II. Panel discussion on Investment Trends & Challenges in hydro power The conference witnessed an engaging panel discussion to provide insights into the perspective of investors and lenders, challenges and issues, key opportunities, and investors’ future outlook. The panel comprised of:

1. Moderator: Prateek Bagaria, Partner, Singularity Legal
2. Olivier Tricca, Power Engineer, European Investment Bank (EIB)
3. Sylvie Mahieu – Principal Investment Officer, African Development Bank
4. Richard (Chris) Troy, Transaction Liaison, Power Africa US Agency for International Development (USAID)

Mr. Bagaria opened the discussion with a clarion call to the need for investment to meet Africa’s burgeoning requirement for power. He suggested that investments made to address the COVID-19 crisis must spur the continent’s transition towards a sustainable energy future, particularly to the potential behemoth in the hydropower sector. A relapse into unsustainable economic patterns, as took place globally with the 2008 financial crisis is undesirable. He categorized financial risks into three perspectives – lenders, investors, and the State, and went about how these may be minimized.

1. Lenders: Financing contracts that ensure security, create trust and retention mechanisms, and tiered dispute resolution mechanisms may provide relief to lenders. International accepted templates like FIDIC contracts throw light on the global best practices.
2. Investors: Investors can work closely with contractors, and if the situation permits, with employers who are usually state-owned, to address bureaucratic bottlenecks and enable an optimistic environment for PPP development and financial sustainability. Investors too must ensure their contracts address situations when the employer fails to adhere to its commitments and obligations, including dispute resolution mechanism in the contract as well as investment protection under the relevant bilateral or multilateral investment treaty.
3. State: The State can avail and adopt multiple mechanisms to avoid disputes and see through the smooth completion of the project, ensuring the financing needs are met and the project is completed in time.

Mr. Bagaria then introduced the other speakers from the EIB, AfDB, and USAID and invited them to make their presentations. Development finance institutions (DFIs) like these have played a major role in meeting the financing needs of energy projects in Africa, including hydropower. Mr. Tricca informed that the EIB’s total hydropower investment between 2012-20 in Africa stood at €320 million in around 13 projects. The EIB’s project portfolio includes large hydroelectric schemes sponsored by public utilities, small and medium schemes by private investors, one under-construction pumped hydro plant in Morocco, amongst others. As with any major investment, Mr. Tricca shared that the EIB has faced multiple challenges in their hydropower investment in Africa, including site-specific risks, community engagement, biodiversity impact, resettlement actions, balancing the rightful beneficiaries of the profits of the projects, local government requirements that are sometimes unacceptable to the EIB, system losses, etc. He emphasised the importance of a comprehensive plan to account for all these risks and their mitigation at the very outset, before proceeding with acquiring finance. Mr. Tricca concluded that the EIB seeks to expand its portfolio in Africa, with renewed vigour in light of the global decarbonisation goals. Ms. Mahieu shared that the AfDB aims to promote the development of hydropower projects in the region with adequate environmental and social safeguards while taking into account climate change implications. Some key hydropower projects funded by the AfDB include 420 MW Nachtigal Hydro IPP (Cameroon), 250 MW Bujagali Hydro (Uganda), and 120 MW Itezhi Tezhi (Uganda), amongst others. She noted that investment in the private sector has been inadequately allocated – with maximum investments being received in Europe and North America where the best and most efficient hydropower resources have already been developed. It is Africa that needs the investment with its ample, but undeveloped hydropower capacity. Governments have taken notice of this and have begun to include hydropower in their ambitious energy plans and create regional power-sharing mechanisms. She agreed that appropriate contract mechanisms, PRG, PRI, and insurance cover were necessary to mitigate risks to hydropower development. Another suggestion was introducing smaller-scale hydropower projects (mini-hydro/off-grid schemes) that are less capital intensive, and minimize certain risks like those associated with resettlement. Mr. Troy began by highlighting that the USAID is leading the ‘Power Africa’ initiative which brings together over 160 private sector partners to increase investment in the African energy sector in order to improve electricity access. He emphasized that hydropower is not only important for power generation itself, but it is also essential to provide complimentary access to other forms of renewable energy like solar and wind power. He stressed the need to mitigate losses and increase collection by modernizing the grids with technologies like digital meters. Certain countries report up to 80% losses, making investment financially unsound and also lowering investor trust. Financial instruments like sovereign guarantees have to be efficient and then layered onto the complex transaction to ensure a balanced risk allocation amongst all participants. The panelists reached a collective consensus that developers must take into consideration the environmental and social impact of large hydro projects, adhere to established protocols and standards to ensure credibility of data, and focus on climate-resilient designs, given the clear emphasis laid on these by the DFIs. They also suggested the need for government policy accounting for medium-to-long-term investment needs, and regulatory reforms such as power sector unbundling.