Rwanda’s new downstream law and energy regulator, RURA, look set to enhance efficiency and accountability in the sector, as well as increase the national fuel reserve capacity. Serge Kajeguhakwa, Chairman/CEO of E.R.P., explains the impact of both on the industry, the ambitious plans to boost installed capacity by 300%, and the massive potential in non-fossil fuel energy generation in Rwanda, particularly in solar.
According to Minister Kanimba the new downstream petroleum law provides a new clear framework that will benefit the private sector directly. What is your assessment on it?
The new downstream law is well done, as the Rwanda Utilities Regulatory Authority – RURA – now rules the sector, which is close to the entrepreneurs driving the private sector. This will allow this authority to sit down with companies and take into consideration different frames and different downstream businesses and value-chains. This will lead to better regulation, and that is good news, as we have asked for quite some time now for an entity that solely regulates downstream activities as it was previously quite fragmented. Now we have a privileged intermediary that makes it simple. Before that authority’s creation, our only contact was the Ministry of Trade and Industry, which had no time, nor the proper knowledge, to understand our difficulties. This leaves space and time to think at an adequate upstream administration. An upstream law has already been put into place but it still needs to be refined.
The CEO of the Ethiopian Petroleum Supply Enterprise told us that due to low international oil prices, the import bill would be reduced by about $600 million, approximately 21% of Ethiopia’s overall imports. What trend did you observe in Rwanda and how did it affect your business?
If you look carefully at the last 12 to 18 months, the barrel price has lost more or less 70% of its value. This actually helped us a lot. We sat down with the regulator to look at the price impact, and passed it on directly to the consumer’s final oil price. No tax increase was to be observed, thus a final price list was given to us to apply. This really helped consumers. Other neighboring countries increased taxes, while prices were going down, leading to an unchanged market. It particularly helped us with our inflation: our inflation, compared with Uganda remained stable (4.1% to 5%, whereas Uganda was above 5.9.) This fall in oil prices was an opportunity for us to control our inflation, as oil products drive pretty much every aspect of our economy.
Most of the world’s population has read about the fall in oil price without feeling it, but Rwandans have. This allowed them to consume in other areas of the economy.
Do you think there is still place for new actors within the downstream sector?
There definitely is room for new entrants, but competition is already quite high. I also believe the available room we have today will be regulated efficiently by RURA. Many players have come to operate on an interim basis in the country and this has by no means helped Rwanda’s consumers.
RURA will regulate and facilitate the downstream market for existing players, and any new entrants will have to come in through investments. The downstream sector needs to regulate existing investors, protect them and raise the bar for new entrants in terms of documentation, minimum investments, etc.
We do not want to harbor unethical companies anymore.
As Rwanda is a landlocked country, we want to make sure that every single downstream company keeps at all time strategic stocks, to not find itself in compromising situations. That is the reason why we are doubling our capacities.
Due the nature of your business, you require a lot of trading finance from banks and equity markets. Who are your partners and what others are you looking for?
Today we secure all of our trade finance via letters of credit from local banks that are rated by “first-class banks” in Europe. Over the past four years we have established close relationships with these banks and have strengthened our partnerships to improve our credit risk and reduce costs.
We also are in discussions to increase our equity partnerships as we take on a more integrated energy group structure through the expansion of our existing infrastructure and the diversification of power through partnerships in the solar and renewable energy sector.
50% of your imports are for the local market and the other 50% is re-exported to DRC and Burundi. We know Eastern DRC is very important in your strategy and that you want to increase your business there, as it also means hard currency. How do you plan to increase your market share there and which other markets would you like to enter?
The plan is first to enhance our financial capacities. Once this is done, it will be easier to take position in the DRC. For instance, mining companies in Eastern DRC are important clients to us, and they still require larger capacities. Therefore, we wish to get to them to increase our volumes and also act like a hedge. The more you do that, the less exposed to exchange rates fluctuation you are. We would rather look at having a 60%-40% market distribution, as it would compensate potential losses. Since we do not yet have an exchange market, such a situation would help us to complement losses. Using natural hedges helps us to collect hard currencies to pay suppliers for instance, and stabilize volatile exchange rates.
You are also trying to diversify into other forms of energy, such as a solar project. What are your plans regarding non-fossil fuel energy generation?
Rwanda’s government has embarked on a strategy to increase installed capacity and accessibility to power from 180-190MW and 24.5% accessibility to 563MW and 70% respectively by 2018. This is over 300% MW increase that we believe can be achieved through solar power – particularly off-grid solar power. In Rwanda today, biomass is the number one source of electricity, closely followed by fossil fuels.
We recognize that as we are yet to explore and produce the natural resources that are beneath the surface, Rwandans can benefit from the energy above the surface of the Earth. We have made significant strides in developing our solar and renewable energy strategy in tandem with the government’s objectives and will focus initially on solar power through basic household solar systems, followed by the development of mini-grid solutions and then large-scale solar projects. We expect to be able to produce around 50MW from solar energy only and have entered into joint venture partnerships to achieve this target and begin the implementation of our solar strategy by Q4 2016.
