Paprec devises new technology to help EU hit recycling target

The European Commission estimates that the EU’s constituents together produced over 25m tonnes of plastic waste in 2008, with a third of this making its way into landfills, which is a startling statistic when considered alongside the bloc’s ambitious targets for 2020.

Far too often PVC windows, bumper stickers, yoghurt pots and materials much the same end their existence in landfill sites, prompting recycling industry players much like Paris-based Paprec to think up inventive solutions to give recyclable products a new lease of life.

The end goal of zero plastic appears all the more ambitious for France given that the country is the continent’s third-highest contributor of waste and accounts for 3.3m tonnes alone. However, the country does represent a relative bright spot for Europe in some regards, among them being that 60.9 percent of its plastics are recovered and 23.5 percent are recycled. Having said this, Paprec firmly believes that the nation can do much better.

Paprec turnover

€5m

1995

€120m

2000

€755m+

2012

No quick fix
The inherent challenges of pioneering just such a solution are twofold: not only does the recycling sector require over $100m of investment to reach an effective solution, but with over 700 types of plastic, a quick fix is entirely out of the question.

However, despite the recycling industry’s many complications, Paprec aims to both recycle new materials and also improve upon current recycling techniques in order to meet the ambitious recovery rates outlined by European authorities.

One of the key areas in which Paprec has been focusing its attention is on industrial facilities. “Our factory in La Neuve-Lyre has developed a specific treatment capable of recycling garbage bins at the end of their lives. The bins are now transformed into a high quality material to remanufacture new bins with 100 percent of the secondary raw material,” says Franck Seite, the company’s Regional Director.

Paprec currently offers the only certified industrial facilities dedicated exclusively to recycling plastics, and each are equipped with laboratories that guarantee a secondary raw material close or equivalent to the source material.

Built for recycling
There are two Paprec plants, in particular, that go quite some way in demonstrating the company’s technological excellence in the field, and both act as a yardstick for those following suit in the industry. The company’s facility in Limay, completed in 2009 as part of a joint venture with SITA, specialises in the recycling of PET (transparent) plastic bottles. The plant produces a new material from used bottles appropriate for consumption and certified food grade by the AFSSA.

This principle of ‘bottle to bottle’ manufacturing is complemented by the expertise of Dijon-based MBP, which was acquired by Paprec in June 2013 and remains the number one company in France for recycling bottles and household HDPE (opaque) bottles (milk jugs, detergent containers). To date, MPB handles a third of French plastic deposits (22,000 tonnes per year) and converts post-consumer waste into pipes for construction.

“We were the first to find an industrial solution for recycling HDPE. We had to prove ourselves in a market where recycled products had a bad reputation. The material that we offer provides a stable and consistent quality. Our customers have trusted us for over 10 years and we are now regarded as a supplier of raw materials in our own right,” said Sylvia Blond, Executive Assistant at MPB.

Paprec recycling quantities

Paprec believes that, regardless of new regulations and guidelines, many companies like itself will follow suit by making their own recycling advances (see Fig. 1), and that ultimately yellow bins will contain products aside from plastic bottles, jars and vials.
“At the moment we are able to recycle PET, HDPE and even PP (butter tubs, screw caps) plastics with 100 percent efficiency given that all of these plastics have their own dedicated channels,” says Eric Labigne, director of the company’s Neuve-Lyre plant. “However, if in the future all plastics are mixed then we must find new solutions. Whether these solutions lie with the consumer or the recycler remains to be seen, and so we’re exploring a number of options for various outcomes in the future.”

Granted, a fair few technological advances must be made if the region is to reach its 100 percent target by 2020, but the future looks altogether more positive with the likes of Paprec leading advances in the field of recycling.

Bank Nizwa prospers as Oman embraces Islamic banking

Islamic banking is in its infancy in Oman. The Islamic finance industry took off in the country with the opening of the first three branches of Bank Nizwa in January 2013.
Being the first fully-fledged Islamic bank in the country, Bank Nizwa believes it has a responsibility to ensure penetration into the market; to help create awareness about the industry and its potential contribution to the whole economy; to prove that Islamic finance is a professional service-oriented industry that can be part of one’s daily life; and to eventually have Oman play a role in the continued development of the Islamic finance industry. Dr Jamil Ak El Jaroudi, CEO of Bank Nizwa, spoke to World Finance about the challenges and opportunities of the market, and what to expect from Bank Nizwa and Oman in 2014.

How quickly is Islamic banking catching on in Oman, and what role do you think it will play in the country’s development?
Islamic banking as a working practical entity may be in its infancy in Oman, but it has been a need of many Omanis across the sultanate for a very long time. From the outset, with the release of the Islamic Banking Regulatory Framework (IBRF) by the Central Bank of Oman (CBO), the need for a strong and cohesive banking industry was clear. Islamic banking has been embraced with fervour by the people of Oman. Here at Bank Nizwa we have many customers visiting our branches for sharia-compliant finance.

