Speaker 1 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future the mini-grid business Powered by Enensis.

Speaker 2 0:36

Hello, this is Nico. Welcome to this episode on mergers and acquisitions. This episode has been recorded at the 8th Mini-Grid Action Learning Event, which has taken place from the 1st to the 3rd of April 2025 in Lusaka. It is being moderated by my colleague, kelly Murungi. Let's dive right in.

Speaker 3 1:00

Good afternoon everyone. My name is Kelly Murungi. I'm the head of Africa business at Inensas. We are a rural electrification consulting company working in the areas of policy regulation, investment facilitation and technology. The thing that keeps us up at night, as Inensas, is the fact that 20 years later, we still haven't figured out the sustainability of mini-grids, and today's discussion is about that.

Speaker 3 1:25

But before I invite my esteemed panelists onto the stage. I want to just remind us a few facts that we are well aware of that currently, about 600 million Africans do not have access to power, and most of this population lives in rural areas. That notwithstanding, over the last 20 years, we have seen expansion in off-grid electrification, we've seen advances in technology, we've seen reduction in the cost of solar panels and batteries and that is still ongoing but also we've seen some investment, and so we cannot say that we haven't made progress. It's just that it's not enough.

Speaker 3 2:01

In January 2025, this year, african heads of states in Tanzania signed the Dar es Salaam Energy Declaration, marking their commitment at sector reforms aimed at achieving electrification of 300 million Africans by 2030. This initiative the Mission 300, is supported by the financing commitment of the World Bank, afdp, the Rockefeller Foundation, se4all and other funders who have committed innovative financing instruments and technical assistance for electrification of the continent. Now, while there has been a lot of enthusiasm by our development partners and financiers, we see there's a disconnect between that enthusiasm and the funding that is being directed to solutions, especially mini-grids. The lack of a scalable, sustainable mini-grid business model has been the key challenge in attracting financing. There are many ways that we've looked at to make mini-grids sustainable. This session, specifically, is exploring mergers and acquisitions and other forms of business combinations as a path to scaling mini-grids in Africa, and I'll ask my panelists to introduce themselves. Cynthia, please go ahead.

Speaker 4 3:15

Thank you, kelly. Thanks for having us. My name is Cynthia Opakas. I am a lawyer. I specialize in energy law and policy. I work at Green Max Capital Group as legal counsel and happy to be here, thank you, Kelly.

Speaker 5 3:30

My name is Prosper Magali. I'm an electrical engineer by profession. We are managing a mini-grid company based in Tanzania, Currently in Tanzania managing nine mini-grid sites. We are also exploring markets in Zambia as well as DRC, I'm also the head of the Renewable Energy Association of Tanzania.

Speaker 6 3:55

Hi folks, this is Matt Oros, CEO of OnePower. We're operating in Lesotho and Benin, expanding into Zambia as a mini-grid developer primarily, but a little bit of IPP projects as well.

Key Factors for Mini-Grid Success

Speaker 3 4:08

Thank you, matt, prosper and Cynthia and thanks for making the time, and I want us to just take a step back before we get into business combinations and I ask you the question of the meeting, which is thinking about your work and what you've been doing in the industry Cynthia on the financing side, prosper and Matt on the development of the operations. What are the two things that you think must be in place for mini-grids to be one sustainable but also bankable?

Speaker 5 4:37

Thank you so much, kelly. With regard to what happened in my country, in Tanzania, in particular on the regulatory environment, I think for any business, the conducive regulatory environment is quite key and for what happened in Tanzania, we had a very good regulatory framework, but the enforcement of the regulations was quite a challenge previously.

Speaker 5 5:05

So I think the number one I could pick is a very good and certain regulatory environment. That would make any business, not only mini-grids, to be sustainable. The second which I would pick is actually the potential to scale the market itself. I think if you are guaranteed with a good number of mini-grids, potentially that you can deploy meaning having a good number of connections that you can also work with I think that is the number one thing which can guarantee projects or mini-grids to scale. So I would pick those two. Thank you, prosper the regulation can be there.

Speaker 3 5:45

We can design very good mini-grids to scale, so I would pick those two. Thank you, Prosper. The regulation can be there. We can design very good mini-grid regulations. The political willpower has to be there and it has to be dependable. We need to know that even if the regime changes, our business will still work. I want to come over to you, Matt. One power has grown within Lesotho and outside of Lesotho. Would I be exaggerating by saying maybe you figured it out, how to get a mini-grid sustainable? And if so, what do you think could work or has worked for you?

Speaker 6 6:09

Thanks. I don't want to pretend to have figured everything out, but I would say that the regulatory framework is important. As Prosper said, I think that there's a spectrum, and some governments are conducive to being open for business, for private sector, to handle public services that are essential, like electrification, and then other governments, despite not having success at electrifying through their own means, are finding success in preventing electrifying from other means, and, you know, some sort of alignment or streamlining towards a more light touch approach is going to allow more investment to flow in the sector. There is no one single factor explanation, though, for what creates success or failure in the sector. It's a constellation of a number of different aspects that span from the regulations to the financing structures is an important one.

Regulatory Frameworks and Financing Structures

Speaker 6 7:05

A few things that are not that important, I don't think anymore, are the technology. That span from the regulations to the financing structures is an important one. A few things that are not that important, I don't think anymore, are the technology or even the business model. I feel like this is very straightforward we have the technology, we have the right business plans to make these micro utilities work, and I think that the demand is indubitable, that electricity is a good that people only ever want more of. But I think there's still some hurdles to overcome in getting some of the business environment right and getting the capital structure, the capital stack, right for what's the right type of financier for this asset class in sub-Saharan Africa. As far as our expansion from Lesotho goes, since it's the topic of the podcast, I'll mention that it was via acquisition and we can get into that more as the conversation goes.

