Africa’s Energy Bank Finally a Reality …Why Nigeria is in pole position to host bank HQ

By Gideon Osaka

It is no longer news that there has been strong push back against pressure from environmental and financial organizations and governments across Europe and North America to halt new foreign investments in Africa’s oil and gas industry. The pressure stems from the fact that these Western nations want developing nations, including those in Africa, to immediately transition from fossil fuel production and usage to renewable energy sources like solar, wind, and hydrogen. This situation is happening, despite the fact that of all the carbon dioxide released from burning fossil fuels over the past two centuries, Africa is responsible for just 2.8% while Europe has produced more than 10 times as much carbon emissions as Africa over this timeframe.

Even more troubling, the African countries these groups are taking aim at have a wealth of natural resources that can be used to build a better future. It is not surprising, then, that African governments bristle at any suggestion that they should abandon plans to develop their oil and gas resources.

Valuechain reports that the calls to stop financing African oil and gas have grown louder and more insistent. Most recently, during the 2021 United Nations Climate Change Conference (COP26) in Glasgow, more than 20 countries and financial institutions pledged to stop public financing for overseas fossil fuel projects. In response to these, African states and the private sector have now found a way to save themselves from depending on foreign support or begging for aid that only would be awarded on the condition that Africa abandons fossil fuels. One of the solutions that have been found is a unique financial infrastructure called the Africa Energy Bank (AEB).

Two years after the signing of the founding protocol, and following the signing of the requisite documents and charter for the establishment of the AEB on June 4, 2024, the African Energy Bank, came to life with plans to start full operations later this year with an initial $5 billion capital base.  Structured as a pan-African energy development bank, AEB is a partnership between the African Export-Import Bank (Afreximbank) and the African Petroleum Producers’ Organization (APPO), with planned participation from, national oil companies, and African investors as shareholders.

Africa remains frustrated by the West’s failure to fulfill a 2009 promise of providing US$100bn to reduce emissions and facilitate adaptation to climate change. Available data shows that, Africa possesses over 125 billion barrels of proven oil and over 600 trillion cubic feet of proven gas reserves. Despite these huge resources, the continent still faces an energy crisis. Notwithstanding ongoing exploration projects by Western nations, Africa is urged to reconsider its projects due to their perceived impact on climate change. The International Energy Agency’s African Energy Outlook reveals that 600 million people, or 43% of the total population, lack access to electricity, with the majority residing in Sub-Saharan Africa. Additionally, 970 million Africans lack access to clean cooking facilities. The continent’s widespread lack of efficient and affordable energy has led to detrimental effects, including extensive deforestation for charcoal and firewood. Nonetheless, oil and gas projects provide governments with crucial revenue to improve energy services, such as access to LPG.

Despite the role oil and gas has, and will continue to play in Africa, global efforts to transition to alternative sources of fuel, have created a significant investment gap worldwide. The International Energy Agency (IEA) estimates that delivering modern energy to the entire continent will require up to $25bn in annual spending until 2030. The Africa Energy Bank is expected to directly address these funding challenges by providing an African solution to financing energy projects. With $5 billion in the initial capital raised from African signatories, the institution aims to close the funding gap by providing capital to oil and gas projects across the continent.

The proposed bank has started receiving substantial interest from African governments and development financial institutions, with the APPO’s Secretary General, Omar Ibrahim, announcing that the bank had started receiving funds from APPO member states. To make the dream of the bank a reality, Ghana earlier in the year deposited just over $20 million to the Africa Energy Investment Corporation (AEICORP) the financial arm of APPO, becoming the third African country to pay after Africa’s top two crude oil producers, Nigeria and Angola, each deposited $10 million last year to help fund the bank. It is envisaged that each African member country will contribute a minimum of $83 million for a total of around $1.5 billion, while Afreximbank and APPO as founding members are expected to match this amount. The outstanding $2 billion will potentially be sourced from other investors, including Middle Eastern sovereign wealth funds. The government of Nigeria, through the Federal Ministry of Petroleum Resources in May, announced a $100m investment for class ‘A’ shares in the bank. The $100m Nigerian investment, exceed the minimum equity requirement of $83.33m for class ‘A’ shares.

