From subsidies to a lean regime

Category: Middle East and Africa energy

Winner: REIPPP portfolio – Round 2

Nominated by: Nedbank Capital (mandated lead arranger, agent bank, account bank, hedging bank, syndicate bank, debt provider, Black Economic Empowerment (BEE) funder, export credit finance facilitator)

Other participants included: Multiple other organisations played the role of lender advisers, sponsor advisers, co-funders etc. as customary of project finance transactions

Date of transaction(s): Q2/Q3 2013

Size of deal: ZAR6 billion (€413 million; $569 million)

When you undertake something as ambitious as South Africa’s Renewable Energy Independent Power Producer (REIPP) programme, you can expect the wheels to initially begin turning slower than originally hoped for.

The plan at the outset was for the government to enlist the help of the private sector in delivering 3,725 megawatts (MW) of renewable energy generation capacity by 2016. But with Round 1 of the programme only just underway, the target was increased by a further 3,200MW to be hit by 2020.

Given that, at this stage, potential bidders were only just getting their heads around the demands of the procurement process, it’s perhaps no wonder that – towards the end of 2012 – the whole programme was rumoured to be in trouble.

However, Round 1 deals did eventually reach financial close by the end of that year – and the experience gave bidders more confidence when it came to Round 2. The second round was described by South African bank Nedbank Capital as “more dynamic and competitive” than Round 1.

Indeed, this competitiveness goes to the heart of what the caught the eye of the judges in this category. Initially, the REIPP programme had started as a feed-in tariff scheme. However, the scheme was then amended to a competitive bidding scheme which meant that, in the words of Nedbank Capital, “the strategy of bidders was changed entirely”.

In making its submission, the firm added: “From a robust project with contingency headroom, bidders then looked to the leanest project possible – while asking banks to provide cheaper funding.”

Nedbank rose to the challenge, being involved in 51 percent of preferred bids in Round 2 – thereby increasing its market share over Round 1 by 53 percent and increasing its renewable energy assets exposure by 111 percent. From a standing start a few years ago, Nedbank has taken its market share of renewable energy lending in South Africa to around 30 percent.

The judges were impressed that Nedbank completed deals all over the country in Northern Cape, Western Cape, Eastern Cape and Kwa-zulu Natal – developing new relationships as it did so with deal partners from all over the world.

Particularly striking, however, was that Round 2 of the REIPP programme embodied that vital switch from reliance on subsidies to a market-based environment which is the challenge for renewable energy investors everywhere. Nedbank was effectively at the forefront of an evolution that will have global repercussions and will no doubt provide lessons for others to learn from.

What the judges said:

“This appears to have broken the tie with a feed-in-tariff regime to a more market-based regime. Hats off, that’s gutsy.”

“This is El Dorado in terms of taking cost away from government and consumers.”

Honourable mentions in this category:

Cotsa floating storage and offloading unit (FSO) (nominated by Natixis)
Kepco Energy Resources (nominated by FBN Capital)