Speaker 3 7:48

Fantastic Thanks, matt, cynthia. As a financier, greenmax, of course, is at the center of financing DRE, not just mini-grids across the continent. What would you say has worked so far in the projects that you've seen, in the businesses that you've funded, and where do you see significant gaps? And you're saying you know if we need 300 million connections in the next four or so years, this needs to happen.

Speaker 4 8:13

Thanks, kedi. So first, just to chime in on the regulatory frameworks. I think it's important, of course, just to have those very cogent frameworks, as Matt and Prosper have said. In my experience and we've experienced this with Matt on this panel most developers will not want to know, they will just want that clarity. This is the list of what we need. Of course, there's been a lot of discussion around light regulation or deregulation. Could spend hours on what that is, because you have to balance that with safety, quality and things like that. So also just for us, what we are really keen to look at. Of course, licenses and concessions are a big part of the debate, because that is your lifeline right. So, in terms of just increasing and giving financiers that comfort, the license periods are, I think, a key consideration because a longer license period will give a financier more comfort in terms of providing the financial instruments.

Speaker 3 9:20

Thanks, cynthia. So it's regulation, it's light regulation, but also protections. You know, because we are looking at, infrastructure is 20, 25 years and so the developers, the financiers, need to know that they can be there for 20, 25 years Understood. And so when it comes to then size and prosper I think you lead on this one because you hinted at the numbers. You need a certain number or a certain size for the mini-grid business to make sense. And I'll always ask is there a sweet spot? Is it number of connections, where the scale tips over? Because the biggest challenge and you will correct me if I'm wrong with mini-grid sustainability is not the individual mini-grid but the infrastructure and the overall cost. So if I have one small mini-grid, I have a HQ that I have to allocate to that mini-grid. So do we, as entrepreneurs and as developers, have a sweet spot that you'd say, if a business has X number of connections or X number of projects, then it tips over and it makes sense.

Speaker 5 10:19

Thank you, Kelly. I think that is quite a tricky question to respond, but I think the overall cost of projects depends on a number of factors.

Speaker 5 10:31

For us, for example, we are quite a small company, so maybe we don't have some of the expenses that maybe a big or a large company might have. So we may be looking at cost differently. But generally speaking, I think whenever we are trying to invest into a project, the biggest thing that we are looking at is the potential to connect more customers, because from the customers is where you are going to get your revenues the consumption as well.

Mergers and Acquisitions Explained

Speaker 5 11:07

So for us, I think the key is the potential to connect more customers, and I believe this is why markets like Nigeria and DRC are quite attractive, because there's that potential to have scale and to connect many more customers. So I would say for us. I think that is quite a key aspect that we are looking to.

Speaker 6 11:34

Can I jump in as well? So I think that until we started looking in Zambia last year, you might vision whole one power as a kind of specialist in small markets. You know, lesotho population 2 million, benin 14 million, just to give you a number, that's round. I would say 10,000 connections. But then caveat that to say okay, nobody's going to want to stay at 10,000 connections but maybe you could cling on for a while and survive at that level and then caveat it further to say you know, there is a spectrum among developers and operators. They don't all have the same cost structure, the same unit economics.

Speaker 6 12:08

You might find two equally successful developers where one has dialed in and figured out the CapEx side, the other one not as much, but has dialed in and figured out the OpEx side. One might be working in a more dense environment, as far as you know number of connections per kilometer of wire. Another one might be working in a different geography. So I think you'll get a spread of numbers there. But for me, you know, 10,000 is about a round number to say you know, this is viable, but of course everyone is going to want to expand beyond that to achieve economies of scale.

Speaker 3 12:39

Understood. Matt, you raised an interesting point on small countries, small populations. What has educated your choice as OnePower? Because, of course, as we listened for the last three days, the question has been go where there is numbers, go where there is already established demand. But, as you rightly say, you focused on smaller economies, smaller populations. Maybe tell us a bit more about that and then we will segue into you, sharing your experience, you know, moving out of Lesotho to Benin.

Speaker 6 13:06

I think there's a lot to be said for a rational and systematic approach to business, but, as someone once said, plans are useless. Planning is everything, and I think the reality is that life happens, so it's completely contingent how we started in Lesotho. I was a Peace Corps volunteer. I lived for two years in a small village with no electricity and thought hmm, maybe there's a better way.

Speaker 6 13:26

So that's how One Power started in Lesotho, but Benin also. It was a random connection via school that someone got in touch with me and said hey, there's some companies that are looking for an exit, They've lost some subsidy that came from the US government and it doesn't look like they want to try to patch it together going forwards. And we looked at it and said, well, Benin is very far from Lesotho. It's francophone, it's completely you know, it's not. It wouldn't be the rational and systematic choice for us to be our second market after Lesotho. Zambia makes a lot more sense, but Zambia will be our third market.

Speaker 6 14:01

But you know, that was an opportunity, it was opportunistic and we looked at that, did the math and it sort of works out that actually we think we can replace that subsidy. There's other programs on the horizon UEF, CEI. We think we can get RBF to replace what they're missing and this is a good deal for us and we're coming into a new market, not starting from scratch. So the acquisition means these are more than 60 sites that are shovel ready, where someone has already gone through the consents and the permits process. Everything is there, Everything is ready to go and we had to make a call, and the call was let's go for it.

Speaker 3 14:34

Great and Cynthia. If I may ask, in the last, let's say, five years or so, we've had a number of transactions, some which are live happening as we are here. What are some of the forms of transactions that you'd say you've seen? Because, as we know, m&a I mean March 1 acquisitions we have asset sales, amalgamations. What is happening in the mini-grid space?

Speaker 4 14:54

I would say the first thing is it's important to identify what you're looking for and what you want to achieve right before moving to determine which pathway to follow. For instance, there are contractual and non-contractual mechanisms in terms of strategic alliances. Depending on what you want to achieve, you could go your JV route or you could touch on instruments that alter your shareholding. That's the M&A route. So that's fully dependent on what you'd want to achieve. Do you want out of a market? Do you want into a market? Are you trying to scale and attract more financing, Like now there is a live transaction in the public domain, the Ignite Ondrej acquisition.