The launch of Bank Nizwa has propelled Islamic banking and the economy of Oman to a higher level of development and we are driven towards creating a prosperous society and a stable economy. In fact, the Islamic banking industry worldwide boasted a growth rate in excess of 30 percent over the last two years, and a further increase is expected in the coming years. We have established Bank Nizwa as a centre of excellence for Islamic banking, where we provide a just and equitable model for economic growth through a range of banking tools. This is particularly true of our Islamic bonds (sukuk), which leverage the economy to new heights through the financing of public sector projects.

Islamic banking assets, 2012:

$171.8bn

Asia

$434.5bn

GCC

$590.6bn

Mena (Excl. GCC)

$16.9bn

Sub-Saharan Africa

$59.8bn

Others

$1.273trn

Total

Why has Islamic banking come later to Oman than it has done to the neighbouring GCC countries?
Oman was prudent in opening its doors to Islamic finance. We are a relatively small country, and in the last years we have seen the country grow and the economy continue to change positively. The IBRF by the CBO is a testament to the wise leadership of Sultan Qaboos bin Said, who paved the way for sharia-compliant financial products in the country through a royal directive issued in May 2011. The IBRF was devised in consultation with the global Islamic banking community and other regional and local experts. The CBO has learned from Islamic banking markets throughout the world, bringing together best practices to give Oman a tailored regulatory framework. The environment needed to be perfect before Islamic finance was ready to be launched. The key demand drivers for Islamic banking in Oman include its fast growing economy, leading to an environment of enhanced trade and commerce; increased fund raising; and investment from corporate houses and the sultanate’s young population.

Oman may be a relative latecomer to Islamic banking, but the industry is expected to grow rapidly. In time, it will make a meaningful contribution to the country’s economy and savings mobilisation strategy.

What are the bank’s plans regarding the government’s decision to issue a Sukuk in 2014 to cover its budget deficit?
Islamic banks expect that this issuance will be sizable and liquid to enable the banks to use it as a liquidity management tool. The issuance is also likely to receive special exemptions from the regulators vis-à-vis limits and capital treatment. The issuance will be in multi-tenors to create a benchmark yield curve for Oman, which all other financing products, instruments and funds can be priced or measured against.

Local Islamic banks expect the government to specifically set aside a fund which will be issued as an international Sukuk with a sovereign rating and that the lead arranger role will be given to the local Islamic banks in Oman, to help them gain international recognition, especially during its infancy stage. This will be a boost to the image of the local Islamic banks new to the international market, which will help them attract new funding from external sources.

There is a huge expected demand for a government Sukuk, so not only it will cater for what the government needs, but it will also ensure good pricing. It will be a tremendous solution for the Islamic banking industry in Oman, where there are no risk-free instruments currently available for Islamic banks to manage their liquidity. Bank Nizwa is already fully prepared to undertake a Sukuk issuance, subject to any limitations and its own internal requirements.

How does Bank Nizwa plan to raise awareness of Islamic banking among the Omani population?
Bank Nizwa has collaborated with Malaysia-based INCEIF (The Global University of Islamic Finance) since last year to spread knowledge about Islamic finance in Oman. The partnership establishes Bank Nizwa as an authority in Islamic banking dedicated not only to providing sharia-compliant financial products but also working towards the development of its employees, who will benefit from training sessions held at the INCEIF campus in Malaysia. The training programmes will allow the Islamic banking and finance personnel in Oman to interact with their counterparts from INCIEF as well.

Bank Nizwa also takes to the roads of Oman with ‘Roadshows’, which are part of an effort to get closer to the customers, communities and individuals in different parts of Oman, and to offer them useful information on Islamic banking and the Islamic finance industry. This enables us to deliver on our promise to the people of Oman: to make Islamic banking accessible to everyone.

We believe that the youth of Oman will play a major role in Islamic banking in times to come, so we are investing in that youth. We hosted a one-day Islamic finance conference at Sultan Qaboos University (SQU).

Islamic banking has been embraced with fervour by the people of Oman

The conference – the first of its kind in the Sultanate – was organised by the bank for the students and staff of SQU and created a strong partnership between the bank and the faculty of commerce at the university. The objective of the event was to raise awareness of the benefits and advantages that Islamic finance brings to the economy. In addition, it demystified the Islamic finance sector for future decision makers and leaders in the corporate world, giving students the opportunity to meet with the highly skilled Bank Nizwa team and address any questions they had on the sector. It is just one in a series of initiatives that the bank has planned in order to advance Islamic financial knowledge and develop future leaders in the Islamic finance industry. Furthermore, Bank Nizwa has arranged and executed several similar dedicated seminars to various government entities, specific to their needs, which proved to be very positive and interactive.

