Business & finance Energy & environment

A friendly fund

Norwegian development finance institution (DFI) Norfund has a strong investment portfolio throughout Southern and Eastern Africa. This particularly applies across the power sector, which is currently a key point of focus. We profile some of its key projects.

In April this year, Norfund announced its plans to double or even triple its investments in sub-Saharan Africa’s power sector. This goal – which the fund aims to meet by 2020 – could radically improve the electrification of Africa, particularly in power-starved countries such as Ghana where only 5% of the rural population have access to electricity.

It was not the first time that Norfund’s African investments had been placed in the spotlight. As Norway’s state-owned development finance institution (DFI), Norfund is the government’s main tool for tackling poverty through private sector development. It has a long track record in providing capital allocations to sustainable commercial businesses, concentrating its investment in least developed countries (LDCs) across Central America, Southeast and South Asia, Southern Africa and Eastern Africa.

Within Southern and Eastern Africa – where it maintains three regional offices – the fund has been used to tackle projects ranging from poultry supplies (African Century Foods) to microfinancing loans (Socremo and Real People) to residential housing (Pride Architects). In January this year, the fund (together with Norfinance) bought 12.223% of Equity Bank, the second largest bank in Kenya, which deals primarily with previously ‘unbanked’ individuals and boasts over 9 million customers.

Still, its power sector projects – representing around 50% of its portfolio – have often been the ones to command the most attention. This February Norfund joined forces with its UK counterpart, CDC, to acquire Globeleq Africa. An operating power company with eight major assets across sub-Saharan Africa, Globeleq Africa intends to add 5,000 MW of generating capacity within the next ten years.

“This project fits very well into our strategy,” Ola Nafstad, head of strategy and analysis at Norfund, told EMA Finance. “Our mandate is to continue development through profitable investments, and our three priority sectors are energy, financial institutions and agribusiness. We see the investment in Globeleq as an important platform for future expansion in the energy sector in Africa.”

Following the $225m investment, Norfund and CDC have direct ownership of the company, holding 30% and 70% of the shares respectively. The stake was acquired from the Actis Infrastructure 2 Fund, itself a spin-off fund from CDC, and will enable Globeleq Africa to tackle early-stage power projects that would otherwise lack the necessary capital. From Norfund’s perspective, the deal ties in well with its mandate to undertake minority investments.

“We are mandated to always invest together with other partners,” explains Nafstad. “That’s an important part of our strategy: to be minority stakeholders but large enough stakeholders to be essential in each investment.”

By way of example, Norfund maintains a 50% stake in the hydropower company SN Power (with the remaining shares owned by the Norwegian power company Statkraft). Established in 2002, SN Power is a leading developer of hydropower projects in emerging markets, and remains Norfund’s largest investment to date. Its subsidiary company, Agua Imara, has a 51% shareholding in Lunsemfwa Hydropower Company, the first independent power producer in Zambia.

Norfund also has a number of African wind projects underway. It is an equity investor in the 310MW Lake Turkana wind power park in Kenya, which will be the largest private investment in Kenya’s history, and has invested in the 60MW Kinangop Wind Park.

Within solar, its ongoing relationship with Scatec Solar continues to go from strength to strength. In 2012, Norfund committed to invest NOK 111 million in equity across three South African PV projects. These will generate enough energy to supply more than 88,000 households with electricity, going some way towards plugging the South African energy gap.

Then, last year, it added a 8.5 MW solar plant in Rwanda to its portfolio. The first utility-scale solar PV power plant in East Africa, this is Norfund’s fourth joint investment with Scatec Solar and has set the tone for the years ahead.

“Scatec Solar is very efficient and a very good partner,” says Nafstad. “Our strategy is to continue cooperating with Scatec Solar in the solar sector, as well as developing more power generation in sub-Saharan Africa through Globeleq and keep working on hydropower projects with Statkraft. So Africa has high priority in our energy strategy.”

While loath to go into specifics, Nafstad makes it clear that there are exciting times on the horizon for Norfund’s African portfolio.

“I cannot say much about the pipeline, but I can promise there will be several good investments in African power during the years to come,” he confirms.

Norfund has a clear goal within this sector – to support the development of significant generating capacity in Africa, and to funnel equity into the power projects that need it most. Given its highly ambitious targets, it is clear we should watch this space.

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This news piece appears in the October / November 2015 edition of EMEA Finance

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