Speaker 4 15:39

So I think first it's important what you're trying to achieve, but then also I think we need to contextualize the debate to our sector and the circumstances we work in, given the mini-grids traditionally have been very small projects. So to an equity investor who is focused on the ROI, if you want to unblock or attract that private capital from an investor who's focused on profit, then are you making a business case, Are you attractive to them. But then also there's an opportunity in mini-grids being small projects to come together and just be able to leverage and build on their track record and experience and become more attractive. So, depending on what you want to do, then that informs the path you want to go.

Speaker 3 16:30

Thanks, cynthia. I think it's fair to say that what we've seen happen a lot is acquisitions. You know where one entity in this case, for example, ignite is acquiring energy, the acquisitions that OnePower has done. The follow-up question that I'd have there is have they, generally speaking, delivered scale, or are we seeing instances where the growth that was promised didn't happen? Would you say this has been a successful path and maybe Prosper? You can start as a sectoral head, but also you have worked with the overarching body.

Valuation and Due Diligence Process

Speaker 5 17:02

I'm really not sure whether there's a good example that we can highlight of whether our majors have worked, but, speaking of our own experience in Tanzania, worked, but speaking of our own experience in Tanzania, after what happened in Tanzania, some of the players left the country, so we were actually lucky to acquire assets of some of the companies which left the country in Tanzania and we are currently I can say we are currently struggling to try now to revamp the business after now, the government has brought in the new mindset of now supporting the sector.

Speaker 5 17:41

So we have been actually looking for partners to work together to revamp the sector as well as to revamp our business, and luckily there are interests for companies to come in and work with us to revamp the company and the sector in general. The other alternatives I've seen as a company we've actually practiced is, when we are considering crossing borders, we look at least cost alternatives that could help us cross borders, and one of the alternatives we've been looking for is creating joint ventures with local companies. A very good example is what we are doing here in Zambia, where we have created a JV with a local company who is actually doing all the local stuff, all the local issues, and we bring in the technical expertise With that. I think it assists us to reduce a lot of transactional cost of working in any other country. So that is the option that we have been taking when we are considering going into other countries, and we have also done the same now with DRC that we've looked at a very good local company.

Speaker 5 19:05

We create a joint venture and then we work together and I think this is what I would propose to many of local African companies, because we lack support to assist us to cross borders, so we really need to look at least cost options of doing that, and I believe that if you look at very good local companies at countries you are focusing to go, then you create collaborations with your interventions. I think that is what I would propose to do.

Speaker 6 19:41

If I can jump in. I think there's layers to this right. There's acquisitions of businesses with assets or there's acquisitions also just of assets. In Benin. It's kind of an acquisition within an acquisition is that there's actually some assets that were public assets, so mini-grids built by the government that are not performing and 20 of the sites that we've acquired in.

Speaker 6 20:06

Benin are actually already built mini-grids, but built not by the private sector, built by the public sector. So it's a little bit of a nuance or variation on the idea of acquisition. But you can have an acquisition that's really just a distressed asset and that could be at a discount and beneficial for the acquirer. There's all kinds of reasons why acquisitions happen and the reasons might be different on the side of who's acquiring, who who's selling and who's buying Might have completely different reasons for why they're doing it. It might be strategic, might be distress involved and I think in terms of the acquisitions that we've seen so far in the market, they're too few and they're too recent to pass judgment on.

Speaker 6 20:44

Is this working? Is this the way forwards to get to scale and sustainability? But I think obviously there's a difference between you know, an acquisition that's strategic versus one that's distressed. Not being an insider on Ignite and Anji, my expectation is that kind of deal is built on. This is a way to multiply strengths and expand. Cover over weaknesses, multiply strengths. This is not coming from a place of somebody scrambling for an exit, but more strategic, and so there's a spectrum and a range of different types of acquisitions and different reasons for it and one deal might have completely different reasons on both sides of that deal.

Speaker 3 21:22

Thanks, Matt. That is useful. And then, when it comes to your own experience, if I may ask as much as you could share have the founder conversations gotten easier with scale, Because now you have more projects? I know a big hurdle always is ticket size, for example, where if you're developing one or two mini-grids you are below threshold for a lot of the funding. So would you say that it's getting easier for you as you grow?

Speaker 6 21:46

Well, I think that, you know, frustrating to some developers might be that at some point you might be too small and get turned back by saying you know, come back to me when you have achieved X. You know, I can say that we now have a $30 million pipeline in Benin. That cannot be considered too small by today's measure. I you know certainly there are larger deals out there in the sector, but I don't think that the challenge now is that it's too small. I think that what we're actually doing right now to finance these mini-grids is we're actually breaking it up into phases and lots and doing it 10 sites at a time, $4 million debt deal to build a few sites at a time. So I'm a little bit whiplash that when we were small we were told to go big and now that we have a large pipeline they're like well, let's just do a little bit at a time. So I'm still trying to wrap my head around how that works.

Speaker 3 22:39

Interesting. Thank you, I mean. That is surprising indeed and we'll be exploring, I think, what the financier nervousness, I think, around the big deals is with Cynthia. But Cynthia, I want to come to you because Prosper has touched on joint ventures and I don't think we understand how joint ventures work. Maybe shed some light. What would a foreign and a local or maybe two local companies going into a joint venture to develop mini-grids look?

Speaker 4 23:06

like. So I had touched on contractual and non-contractual mechanisms. So JVs are one of those contractual mechanisms where you don't necessarily have to alter the shareholding vis-a-vis your acquisition and mergers. So sometimes people just look at those as and I'm sure that's where Prosper is coming from as just easier solutions. People want to sometimes access the funding, but they want to hold on to the equity as well. So JVs just offer an easier strategic alliance solution for you to, you know, unlock mutual interests.

