The Government of Ghana has signed a Memorandum of Understanding (MoU) with the African Trade Insurance Agency (ATI) for the roll out of the Regional Liquidity Support Facility (RLSF) within the country.
The RLSF which is a joint initiative of ATI, the KfW Development Bank, and the Norwegian Agency for Development Cooperation (Norad), is a financial product that is designed to address the short-term liquidity risks faced by small and medium-sized Independent Power Producers (IPPs) that sell electricity to state-owned power utilities – improving bankability and helping such projects reach financial close.
A press statement indicated that the signing of the MoU has come at a reasonable time when the demand for energy in Ghana is increasing by 10% per year, coupled with the country’s focus on expanding the contribution of renewable energy sources toward the country’s energy mix. Thanks to the MoU, IPPs in Ghana will benefit from RLSF which was not only created to help tackle climate change and attract investments by supporting renewable energy projects in ATI’s member countries but also to protect the IPPs against the risk of delayed payments by public off-takers.
Ghana has one of Africa’s highest rates of access to electricity at 86.63 percent with 74 percent of rural residents and 95 percent of urban residents connected to the electricity grid. Ghana also exports excess power to the neighboring countries of Benin, Burkina Faso, and Togo. Additionally, the country, which currently has a total installed capacity of over 5,300 MW – aspires to industrialize, modernize its agriculture, and provide economic opportunities for its growing population. However, one of the key constraints to this vision is access to reliable and cost-efficient electric power and the sector’s current financial deficit. RLSF will therefore be available to relieve the financial burden of the national utility, the Electricity Company of Ghana (ECG), which is often asked to provide collateral for similar liquidity instruments under power purchase agreements.
Ghana is the ninth ATI Member State to have signed the RLSF MoU – joining Benin, Burundi, Côte d’Ivoire, Madagascar, Malawi, Togo, Uganda, and Zambia.
Ghana’s on boarding of RLSF will lead to significant progress in de-risking renewable energy projects, which should spur additional investments from project developers and lenders owing to the improved risk profile of the projects.
RLSF is a joint initiative of ATI, the KfW Development Bank, and the Norwegian Agency for Development Cooperation (Norad).
VICE PRESIDENT OF GHANA, DR MOHAMMUDU BAWUMIA
The press statement added that the MOU is in line with its mission to promote access to reliable, clean, and affordable electricity,
About The African Trade Insurance Agency
ATI was founded in 2001 by the African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. In 2020, ATI closed the year with a gross exposure of US$6.3 billion and a net profit of US$39.4 million, owing to strong demand for ATI’s insurance solutions from the international financial sector and from African governments. Since its inception, ATI has supported US$70 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s.
About The Regional Liquidity Support Facility (RLSF)
ATI and the German Development Bank, KfW, with financing from the German Federal Ministry for Economic Cooperation and Development (BMZ), launched the RLSF in 2017. The Facility was created to help tackle climate change and attract investments by supporting renewable energy projects in ATI’s member countries. In 2022, the Norwegian Agency for Development Cooperation (Norad) committed additional funding toward the continued implementation of RLSF. RLSF has a capacity of USD 153.7 million and supports small and mid-scale renewable energy projects with an installed capacity of up to 100 MW (larger projects can be considered on a case-by-case basis) by protecting the projects against the risk of delayed payments by public off-takers; in turn, improving project bankability and ensuring that more projects reach financial close.
About KfW Development Bank
KfW is Germany’s leading development bank, wholly owned by the German Government and the federal states. It is one of the major implementing agencies of German development cooperation. On behalf of the German Federal Government, KfW finances investments and advisory services in developing countries, typically with governmental institutions. KfW projects are aimed at sustainable economic development, social infrastructure, and environmental protection.
Norad is the Norwegian Agency for Development Cooperation. The Agency is a directorate under the Norwegian Ministry of Foreign Affairs. In matters regarding Norway’s International Climate and Forest Initiative (NICFI), NORAD reports to the Norwegian Ministry of Climate and Environment. NORAD’s main purpose is to ensure that Norwegian development aid funds are spent in the best possible way and to report on what works and what does not work. In addition to Grant programs, NORAD’s main tasks are Aid advisory services, Quality assurance, and monitoring, Communication, and Evaluation.
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