Hydro-electricity, on the other hand, is quite challenging, despite its benefits as a clean fuel, as a result of the uneven seasons. The contribution today from hydropower is at about 30MW; however, during the long-lasting dry seasons when water levels drop significantly, power production from fossil fuels is necessary to meet demand.
Christine Lagarde, Managing Director of the IMF, stated that one of Africa’s greatest challenges was to “build its people”. What are the main challenges in this regard?
Rwanda is a great example of an African country that has done considerably well in building its people – particularly over the last 20 years after the genocide conflict.
Over the last decade, strategic changes at the government level, such as the combination of the Ministry of Youth and ICT, have had significant impact on the development of the people, particularly as Rwanda has a young population. At first, the change did not appear sensible as the industries seemed related, but it turned out to be a great decision. The Rwandan youth have now been further empowered through ICT, bridging the knowledge gap and improving access and use of technology.
The agricultural sector has also embarked on educating the youth on the age-old farming traditions and the application of new technologies, making agriculture a lot more appealing and efficient.
Africa is becoming a growing investment destination for both advanced and emerging economies. Please discuss this prominence the continent is gaining in the international arena.
With a significant portion of the world’s natural resources available on the continent, Africa has always been a shopping place for the rest of the world. Historically, investment had always come from the international arena, but with very little positive impact on the development of the continent for its people. Today, the increased investment is because the leaders on the continent seek to correct this and are focused on investment that has local impact on the continent. Africa is also one of the few continents driving global growth at 3.1%, compared to the eurozone at 1.6%.
Furthermore, it is only natural now to develop the continent and bring it out of the third world: for that we have humongous human capacities, since our continent is fortunate enough to host the youngest population in the world. The increased prominence also appears to be reversing the brain drain as Africans are returning to support the development of their home countries, particularly here in Rwanda. Therefore, in the next 40 to 50 years African human resources will drive global development.
With our natural resources and our human capacity the only thing missing is the will. Actually believing that that progress is doable is the main challenge to overcoming the image many Africans have about their continent. The gap must be closed, we must get away from aid, get self-sufficient, and this will only be the case if the youth gets properly involved. We are quite optimistic.
Africa has the lowest level of intra-regional trade, at just 18%. What are Rwanda’s regional integration efforts to bridge this gap?
Within the East African region, a true focus has been made on infrastructure projects. These will help people and goods movement, and therefore trade within that region. Upcoming projects will increase this efficiency: a new regional railway network is being developed. It will integrate five countries: Tanzania, Kenya, Uganda, Rwanda and Burundi.
We also have a new pipeline project, in which we have a major interest as an oil distributor. The aim here is to link Mombasa port, through Uganda, Rwanda and then to eastern DRC. This will help us on speed-related issues, efficiency, cost-reduction, and CO2 emissions.
We also try to make local companies participate as much as possible in these ginormous projects that generally require highly skilled staff, through technology transfer or training, in order for our local partners to increase their capacities. We want to be able to transfer skills to our people, our youth. In the next 20 years we will be able to have local production to reduce imports as much as possible.
What did you learn from your experience in West Africa to apply in Rwanda and to do better? How could you manage to have a more sustainable oil and gas industry compared to what has been done in the rest of Africa?
What we learned from our experience in West Africa is the importance of driving patriotism in an intelligent an efficient way. We have natural resources here in Rwanda that belong to us, which are by no means a curse. With completely eliminated corruption, local partners and companies that know how to take advantage of these, the country could truly benefit from it: this can indirectly bring knowledge, education, capacity, health, etc. By establishing a healthy basis on which the country can exploit its resources, it is hard for me to imagine how wealth can escape from us.
Our president did a fantastic job at making us understand that Rwanda is our land and that we need are responsible for growing and developing it. He made us realize that Rwanda’s institutions are actually our institutions. We have come relatively far in a short time compared to some other countries in Africa, and now recognize the importance and benefit of a truly transparent and non-corrupted nation.
What message of confidence do you want to send to the international community regarding Rwanda’s fuel supply sector?
The new downstream law actually helps the investor more than the speculator. In other words, one should look at investing in assets, and increasing the trader’s capacities. The framework encourages investors to make sure they have stock on the ground, and run in a given time period on a self-sufficient stock. The government is keen to implement the practice of keeping strategic volumes of petroleum products, which means that the availability of supply and storage infrastructure across the country will be pivotal for the growth of the sector.
Being one of Rwanda’s most prominent entrepreneurs, how would you describe the Rwandan entrepreneur character to a foreigner?
There is a wave of entrepreneur passion spreading across youngsters driven by our leadership. Today’s Rwandan entrepreneur is driven by the “we can do it” principle. It is a perfect time to find talent, and to support them in any way we can, whether financially, morally or with training and knowledge. Driving different talent is quite exciting and involving. Rwanda has talent.