is increasingly important in the development and bringing to financial closure of new IPPs in Sub-Saharan Africa. Furthermore, the fact that projects with participation of these firms and DFIs were less likely to unravel signals two points: such projects may have been more balanced from the outset, and when an exogenous stress struck, they may also have been better equipped to resist any form of host-country government pressure.
I’ve described my own increasing awareness of the development impact of Provinceroot’s work in some of my recent posts, and to that extent I largely agree with the paper’s thesis.
The paper also perhaps explains some of the hesitation that international capital feels about investing large amounts in Africa – there still has to be an overriding sense of development purpose to manage and finance the long and risky process of implementing any kind of infrastructure project in Africa right now, and that’s simply not consistent with the more streamlined goals of many private equity funds. At the end of the day, the IRRs of many projects are consistent with PE fund targets, but amongst all the opportunities in the world it would be easy to pass on a power plant if Africa if the sole motivation is chasing IRR. One often hears that Africa needs “patient capital.”
Even if a developer (or investor) is resolutely “private sector” or does not identify as an “impact” business as such, the reality is that the actual endeavor ofputting an infrastructure project together is consistent with the “triple bottom line” framework; the difference, in my opinion is self-identification and marketing.
Wednesday, September 28, 2011
The Complications of Trying to Save the Planet (a look at involuntary resettlement)
A recent report by Oxfam about a forestry company with a project in Uganda has generated a lot of headlines, for example:
Killing Ugandans to Save the Planet
UN and the World Bank now involved in land theft over carbon credit scheme
Oxfam Report Says Thousands Evicted in Uganda Land Grab
And the actual Oxfam report here.
The issue in question is the alleged forced relocation of inhabitants in an area granted to New Forests Company (NFC), a U.K.-based forestry developer (website here) backed by HSBC, the European Investment Bank (EIB) and Agri-Vie, a South Africa-based fund with investment from IFC, the World Bank’s private sector investment arm. The Oxfam report claims that inhabitants on the land, some 15,000, were terrorized and forced off the land, and received no compensation from the company or the government.
This all sounds pretty bad, and certainly the sensationalist headlines pick that up for more dramatic effect. I haven’t spoken to anyone directly involved in this project or at Oxfam but wanted to offer some thoughts based on the Oxfam report and various other articles.
I called this article The Complications of Trying to Save the Planet because a central element of NFC’s project is to use its forest to offset carbon emissions, and sell carbon credits to polluters around the world.
First, it’s helpful to step back and understand how projects like this one would be structured in a developing country like Uganda. It seems clear from the Oxfam report that NFC was granted a concession over some amount of land for a period of 50 years. This means the Government of Uganda and NFC entered a Concession Agreement, a document that outlines the full scope of the two parties’ relationship to each other during the concession period, including various obligations of the parties, a detailed map of the concession area, the applicable tax regime, what happens if either party breaches the agreement, etc. This is a very typical contractual arrangement for infrastructure projects in Africa and around the world.
Unfortunately for many of these projects, especially in densely populated regions like Uganda and Rwanda, the area that the government grants to a company under the Concession will likely have some residents. The residents will need to be moved off the land for the project to proceed, and it would be typical (and absolutely desirable from the company’s point of view) for the government to take full responsibility under the Concession Agreement for any relocation and compensation owed to the inhabitants.
The issue can be tricky. Inhabitants may not have legal rights to be on the ground, having effectively squatted on the land, often for many, many years. The lack of legal right to the land may be an administrative matter, or linked to government ownership of the majority of the land in some areas.
For companies like Provinceroot and others who work with development finance institutions (DFIs), there are highly developed guidelines for dealing with involuntary resettlements (and a full range of other environmental and social issues). Any infrastructure project in a developing country will need an Environmental and Social Impact Assessment (ESIA) performed by an independent consultant. The ESIA will go into great detail in addressing the project's risks to environmental and social conditions, and explain the project’s mitigants, and, if necessary, highlight the unmitigated risks to the environment or communities. The ESIA process typically includes a community consultation that would involve a presentation of the project to the local stakeholders and provide an opportunity for concerned residents to comment on the project; there may be additional follow up interviews as well. The whole consultation process will be summarized as part of the final written ESIA report as evidence that the project has taken full responsibility to interact with the community and address concerns.