What is your expansion strategy in the years to come?
We will continue to increase our product offerings gradually to ensure that our customers can familiarise themselves with the principles of Islamic Banking. We have a range of products and services, which include Auto Murabaha, Goods Murabaha, Home and Land Murabaha, Service Ijarah, Home Ijarah and Land Ijarah. We also offer the opportunity for our customers to invest and earn a return through a sharia-compliant savings account. In addition, we offer a Mudarabah-based investment account, which helps our customers better manage their investment needs. Shortly we will be introducing more exciting investment products not currently available to the public.

The Bank Nizwa MasterCard debit card is available for all customers and the bank plans to launch sharia-compliant MasterCard credit cards in the second half of 2014.

We now have seven fully serviced branches. We also have a dedicated phone banking centre that is available to our customers 24-hours-a-day throughout the year, and soon our customers will have access to their banking needs over the internet. We are consistently working on enhancing customer experience across all our touch points and delivering innovative products/high-quality services across all areas – from home finance to savings accounts. We are committed to expanding our branch network across the sultanate to answer the growing needs of the population of Oman.

What are your ambitions for the bank in the near future, as well as for Islamic banking in Oman as a whole?
Bank Nizwa is redefining banking in Oman, and will continue to do so as a leading global Islamic bank. We strive to be the sharia-compliant bank of choice, and aim to find better and more innovative ways to deliver products and services to our customers. Since its inception, the bank has been making history in the financial landscape of Oman and is committed to creating an environment that serves as an inspiration for other Islamic banks and Islamic branches of conventional banks. As part of our strategy, we will continue our awareness campaign for Islamic finance and reach out to different parts of the country.

Path Solutions: ‘Technology essential to Islamic banking’

Having seen a significant uptick in recent years, (see Fig. 1) Islamic banking is forecast to more than double in the next half decade or so, according to Mohammed Kateeb, Group Chairman and CEO of Islamic and investment banking software solutions provider Path Solutions. However, in order keep pace with an ever-evolving financial marketplace and match increasingly lofty customer expectations, the Islamic banking sector must first ensure it invests sufficiently in technological advancements.

To reach optimistic industry expectations, the boom must be led by a banking sector that is willing to invest substantially in IT across the whole value chain.

“Not only in the banking industry, but in almost all industries, technology in the last 10 years has become one of the key strategic drivers of growth, and I believe this to be very much the case in Islamic banking,” says Kateeb.

“That is why the role of the IT department has changed a lot for the sector and become an absolutely critical source of investment for the sector. We’re witnessing trends that are similar to those in the conventional banking sector, in that digital banking is increasingly seen as important – and even the norm – in banking activities.”

New platforms and alternative methods of transaction are emerging on a daily basis, and Islamic banks must implement an adequate IT framework at every juncture if they are to adapt accordingly.

Source: Global Islamic Finance Report
Source: Global Islamic Finance Report

The growing importance of technology in the Islamic banking sector has seen companies such as Path Solutions come to play an increasingly crucial role in gaining a better understanding of the customer and of how the sector can expand on the world stage.

“I believe that customer expectations for financial services are generally much higher,” says the Path Solutions CEO. “Demand is for a more personalised approach and one that is a lot more varied in scope. Quite plainly, we’re finding that customers are asking for increasingly sophisticated Islamic banking products and services and that promise is being delivered upon by means of technological improvement.”

Firmly set origins
Founded in 1992, Path Solutions is recognised the world over as the market leader in the provision of Islamic and investment software solutions for financial institutions. Based in Kuwait, the global firm exhibits a strong commitment to the empowerment of the Islamic banking sector across the globe, and understands the importance of technological advancement if the Islamic sector is to rival its conventional banking counterparts.

Path’s tailor-made solutions are based on a modular approach, though simultaneously ensure full and seamless integration across the different modules.

“Considering the breadth of provided services, banks and financial institutions need to refer to a single point of contact for their total business requirements in order to save considerable time, energy and expense,” says Kateeb. Companies such as Path Solutions play a vital part in facilitating the implementation of just such support.

The Union of Arab Banks states that deposits into Islamic banking institutions have been growing at a rate of between 25 and 40 percent annually since 1975

“I believe that the main differentiator between ourselves and our competitors is that we’re 100 percent committed to Islamic banking, in that our solution is designed and built from the ground up based on sharia rules and regulations,” he continues.

“We have not bought a foreign bank, much like our foreign competitors have, customised it and marketed it to our customers as an Islamic banking institution. We do not take a conventional system, like our conventional competitors do, and dress it up to look Islamic.

“We believe Islamic finance to be completely different in the various ways in which it deals with products and solutions, and we believe it is this that has given us the competitive edge in this arena.”

Path Solutions understands that technology is a key competitive advantage for those in the Islamic banking market, and with the company’s prestigious user base and unparalleled understanding of the industry, it is well equipped to convert this expertise into efficient solutions and services in IT.

“Not only were we the first sharia-compliant software firm to be recognised and certified by the AAOIFI, but we have tremendous expertise in the market. We work with almost 100 Islamic banks worldwide, and we understand their many and various requirements in this space,” says Kateeb.

“We are committed to R&D in this specific segment and whereas for our conventional competitors Islamic finance represents one or two percent of their business, for us it represents 100 percent.”

