The offices of the Private Infrastructure Development Group (PIDG) are nestled in the heart of the City of London, overlooking the iconic Gherkin and Scalpel buildings. Here, African Business caught up with CEO Philippe Valahu to talk about the group’s work facilitating private investment through public private partnerships (PPPs) and bringing infrastructure and energy projects to Africa and South East Asia.
Since 2002, PIDG has guided around 200 infrastructure projects to financial close, mobilising billions in private sector investment supported by funding from six countries – the UK, Switzerland, Australia, Sweden, Netherlands and Germany – and IFC. These state and multilateral agencies have provided equity and worked together in PPPs that have included insurer Allianz; Standard Chartered Bank; the African Development Bank; the German development finance institution, KFfW; and FMO, the Dutch development bank. Remaining revenues come from interest payments and the repayment of loans towards the projects, taking PIDG’s model of self-sustainability closer to reality.
PIDG has been particularly active in bringing energy, especially renewables, to the African continent, including in fragile and post-conflict states through investing in credit opportunities with its Emerging Africa Infrastructure Fund (EAIF) managed by Investec Asset Management. Energy investments include Nachtigal Hydro in Cameroon in 2018 and a solar power plant in Mali, Akou Kita, in 2017. The EAIF has also invested in eight energy projects in Uganda including the refinancing of the 13 MW Bugoye hydro power plant in 2017 providing $14.65m out of a total of $29.3m.
The fund has worked in countries as diverse as Nigeria, Kenya, Rwanda, Cameroon, and Cote d’Ivoire. “We have a number of entities that effectively cover the full life cycle of an infrastructure asset from the upstream technical assistance required; to feasibility studies; all the way down to providing equity debt and guaranteed products,” says Valahu. “That is a pretty powerful toolkit because it means that we cover the full capital structure and that makes us quite unique, and that means that every single thing we do is focused on infrastructure broadly defined.”
In effect, PIDG is de-risking the projects for investors who may not have considered entering some of these African markets. Valahu, who spent a substantial part of his childhood in Congo and Zimbabwe, finds it particularly frustrating when people generalise about “Africa risk”.
“You can’t compare South Africa to South Sudan to Liberia to Ethiopia – sure you can talk about pockets of countries but you can’t talk about risk in a continent,” he says. “I always follow up the Africa risk comment by asking people: ‘When you talk about European risk do you compare Portugal and Greece to Germany or Sweden? You don’t. And you wouldn’t. So why would you do that in sub-Saharan Africa?’
“I guess my life mission, everything that we do at PIDG on a daily basis, is to be able to demonstrate to the private sector and the financial sector that you can invest in a 65 MW plant in Togo, as we have, and we developed it, and it works! And you can make a financial return balanced with the impact on development.”
With the current focus on sustainability in capital markets, investors who want to participate in impact investing are catching up fast with the opportunity to do good and do well. The EAIF offers a route for impact investors, including pension and private equity funds, who want to make a developmental impact. PIDG brought the first green bond to Kenya with the London Stock Exchange through the Acorn affordable housing project in Nairobi.
The focus on climate change in the wider sustainable investing conversation makes sustainable energy provision in Africa a complicated subject. PIDG is committed to choosing renewables in the first instance but challenges arise in poor countries with very little baseload capacity. Compromise and realism is required in getting power to people.
“It’s a difficult discussion today for good reasons,” says Valahu, “but I think if we look at some of the countries we operate in, about 55% of our business is in the fragile and post-conflict states. They don’t have the option of saying, well, we will go to 100% renewable energy tomorrow. They have emergency needs for baseload capacity. So surely there needs to be a discussion where we understand that some countries are fast-moving to the renewables space. For example, look at the progress made in Kenya.
“But there are countries where we work, such as in West Africa, where you need to think, do we need to have a debate if a country can start with gas, but then, with a clear path over the next five, 10, 15 years, move to renewable energy?”
The shift to renewables has not been straightforward worldwide. In countries like South Africa and Zimbabwe, which already struggle with reliable energy supply, there is a complex discussion over ensuring reliability and cost-effectiveness in the energy mix. But despite these concerns, things are moving in the right direction generally with sustainability assessments striving to achieve a balance across the energy mix.
But Valahu is both pragmatic and optimistic about how growing energy provision will enable Africa’s ability to leapfrog – and sees a future where the continent no longer needs actors like PIDG. “At the end of the day, we are there to put ourselves out of business. I don’t want to see PIDG around in 20 years because it would mean that we have been successful. It means we don’t need our debt fund anymore because you have raised the money locally”.
Listen to the full interview with Philippe Valahu in African Business Podcast 7