To the extent that a project has caused an involuntary relocation, the full details will be included in the ESIA report. Additionally, the company would typically commit to a Resettlement Action Plan (RAP) to meet with IFC guidelines (the World Bank Group’s policy on Involuntary Resettlement (OD4.30)) in the event of a loss of assets, impairment of livelihood or physical relocations. The RAP should consider the full impact of the resettlement and contain appropriate compensation and/or offsetting measures, and take a dedicated look at whether the resettlement disproportionately affects women and children. IFC has a Handbook for Preparing a Resettlement Action Plan here.
The financing parties take a very keen interest in the ESIA. The DFIs, as development institutions, all take these issues seriously, and the more seriously a project developer handles the ESIA process the easier the financing (or insurance) process will be. Additionally, most DFIs will need to post the ESIA report publicly on their website in order to solicit comments from the public, NGOs or other interested parties. And as we can see from the Oxfam report and subsequent sensationalist headlines, any discussion of resettlement or related issues can become, well, heated.
I want to say very clearly that I don’t know all the facts of the case and cannot form a clear opinion. Digging through the Oxfam report, the key issue seems to be that the company, NFC did not pay compensation, even though it is willing to pay an amount to the government that would be distributed to the people who were relocated, because the government did not want to set a “dangerous precedent” (see footnote 19 of the Oxfam report). And of course the alleged violence that was used during the relocations has received a lot of attention.
The thing that causes me some pause in reading the Oxfam report is that the IFC, EIB and FSC (an independent group that certifies forestry investments that adhere to best operating practices regarding labour, social and environmental issues) all signed off on the project. An IFC spokesman is quoted in a Wall Street Journal article (here) confirming that the group takes the issues very seriously but that the project has met IFC standards. I know from direct experience working with IFC that the group does indeed take the issues very seriously. While it’s possible IFC may have made some errors in judgement (which does not appear to be the case here, to be clear), in general the group is an extremely credible group that does an enormous amount to promote private investment and development around the world. I don’t think the IFC sign-off on the project should be dismissed so lightly.
Additionally, while Oxfam seems to target NFC in its comments, many of the issues seem to stem from actions by the Government of Uganda, as far as I can make out, though before forming any judgement I’d want to know more about the exact responsibilities under the Concession Agreement for carrying out the relocation and the discussions surrounding the government’s alleged insistence that no compensation be paid out.
So, no firm conclusions here, though I did want to point out some areas of concern in the Oxfam report. Getting large projects done in developing countries can be outright messy, with many factors at play. Governments want to attract investment and have it within their powers to grant concessions to investors and developers. I am grateful that there is a well-formulated process to dealing with many of the social issues that may result from infrastructure or other projects.
Note: I had never heard of New Forests Company before these recent articles. Neither I nor Provinceroot International has any interest in New Forests Company (or currently in any forestry project in Africa).
Killing Ugandans to Save the Planet
UN and the World Bank now involved in land theft over carbon credit scheme
Oxfam Report Says Thousands Evicted in Uganda Land Grab
And the actual Oxfam report here.
The issue in question is the alleged forced relocation of inhabitants in an area granted to New Forests Company (NFC), a U.K.-based forestry developer (website here) backed by HSBC, the European Investment Bank (EIB) and Agri-Vie, a South Africa-based fund with investment from IFC, the World Bank’s private sector investment arm. The Oxfam report claims that inhabitants on the land, some 15,000, were terrorized and forced off the land, and received no compensation from the company or the government.
This all sounds pretty bad, and certainly the sensationalist headlines pick that up for more dramatic effect. I haven’t spoken to anyone directly involved in this project or at Oxfam but wanted to offer some thoughts based on the Oxfam report and various other articles.
I called this article The Complications of Trying to Save the Planet because a central element of NFC’s project is to use its forest to offset carbon emissions, and sell carbon credits to polluters around the world.
First, it’s helpful to step back and understand how projects like this one would be structured in a developing country like Uganda. It seems clear from the Oxfam report that NFC was granted a concession over some amount of land for a period of 50 years. This means the Government of Uganda and NFC entered a Concession Agreement, a document that outlines the full scope of the two parties’ relationship to each other during the concession period, including various obligations of the parties, a detailed map of the concession area, the applicable tax regime, what happens if either party breaches the agreement, etc. This is a very typical contractual arrangement for infrastructure projects in Africa and around the world.
Unfortunately for many of these projects, especially in densely populated regions like Uganda and Rwanda, the area that the government grants to a company under the Concession will likely have some residents. The residents will need to be moved off the land for the project to proceed, and it would be typical (and absolutely desirable from the company’s point of view) for the government to take full responsibility under the Concession Agreement for any relocation and compensation owed to the inhabitants.
