The announcement, on September 25, of a US$250 million financing deal to fund accelerated power infrastructure development in Africa has excited the global energy market and raised the pertinent question of what this could mean for industrial expansion, especially mining, cross-border infrastructure, and electricity access in the region.
Zambia – the entry point
The location of where the deal was signed is potently symbolic and signposts a regional rather than national focus. Inked between Exergy Energy, a group of power companies focused on Africa with operating subsidiaries in Zambia, and Mercuria, a global energy and commodities trader, choosing Lusaka was not accidental.
Zambia’s geographical positioning in the middle of eight countries in a region rife with power shortages arising from insufficient generation and weak transmission infrastructure gives it a natural advantage to be the seat of a regional power market that converges on cross-border infrastructure and trading.
The joint statement issued by Exergy and Mercuria announcing the deal stated that Zambia has become Mercuria’s entry point into the regional power market, as it made one of the largest private capital commitments to Zambia’s power sector.
What is Zambia Offering?
By reason of geography, Zambia sits at the center of multiple terrestrial transit corridors. Previously seen as a disadvantage, the strategic reframing from landlocked to land-linked has shifted the leverage. Its central location, surrounded by eight different countries, means that where it lacks a direct coast line, it presents vital connections to ports on both the Atlantic and Indian oceans.
It facilitates trade between East, Central, and Southern Africa. Now as the continent pursues energy security, trade has shifted beyond physical goods to include power and power infrastructure, such as transmission corridors.
Located in a region that accounts for roughly 17% of the world’s copper, and as the world races to secure critical minerals, including copper and cobalt, every major export route must pass through Zambia or heavily involve its infrastructure.
Capital is flowing from east and west to develop a strategic land bridge connecting the Atlantic and Indian oceans – TAZARA backed by China and being modernized links Zambia to the Indian Ocean port of Dar es Salaam in Tanzania while the Lobito Corridor, with American and European capital, connects Zambia’s Copperbelt to the Atlantic Ocean via Angola.
Away from its regional hub credentials, Zambia is pursuing an industrialization agenda to transform from being a source and passive conveyor belt for raw minerals to processing, refining, and value addition. Economic diversification is being pursued through an ambitious 8-target growth plan covering minerals, energy, agriculture, agro-processing, and tourism.
The expectations is for the Exergy pipeline to contribute to Zambia’s target of 10,000 MW of supply by 2031, a central pillar of the Grow Zambia agenda, and to the reliable supply needed by mining, agriculture, manufacturing, tourism, and industry.
After the headlines: is the ambition feasible?
Africa has seen many financing and investment pronouncements in its infrastructure. Skepticism is rife when it comes to those pronouncements being actualized, leading to calls on, especially the global north, to change how capital to Africa is priced. Zambia’s President Hichilema is among the voices calling on global finance and international partners to shift the paradigm of how they interact with the continent with respect to fairly priced, non-discriminatory capital.
In the statement announcing the deal, Mercuria said it sees private capital playing a critical role in developing strategic energy infrastructure, alongside the traditional DFI and development bank model.
While Exergy has an “execution-ready” pipeline of generation and transmission projects, the question many are already asking is what hoops does it need go through before this funding can be accessed and the pipeline gets to move?
Infrastructure bottlenecks have long hindered Africa’s growth and part of the problem are the structural hindrances preventing it from accessing capital. It is why a Mercuria-financing deal excites the sector as it signals “confidence in the ability of global partners to finance African energy at scale on commercial terms.”
The Exergy execution-ready pipeline is cited among the reasons Mercuria has partnered with the Africa-focused power investor, as private investors increasingly target the continent’s electricity shortages and transmission gaps at national and transnational level.
Exergy is already pursuing a cross-border link between Nakonde in Zambia and Mwakibete in Tanzania, linking it to the East African power and opening another possible gateway into the Southern African market for East African power.
Lunzua Power, Exergy’s generation operating subsidiary, has announced several projects in hydroelectric and solar generation, as Lusitu develops the associated wires.
Zambia’s power sector is shifting from hydropower to a mixed source, and from a national focus to a regional orientation, as private developers pursue non-traditional financing with private capital.