With a range of services and solutions intended to enhance system optimisation, solution scalability, flexibility, support and risk management to name but a few benefits, Path Solutions’ integrated IT solutions suite is one that has served to streamline what at first glance appears an overly complex Islamic banking sector.

Optimising budgetary restraints
Technological solutions are not without their own set of complications; however, as the Islamic banking space has encountered its own set of problems, and budgets are becoming increasingly stretched as a result, one must look at efficient and reliable software providers with a proven track record.

Although tech spending and preparedness to invest, on the whole, remain relatively low, “we feel that banks will look for value wherever they can, with perhaps the best option being fully integrated IT solutions, which actually provide much better value and total cost of ownership over time. Systems such as Path Solutions’ iMAL are preferable to a best of breed strategy, that so often complicates the environment through the integration of different modules and different vendors’ systems, introducing different inefficiencies along the way.”

The Union of Arab Banks states that deposits into Islamic banking institutions have been growing at a rate of between 25 and 40 percent annually since 1975, and that each day an estimated $200bn is transacted in Islamic banks worldwide.

However, this is not to say that the sector has necessarily been immune to the financial crisis, and while managed assets have risen throughout, recent crises, along with globalisation has given rise to collapse, closure, and a great deal more consolidation.

“As a result of all this consolidating, downsizing and closure, the number of financial institutions has decreased in many countries, while at the same time the Islamic banking industry in terms of assets has actually increased,” says Kateeb.

“The assets are understandably concentrated in far less financial institutions than pre-crisis, of course, but this can be seen as a negative or positive for Path Solutions. Although this set of circumstances results in less customers, a smaller number of Islamic banking institutions has made the banks markedly more sophisticated and some even have more in their IT budgets to spend on services and products.”

As an industry leader, Path Solutions must ensure that it follows the direction of the Islamic banking sector wherever it may go, whether this is with regards to geography, technology or regulation

A shift in the sector’s scale and distribution is far from the only challenge to Islamic banking at present, with a distinct lack of regulatory uniformity being the most widely cited and enduring complications. However, “We feel we are flexible enough to cater for the lack of standards in the segment,” says Kateeb, “which makes us very unique, because for this business you need a very flexible system that is highly parameterised.”

The argument that Islamic banking should push for the adoption of a uniform standard is one that is reinforced by Path Solutions’ integrated strategy, which demonstrates that the Islamic banking system, when united under a single framework, can be made far more efficient in various departments.

Aside from the numerous challenges at hand in the Islamic banking sector, Path Solutions looks to benefit in the near term due to the company’s growth being inextricably tied to that of the wider Islamic finance sector.

“Today, the Islamic finance sector is growing at 16 percent annually, so, provided we can keep up at this same pace, the future looks to be an especially bright one for us in terms of growth.

“Of course, in addition to simply keeping pace, we intend to grow horizontally and are always looking at new segments in Islamic finance that will give us additional growth paths. We believe that in five years we will be, at a minimum, double our current size.”

As an industry leader, Path Solutions must ensure that it follows the direction of the Islamic banking sector wherever it may go, whether this is with regards to geography, technology or regulation. The sector has mirrored many of the same advances as its conventional banking counterparts, and in order for the industry to continue, the responsibility lies with companies such as Path Solutions to instil positive technological and structural change from within.

“Technology is certainly very important not just to the financial services industry but also to the global economy as a whole,” says Kateeb.

“New requirements are crossing the paths of those in the Islamic banking sector every single day, demanding that innovative technologies are implemented for numerous purposes, and it is only with companies such as ours that these ambitious technological demands will be met.”

Odebrecht turns attention to hydroelectric projects in Peru

Having undergone significant changes over the last 15 years, Peru’s electricity industry is welcoming a wave of new companies looking for opportunities. After a series of reforms, access to electricity has shot up from just 45 percent in 1990 to almost 90 percent in 2011.

Although evenly divided between thermal and hydroelectric energy sources, for many years the country relied heavily on hydropower. Now, one of the region’s key hydroelectricity players has begun developing new projects, helping to boost the country’s renewable energy mix. Odebrecht Organisation, a Brazilian conglomerate, has looked to Peru for new opportunities in hydroelectricity.

Odebrecht Organisation

1944

Founded in Brazil

$43bn

Gross revenues

192,000

Employees worldwide

Founded in Salvador, Brazil, in 1944, Odebrecht is one of the largest private organisations in Latin America, with consolidated gross revenues over $43bn and approximately 192,000 employees worldwide. Odebrecht has a significant pipeline of projects in the electricity generation sector in Peru and, with over 52,000 MW-worth of hydroelectric power plants built around the globe, it has significant experience in hydro construction.

Odebrecht’s first experience in Peru was the construction of Charcani V Hydroelectric (135MW) in 1979; a power plant built over 3,000m above sea level inside a volcano in the Peruvian Andeans. 34 years later, with extensive experience in infrastructure projects in the country, the company is building a 406MW hydroelectric plant called the Chaglla Hydroelectric Project that, once in operation, will be the third-largest power plant in the Peruvian electric system.

