Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Africa | Publication | February 2023
DNV’s report on energy transition which includes the report focused on Sub-Saharan Africa (SSA), highlights the different pressures faced by developing nations in reducing emissions. The report highlights the opportunities and challenges faced by SSA particularly in light of the growing global pressure to reduce harmful emissions. SSA’s rapidly growing population, which is forecast to reach almost 2 billion by 2050, combined with decades of neglect of existing infrastructure and an inability to keep pace with the growing demands of a burgeoning population and a need to develop has resulted in what the report calls a “colossal deficit” in energy supply. This has been hampered further by state-owned enterprise (SOE) dominance of the sector, unpredictable policy frameworks and lack of private capital investment. However, 2020 marked the first year where private sector independent power projects (IPPs) counted for more than 50 percent of the new capacity. The report concludes that the weak financial position of SOEs, the large energy deficit and an enormous funding gap makes a rise in IPPs inevitable. This creates enormous opportunities for IPPs.
In the transport sector, increasingly stringent regulation of emissions from ships, aircraft and trains is being driven partly by global frameworks and partly by insistence by the major players in the logistics and transport industry that owners of transport operations cut their emissions. This is reflected in the Poseidon principles for investment in shipping and in the Sea Cargo Charter concluded by major commodity traders. The need for reductions is highlighted in the Transport Plan for 2022 recently approved by the South African government.
At the 27th Conference of the Parties (COP27) held in the Republic of Egypt in November 2022 (also described as the African COP) the South African Presidency met with South Africa’s partners: Germany, France, the European Union, the United States of America and the United Kingdom on the Just Energy Transition Partnership (JETP) and also presented South Africa’s JETP Investment Plan (JET-IP).
The JET-IP is intended to fund South Africa’s Just Energy Transition, which is based on the Framework for a Just Transition in South Africa (the Framework). The Framework focuses on managing the social and economic consequences of the climate and mitigation policies, while putting human development concerns at the center of decision making. The Framework focuses on a number of sectors and value chains that are at risk in the transition, which form part of the formal economy. The automobile value chain is one of those sectors.
The Framework recognizes that South Africa will need to keep up with the global transition of accelerating the introduction of electric vehicles (EVs) to risk exclusion from the current exports to Europe and the United States, both of which have committed to mass use of EVs by 2030. The car manufacturing industry is a major employer, responsible for 15 percent of export revenue and the industry contributes about 5.5 percent to GDP. Production of EVs, however, requires fewer inputs and jobs than petroleum-based cars. The Framework records that currently in South Africa, approximately 100 000 people work in car manufacturing, 250 000 as car mechanics and 250 000 as taxi owners and drivers. It is also not clear how petrol stations, will adapt to the move to EVs and that is an industry which employs around 130 000 people.
The JET-IP presented at COP27 maps out South Africa’s R 1.5 trillion investment plan for the next five years to assist the country’s just transition to a greener economy, with more funding required going forward. The JET-IP makes it clear that the scale of funding needed to achieve South Africa’s ambition is much higher than the $8 billion dollars offered through the JETP launched at COP26.
EVs are one of the priority areas highlighted in the JET-IP, given that the transport sector is the second biggest contributor to greenhouse gas emissions, with R128 billion directed to EVs. Funding is also required to develop the green hydrogen sector, which is intended to receive 22 percent or R319 billion of the funding – part of which is intended to develop port infrastructure, with the plan that South Africa will be a leading exporter of green hydrogen.
The transition to net-zero involves profound changes to how energy is produced and consumed, and requires the combined effort of many players, including government and policy makers, utilities, energy proponents and consumers.
As the EU increases its climate ambitions, there is a risk that its emissions reduction efforts are offset by increased emissions outside the EU from industries transferring their productive activities to countries where climate change policies are less stringent (‘Carbon Leakage’).
Throughout 2022, we continued to see legal action addressing issues of climate change – so-called “climate litigation”
Around the globe, corporations face growing pressure from stakeholders – including shareholders, customers, employees and regulators – to make progress on ESG issues like sustainability.
An electric vehicle (EV) boom is underway.
Energy companies are under increasing pressure to meet growing global energy demands and simultaneously accelerate global decarbonization efforts.
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The introduction of a workable regulatory framework to harness the offshore wind potential of the Greek Seas has been in the works for quite some time.
In June 2022, it was reported that India’s Ministry of New and Renewable Energy (MNRE) would open bids for offshore wind energy blocks.
For the energy sector, cybersecurity has been a top-of-mind issue for some time.
On 8 December 2022, the Department of Climate Change, Energy, the Environment and Water released two guidance documents on the feasibility licence application process as well as the forms to be completed by feasibility licence applicants.
End-of-life management of renewable energy is both a looming challenge and a potential opportunity.
The stricter monitoring/disclosure and liquidity requirements faced by banks in the wake of the global financial crisis mean that projects can often no longer be funded by traditional bank debt alone. The debt capital markets have stepped up to the challenge and project bonds are on the rise, particularly amidst the green finance boom.
With the announcement of the Queensland Energy and Jobs Plan (QEJP) and Queensland SuperGrid Infrastructure Blueprint (QSIB) on 28 September 2022, there has been a buzz about the magnitude of the opportunity for developers, investors, financers and the State – and the bold ambition expressed by our heavily coal and gas dependent State.
Global supply chain and energy shortage issues are having a continued impact on limited recourse project financed mining projects. Norton Rose Fulbright counsels Felicity Brown and Matt Hacking identify the current issues being faced by mining companies in the procurement and development of their projects, what steps mining companies can take to proactively deal with these challenges and mitigate their cost overrun exposure, and how these issues are being viewed by the financial institutions lending to these projects.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
© Norton Rose Fulbright LLP 2023