Valuechain reports that, to invest in the new bank, a country needs not be an oil and gas producer. Such country needs not be on the African continent to do so either. What is important is for the country or investor to share the vision of the bank, i.e that oil and gas have a big role to play for the foreseeable future in the quest to eliminate energy poverty, especially on the African continent.

Why Africa needs an Energy Bank

The new institution is seen as essential for the future of the African energy industry, as it is expected to provide financing for projects that international lenders are shunning for reasons related to energy transition. The cold attitude of Western governments and institutions towards funding fossil fuel has pitted Africa against the developed world, as the latter tries to convince the former not to develop its significant, and as of yet, largely untapped oil and gas resources because of the transition. African leaders, on the other hand, overwhelmingly want to develop those local resources, citing the fact that the developed world became developed thanks to oil and gas and thanks to the wealth those enabled can now afford to transition while Africa cannot.

Establishing the bank will help in addressing energy poverty in Africa. Sub-Saharan Africa has one of the highest rates of energy poverty in the world, with millions of people lacking access to electricity. The bank is expected fund initiatives aimed at expanding access to electricity in underserved and rural areas. Africa has vast potential for renewable energy, including solar, wind, and hydroelectric power. The bank which is also open to funding renewables can be a tremendous catalyst to efficiently exploring Africa’s huge renewable resources. Promoting renewable energy aligns with global sustainability goals and helps mitigate the impacts of climate change. The bank can drive investments in green technologies and sustainable energy projects.

Many African countries need significant upgrades to their energy infrastructure. The Africa Energy Bank can provide the capital required for modernizing grids, expanding transmission lines, and integrating new technologies.

The bank can act as a catalyst to attract private investment by de-risking projects and providing guarantees. This can create public-private partnerships that leverage additional funding and expertise. Providing technical assistance and capacity-building programs can enhance the capabilities of local institutions and companies, making them more attractive to investors.

Africa, having the energy bank, can support the development of regional energy markets and infrastructure, facilitating cross-border energy trade and cooperation among African countries.

An Energy Bank for Africa is essential to address the continent’s unique energy challenges and opportunities. By providing the necessary funding, technical support, and capacity-building, the bank can drive the development of sustainable energy solutions, enhance energy security, and stimulate economic growth. This strategic investment in Africa’s energy future will not only improve the quality of life for millions of people but also position the continent as a leader in the global transition to sustainable energy.

Nigeria’s bid to host AEB headquarters

The expression of interest and readiness by the Nigerian government to host the Africa Energy Bank (AEB) faces mounting opposition from neighbors and other countries. Already, five other countries – Algeria, Benin, Cote d’Ivoire, Ghana, and South Africa – are currently competing to host the headquarters of AEB after Egypt recently withdrew its initial application. Following the first bidding round in early 2024, these countries were pre-qualified to proceed to the final round of bidding for the right to host the supranational multilateral bank.

The final decision on the location of the new institution is due to be made by July and some fierce lobbying has been going on in the run-up to that decision.

Nigeria is making serious case around the fact that, of the more than 600 million people in Africa without access to electricity and some 900 million without access to clean cooking fuels, according to the Africa Oil and Gas Report; many of these people are in Nigeria, which is the largest oil producer on the continent. This makes it a logical candidate for the Africa energy bank, even though, at least half a dozen countries disagree.

Hosting the bank in Nigeria, according to the government, will ensure proximity to key energy technocrats and experts, which is essential for formulating and implementing effective solutions to Africa’s energy challenges.