Speaker 3 23:42

And when it comes to funding because I mean this is project, at least almost project finance type funding how do you look at a JV, how is it presented to you as a funder? Because of course you have the local company, I assume, which holds the licenses. But also, this project only works if the incoming developer, who has the experience, is part of it.

Speaker 4 24:03

So how have you structured that? I'll give an example of CEI Africa, which we are implementing partners. So CEI Africa has a consortia sort of arrangement which is, of course, subject to IC approval a consortia sort of arrangement which is, of course, subject to IC approval. So we have that flexibility in that if you come and demonstrate that you know this is a JV, because we review the documents, the structuring, and maybe this JV partner brings in the technical capacity because it's catalytic financing, we have the one-stop shop element where you can unlock debt and the grant as well. So if you demonstrate that maybe this is a financing partner, this is a technical partner, we look at it with that flexibility and, yeah, it works.

Speaker 3 24:43

Good to know. How do you, though, ensure that the incoming, the technical partner, has skin in the game? You know, because the financier, of course, wants to know that one. Yes, the project will work, but also, both partners are as exposed or committed to the project, should anything go wrong.

Speaker 4 24:59

Yes, so that goes back to the governing documents, how you structure your governance documents. So perhaps you will want to say probably the contracting partner has to have been operating mini-grids for a minimum of X months or this period. So just to give you that track record comfort. Sometimes it's not a JV, sometimes you'll find an SPV with three various players. So we've seen those experiences in Benin, desolier, dubena, onepow as well where you have different entities doing different things. So then you just need to identify the lead and yeah, so this lead, being the contracting partner, will have to show track records and just meet the criterion set on in your governance documents.

Speaker 3 25:47

Thanks, cynthia. Over to you, matt. How do companies find each other? What's the match-making trick there that if I'm looking to grow a local developer, or if I'm looking to get acquired, how do I find my match?

Speaker 6 26:00

I think that meetings like this are part of the story.

Speaker 6 26:04

I think also, when you secure your investment, usually your investor group also has other investments in the sector, so you might come to know each other that way. Yeah, I think that interpersonal connections are. You know, maybe some people are able to cold call and do it via LinkedIn, but I think it's much more likely that you're going to run into the same group of people at meetings like this and you're going to form a kind of more of a trust-based relationship and to understand, you know, culturally and competency-wise, what could work. Is the vibe good? Can you be complementary, as in a collaboration or a partnership, or is one party on their way out and like looking for an exit, while the other party is hungry still for more challenge and more responsibility? So those types of fitments probably take time to develop and probably have some component of face-to-face interaction. So I don't know that there's like a recipe for how to do it, but I think that maybe a more romantic way to put it is that I think when you're meant to be, you will find each other.

Speaker 5 27:12

If. I may add, I think there's also a role of industry associations. That is a very good platform to get references of good players in the market. So, myself being from the Renewable Energy Association of Tanzania, but within AMDA as well, I think industry associations could also play a role in giving references to good players whom you can collaborate with.

Creating Joint Ventures to Cross Borders

Speaker 3 27:40

Fantastic, matt. You started that conversation on types. You know there's distressed assets, there's projects in development, there's operational projects. How do you value? Because I come from a corporate finance background, I know if it's brick and mortar business, you do DCF, discounted cash flows. If it is a tech nonprofit business, you do multiples. But here we have both, but also it's unique. So how do you value a transaction?

Speaker 6 28:05

I'm not sure that I can speak or I'm not sure anyone can speak yet about mergers, which is another topic, and I think that could be really hard, because then you're really doing a lot of work to figure out who does what. What part are we keeping and which part are we substituting with in this merger. That feels to me like that's a lot of work, but in an acquisition just comes down to okay, this is a wholesale, a hundred percent transfer and you know, at the end of the day something is worth, what somebody is willing to part for it for and what somebody is willing to buy it for. So you could do book value and depreciation and you could back up with numbers, but at the end of the day it's a willing buyer, willing seller market and there's usually more going on than just book value and depreciation. So I think it's those other things that are going on that are probably going to dictate where the market clears and what the price is.

Speaker 3 28:57

Prosper, having taken over a business, full assets, how would you maybe share, without sharing more than you'd like to how you ended up with a value, with a transaction value. How did you manage the living and breathing parts, which is customers, employees.

Speaker 5 29:13

So there are a number of factors to look at and I would group them into two. Some of the factors are internal and some are external. So, for internal factors, there are a lot of financial and tax issues to look at, and also there are a lot of legal issues to look at.

Speaker 8 29:34

Our acquisition, a lot of legal issues to look at.

Speaker 5 29:36

Our acquisition we did in Tanzania actually took about two years to finalize because there were a lot of legal and financial issues actually to look at and also to agree with between the parties On external issues. Now come the government.

Speaker 2 29:54

There are regulations governing acquisitions and majors and, I believe, each country's particular regulations governing the same.

Speaker 5 30:04

So for Tanzania, for example, you finalize your internal issues, then the transaction should go to the Fair Competition Commission. There it can take up to six months actually to get approved. Then after that it goes to the revenue authority also to get approved, and there may be also taxes to be paid and that also can delay the process because you also need to agree on the tax computation that would come about. So those are the factors that we went through and I believe that they may differ from country to country. That is the experience of Tanzania.

Speaker 3 30:47

I want to cross over to Cynthia as a financier and, of course, a legal professional. What are the mistakes that you see in structuring transactions that you wish you know? If they had come to me, I would have saved them a lot of trouble and money by considering this upfront.

Speaker 4 31:04

I'll speak to it in the wider context. As Prosper says, it's a long process and, as you asked the question, of course, as a lawyer, the first thing that comes to me is due diligence. There's so many aspects to it. There is tax, because if you've identified a target, you want to look at the tax considerations. You need to go over the contracts, supply, external contracts If there are various shareholders, you want to go through those shareholder agreements. Are there preemptive rights? Are there rights of fast refusal? The employees what do the contracts look like?

