Finance for Ghana’s changing energy industry

Ghana

Farid Antar, managing director of Republic Bank (Ghana), talks to The Energy Year about how the Ghanaian economy has gained strength through the clean-up of its financial sector and the challenges banks face in financing E&P projects. Republic Bank Ghana provides corporate, commercial and retail banking; investment banking; mortgage banking; and microfinance.

How has the Covid-19 pandemic impacted Ghana’s economy as a whole?
Ghana’s economy has been on a very positive trajectory for the past five years, with the financial sector clean-up and the increase in regulations and governance controls. These have helped the country manoeuvre well, better than most, through this period.
The fundamentals of the economy are good; the resources are here. Ghana is stable, with more than 30 years of consistent peaceful elections. The infrastructure and the standard of living are continually improving. The international trade sector was very quick to pick up this year, which I think is mostly due to the port expansions and Ghana’s trade with its landlocked neighbours.
As prospects are good, you’re seeing interest from the international investment community in Ghana, whether from the First World, or out of Asia, India or even South American countries.
Opportunities certainly exist here. Almost 60% of Africa’s population is under the age of 25, making Africa the world’s youngest continent. The world seems to be surprised at how well Africa as a whole is managing through the Covid pandemic.

Has the financial sector clean-up, in which the Bank of Ghana revoked the licences of nine banks in 2019, brought more trust from investors?
To a large degree, yes. The international or pan-African banks remained operational, and the international community would generally deal with those larger banks, with a larger spread.
Business doesn’t like a vacuum or instability. The clean-up in the sector built confidence. It was a huge move by the government and the Bank of Ghana that cost GHS 25 million [USD 4.13 million] of taxpayers’ money. Some wondered if it was worth it. The question may be “What was the alternative?” If they had let these weak financial institutions fail, many depositors would have been affected.
A lot of people took their money out of banks they felt were a risk. But it didn’t take long for it to come back into the system though. And of course, they migrated to the premium banks. As a medium-sized bank, we did quite well during that period in attracting deposits as well.

What is your assessment of the upstream sector’s ability to re-emerge after the pandemic?
Tullow got rid of some assets that were not its core business. Now they have started their drilling campaign. I hope Eni and <a href='https://theenergyyear.com/companies-institutions/springfield/’>Springfield can come to a conclusion quickly [on their dispute over the Sankofa field].
A lot of gas is still being flared, and there are plans to capture and process it for energy production. We would be interested in participating in something like this, with the support of our parent group.

What challenges do banks face in financing E&P projects?
Oil majors’ activities tend to be very capital-intensive. If they need financing, they get it from their parent and/or the international banks. And there are some limiting factors for banks: you can only have exposures up to 25% of your net-owned funds to one entity or one group on a secure basis, and on a secure basis it’s only 10%. So depending on the size of your bank, it limits your ability to participate in many of these ventures. However, you may be able to do so with the support of your parent company.
The Republic Financial Holdings Group has undergone a significant expansion in recent years with assets now totalling USD 16 billion, putting it in a good position to participate in major upstream projects. We have done a few projects in Trinidad, Suriname and Guyana. We’ve worked not with the major IOCs but more with companies like <a href='https://theenergyyear.com/companies-institutions/touchstone/’>Touchstone and Tullow.

How can financial institutions become more involved with service providers?
The market has an opportunity for a lot of more innovative debt structuring, issuing of capital market instruments, etc. Currently, many of these funds are attracted by the return and the lower-risk profile of the government securities, but the market will evolve.
We do play a bigger role within the support services for the oil and gas industry, with working capital support and short-term financing.
Our bank also does infrastructure financing. We would have been able to finance some of the new warehouses and private port developments in Takoradi, for example.
We also participate heavily in petroleum products and the distribution chain, with the OMCs [oil marketing companies], the BDCs [bulk distribution companies], storage and others. For us it’s a decent exposure. We recently financed a terminal storage facility, for example.

What is the Republic Group’s interest in the development of renewable energies?
We are very keen to get into renewable energies at different levels. We are in discussions with a couple of pan-African and global funding agencies for pools of funds to push. We are committed as a group to supporting the UN’s net-zero emissions goals for 2050.
At a group level, our parent, Republic Financial Holdings Limited (RFHL), has set aside a pool of USD 200 million for financing these types of activities. This is funding that we can access here in Ghana in order to provide more affordable financing than what’s currently available within the country.

Would you be interested in financing renewable energy generation projects?
We did this in Barbados, where the legislation allows excess power generation to be sold to the grid. If you put in an investment to power your factory, you will generally set it up with overcapacity, but you want to be able to sell that excess to the grid. And once it’s a competitive price, the grid should offer good returns. We’ve been speaking with a couple of Ghana’s ministries, showing them the framework that was created in Barbados, and hopefully we can get to that point.
In Ghana, we are looking into solar and wind farms that will augment or replace some of the country’s hydropower generation. There will be a shift to clean energy. A lot of investments seem to be going into solar. We have also been speaking to one of the major waste management companies, and they are looking to develop waste-to-energy power plants.

Can the banking sector assist in the revamping of the power sector?
Yes, it can assist in improving the power distribution network. I don’t think power production is a problem. Ghana overproduces, and we sell about 500 kWh per year to surrounding countries, but we still have over 400 kWh of surplus. Yet there are still too many outages across the country.
The distribution network has not grown enough and has not been sufficiently maintained. We have a funding agency that is willing to assist in financing the upgrade of the power distribution network. People spend too much on their generators, on diesel to keep their factories going. There is also unnecessary damage to equipment. The more we can build out, the better our productivity will be.

In which areas do you see potential for Trinidad and Tobago to collaborate with Ghana?
Trinidad has been in the oil and gas business for over 100 years. We don’t have large reserves but we have the know-how. Trinidad was interested, through its National Gas Company [NGC], in partnering with GNPC to develop the much discussed gas pipelines. This has not as yet come to fruition. We remain hopeful we can play a role for this to happen.
GNPC has previously partnered with NGC, such as on training via an exchange of staff. We would like to see that progress.

How can Ghana harness its hydrocarbons potential to drive sustainable economic growth?
No one knows what the lifespan of fossil fuels will be. A country’s development is long term. Ghana still has a large low-income class, so if they see money coming in, they’re going to demand that it be used for their benefit. We should ring-fence a significant part of that, whether it’s via a heritage-type fund or a development-type fund such as the UAE set up. They used the money to develop a clear strategic plan. Ghana has to harness whatever revenue it can over the next 10 years and use that to diversify the economy and improve infrastructure.

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