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World Bank and Sweden boost funds to step up investment in Africa’s energy sector

Out-Law News | 06 Aug 2014 | 5:18 pm | 2 min. read

The World Bank has committed $5 billion in new technical and financial support to encourage increased international investments in energy infrastructure projects in six African nations under the US-backed Power Africa programme.

Bank president Jim Yong Kim said the package would include direct financing, investment guarantees and advisory services for project preparation in Power Africa’s initial partner countries Ethiopia, Ghana, Nigeria, Tanzania, Kenya and Liberia.

Kim, who announced the aid on 6 August during the US-Africa Summit in Washington DC, said: “The US government and the World Bank Group are working now on specific tasks and milestones which could help to achieve one quarter of Power Africa's goal of generating 10,000 megawatts (MW) of new power in sub-Saharan Africa.”

In a related announcement, Sweden said it plans to contribute $1bn to Power Africa in the form of grants for distribution and transmission projects, guarantees and loans.

Swedish finance minister Anders Borg said: “Our participation is a clear sign of the solid partnership between Sweden and the US in the field of development cooperation. Power Africa marks a new age in the use of innovative financing solutions in development cooperation.”

According to the US Agency for International Development (USAID), which is supporting Power Africa, “Sweden’s engagement and financial guarantees, along with those from the US, will unlock additional private sector investment that is so critical for transforming the energy sector in Africa”.

USAID said Sweden will help drive “catalytic impact funding from the private sector for the development of more electrification projects throughout sub-Saharan Africa”. New projects under Power Africa range from large scale 1,000 MW geothermal plants to smaller 10 MW ‘off-grid’ projects in very remote areas, “which cannot rely on a national electric grid for their energy access needs”.

Power Africa was launched by US president Barack Obama in June 2013 with the aim of doubling the number of people with access to power in sub-Saharan Africa. The programme targets activities to boost energy security, increase economic growth and decrease poverty by investing in oil and gas, wind, solar, hydropower and geothermal resources.

For the first five-year phase of Power Africa, up to 2018, the US government has already committed more than $7bn in financial support and loan guarantees, in addition to the support and expertise of 12 federal US agencies. Development finance partners include the African Development Bank and the World Bank.

According to USAID, every dollar the US government has committed to Power Africa has already attracted $2 in private sector investment commitments. To date, Power Africa’s financial partners have committed to providing more than $14bn in project finance through direct loans, guarantee facilities, and equity investments.

The World Bank’s vice-president for Africa Makhtar Diop stressed the need to also build the transmission infrastructure to distribute power from new generating plants across the continent. “We are working with African leaders and their development partners to create power pools in Africa’s east, west, central, and southern sub-regions. Those countries with abundant geothermal, gas, hydro, solar, and wind resources can feed their excess power supply into a common pool, while neighbouring states with less energy and generation capacity can benefit from this integrated approach to delivering electricity to their people.”

Diop said total power generation capacity in Africa, including South Africa, is about 80,000 MW, which is “roughly the same as that of Spain or South Korea”. Africa needs to add 7,000 MW of generating capacity each year to meet the projected growth in demand, “yet it has achieved only 1,000 MW of additional power generation annually”, Diop said.

However, Diop called on individual countries in Africa to “remove all barriers” to cross-country investments and said the bank would work with its partners to ensure power distribution companies “meet the minimum level of efficiency, financial viability, and good governance”.