The issue can be tricky. Inhabitants may not have legal rights to be on the ground, having effectively squatted on the land, often for many, many years. The lack of legal right to the land may be an administrative matter, or linked to government ownership of the majority of the land in some areas.
For companies like Provinceroot and others who work with development finance institutions (DFIs), there are highly developed guidelines for dealing with involuntary resettlements (and a full range of other environmental and social issues). Any infrastructure project in a developing country will need an Environmental and Social Impact Assessment (ESIA) performed by an independent consultant. The ESIA will go into great detail in addressing the project's risks to environmental and social conditions, and explain the project’s mitigants, and, if necessary, highlight the unmitigated risks to the environment or communities. The ESIA process typically includes a community consultation that would involve a presentation of the project to the local stakeholders and provide an opportunity for concerned residents to comment on the project; there may be additional follow up interviews as well. The whole consultation process will be summarized as part of the final written ESIA report as evidence that the project has taken full responsibility to interact with the community and address concerns.
To the extent that a project has caused an involuntary relocation, the full details will be included in the ESIA report. Additionally, the company would typically commit to a Resettlement Action Plan (RAP) to meet with IFC guidelines (the World Bank Group’s policy on Involuntary Resettlement (OD4.30)) in the event of a loss of assets, impairment of livelihood or physical relocations. The RAP should consider the full impact of the resettlement and contain appropriate compensation and/or offsetting measures, and take a dedicated look at whether the resettlement disproportionately affects women and children. IFC has a Handbook for Preparing a Resettlement Action Plan here.
The financing parties take a very keen interest in the ESIA. The DFIs, as development institutions, all take these issues seriously, and the more seriously a project developer handles the ESIA process the easier the financing (or insurance) process will be. Additionally, most DFIs will need to post the ESIA report publicly on their website in order to solicit comments from the public, NGOs or other interested parties. And as we can see from the Oxfam report and subsequent sensationalist headlines, any discussion of resettlement or related issues can become, well, heated.
I want to say very clearly that I don’t know all the facts of the case and cannot form a clear opinion. Digging through the Oxfam report, the key issue seems to be that the company, NFC did not pay compensation, even though it is willing to pay an amount to the government that would be distributed to the people who were relocated, because the government did not want to set a “dangerous precedent” (see footnote 19 of the Oxfam report). And of course the alleged violence that was used during the relocations has received a lot of attention.
The thing that causes me some pause in reading the Oxfam report is that the IFC, EIB and FSC (an independent group that certifies forestry investments that adhere to best operating practices regarding labour, social and environmental issues) all signed off on the project. An IFC spokesman is quoted in a Wall Street Journal article (here) confirming that the group takes the issues very seriously but that the project has met IFC standards. I know from direct experience working with IFC that the group does indeed take the issues very seriously. While it’s possible IFC may have made some errors in judgement (which does not appear to be the case here, to be clear), in general the group is an extremely credible group that does an enormous amount to promote private investment and development around the world. I don’t think the IFC sign-off on the project should be dismissed so lightly.
Additionally, while Oxfam seems to target NFC in its comments, many of the issues seem to stem from actions by the Government of Uganda, as far as I can make out, though before forming any judgement I’d want to know more about the exact responsibilities under the Concession Agreement for carrying out the relocation and the discussions surrounding the government’s alleged insistence that no compensation be paid out.
So, no firm conclusions here, though I did want to point out some areas of concern in the Oxfam report. Getting large projects done in developing countries can be outright messy, with many factors at play. Governments want to attract investment and have it within their powers to grant concessions to investors and developers. I am grateful that there is a well-formulated process to dealing with many of the social issues that may result from infrastructure or other projects.
Note: I had never heard of New Forests Company before these recent articles. Neither I nor Provinceroot International has any interest in New Forests Company (or currently in any forestry project in Africa).
Wednesday, September 21, 2011
Tuesday, September 20, 2011
U.S. Commercial Service features Provinceroot on website
I'm very pleased that the U.S. Commercial Service team working with the African Development Bank has linked to Provinceroot's "Projects are Interdisciplinary and Local" article. Check out the link here (click on "U.S. Company Tips for Doing Business in Africa").
The U.S. Commercial Service and the export.gov website are both wonderful resources for companies pursuing business abroad.
The U.S. Commercial Service and the export.gov website are both wonderful resources for companies pursuing business abroad.
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