Project financing in Sub-Saharan Africa


Financing power and infrastructure projects in Sub- Saharan Africa

The World Bank estimates that Africa’s annual infrastructure financing requirements are US$ 93 billion, roughly equivalent to 15% of the continent’s GDP. As this amount dwarfs available in-country resources, there has been an effort to seek alternative financing throughout much of the continent in order to address the gap. This insufficiency in infrastructure financing is felt most acutely in Africa’s power sector where it is estimated that only about 30% of Sub-Saharan Africa’s population have access to stable electricity, stifling economic growth throughout the Sub-Saharan region. 

Why project finance? 

The financing of infrastructure projects, including energy generation and transmission projects, is essential to the development of emerging market countries. Since traditional financing sources are insufficient to meet the infrastructure needs, and in some instances are not even available, we have seen the rise of limited recourse project financing throughout much of Sub-Saharan Africa. This is often arranged and funded by international and regional lenders including multilateral agencies (eg, International Finance Corporation, Africa Development Bank) development financial institutions (eg, Overseas Private Investment Corporation, FMO, PROPARCO), export credit agencies (US Export–Import Bank), commercial banks and capital markets (usually in New York or London). 

Limited recourse project financing is a viable alternative to address a host of risks not typically experienced in more mature markets. These risks include perceived political risks, credit quality, underdeveloped legal and economic systems as well as unfamiliarity of local stakeholders with accepted financing requirements. In order to address these risks, many project sponsors have turned from traditional sources of capital to the more document-intensive and complicated financing technique of project financing. 

Limited recourse project financing for infrastructure and energy projects combines the use of debt with deal specific project structures. The ultimate credit basis for a project financing is the ability of the structured projected cash inflows generated by an asset or group of assets to service debt timely and to distribute equity returns to the project sponsor. Project finance lenders rely on the projected cash flows—not on a sponsor’s balance sheet—as the credit basis and consequently require structuring that often ultimately relies on real property issues. As such, project finance lenders (both international and regional) and sponsors require a thorough security package over a project’s assets, including real property. 

Common real property issues in project financing 

At the development stage of a project, the project company (usually a single purpose entity) owns few assets other than contracts with project counter parties and possibly certain permits and approvals granted by the host government. Except for the real property where the project is situated, there generally are minimal assets for lenders to secure a financing. This lack of project assets highlights the importance of ensuring a lender’s ability to secure the project’s real property assets, whether the project site is owned by the project company or held through a long term leasehold or concession interest. The security package, including the real property assets of the project company, comprises the lender’s collateral. 

To help secure the collateral for the project, lenders require assurances on the following key questions: 

  • Can real property be acquired or obtained for the project? 
  • Can a valid security interest or charge be created that has priority over competing claims to the real property assets of the project? 
  • Are there any legal restrictions affecting real property assets of the project, its ownership or sale and conveyancing? 
Unlike other project financing documents which are generally governed by New York or English law, lex situs, that is, the law where the real property is located, governs contracts affecting real property. Consequently, an understanding of local law and how it works with New York or English law is essential in structuring a project properly. 

Creation and perfection of a valid security interest or charge 

Assuming that local law permits the creation of a valid security interest or charge over real property, it is important to understand in what form the security interest or charge may be created. In addition, there are generally local law procedural requirements or formalities that need to be observed, such as the execution of notarial deeds or particular signing conventions, that are not customary in more developed markets. 

Key among the lender’s diligence before entering into a project financing in Sub-Saharan Africa is understanding the quality of the custodial management both of land records and of security interests or charges over real property. Some countries, such as South Africa, have an efficient and robust land recording procedure where the system of land registration helps to assure lenders of the project’s title. However, not all jurisdictions enjoy such reliability, making it necessary to undertake independent investigations. 

Foreign ownership restrictions 

While a complete delineation of the laws affecting real property in Sub- Saharan Africa countries is beyond the scope of this article, it is not uncommon for countries in Sub-Saharan Africa to restrict the types of rights individuals or project companies may hold. For instance, Nigerian law generally prohibits non- Nigerian citizens and entities from owning land unless permitted by the governor of the state where the land is situated. In Ghana, non-Ghanaian citizens and entities are permitted a maximum 50-year leasehold interest. In Ethiopia, Ethiopian law reserves the ownership of all land to the state but permits a non-Ethiopian citizen or entity to own immovable property, if it holds an investment permit from the appropriate authority, or lease immovable property. Lenders also need to investigate whether a foreign lender can enforce its rights over real property or if the appointment of a local security trustee is required to effectively enforce its rights. Sponsors and lenders also need to ascertain which governmental approvals, notifications or submissions should be submitted before local courts or a regulator to effectively enforce their rights either in their own name or through a local security trustee. 

Ownership of ancillary sites 

Large infrastructure projects also typically include smaller ancillary sites that are essential for the construction, operation and maintenance of the project. Power generation projects, for example, usually require the maintenance of additional sites for transmission lines, substations, docking facilities and water access. All such additional facilities and rights-of-way should be included in the real property secured by the lenders. 


Project financing has been a viable source of additional capital for much needed infrastructure in Sub-Saharan Africa. Its basis, however, is rooted in an assurance that the underlying real property interests will be properly documented and are enforceable when needed. It has been said that project financings are really complicated real property transactions. While this statement may be debated in professional circles, what is beyond debate is the essential role that real property aspects have in well structured project financings of energy and infrastructure assets.

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