The Civil Engineering Contractor June 2018 | Page 31

INSIGHT
The strength of the offtaker
and structure of offtake
agreements are critical in the
assessment of bankability of a
project. Investors and lenders are
taking a long-term view and need
comfort that the party responsible
for payment of the tariff or unitary
charge, which ultimately drives
the revenue, will be committed
and able to make these payments
for the duration of the contract.
Provision will need to be made for
appropriate compensation in the
event that the offtake agreements
are terminated. Where offtakers
are state-owned entities (SOE)
or utilities that do not have a
substantial balance sheet, support
in the form of a guarantee would
be required from the respective
government. In countries where
government is not willing or able
to provide such support, this risk is
in some cases underwritten by DFIs
or multilateral agencies to ensure
bankability.
There is growing demand from
the private sector for investment
and funding opportunities in the
infrastructure sector in South
Africa, and the players have
historically included commercial
banks, asset managers, and pension
funds. Managers of pension fund
assets are particularly interested
in the sector, given that the long-
term, predictable, and often
inflation-linked returns are a good
match for their pension liabilities.
There are also potential synergies
between players with different
funding mandates, and different
funding tranches can be structured
to complement each other with
differing repayment profiles, a
combination of shorter and longer
tenors, and commencing pre or
post construction.
Looking ahead, there is growing
optimism in the financing
community around the development
of infrastructure in South Africa.
There are a number of forums
where public and private players
are engaging on these issues, and
in public statements, the president
himself has acknowledged the need
for private sector engagement
and investment in the sector. This
may include a revival of the PPP
programmes, which would be
viewed in the market as a positive
step. The PPP framework has
been used around the world to
fund energy, transport, water and
sanitation, waste management,
medical, education, and correctional
facility projects, to name a few.
Successful implementation of
projects in these sectors would
contribute significantly towards the
country’s goals of reducing poverty,
inequality, and unemployment and
boosting economic growth and
foreign investment. nn
About the author
Investec’s Andre Wepener is the head of the Power
& Infrastructure Finance team at Investec Bank,
based in Johannesburg. The team provides funding
solutions for power and infrastructure projects
across sub-Saharan Africa. In addition to providing
debt financing, they also play the role of developer
and equity provider on select projects.
CEC June 2018 - 29