A modern energy mix
The Peruvian electricity system has a 7,116MW capacity, of which 44 percent comes from hydroelectric generation and 56 percent from thermoelectric units. The electric generation sources are highly concentrated geographically, with more than 76 percent of the total capacity installed near the centre of the country.

Over the last 10 years, Peruvian energy consumption has doubled and, based on the high growth rates of the economy, will require new infrastructural additions in the near future. To manage this increasing demand, the electricity sector shifted the generation mix in 2003 (86 percent generated by hydroelectric power plants) to a more balanced 56 percent generated by hydroelectric plants and 44 percent from gas-fired power plants. This has, however, created a more expensive generation system.

To foster competitiveness, and with the aim of ensuring economic growth, the Peruvian Government designed and has put in place incentives, such as tax benefits and long-term power purchase agreements auctions, to promote the construction of hydroelectric power plants.

A closer look at the Chaglla project
In December 2009, Empresa de Generación Huallaga (EGH), an Odebrecht group subsidiary specifically incorporated under Peruvian law to develop the project, was awarded a concession contract by the Ministry of Energy and Mines of the Peruvian Government to build, own, and operate the Chaglla Hydroelectric Power Plant. This plant would be a 406MW greenfield run-of-river hydropower project, located on the Huallaga River in the Huánuco region.

The Chaglla Project

4.5sq km

Area of dam

23km

Access roads

3,000

Workers

EGH hired Construtora Norberto Odebrecht, Odebrecht’s construction arm, on a turnkey lump sum contract, to build the project over 57 months, starting in May 2011. The EPC contract scheme has a single point of interface between EGH and the EPC contractor, avoiding the usual clashes generated by subdividing infrastructure projects in multiple sub-contracts.

The Chaglla project consists of two power houses, one of 6MW for maintaining the ecological flow at the bottom of a 202m-high concrete face rock-filled dam, and another one that has two Francis turbines of 200MW each, at the end of a 15km headrace tunnel. The headrace tunnel was specifically design to be built in eight work fronts at the same time as a strategy to mitigate geological risk.

The dam is being built inside a narrow canyon in a small flooded area of only 4.5 square kilometres, reducing the social and environmental impacts and allowing the project to offset over 1.8 million tonnes of carbon dioxide per year.

The project also includes a 127km 220kV transmission line to connect it to the Peruvian national grid and 23km of access roads that integrates 15 villages, improving access to education, health and trade for almost 6,000 villagers. As of January 2014, the project is more than 60 percent complete, with more than 3,000 workers aiming for a possible early completion.

Odebrecht successfully sold 284MW of its production in March 2011 to Electroperu, a publicly owned electricity company, for a 15-year term that starts in October 2016. This was done on a competitive auction conducted by Peru’s Private Investment Promotion Agency. The aim of these auctions is to facilitate the development of large-scale electricity projects by securing an off-take for the energy generated by the project while reducing the volatility in revenues.

Power purchasing
The 15-year power purchase agreement (PPA) contract, one of the longest tenures available in the Peruvian electricity market, is denominated in US dollars, with the price escalated by combined US and Peruvian inflation adjusted by the USD/PEN exchange rate.

The power generation of the project in excess of the PPA will be sold in the spot market, and Odebrecht has hired experienced consultants with specialised knowledge, such as Danish Hydraulic Institute (DHI), BA Energy Solutions and PSR, to support the power generation analysis and production tied to the PPA.

After the PPA signing in May 2011, EGH contracted a bridge loan with BNP Paribas, Société Générale and BBVA, which later was shared with DNB Bank ASA and Sumitomo Mitsui Banking Corporation. A new bridge loan was also provided by Deutsche Bank fronting the funds from the Peruvian Development Bank, COFIDE.

Concurrently with the bridge loans, a thorough due diligence assessment of the project was being conducted to address all risk analysis and required mitigation for structuring a long-term financing under a project finance mechanism with limited recourse. The due diligence process included reviews on legal, engineering, commercial, economic, safety, environmental, social, health, tax and insurance aspects, among others.

The engineering characteristics of the project, including its hydrological data series, were further validated by Mott MacDonald, a leading engineering firm hired by the lenders to audit the project during the due diligence process. Additionally, EGH retains the services of an expert panel comprised by globally recognised engineers who periodically provide key advice in the construction methodology.

Committing to the community
Odebrecht’s excellent track record in carrying out large infrastructure projects, while ensuring the mitigation of social and environmental adverse effects, meant that the design and implementation of the project was carried out under international standards for sustainable procedures. Therefore, development banks, such as the Inter-American Development Bank (IDB), Brazilian Development Bank (BNDES) and COFIDE, found the financing structure appealing.