In late May, the Ministry of Petroleum Resources announced that the technical inspection team from the African Petroleum Producers’ Organisation (APPO), and Afrexim Bank – the joint promoters for the establishment of the AEB, completed their mission to validate Nigeria’s readiness to host the headquarters of the bank.

To demonstrate the country’s commitment, Nigeria has identified a prestigious building in Abuja for the temporary headquarters and opened a secured data room for the technical team’s review. The application form for land for the permanent headquarters in the Central Business District of Abuja has been submitted for approval.

The ministry also confirmed in the statement that the Federal Government was working diligently with Nigerian National Petroleum Company (NNPC) Limited, and the Nigerian Content Development Monitoring Board (NCDMB), to meet all eligibility criteria.

“Thus, the $5bn Africa Energy Bank, when headquartered in Nigeria, shall be the largest single foreign direct investment inflow into Nigeria in over two decades” the statement signed by the Permanent Secretary in the oil ministry, Nicholas Ella said.

“The Africa Energy Bank ecosystem shall rank as the third largest bank in Africa and shall be the most prominent bank in Nigeria in terms of shareholders’ funds. It will significantly boost Nigeria’s Gross Domestic Product, employment, financial architecture, inclusion, and propel our economic diversification while supporting foreign exchange management strategies”.

Ella in the May statement said the bank would pivot the development exploration and investment initiatives by independent petroleum producers, commercial service providers; legal and local content drivers, and technology and skills development that would leverage the bank’s proximity to the market and scale up production and capacity. The positive evaluation from the Team underscores Nigeria’s readiness and capability to host the AEB.

The Nigerian government said the headquarters of the energy bank in Abuja, aligns perfectly with the country’s strategic position as a leading energy producer, while noting that location will leverage Nigeria’s significant oil and gas reserve, human capital, financial infrastructure and access to decision-makers for urgent actions needed to address Africa’s energy access crisis.

To secure the hosting rights, Nigeria would need the collective support of all APPO member countries as other contending countries have intensified their efforts by appointing special envoys to lobby for their bids.

Nigeria has reached out to other APPO member countries to campaign vigorously on the advantages of situating the AEB headquarters in Nigeria, as doing so offers a strategic geographical location, robust infrastructure, and a dynamic energy sector.

With its extensive network of transportation infrastructure and logistical capabilities, Abuja offers a strategic gateway to the entire African continent, providing the bank with unparalleled access to key energy markets, stakeholders, and decision-makers across Africa. By selecting Abuja as its host city, the bank can serve as a linchpin of connectivity, fostering collaboration and catalysing progress on a continental scale.

AEB driving force

The Secretary General of the African Petroleum Producers’ Organization, Dr. Omar Farouk Ibrahim, has been the driving force behind the establishment of the premier energy bank in Africa since assuming office in December 2019. He has severally and rightly maintained that it would be a mistake for Africans to abandon their abundant petroleum resources. According to him, turning our backs on approximately 130 billion barrels of proven crude oil reserves and over 15 trillion standard cubic meters of natural gas, to pursue expensive, unreliable energy sources, would not be a wise course of action.

The scribe has over and over, opined that Africa still needs its oil and gas sector and has tried to explain the important role that international oil companies (IOCs), foreign governments, and investment institutions play in building the kind of oil and gas sector that will truly benefit Africans.

In the realm of African energy, few voices resonate with as much authority and insight as that of Dr. Omar Farouk Ibrahim. With nearly four decades of experience in the oil and gas industry and a profound commitment to advancing Africa’s energy landscape, Dr. Ibrahim stands at the forefront of shaping the continent’s energy destiny.

As the driving force behind APPO’s strategic initiatives and regional collaborations, Dr. Ibrahim has been instrumental in steering Africa towards a path of sustainable energy, oil and gas development. While APPO acknowledges the global shift towards renewable energy sources, it believes that the current drive for energy transition is more ideologically driven than environmentally motivated. APPO emphasizes the importance of maintaining energy security and argues for the development of technologies to make oil and gas production more environmentally friendly.