Speaker 4 31:43

Of course, in the mini-grid sector I don't believe correct me if I'm wrong there are any unionizable employees just yet, but I imagine you know that could become an issue. Then you go to the collective bargain agreement. There's so many things to look at in the due diligence process. So something I miss and of course lawyers will want to be dot all the I's, cross all the T's, be super, extra careful in the due diligence process. If something goes wrong there then of course it's a problem. Yeah, so some of the concerns, of course, that some of the things that could go wrong, errors or lapses in due diligence and due diligence could be something as culture, for instance, becomes an issue. I've seen the merger happen because of not in mini-grids, but I've actually witnessed that the merger happened just because of that post-merger disintegration in terms of cultural of these two organizations. Because you take on some of the employees, so due diligence lapses could be a big problem.

Speaker 3 32:41

Regulatory tax risks. I think that's a big one, and I think for the entrepreneurs, there's the ideal where you hire a big firm to do your tax diligence, to do a regulatory review, but at the same time developers are not flush with cash. You know the thousands of dollars to pay a UI or PwC could connect a few people. So is there a balance and I would also want to hear from Prosper and Matt between doing things perfectly so that it is perfectly fundable, versus even the financier supporting that transaction in any way? So for the financier, I would assume it's non-negotiable. It has to be perfect. If there's a large tax liability or contingent tax liability, you can kick them out, is it?

Speaker 4 33:28

Yes, from a financier's perspective, part of what you're doing in checking your CPs and your due diligence as a financier is that tax compliance. Of course tax practitioners will tell you in many jurisdictions of course the tax authority has and this is jurisdictional and varies. Your tax authority can come back to you up to five years back. You want to see that clearance and just make sure that you're financing or funding or supporting a compliant project, tax-compliant project.

Speaker 3 34:10

Thank you, Mark. The economics of that, the economics of a thorough tax diligence and legal diligence.

Speaker 6 34:17

Well, in the context of a project finance deal, I think it's inevitable.

Speaker 6 34:22

As Cynthia said, there are certain standards that are just dictated by the nature of the transaction and you have to comply with them and there's no use moaning about it, just you have to get on with it.

Speaker 6 34:32

But in terms of our experience in acquisition, it's a very different type of transaction.

Speaker 6 34:38

When it's B2B, it's not listed companies that are publicly traded, there's no institutional investors involved. You can certainly streamline things and I think this might be controversial to Cynthia as a lawyer but I think with the advent of AI and large language models, some of the legal work streams contract evaluation, contract review, comparing with local law these types of things are getting democratized, I would say, and put into the hands of laypeople a little bit more. So, on a smaller ticket size transaction that doesn't involve some of these constraints and requirements, I think you can try to do it as affordably as possible and just have the sort of 90% of the deal worked out between the parties and the final 10% to get it reviewed by a local legal and notarized or registered in a deeds registry or something like that. So I think there's a spectrum between ticket size and who's at the table where you have low overheads and then you have, depending on who's at the table or ticket size, you get the full belts and braces and you pay heavily for that.

Speaker 3 35:43

Thanks, matt Prosper. Talk to us about ambiguous tax laws. You know especially where we are dealing with unique transactions that haven't happened before. But also I know Tanzania. It's the same thing with Kenya, where, even with solar imports, sometimes even missing a HS code could mean either you pay zero taxes or you pay 45% taxes. So, in the context of a new transaction like this, what was your experience and how do you navigate the costly expenses of a tax review?

Speaker 5 36:12

Thank you, kelly, for the acquisition we did in Tanzania. The tax due diligence is what actually delayed the transaction, because we wanted to be certain that there were no tax issues which could come and haunt us after the acquisition. So we spent actually a good number of hours and days actually to look at all the tax aspects, and even during the negotiations with the other party. I think this is what actually delayed everything, because there were a lot of tax issues to look at.

Speaker 5 36:51

So, as we have mentioned, doing business in general tax aspect is quite a sophisticated segment while we are doing business. Any compliance issue would actually result in heavy penalties and this is what we eventually got found during this tax due diligence of the acquisition. We actually did two transactions in Tanzania. The first transaction was acquisition of the company, which had a lot of issues. So when came the second opportunity, we opted for only asset acquisition because of the issues and the lessons we learned from the acquisition of the company, because there were a lot of issues, in particular on the tax aspect.

Speaker 3 37:43

Yes, thanks, prosper. That is useful. And in terms of at the regulatory level, are there barriers that you've seen in facilitating transactions? And this is a question, I think, for everyone on the panel the different countries we are playing in Borrowing from, for example, the on-grid? One of the barriers a regulator puts in place in some countries is to say no acquisition beyond X percent will happen before financial close or before four years of operations. Are we seeing the same things happen? Any barriers? But also, on the converse, are there ways some regulators were encouraging transactions, knowing that this will grow the sector? We can start with Cynthia, then Mark, then Prosper. Thanks, kelly.

Speaker 4 38:27

I think from a regulatory perspective because I'm licensed to practice in Kenya, so I can give a bit of a Kenyan perspective the regulations in Kenya, of course, the entity, the regulatory authority, has given you the license. You cannot transfer it, you cannot assign it except with the approval of that regulator. And of course, as Prosper said, there's another layer that comes into play because you put yourself now well within the ambit of another regulator. Quote, unquote that's the competition level which is common in many Commonwealth countries. So the competition authority will also want to come in and see what's the effect of this change of control. And the regulators Kenya for instance work together.

Speaker 4 39:13

So competition could be a motivation for others to enter into these mechanisms or to do a merger or an acquisition. But then the competition authority will come and say okay, look, are you trying to be in a dominant position? What's the extent of your dominance? Does it in turn, affect the pricing? What's, you know, any public policy concerns? How does it affect your industry? So I think, from a regulatory perspective, just that clear framework of if you're altering your shareholding or if you need to assign your license, well, this is where you need to go and these are the steps you need to follow. I think that clarity makes it a little easier.

