Tuesday, December 10, 2019

Big business is back

Two recent deals involving private companies and Nordic development financing instiutions mark that big business is back in aid. The financing packages are complicated, but they have in common that Nordic companies and individuals are driving forces, and they have managed to get a range of aid institutions onboard to fund their projects.   

Moreover, both projects are within renewable energy. In Kenya, three Nordic risk capital funds together with the African Development Bank (AfDB) and several other investors are financing a 300-mw windmill park, Lake Turkana, the largest in Africa.

The Danish windmill supplier Vestas has been deeply involved in developing the project and has been awarded a contract for delivery of 365 windmills without international bidding. This is almost unprecedented for such a huge deal. The contract is probably worth billions of crowns.

In a separate deal, the Swedish aid agency Sida has issued a SEK 120 million guarantee to bridge fund Per Carstedt’s EcoEnergy sugar cane project in Tanzania. Carstedt has worked hard for many years to find funding for the project, which has been substantially down-sized.

If AfDB approves a loan for the project by the end of the year, Sida is prepared to extend its guarantee to SEK 600 million to cover 30 per cent of the loan. This would be the largest guarantee Sida has ever given. Project documents show that much has to fall into place for the project to succeed and Sida has been willing to take substantial risk.

Companies have been reluctant to develop aid-financed projects over the last decade because in the end they can lose contracts to competitors in the procurement process that is normally required by aid agencies. The new projects show that big business has identified new paths into aid financing.

For the aid agencies and other financing institutions it is important to hammer out some principles that create a level playing field. This is urgent to secure that more companies can compete for funding on credible terms.