Odebrecht also launched the CREER training programme in the communities surrounding the project, which is designed to develop and improve the skills of the local labour force in fields such as carpentry, masonry, welding, hostel services, health and safety, without cost to the participants. Today, the project employs over 600 of the 1,286 graduates from the CREER programme and has already started its advance stage for training in heavy machinery operations.

[Odebrecht] trained local farmers in better practices to increase and improve the productivity of their agricultural lands

Besides the CREER programme, Odebrecht designed and put in place different plans to foster the development of the local population promoting agreements between local producers to sell their products to the project’s food provider and national chain stores. The company also trained local farmers in better practices to increase and improve the productivity of their agricultural lands, as well as facilitating the delivery of the Peruvian Government’s social programmes on health, education and empowering local citizens in decision making processes.

As part of the social and environmental impact assessment, a comprehensive hydro-biological study was performed, which included monitoring upstream and downstream of the project location during both the dry and wet seasons. This was done as part of the efforts to ensure that the project would not endanger present species. The project also involves the monitoring of key native fauna and flora species, and the construction of a greenhouse that hosts a collection of about 9,000 orchids.

After several months of negotiations, Chaglla Hydroelectric Project successfully reached financial close in July 2013. The debt funding reached $774m, and was provided by IDB, BNDES and Deutsche Bank (fronting COFIDE) as senior lenders and by Société Générale, BBVA, DNB Bank ASA, Sumitomo Mitsui Banking Corporation and Credit Agricole as participants in the IDB’s loan. In addition to the security package, a financial model was built to facilitate the credit analysis of the lenders. This allowed for the analysis of different hydrology scenarios over the credit metrics of the project; the DSCR of the project must observe two levels at the same time, one under a base case scenario and another under a break-even scenario.

The Chaglla Hydroelectric Project experience has helped Odebrecht establish good practices in developing all aspects of a big project, and provided a deep knowledge of the Peruvian market, as well as proving Odebrecht’s ability to structure a large project financing. This transaction will certainly set the benchmark for the other new projects that Odebrecht is developing in the energy sector in Peru.

Fermaca’s energy projects spur economic growth in Mexico

The controversial reforms to Mexico’s oil and gas industry that were approved in December 2013 may have drawn howls of anger from opposition leaders, but they mark an encouraging turning point for the country’s economy. For years, many of Mexico’s most important industries have been closed off to foreign and private investors, with state-backed monopolies enjoying complete control. One of President Enrique Peña Nieto’s key election pledges in 2012 was to reform the country’s monopolised industries, opening them up to fresh investment from the private sector and overseas, in an effort to give the economy fresh impetus and attract billions of dollars worth of foreign and domestic investment.

The reforms have offered global energy powerhouses like Royal Dutch Shell, BP and ExxonMobil the opportunity to secure a part of Mexico’s under-exploited energy market. The country is already the 10th-largest oil producer in the world, but it is thought it could jump up the rankings with increased investment and technological advancements. The natural gas market is also considered to have huge potential, with Mexico estimated to have the sixth-largest shale gas reserves in the world.

With many companies hoping to be able to capitalise on this newly opened up market, a local level of expertise is vital. One of the country’s leading local firms is Fermaca, which has a long history of construction and engineering in Mexico, and in the last 15 years has dedicated much of its resources to building pipelines for the natural gas industry.

Rich history
Launched 50 years ago, Fermaca originally began life as a construction company, helping to build much of the country’s infrastructure during the second half of the 20th century. Octavio Berron, Fermaca’s CFO, says this was mostly for government-sponsored schemes, and included “a lot of highways, water systems and sewage works, hospitals, and telecom infrastructure.”

The speed at which Fermaca has constructed the pipeline, as well as the way it has navigated the many permitting and routing hurdles, has won praise from the industry

However, due to the financial crisis that hit Mexico in 1994, Fermaca faced a difficult situation. Many leading national companies were failing, while the huge increase in interest rates hit Fermaca hard. “At Fermaca, we started to restructure the company and decided that this situation, [with] these ups and downs that is inherent to the construction industry, was too much to handle. So the owners decided to diversify into new activities and to move the company towards a more stable operation,” says Berron.

Around the same time, several legal changes were being made to the country’s natural gas regulations, which allowed for private sector involvement in certain aspects of the industry. “Those reforms opened up the commercialisation, transportation, storage and distribution of natural gas to the private sector. By having the skills of an engineering and construction company, Fermaca began to learn about the oil and gas business,” says Berron.

The company’s first major break into the energy market was towards the turn of the century, when Shell auctioned off a pipeline project it had been developing in the central region of Mexico. The pipeline, in the Palmillas-Toluca region, had taken Shell four years to develop, and the company had experienced huge cost overruns in the process without laying a single piece of pipe. Eventually they auctioned it off to Fermaca, who built the pipeline and turned it into a successful project.

“Fermaca stepped forward and acquired the project, putting forward a new construction plan,” says Berron. “14 months after the acquisition had taken place the pipeline was built and the gas was flowing. This was the first pipeline the company had constructed and it was in operation around 2003. There have been no incidents or accidents since that point, and it has been delivering gas and serving the communities of Toluca reliably and safely.”

