Certain guerrilla tactics required to develop energy projects in Africa

When one brings ‘guerrilla tactics’ to mind, it is usually in the context of an irregular form of warfare, where a small, ragtag group of combatants use unconventional military tactics and mobility to fight a larger and less-mobile traditional military. The strategy and tactics of guerrilla warfare tend to focus around the use of a small, mobile force competing against all odds to defeat a larger, less adaptable army.

On the face of it, attempting an analogy within the realms of power development would therefore appear positively romantic (albeit at a bit of a stretch perhaps), yet a brief bit of research also suggests that guerrilla fighters typically tend to have “no coherent strategy”. The analogy is therefore one that is more selective in its comparisons, with the concepts of (i) adaptability and flexibility in approach; and (ii) a granular knowledge of the local conditions being the two key ‘guerrilla tactics’ with which doing power project finance/energy development in Mozambique, or any quickly developing and relatively newly regulated African country should be associated with.

In the five years that Investec has been involved in the development of the Kuvaninga Energia project, a 40MW gas-fired power development in southern Mozambique that has recently reached financial close, there have certainly been detailed learnings of the technical aspects of doing business in Mozambique. However, it was the high-level employment of these aforementioned concepts that provided the most palpable gains in efficiency.

Being adaptable and flexible in your approach is perhaps an obvious trait that anyone developing a business already has or should aspire to have. However it is largely the pitfalls of having a complete lack of this attribute that needs to be emphasised. Insisting on certain project finance principles and/or legal and financial structures just because they are what the market is used to runs the real risk of killing your project or at the very best ensuring that you will not attain the coveted ‘complete buy-in’ from your local counterparts and stakeholders.

Comfort needs to be obtained through creating structures or following an alternative process that achieves something synthetically the same, or at times even better. Specifically, balancing lender ‘belts and braces’ requirements with tariff affordability in a local market that is not necessarily at first sympathetic to project finance principles, was an over-arching theme that probably best serves to illustrate the challenges that were overcome. Instead of providing stock-standard, off-the-shelf solutions so as to allay the lender concerns, structures needed to be at all times implemented in a manner wherein the aforementioned balances were attended to.

Knowing the local business culture and legal environment is an aspect that would also seem to be an obvious prerequisite to going into any new environment; however it is also one that is not easily fulfilled. A learn-as-you-go approach is a sure way to pay double the school fees but can be averted from the outset by locking in a strong and active local partner with a suitably aligned interest in the project, as well as local legal counsel working (partly) on a success-fee basis.

Secondly, having both debt and equity financiers with a history in the geography is fundamental for the aforementioned differences in structuring to be seen as bankable, rather than items that require superfluous (or unachievable) tweaks to ensure their comfort.

The above concepts are clearly not sufficiently detailed enough to provide a one-stop shop to successful project financing in Mozambique, but the general guerrilla analogy is possibly something to remind any prospective financier and/or developer entering an unfamiliar market that business, and your business approach, is never going to be as per usual.

Colin Corbishley and Venetia Govender are both part of Investec’s Power & Infrastructure Finance team.

This article was originally published on the Investec website.