Speaker 5 39:57

I think Cynthia has actually described it quite well. So that is how the regulations are a series of steps that you need to follow, in particular in Tanzania. So, after you have the agreement between the parties, the transaction goes to the competition authority to get approval and then to the tax authority and that is the final stage of the transaction and, in general in Tanzania, acquisitions and majors are allowed. There's no restrictions to acquisitions.

Speaker 6 40:32

Yeah, I would say that there's no restriction to the acquisition, but one of the principal assets of the entity that you're acquiring is the licenses and there's that consent clause Hopefully not to be unreasonably withheld.

Speaker 6 40:41

But you have to expect that you have to make your case to the licenses and there's that consent clause hopefully not to be unreasonably withheld, but you have to expect that you have to make your case to the authority.

Speaker 6 40:46

This is not going to be adverse to the public interest, that this acquisition is going to lead to the intended essential services, the electrification of the beneficiaries, or, if it's an already operating asset, that the continuity and the sustainability of that operations is going to be preserved. And I would say that these acquisitions, or at least our acquisition, is not with an intent to liquidate any assets, but to preserve, promote, expand, build on. And I think that kind of story should resonate, hopefully, with the regulator and that they see that this is in the best interest of the public and the end consumers and in the communities. So, yeah, in our case we were able to get that consent to transfer the license, or rather that the license remains but that the ownership of the licensee has been transferred, and we were able to procure that in Benin, and I would think that it should be doable for most acquisitions if they're being done for the right reasons.

Speaker 3 41:42

Have you encountered where you require a threshold for local ownership?

Speaker 6 41:46

I don't have a lot to say on that topic other than you know in Lesotho there are easy ways to set up your company and to bank it if you're local and if you're foreign there's more hurdles that you have to jump through. You have to demonstrate capitalization and there's a different process for foreign owned companies to sort of get established and banked in Lesotho In Union. I'm not quite sure what happened in the beginning because you know we acquired already established and already banked entities. Maybe they had to go through some process because they were foreign owned, but that's what I've noticed. But as far as a requirement for local ownership, I don't think it's required. I just think that you'll be a fast track if your ownership is 75% local and you're not on a fast track if you're more than 25% foreign-owned, at least in some jurisdictions.

Community Relations After Consolidation

Speaker 3 42:38

Thank you, Prosper Tanzania. Is there ease if you're majority local versus if an incoming player is coming and taking over 100%?

Speaker 5 42:46

I think in general there's a free entry for foreigners, I can say, to establish companies in Tanzania. There's not much restrictions. I can say in Tanzania. So it's a free market.

Speaker 6 42:59

Maybe, just one more point to add. On the ownership side, though, is also in Lesotho it's not really legal for foreigners to own land, the mini-grid site. They have to be structured in such a way that you've complied with basic prohibition of foreign ownership of land in Lesotho. In Benin already, the regulatory framework caters for the ownership of the generation plant. The land that the generation plant sits on will be with the government, so that's sort of already baked into the framework and been in. But in Lesotho we sort of had to create a regime to comply so that we could have a bankable project that had land tenure rights but for a foreign-owned asset company that's providing the service without the foreign-owned asset company owning the land that the mini-grid sits on. So again, there are ways to solve for it, just take some work.

Speaker 3 43:46

So far we haven't had marches in the sector, but we've had exits where exiting parties are selling and, as you described it, opportunistic march. But would I be wrong in saying that we are not seeing the one plus one equals three kind of effect we expect from business combinations and I'll speak a bit more into that, why I say that One in a merger, are we seeing connections happen that otherwise wouldn't have happened if the transaction didn't go through? Are we seeing new business models coming up as a result, say, of an acquisition or a transaction, or even sites that were not viable? Maybe, but because now we have this transaction and this scale by bringing the transaction to close, then this become viable. Because when we think about synergistic combinations, we're saying that these two companies separately would not have done it or this company wouldn't have done this without this transaction happening. Am I wrong in saying we're still not at a point where we are seeing that sort of quote-unquote innovation happen as a result of acquisitions? Or am I being unfair, matt?

Speaker 6 44:52

No, I don't think you're being unfair, I don't think it's that controversial. I like how you put it. You know that one plus one equals three. But I think that, yes, it's true, we haven't seen it yet, but that doesn't mean that those conversations aren't at some stage already out there and probably can't really be disclosed due to sensitive nature of it. But I do think that the future of the sector does involve some of those one plus one equals three type of deals. And I think we're just early. You know, it's not that it won't happen or that it can't happen, it's just it's a process and there's an evolution and I think that it will happen. And I think if we have the same conversation a year from now or two years from now there, probably will be examples that you could look at Cynthia.

Speaker 4 45:33

Yes, I do agree. I think that presents an opportunity area. But then of course, right now it's just you know the early stages and the patience for it Because, as Prosper mentioned, their deal being an acquisition took two years. So by the time you do the due diligence processes you know identify the target, due diligence, the valuations and all this. It takes months and of course some of this conventional big project kind of structures, including project finance we are seeing in mini-grids, we have to tweak a few things here and there. We could not just have that strict applicability in some of even the financing transactions in mini-grids just because the projects are number one small. But I think it's seriously an opportunity area for scaling and just for that expansion that we are area for scaling and just for that expansion that we are looking to see and just for economies of scale.

Speaker 5 46:26

As my fellow panelists said, actually it's too early to see success, but I think we are on the right track we are going there For us, actually, before the acquisition, we had only one site in Tanzania.

Speaker 5 46:42

So after the acquisition, now we are one site in Tanzania. So after the acquisition, now we are speaking of having eight sites. So that is quite a big step, quite a big jump. The other good thing is we have been able to attract interest to come and work with us to upgrade the facilities and after, maybe, as Matt said, after two or three years to come, I think we'll be speaking a different story.

Speaker 3 47:08

Great, so it's a matter of time. The final question I have before I open the session is that many grids work because the developer, the operator, is close to the people in ways that a grid operator doesn't, and especially in Africa, where in many cases, we are introducing electricity but we are also needing to stimulate demand. What do you think will happen if we are moving towards consolidating into large mini-grid companies? Are we at the risk of replicating the same utility problem where we are too far away from our communities to make it work?

