Across the emerging markets, there’s a dire need to invest in energy infrastructure assets. Simply put, energy infrastructure is the physical stock of assets that connect supply (well-head) with demand (consumer), and is part of the upstream-to-downstream energy value chain. Given the historic under-investment, rapid urbanization, rise of a relatively young middle class (with an ability and willingness to spend), consistent governmental budgetary constraints, amongst a host of other factors, there’s a fierce sense of urgency to deploy available private capital in what has historically been a public sector domain. In assessing the opportunity and an actionable deal pipeline, it is useful to do so along three axes:
- Geography i.e. select countries (and cities within) in the emerging markets that have, among other things, the requisite regulatory framework to attract private capital in the energy infrastructure space
- Sector i.e. power (both conventional and renewable) and mid-stream oil & gas (pipelines, terminals, etc.) that provide relatively stable earnings and cash flows over a long period; and
- Stage of the investment life cycle i.e. development, construction (green field) and operational, with a predominant focus on green field
The risk-return trade-off is an all important criteria for any investment - development projects, for instance, have the highest abort risk but also the highest reward if a project achieves an optimal financial close; green field projects require close supervision and structuring to ensure that projects get built on time, on budget, and to specification; and operational projects by definition provide stable earnings and cash flows and therefore little upside (unless there’s an expansion potential). Whilst figures vary across countries, it is typical to expect a 25% IRR on development projects, 18% IRR on green field projects, and 11-12% IRR on operational projects, in the emerging markets – requiring different pockets of funding capital for each.
The reality is that there’s a pool of (1) available capital, (2) investible opportunities, and (3) qualified entities / players that are able to connect (1) and (2) under a mutually beneficial arrangement. Whilst this has arguably been somewhat “commoditized”, our unique proposition and angle is to differentiate ourselves in category (3) above on the following basis:
- Understanding of the emerging markets landscape having grown up and worked in the region
- Understanding of the energy infrastructure asset class (buy side / sell side / operational) for over 20 years
- Deep relationships with various stakeholders such as project developers, debt & equity financiers, equipment providers, construction and O&M contractors, governments/regulators, etc.
- Alignment of long-term interest with a view to having a skin in the game through sweat equity or a 2/20 PE model, along with a passionate desire to build an “institution” around our efforts that outlives its founders
- An actionable deal pipeline in various stages of development;
We provide hands on advisory services to sponsors of power utility companies to help them finance and augment their generation & transmission infrastructure capacity; and reduce their aggregate technical and commercial losses; organizational inertia and resistance to change; structural and process barriers; system obsolescence; etc. At OE, we have also devised a high-impact collaborative approach to ‘change management’ and ‘transformation’. It is our philosophy that transformation is essentially a change in mind-set of all stakeholders including employees, customers, shareholders, regulators and the policy makers.
Capturing the critical commercial processes that lead to revenue and collection improvement is our first step towards achieving the required change, including revamping of existing processes and organizational restructuring. This is followed by optimization of infrastructure to achieve capacity building to derive maximum output to ensure strategic expansion. Finally, we work towards a sustainable business environment with clearly identifiable goals and targets to ensure that the organization is self-sufficient and is able to serve its consumers fully while achieving operational and commercial excellence.
In addition, we can provide a wide array of assistance in:
- Regulatory matters, energy management and climate change policy
- Stakeholder alignment approach
- Technology selection
- Power purchase negotiations
- Marketing campaign on social media
- Customer litigation
- Performance management & monitoring tools
- Fleet optimization
- Out sourcing models
With our on-the-ground professional team (domain specialists) overseen by our senior leadership team, we can create a far-reaching impact for our client in terms of loss reduction, recovery enhancement, network expansion and optimization, capacity building of employees, and customer satisfaction.