New Africa Energy Bank will ease funding challenges: experts

The African Petroleum Production Organization (APPO) has chosen Abuja, Nigeria to host the historic Africa Energy Bank (AEB), which will have an initial share capital of US$5 billion.

This was announced at the 45^th Extraordinary Session of the APPO Ministerial Council held in Abuja, Nigeria. APPO member countries, their national oil and gas companies, and other investors will subscribe to it.

According to the organisation’s statement, Bruno Jean Richard Itoua, the Minister of Hydrocarbons of the Republic of Congo and alternate President of the APPO Council of Ministers, chaired the meeting of the 18-member country organisation.

The Chairman of the Ministerial Selection Committee said that a number of objective criteria, including socioeconomic factors, security, and accessibility, were considered before Nigeria was chosen to host the bank.

AEB is an international financial institution being established jointly by the APPO and Afreximbank to address the funding challenge that the African oil and gas industry has faced as a result of the energy transition.

When fully established, the bank aims to be a national financial institution similar to other specialised development finance institutions, focused on providing funds for energy projects on the African continent. Although the bank claims to be focused on the oil and gas industry, it is also open to investments in all other forms of energy, including renewables.

Easing funding

Dr Ayodele Oni, a partner at Bloomfield Law Practice, told Gas Outlook that the start of operations of the Africa Energy Bank marks a significant historic milestone. He said with the primary aim of providing a dedicated and stable source of capital/financial support to oil and gas projects, it will eradicate the struggle to secure funding and possibly, the stringent conditions attached to capital investments in recent years.

“The bank may also centre on funding projects that are in tandem with sustainable development goals by investing in key issues such as infrastructure and clean energy which Nigeria and most countries in Africa are presently committed to.

“Also, this represents a strategic step towards the creation of a solid energy independence, a financial resource to unlock energy potential and economic progress in the Africa continent. It is worthwhile to note that the bank’s funding includes significant contribution from Africa member states and international investors, thereby promoting inclusiveness and fostering unity in the oil and gas industry across the continent.”

Katlong Alex, Energy Analyst at the African Energy Council, noted that hosting the AEB headquarters in Nigeria strengthens the country’s position as a regional energy leader, potentially giving it more influence in shaping energy policies and attracting investments.

He told Gas Outlook that the AEB might facilitate the transfer of knowledge and technology in the energy sector, especially regarding renewables, accelerating Africa’s adoption of clean energy solutions.

Energy crisis issues

Oni believes the bank’s formation would increase energy access and reduce energy costs. He said this could be achieved by utilising energy investments to ensure an efficient energy production and distribution system, which would consequently reduce costs for the end users.

“Financing of projects in underserved areas would also aid provide better opportunities for citizens living in rural areas.”

He further said that the establishment of the bank will provide sufficient financial backbone to various projects aimed at the successful transition to clean energy sources.

“Furthermore, by fostering private-public partnership, the bank can leverage on raising funds from private investments and contribution to a sustainable environment.

“Also, the formation of the institution will bring about technological advancements needed to create a groundbreaking change in the industry and most importantly to facilitate the much-needed energy transition, thereby increasing standards of living and access to energy utilisation across the continent.”

Energy security

Oni further said that, given the need for Africa to keep alive its oil and gas industry, the bank will bridge the gap of funding shortfalls in Africa by providing finance for the exploitation of the continent’s energy resources.

He believes the bank, positioned as a development bank, will drive energy security by investing in energy infrastructure and subsequent financing to sustain such projects.

“Also, the bank will play a significant role in the promotion of energy transition and investment in renewable energy thereby creating a solid avenue for the exploration of safe environmental energy sources.”

Alex, the African Energy Council analyst, also noted that the bank will promote socio-economic development by increasing investment in energy projects, which will create jobs in constructing, operating, and maintaining these facilities, fostering economic growth and reducing poverty.

However, he said for the AEB to achieve these goals, the bank must prioritise projects with the highest impact on energy security and socio-economic development.

“This requires a data-driven approach and collaboration with member nations. National governments need to implement policies that encourage private sector participation in the energy sector and create an environment conducive to attracting investments alongside AEB financing. Effective governance and transparent operations are crucial to ensure that resources are used efficiently and reach the intended beneficiaries.”

Potential challenges

Alex said the new bank’s openness to renewable energy investments while focusing on oil and gas is a strategic approach reflecting the current realities of Africa’s energy landscape. He said Africa requires a balanced energy mix to meet its growing energy demand and achieve long-term energy security.

However, he said that over-reliance on either sector could hinder progress towards a sustainable energy future. “Member countries with varying energy priorities might put pressure on the AEB to favour specific projects. Transparent decision-making and a focus on long-term benefits are crucial.”

He also added that although $5 billion is a substantial sum, it may not be sufficient to meet Africa’s vast energy needs in the long-term.

“Therefore, the AEB’s success depends on attracting further capital and efficient management. Additionally, the bank’s framework for financing high-risk projects requires careful consideration. Balancing risk with impactful project selection will be crucial for ensuring the AEB’s effectiveness.

“Overall, the AEB’s approach acknowledges the realities of Africa’s energy needs while preparing for a future powered by clean energy. Its success depends on finding the right balance between supporting existing infrastructure and fostering a smooth transition towards a more sustainable energy mix,” he concluded.