Speaker 6 47:43

I think that if you're far, if you're close, you know it's. At the end of the day, the customer doesn't necessarily, you know, want to be your friend and doesn't need to see your face every day. They just want the lights to work and they want the product to be affordable. And you know if the utilities are not delivering because they're disassociated from the community, if that's a contributing factor, then it's the end result that matters. So if mini-grids scale and they effectively become utilities in the hinterlands of sub-Saharan Africa, I think whether or not they succeed or not is going to be less due to the grassroots aspect of it and just whether or not they're able to deliver on promises. And if you have very effective systems that you know for remote monitoring, for remote diagnosis and intervention, for anticipating problems and solving them before they happen, which is something you can do with a lot of data acquisition systems on distributed assets, it's not necessary that the community sees somebody wearing the badge of the mini-grid company each and every day. Actually, if the asset's operating very well, they hopefully won't see them that often. It's only if the asset's poorly performing that they're going to see them there a lot.

Speaker 6 49:01

I guess I'm talking from a more kind of operational and mechanistic standpoint, whereas maybe you're getting at more, just a more high level concept of how much do you actually care about and know about what the customer wants. So I think we're aligned on the idea that it's putting yourself in the customer's shoes and knowing what they want. That's important, and if part of the story of the utilities in Africa is that they've forgotten that, then yes, that's a problem. And if mini-grid companies forget that too, it will be a problem. So it's not so much about the physical presence in the community. It's about knowing your customer and caring about what the customer experiences and how they experience it, which I think is always going to be important.

Speaker 3 49:40

Thanks, matt. I'll come to you Prosper, because, yes, so there's the technical, there's delivering the electrons and the uptime, but then there is, for example, your work involves quite a bit of demand stimulation the word I much dislike productive use of energy, because, of course, the communities that we are serving, once they get electricity for the first time, they need additional incentives and projects, and we are doing a lot of work in the community. I mean, yesterday at the PUE, somebody actually said we need to stop doing everything. We can't do energy agriculture, but the reality is we are, and so do you think then there's a risk of that dropping off and what then replaces it? Because at the end of the day, there's the scale, but also we want consumption to keep growing.

Speaker 5 50:21

Thank you, kelly. I think the major reason we do acquisitions or majors is to improve everything across the service delivery to customers. So if then the acquisition now will make the services now to become poor, then I think that would be not a good acquisition to consider. So I think acquisitions would add value in all aspects of service delivery and, as Matt said, I think customers would care only if the service is poor.

Speaker 5 51:00

So if you do acquisition and you make everything improve, service delivery improve, they have guaranteed power as per contract to intern with them. I think that is actually not a question.

Speaker 6 51:14

Can I jump in back, though?

Speaker 6 51:16

I think that one of the big reasons why the utilities maybe it's not that the people at the utilities don't care about the customer, but the business model itself is flawed.

Speaker 6 51:26

Right, they are selling product at below cost, they're heavily subsidized and they don't make money on each and every kilowatt hour. So if they're only supplying 10 hours a day, or even four hours a day in some cases, nobody at the business is sweating it and saying, oh my God, we're losing revenue Because really they're just like wow, the amount that I'm going to spend on this O&M is not actually being recovered by the consumption that it enables. Whereas if your model, if your business model, is sustainable, then as a mini grid operator, you do care Each hour that you're not available, that you're not supplying your customer. You're losing revenue that you depend on because your model is sustainable and it is the revenue that drives the business. So I think that's one of the reasons why the utilities have sort of gotten away from serving what the customers need is because they, for political reasons, have gotten their customer base addicted to electrons that cost less to the customer than what it costs the utility to provide them.

Speaker 3 52:24

Well said, Cynthia.

Speaker 4 52:25

Just very quickly to contribute to the community debate.

Speaker 4 52:29

In my experience and also from what we've seen, of course these mini-grids and projects generally operate within communities and in some cases you'll see the land is community land and so you need to manage that community risk and sort of get what you quote, unquote, the social license.

Speaker 4 52:48

So in that context I think it's something to also be managed in partnership with government and just have strategies to manage that. And finally, on the PUE, I think I recall the discussion yesterday but I think it could also work both sides right, because as a mini-grid developer, when you're doing your market assessments, your feasibility studies, viable and robust economic activity is one of the things you look at because you want to achieve that optimum uptake and I do understand. So at TI Africa we have a productive use of energy component soft component that we have one phase mini-grid developers deploying PUE equipment and the second phase having standalone off-grid enterprises deploying PUE. So of course we are waiting to see how that will pan out because for the standalone that's their core business and for the mini-grid developers they're selling the power as their core business. So it'll be interesting to see.

Speaker 3 53:47

I mean, maybe the future is that the mini-grid business will be so large that other businesses will come then to stimulate demand. Then we are not asking mini-grid businesses to sell clean cooking and all these other solutions, which is not their business.

Speaker 5 54:01

Kelly, that is what we are. For us, we are negotiating in Tanzania to have a third party doing demand stimulation. So we concentrate on selling electricity and a third party is doing demand stimulation.

Speaker 6 54:16

I'd like to make an analogy that it's like asking the telecoms that if you want to have financing for building telecom towers, then you also need to invest in TikToks and streaming Nollywood.

Speaker 3 54:27

I mean it hasn't not been done. I think Safaricom in Kenya actually did that. They did music and art and all sorts of things. I don't know how well it worked, but at best I think it's just got them well-liked by the kids. But I don't think there was money to make there, so I will invite our audience. Is there anyone with questions? Before we close the session.

