Political risk coverage for African energy projects

04 June 2019

Political risk coverage for African energy projects The energy sector faces the challenge of delivering power to support a burgeoning global population, while concurrently navigating a world of changing risks. This challenge is heightened by geopolitical and geo-economic risks critical for power and energy firms doing business in Africa. Our latest report explores the history of the market and details the role played by public and private sector carriers in supporting power project developers.

INTRODUCTION

The United Nations predicts the global population will rise from the 7.3 billion recorded in 2015 to hit 8.5 billion by 2030. It will then increase further to reach 9.7 billion in 2050 and 11.2 billion by 2100.

At the end of May 2019, according to African Energy, the continent had:

2766 power projects in operation, generating 227,606 MW.

211 projects under construction that will contribute a further 51,805 MW.

2039 planned projects, with the potential to deliver another 296,171MW.

There is significant potential to close the yawning gap and public and private sector enterprise has invested enormous amounts of resource, time and energy to deliver power projects that overcome these shortfalls and improve access to electricity.

Alongside the need to improve access to energy is the pressure to deliver the ‘right’ energy, with an emphasis on renewable sources and technologies to minimise environmental impacts. At the same time, companies doing business in Africa, as elsewhere, face high levels of political and economic risks.


According to the World Economic Forum’s (WEF) 2019 Global Risks Report, seven of the top ten risks expected to deteriorate in 2019 are connected to the political environment. Indeed, 90% of those responding to the WEF risk survey expected economic confrontations and/or frictions between major powers to deteriorate this year, with 88% forecasting the erosion of multilateral trading rules and agreements.

Political risk insurance (PRI) thus becomes an important risk mitigation tool to safeguard the investment or debt positions of sponsors, lenders, and other stakeholders involved in delivering numerous, large-scale, and innovative energy projects.

The PRI market has a long-standing and proven track record in assessing, mitigating and underwriting these risks.

An insured may use traditional public market routes, including the World Bank’s Multilateral Investment Guarantee Agency (MIGA) or export credit agencies (ECAs); the private market; or a combination of the two.

This report explores the history of the market and details the role played by public and private sector carriers in supporting power project developers.

REPORT HIGHLIGHTS

Below we summarise the key highlights from the report:

How the PRI Market has evolvedHOW THE PRI MARKET HAS EVOLVED

The PRI market is more established than many realise and has its genesis in the aftermath of the Second World War and the European Recovery Programme of 1948, more commonly known as the Marshall Plan. Today, insureds can access PRI coverage for projects from traditional fuel to renewable power projects, using either the public or private markets.

An Overview of Today’s Private PRI Market AN OVERVIEW OF TODAY’S PRIVATE PRI MARKET

We look at the carriers in the private political risk insurance market and how they offer cover for the full spectrum of traditional fuel and renewable power projects. Once project sponsors, developers, lenders, and financiers have assessed their exposures and quantified their potential liabilities, they can purchase cover to create a unique insurance programme that satisfies their specific needs and those of associated stakeholders.

Why Early Engagement with Markets are Key to SuccessPROTECTING YOUR INVESTMENT

Asset managers and private equity funds have become frequent enquirers regarding political risk insurance. Typically, their interest arises when they are satisfied with the credit metrics of a potential investment, but seek to cover events outside of their control that could cause the total loss of the asset or investment.

Comparing the Private Market and MIGACOMPARING THE PRIVATE MARKET AND MIGA

Securing the best risk mitigation and transfer solution for a power project requires involved stakeholders to assess what is available and to play to the strengths of each individual market. In this report we explore the pros and cons of public and private markets.

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  • AFRICA ENERGY FORUM

  • Bob LockBob Lock

    Bob has extensive experience of guiding clients through the development, construction and operational phases of a wide range of power projects across multiple technologies and geographies. Bob has focussed on the renewable energy sector for the past five years.

    With Marsh, Bob is a Senior Account Executive and business producer in the renewable energy team. He uses his extensive industry experience to advise clients on their risk and insurance strategy navigate claim settlements and negotiate contractual agreements with project stakeholders.

    Prior to JLT, Bob has led risk and insurance work streams for ‘first of a kind’ power projects in Europe, Asia, the Middle East and Africa. This has included finding solutions to challenging technology, project finance structures and local insurance and reinsurance restrictions to the satisfaction of all stakeholders.

    For further information or to learn more about renewable energy insurance, contact Bob Lock, Senior Account Executive on
    +44 20 7528 4289

  • For an update on political risk coverage for African energy projects, DOWNLOAD OUR REPORT

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  • 11 June 2019 - 14 June 2019

    The Africa Energy Forum (AEF) is a global meeting of investors in African power, energy, infrastructure and industrial sectors. The forum is intended to bring together key ‘decision makers’ who can collaborate in order to bring projects to fruition.

    We at Marsh JLT Specialty have participated in AEF for a number of years as we recognise the importance of continued investment in Africa; our project insurance expertise has proven to be a valuable resource to some of the attending delegates when embarking on new projects.

    Find out more