Chihuahua pipeline
Fermaca saw the success of this market and sought to take on another pipeline project. In 2011, the Comision Federal de Electricidad (CFE), which is the Mexican government’s electricity utility monopoly, called for bids to build three major pipelines in Mexico that were devoted to providing natural gas to power plants. “We won the second project, which was the Tarahumara Pipeline, also known as the Chihuahua pipeline,” says Berron. “This is a 380km pipeline that delivers gas from the border between El Paso City and Juarez City to supply the state of Chihuahua.”

He adds that the reason Fermaca was awarded the deal was simple. “We put together a proposal that complied with all the technical aspects, as well as the financial aspects, and we offered the lowest present value of the service for the 25-year contract to CFE.” The success of the Palmillas-Toluca pipeline is also likely to have contributed to the company’s ability to design, integrate and cost out pipelines.

It hasn’t taken long for Fermaca to look ahead to new projects

The speed at which Fermaca has constructed the pipeline, as well as the way it has navigated the many permitting and routing hurdles, has won praise from the industry. Berron says the company was able to achieve this in part due to its rich history in other areas of construction. “We were able to secure 100 percent of the ‘right of way’ in a record time of just five months. This is really important, as there is no pipeline in Mexico that has achieved this and done it with internal resources. This goes back to the origin, where all the background in construction – the technical team, surveyors, environmentalists, topographers – has paid off. It was a very interesting and challenging process.”

Regional development
The significance of the deal is huge, says Fernando Calvillo, Fermaca’s President and CEO, as it is the only Mexican pipeline independent from the government’s oil and gas monopoly that is connected to the US. As the market opens up to more entrants, this border region will become more significant. “We have the capacity to transport one fifth of the total consumption of natural gas in the country. Seeing [as] natural gas imports [are] open to anyone, we will be able to bring extremely competitive gas prices. Mexico has until now regulated prices with Pemex. I think this corridor will become a hugely important region. The Chihuahua project is the most important connection into the US that is not owned or controlled by government companies. Therefore, it can provide a huge impulse to private industries along the entire northern corridor of Mexico.”

Since the pipeline began operations in July last year, Berron says there has been increased interest from companies in Mexico and over the border. “We have been approached by an important group of companies that are considering the strategic location of the pipeline and the availability of gas on the other side of the border. The market conditions there, and the prices, mean they are approaching us to expand capacity and support the needs of companies that are in very different sectors. These include companies in power generation or petrochemical activities and all sorts of industries looking for the most efficient and competitive way of using energy. It puts us in a position to serve the local distribution companies. They have also approached us and they acknowledge that our proposal is more efficient, reliable and competitive. This will translate into lower prices for the individual users of gas in the Chihuahua region.”

New projects
It hasn’t taken long for Fermaca to look ahead to new projects. Just a week after the delivery of the Chihuahua pipeline it was awarded another project by the CFE. This time it was to provide compression services to CFE through the Soto la Marina Compression Station. “Soto la Marina is an area of the country that is in the Gulf of Mexico in the State of Tamaulipas,” says Berron. “We are building a 45,000-horsepower compression station to add compression to one of the largest components of the national pipeline system, which is the backbone of the gas grid in Mexico. This project, which we have in a joint venture with Enagas, the owner and operator of the Spanish gas pipeline grid, is scheduled to be in service in December 2014, and we are actively working towards that.”

Financing such projects can be tricky, especially in the relatively uncertain economic environment of an emerging market. However, Fermaca achieved it by putting in a considerable amount of equity and obtaining substantial project finance. “We put together a package and looked at a typical type of project finance,” says Berron. “We injected 20 percent of equity [in the Chihuahua pipeline], which was $98m, and fully funded up front. The rest was from a group of seven international banks and Mexican development banks. These included Citi Bank, Scotia Bank, and Bank of Tokyo.” Securing investment for future schemes will likely get easier now that the government has passed its reforms for the industry.

President Peña Nieto’s reforms to the energy markets are long overdue, but have proven very difficult to secure. Opponents and protestors, although in a clear minority when weighed against the general Mexican population, sustained a long but ineffective campaign suggesting that Peña Nieto was selling off one of Mexico’s most valuable industries. Nonetheless, the reforms were secured after congress voted in their favour and the vast majority of state congresses endorsed the vote. The government is keen to attract billions of dollars worth of foreign and national investment into the industry after 75 years of state control, and Calvillo describes the passing of the reforms as “an enormous feat in Mexico’s economic history. We are hoping that a whole new era of opportunities in the energy market will present themselves. We want to be positioned to seize these opportunities and to continue building the infrastructure and energy facilities of Mexico, such as pipelines and terminals.”

