Oil revenue used as guarantee for green hydrogen loans – report
Namibia is allegedly planning to use its projected oil revenue as collateral to secure loans from the international money market to fund its portion of the development of local green hydrogen projects.
This is according to an Institute of Public Policy Research (IPPR) report that explored the risks associated with the expectation that Namibia should give an unknown level of loan guarantees for the project.
Hyphen Hydrogen Energy has agreed to a deal with Namibia for the next phase of a US$10 billion (about N$181 billion) green hydrogen project that will export to Europe once complete. The costing of this project, according to the IPPR, depends on a bankable feasibility study that is being kept under lock and key, with Hyphen and the government insisting it is too confidential to be made public.
“The only way in which the government could obtain such large loans from the international money market is by leveraging its future oil revenues, as Mozambique has done in the fisheries sector. Indeed, there have been indications from government sources that this is precisely how the government intends to fund the loan guarantees needed for the development of green hydrogen projects,” the report read.
“This, in turn, raises the question of whether the government has chosen an appropriate development partner for such a large, new and risky venture,” the IPPR wanted to know.
Hyphen joint venture
It has also cast light on Hyphen’s joint venture with the South African subsidiary of German transnational firm Enertrag (49%), which is a relatively large but new renewable energy producer, and Nicholas Holdings (51%), a completely unknown entity in this field.
The report argued that even Enertrag, with its 800 employees and total sales of N$5 billion, is not of sufficient enough girth to fund the N$180 billion Hyphen project.
Nor are the two firms large enough to attract bank loans sufficient to undertake such a project, with IPPR pointing out that Hyphen has not hidden the fact that it is looking for a strategic partner. Recently, it was reported that Nicholas Holdings was trying to sell an unspecified stake in Hyphen to one of the oil and gas majors for N$3 billion.
“The outcome of the negotiations is unknown. Assuming these reports to be correct, it is a development that is to be applauded. For the Lüderitz project to reach fruition, it will require a far more substantial strategic partner or for the current owners to sell the firm in its entirety to a major energy firm. If this proposed divestment by Hyphen’s owners is a positive development, then one needs to ask why the government of Namibia chose these tenderers in the first place rather than much larger firms like Sasol and Fortescue.”
Risks
IPPR also mentioned that a NamPower study identified important commercial and economic risks emanating from the Hyphen project. The most significant being the risk of not being able to make a business case and procure enough off-take agreements from buyers in Europe and Asia.
“No bank or group of banks will fund such a large project without legal proof that there are buyers for the final product at a known price. That will mean that Hyphen and the government will have to provide evidence of legal memoranda for the purchase of the ammonia/hydrogen produced at Lüderitz,,” the report stated.
It is also noted that given that hydrogen is a commodity, the main factors will be the price of the product and whether it can be sold in markets like Rotterdam, adding that the project is likely to collapse if the price is uncompetitive.
“Fortunately, Namibia can get out of its 24% stake in the project once the studies are completed if it is found to be sub-economic. However, there are also very substantial political risks involved in the commencement of such a new industry. The first is that the green hydrogen industry - which has caused so many sub-Saharan African countries to study the matter, but only six have started to implement - is dependent entirely upon subsidies from developed countries which claim that they are committed to decarbonisation and fighting climate change.”
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This is according to an Institute of Public Policy Research (IPPR) report that explored the risks associated with the expectation that Namibia should give an unknown level of loan guarantees for the project.
Hyphen Hydrogen Energy has agreed to a deal with Namibia for the next phase of a US$10 billion (about N$181 billion) green hydrogen project that will export to Europe once complete. The costing of this project, according to the IPPR, depends on a bankable feasibility study that is being kept under lock and key, with Hyphen and the government insisting it is too confidential to be made public.
“The only way in which the government could obtain such large loans from the international money market is by leveraging its future oil revenues, as Mozambique has done in the fisheries sector. Indeed, there have been indications from government sources that this is precisely how the government intends to fund the loan guarantees needed for the development of green hydrogen projects,” the report read.
“This, in turn, raises the question of whether the government has chosen an appropriate development partner for such a large, new and risky venture,” the IPPR wanted to know.
Hyphen joint venture
It has also cast light on Hyphen’s joint venture with the South African subsidiary of German transnational firm Enertrag (49%), which is a relatively large but new renewable energy producer, and Nicholas Holdings (51%), a completely unknown entity in this field.
The report argued that even Enertrag, with its 800 employees and total sales of N$5 billion, is not of sufficient enough girth to fund the N$180 billion Hyphen project.
Nor are the two firms large enough to attract bank loans sufficient to undertake such a project, with IPPR pointing out that Hyphen has not hidden the fact that it is looking for a strategic partner. Recently, it was reported that Nicholas Holdings was trying to sell an unspecified stake in Hyphen to one of the oil and gas majors for N$3 billion.
“The outcome of the negotiations is unknown. Assuming these reports to be correct, it is a development that is to be applauded. For the Lüderitz project to reach fruition, it will require a far more substantial strategic partner or for the current owners to sell the firm in its entirety to a major energy firm. If this proposed divestment by Hyphen’s owners is a positive development, then one needs to ask why the government of Namibia chose these tenderers in the first place rather than much larger firms like Sasol and Fortescue.”
Risks
IPPR also mentioned that a NamPower study identified important commercial and economic risks emanating from the Hyphen project. The most significant being the risk of not being able to make a business case and procure enough off-take agreements from buyers in Europe and Asia.
“No bank or group of banks will fund such a large project without legal proof that there are buyers for the final product at a known price. That will mean that Hyphen and the government will have to provide evidence of legal memoranda for the purchase of the ammonia/hydrogen produced at Lüderitz,,” the report stated.
It is also noted that given that hydrogen is a commodity, the main factors will be the price of the product and whether it can be sold in markets like Rotterdam, adding that the project is likely to collapse if the price is uncompetitive.
“Fortunately, Namibia can get out of its 24% stake in the project once the studies are completed if it is found to be sub-economic. However, there are also very substantial political risks involved in the commencement of such a new industry. The first is that the green hydrogen industry - which has caused so many sub-Saharan African countries to study the matter, but only six have started to implement - is dependent entirely upon subsidies from developed countries which claim that they are committed to decarbonisation and fighting climate change.”
[email protected]
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