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In Historic Deal, Afreximbank, African Oil Producers Sign Agreement to Float Energy Bank

Africa’s multilateral trade finance institution, the African Export-Import Bank (Afreximbank), has signed a deal with the African Petroleum Producers Organisation (APPO) for the creation of an energy bank.

The deal followed pressure from Nigeria and other oil-producing African countries to float a bank that will cater to the energy needs of the continent as a result of declining global investment in the oil and gas sector.

Recently, the Minister of State, Petroleum Resources, Chief Timipre Sylva, while marshalling reasons for the urgent need to establish the bank, stated that it will help boost business activities in the sector on the continent.

The Organisation of Petroleum Exporting Countries (OPEC) had recently projected that the global oil industry will require about $12.6 trillion investments in the downstream, midstream as well as upstream to sustain its innovative and production efficiency in the next 25 years.

It warned that Nigeria’s economy as well as those of other resource-dependent countries may be badly affected, especially if the current push against fossil fuels continues to gain ground.

Sylva said since western nations were scaling down funding for hydrocarbon exploration across the world and focusing on renewable energies, setting up an African energy bank remains a viable way to neutralise the threat.

According to the minister, the call for the establishment of the bank is heightened by the passage of the Petroleum Industry Act (PIA), stressing that the Act will open up the oil and gas sector for huge investments, going forward.

“If we insist on the exploration of our oil and gas reserves when the world is cutting down on investments in the sector, we must set a financial institution, an African energy bank, to develop the oil and gas sector,” he insisted.

But during the signing ceremony at the ongoing 8th African Petroleum Congress and Exhibition tagged “CAPE VIII” in Luanda, Angola, the parties explained that the deal was aimed at scaling up private sector investment in African oil and gas projects.

The bank is expected to provide critical financing for new and existing oil and gas projects as well as energy developments across the entire value chain.

While the Director and Global Head, Client Relations, Afreximbank, Mr. Rene Awambeng signed on behalf of the bank, Nigeria’s Omar Farouk, Secretary General of APPO, appended his signature on behalf of African oil producers.

A communiqué by the parties stated that the deal was made possible having regard to the long, mutually beneficial relationship and cooperation between APPO and Afreximbank.

They noted that they were concerned about the threat posed to the African oil and gas industry and Africa’s economic development by the coordinated withdrawal of international trade and project financing from Africa’s oil and gas industry.

According to the signatories , having acknowledged the impact of climate change on Africa and aware that poverty fosters accelerated environmental degradation, there was the need for an orderly and just transition that protects the environment and enhances living standards.

“The two African institutions have resolved to work together to find an Africa-led solution to the threat posed to the African oil and gas industry and an orderly energy transition in Africa by the withdrawal of funding by its traditional financiers.

“The two institutions have committed to taking necessary actions to promote a sustainable and balanced solution to the challenge of financing the oil and gas industry in Africa during the energy transition.

“This will be done through, among others, the establishment of an African energy transition bank dedicated to supporting an Africa-led energy transition strategy that is consistent with the goal of preserving the environment and livelihoods,” the African institutions said.

While the developed world calls for the end of fossil fuels due to climate change, Africa continues to face the crisis of energy poverty.

According to available data, over 600 million lack access to electricity and 900 million lack access to clean cooking solutions, leading to stakeholders calling for the rapid expansion of the oil and gas sector.

Despite these calls, global investors are shying away from hydrocarbons, leaving the continent without the investment it needs if it is to capitalise on its resources.

The African Energy Chamber, (AEC) Q1 2022 report on the state of African energy, says that from the peak in 2014 at $60 billion, capital expenditure in Africa declined to $22.5 billion in 2020.

Despite projected increases to $30 billion, significant levels of investment are still required, and thus, the role of African financial institutions has been emphasised, it said.

Organisations such as the Afreximbank have already made notable progress to drive oil and gas project developments. At the end of 2020, the Afreximbank’s total assets and guarantees stood at $21.5 billion, with shareholder funds amounting to $3.4 billion.

The Afreximbank-APPO MoU, the deal said, is aimed at alleviating these challenges and ensuring the provision of capital for Africa’s upcoming oil and gas projects.

Based in Africa, the bank will operate as an independent entity, regulated and led by experienced professionals that know and understand Africa’s energy needs.

The proposed bank, it said, will not be a substitute for private investment, however, but rather, will serve as a catalyst for Africa-directed investment.

“The African Energy Chamber has been pushing for the creation of an African Energy Bank, one that is African-based and Africa-focused, and I am proud to announce that the Afreximbank and APPO have taken the first steps towards its creation.

“ The bank will be critical for Africa’s energy sector, serving as a catalyst – not a substitute – for private investment in African energy.

“This is a practical strategy for prosperity and a pragmatic vision that must be embraced by all who want to make energy poverty history and fight climate change,” the Executive Chairman of the AEC, N.J Ayuk, said.