Time to power up

Power, or rather the lack of it, remains one of the defining issues for economic development across much of the African continent, delegates heard at the recent Risk Frontiers West Africa: Changing the risk landscape seminar. Organised by Commercial Risk Africa and attracting more than 100 risk managers from west Africa, the event had power supply and infrastructure developments high on the agenda, being enablers of other areas of development and massive opportunities for development in themselves. Delphine Maïdou, Chief Executive Officer, Allianz Global Corporate and Specialty of Africa, sums up the scale of the problem: “Africa has 47 countries and 800 million people but yet has the same amount of available power as Spain.”hideShe believes greater investment is needed to drive through new power supply projects, however Ms Maïdou says the private sector will have to get involved as government investment alone will not be enough. She acknowledges the massive risk involved with any power plant development. “One power station explosion can cause a lot of damage at the plant itself but also a lot of harm to the economy,” she warns. With Africa so far behind the rest of the world in terms of power penetration, Ms Maïdou says it means some four out of five people are not connected to the grid, across the region. This provides a huge opportunity for the developers of renewable power to create solutions for accessing those who are simply too far from existing power distribution points. There is also an issue in terms of upgrading and maintaining existing power plants—simply enabling existing facilities to produce at their maximum levels would majorly boost available supplies, says Ms Maïdou. As an insurer, power plants offer good opportunities for new business, Ms Maïdou says, but she also admits it is not without risk. Allianz recently won the lead on a power plant in South Africa from a rival insurer, she explains. Literally the day before Allianz was due to take over the contract however, there was a boiler explosion at the plant. The previous lead insurer was still on cover and suddenly faced a bill of some $350m, of which it had a 45% share and the knowledge that it was losing the account the very next day. Ms Maïdou says smaller insurers need to be aware that, even if buying a very small share of such business, 3% or 4% can result in a massive bill if something goes wrong. “Insurance is not just about transferring risk but about managing risk as well. Insurers need to make sure they have suitably skilled personnel before considering such risks,” she suggests. Adetola Adegbayi, Executive Director-General Business of Leadway Assurance, admits power development remains in its infancy in Nigeria. Despite it being Africa’s largest economy, she says: “We haven’t even scratched the surface.” The same is true of all infrastructure development, including roads and rail, as well as hospitals and schools. “Talk about roads and we have improved trunk roads but not much beyond. Talk about city transport and it is about traffic jams. Talk about hospitals and it is about people who go out of the country for care. “If you look at our growing population, you can see we are not producing enough for ourselves,” she warns. The Nigerian government has an infrastructure masterplan involving the public sector in partnership with the private sector, which is helping to push developments through. Of the $3tn infrastructure spend required, Ms Adegbayi says the majority of that is in energy and power. People and companies are also looking to maximise what they are producing. For example, she says, oil companies have stopped flaring and are trying to ensure that previous wasted energy is going into the grid instead. For the future, Ms Adegbayi says it is critical that insurers and risk managers factor power and infrastructure risks into their company plans and to pay more attention to some of the socioeconomic risks that emerge as such projects get underway. For example, she says, if a new railway is to be built or a highway extended, government will have to relocate those people and businesses along the route. This cannot only take a long time but can cause upheaval or even a backlash if not properly handled. This can quickly become a thorny political issue and sometimes will not be one that a government wants to tackle, particularly in the run-up to an election. Ms Adegbayi says there are many such implications to consider. “In other countries, such projects might take one year to get off the ground but here it can take up to three years because of these hurdles,” she suggests. Insurers do not always recognise such risks either at the conceptual stage, concentrating more on the physical development risks or operational risks. But she says that more time spent considering those broader socioeconomic risks would ultimately pave the way for easier development and less risk exposure. Beyond the physical risks, Ms Adegbayi also suggests insureds should consider areas such as currency fluctuation. Without hedging against currency movement, insureds can leave themselves short in the event of a major claim and she warns that, too often, insureds in Nigeria look at the upfront cost of a policy without considering the longer-term implications. Both women acknowledge there are some major challenges for the power/energy sector. And even a move towards renewables is tricky in a continent where power—if you can get it—is relatively low cost, meaning investment into renewables is not a lower cost option. It is something the major energy providers are aware of and are considering but for now it looks as if much of the future development will remain in the ‘old’-style power plants and the question will remain one of sufficient supply and widespread distribution.

Time to power up

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