Mission 300: Requirements for Scaling

Speaker 7 54:48

Hi guys, this is Andre Duras from tfe, future of energy. Yeah, I really like that distinction between the corporate acquisition and the asset acquisition. It's a good way of distinguishing between it. Just thinking about the asset acquisition, like I thought always about it in the lines of developer doing it to reach more scale for operations, but thinking about out of the box, like could we see a future scenario where it becomes a little bit like the utility scale industry where a developer specializes in developing shovel ready sites and then sell those sites by design for an operator to acquire those sites, and so the acquisition then from the operator is not on an ad hoc basis for getting more scale, but it's just how they do their operations day to day and you have this kind of distinction in specializations.

Speaker 3 55:46

Matt, do you want to take?

Speaker 6 55:46

that. Yeah, andre, I think you can have both models that work, just like you have Apple computer that's highly vertically integrated and you have the kind of Android PC market where everybody kind of specializes in their own piece of the ecosystem. I don't think every developer can and should try to integrate vertically and I think some that try might find that it doesn't yield the benefits that they think it will. But I think others that are able to pull that off could have the equivalent of the kind of premium Apple type of ecosystem in that product. I think there is ways to leverage and multiply value in vertical integration and being developer EPC owner operator in vertical integration and being developer EPC owner operator. That's the path that we've chosen, but I don't try to proselytize or recruit other developers to follow that path. I think everyone needs to play to their strengths.

Speaker 3 56:41

If I may add briefly, in the on-grid space we've seen that where, say, a local developer derisks, does the PPAs, the initial land acquisition and so on and so forth, and then they offload. We also see it with large-scale CNI. But the difference I think lies in the premium to be made. You know, there isn't mini-grid business, as somebody said yesterday, that is not there to make people super wealthy. So for developers there isn't that developer premium that makes it appealing. You only get to make the project viable if you carry it through. And for the acquiring party also, if they pay a significant premium, then how do they recover, unlike CNI where the financing sometimes even finances that premium. In this case it's mostly grant funded and the grant funding of course it's based on connections goes to CapEx. I would say the viability of that serial developer disposal model is not quite as good for mini-grids.

Speaker 6 57:39

In absolute terms, you can make more money if you're vertically integrated, because the total transaction size is larger as opposed to if you're just focusing on your small piece of it. Then you're making that margin on that smaller piece. So you might have the same percent margin wherever you are in the value chain. But if you're everywhere in the value chain, then you're making that margin on the total transaction size. So in absolute terms you can make more money. But does it make sense to do that? It really depends on who you are, what you want, what you're capable of.

Speaker 3 58:10

Okay, final question.

Speaker 8 58:13

Thank you so much. Good afternoon. My name is Susiku Nasinda. I'm Associate Director for Climate Change and Sustainability Services at EY, zambia. My question goes to Prosper. You've had the chance of working in multiple jurisdictions like Zambia and Tanzania. Chance of working in multiple jurisdictions like Zambia and Tanzania. What are some of the key challenges that you have observed, having a portfolio that straddles across various countries? So what are the key challenges that you've experienced and how are you dealing with them? Thank you, thank you, susiku.

Speaker 5 58:48

I think in general, I would highlight, the biggest challenge for us is actually access to finance. So in general, that is the biggest challenge in Tanzania, as well as in Zambia. So I've really enjoyed the past three days here in Zambia where now the Zambian environment is really emerged globally. We now have a very good understanding of Zambian market and, in particular, to investors.

Speaker 5 59:17

Now they have a very good understanding of the market dynamics such that during our different meetings with investors here there's positivity that we are now going to be able to fundraise for our projects. But before I can say, before this, I think the awareness of the market and the dynamics of the market was quite lacking and this actually made us to delay our fundraising processes, in particular in the Zambian market In Tanzania. I think the challenge we had was actually the political will. We had a very good regulatory framework but the political will for the past few years was lacking. Luckily now, after the new administration, we have now the government which is really supporting the sector.

Speaker 5 1:00:09

So I think the major challenge is access to finance, and now I think we are closing that gap.

Speaker 3 1:00:17

Thank you very much. As we come to the end, I'll invite my panelists to make one comment Mission 300, 300 connections in five years. That means over 10x the growth we've been seeing every year. What do you need done in your different areas of play? So, cynthia, on the financing side, and then Prosper and Matt, what will facilitate you to catalyze your own growth, 10x every year to contribute to M300? Cynthia, please go first.

Speaker 4 1:00:44

Thanks, kelly. Of course it's been discussed. It's an ambitious target, but we are already working with developers in sub-Saharan Africa to work towards this. Of course, so far, ci Africa under phase one of the RBF is looking to achieve 40,000 new connections. So we are really looking forward to this and hopefully we'll have another call and just keep it going.

Speaker 3 1:01:07

So more of the same and more money. Basically, Prosper, what would you want to receive to be able to 10x your own growth?

Speaker 5 1:01:14

We are only five years away from 2030, and we really need a lot of efforts Collective I can say collective efforts. Governments should really reform their regulatory environment. Private sector should really innovate. Private sector should really innovate and on the last mile now our customers and consumers should really adopt to what we are sending them. So it is actually a collective effort of the three parties.

Speaker 6 1:01:43

When the benchmarking African mini-grids report was shared, it really shook me to see that there was $9 billion committed to the sector over the last five years and only 14% has deployed. So what I would say to Mission 300 and to other initiatives trying to bolster the sector is that it's not that we're missing capital, we're missing capital that moves. And, let's not forget, you need to fund builders, not just blueprints.

Speaker 3 1:02:10

Well, same, If I was to speak as a consultant but also supporting businesses, I would say we need equity. We need to stop telling developers to raise philanthropic cash. We need real money, you know.

Speaker 6 1:02:20

Thank you.

Speaker 3 1:02:20

Yes, we need equity, we need debt, we need grants, but mostly equity. Then we can release money to people and we can connect people to electricity. With that we come to the end of the session. It's been very, very informative and interesting. For me, this is a potentially dry topic, and you've made it interesting for all of us, for me. Thank you very much and enjoy your evening as we close the conference.

Speaker 1 1:02:42

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