“Give us back our respect”, cry Chinese workers in IBM strike

Over 1,000 Chinese workers have gone on strike at an IBM factory in China, close to the border with Hong Kong, citing objections over the changes in their contracts ahead of a takeover of the facility by Lenovo. The takeover is part of a $2.3bn deal where Lenovo will assume IBM’s x86 computer server business, including the International Systems Technology Company (ISTC) subsidiary in question. The strike is only the latest in a series of actions in which workers challenge takeovers.

The New York Times has reported that a video was posted in a Chinese social media platform in which hundreds of workers dressed in their factory uniforms protested in front of the IBM x86 facility.  With them, they carried banners with messages including ‘Workers are not a commodity’ and ‘Give us back our respect’. The strike is likely a result of fears of mass layoffs taking place after the takeover, though the deal is still pending regulatory approval.

The strike is only the latest in a series of actions in which workers
challenge takeovers

Protests are said to have began on Monday, and production remains suspended in the facilities. According to one protesters, speaking to the Financial Times, the workers are acting independently of the government approved All China Federation of Trade Unions. “The [official] union has never done anything to help protect our rights,” the FT quotes the worker as saying. “We don’t trust it or the [government] labour bureau.”

“Employees currently involved in x86 operations in Shenzhen have a personal choice of remaining with ISTC under terms and conditions comparable in aggregate to what they currently are receiving, or they can voluntarily choose what we believe is an equitable severance package and resign from ISTC,” IBM said in a statement. Employees are demanding higher payments for workers who decide to remain with Lenovo and for those who leave.

Over the past few years a number of such strike actions have popped up around China, as workers demand higher wages and better working conditions. In two separate strike action cases in Guangdong province, tens of workers were prosecuted for ‘public order’ offences.

ADCB: corporate governance essential for post-crisis growth

As global banks continue their cautious re-emergence, most of them are now scrambling to devise and update their corporate governance structures, policies and regulations intended to safeguard and sustain growth, and possibly to shield from future potential crises.

Those that succeeded in softening the eventual blow of the sub-prime crisis were the ones that had the strong basics in place; they are the ones that have always placed a strict emphasis on corporate governance as an important pre-requisite to the success and resilience of a financial organisation.

Furthermore, these institutions were not only able to minimise the damage to themselves, but were also able to maintain a decent reputation within society while maintaining their contribution to the overall economy. This shows that the way a financial institution is run and governed directly impacts its macro-environment.

Abu Dhabi Commercial Bank (ADCB) recognises that good governance is critical to achieving its objectives and successes. The bank has designed its governance framework with due care and careful consideration of local and international best practices and guidelines, stakeholders’ interests, sustainability and long-term objectives. It is fully committed to the guiding principles of responsibility, accountability, transparency and fairness, which it considers to be the four pillars of good governance.

Similarly, ADCB recognises that its stakeholders have a vested interest in its success and sustainability, and that good governance practices play a critical role in ensuring that each of these interests is respected.

A noteworthy model
As ADCB continues its unrivalled success story and embraces the ‘new normal’ across global markets and economies, one of its core objectives is to continue to redefine governance strategies and to uphold standards of excellence. This was the recipe that helped it beat all the odds during the recession of 2008-09, and the same formula that will help it achieve its ultimate goal of evolving into the number-one bank of choice in the UAE.

Those that succeeded in softening the eventual blow of the sub-prime crisis were the ones that had the strong basics in place

Rami Raslan, Senior Corporate Secretary, Legal and Board Secretariat at Abu Dhabi Commercial Bank, says, “Corporate governance is a mindset – a case of ‘want to’ versus ‘have to’. Our honest approach and transparency in the market have been key to ensuring the brand maintained pole position at all times. ADCB pledges to uphold its genuine values, and remains committed to its key stakeholder groups, namely customers, country, employees and shareholders.”

Some of the bank’s efforts include sustainability reporting, enhancing its disclosure and transparency reporting systems, as well as the integration of governance risks into its lending criteria process. The bank’s concerted efforts have led to international recognition as a governance leader in the region from a number of publications.

World Finance has acknowledged ADCB’s corporate governance policy as one of the best in the UAE this year. It was the first bank in the GCC to meet the stringent disclosure and transparency requirements to sell bonds to US investors (the 144A programme) in 2009, and was the central focus of a case study by the World Bank for its corporate governance achievements.

Principled banking
These measures demonstrate ADCB’s ongoing commitment to honouring its guiding principles of responsibility, accountability, transparency and fairness, and aim to optimise its performance and efficiency, as well as achieving long-term sustainable growth. Such efforts have led to ADCB being recognised internationally as a governance leader in the region.

Today, ADCB has a robust governance structure due to the support and commitment of its board of directors, CEO and senior members of management. The board, board committees and senior management all fully monitor its governance framework. The bank has also invested in forming a dedicated team of professionals and governance experts who actively monitor local and international governance developments. This team regularly reviews the bank’s governance practices and proposes strategies to implement best practices within the bank.

ADCB’s aim to be the bank of choice in the UAE requires constant innovation while ensuring the highest levels of integrity, in order to gain and maintain the respect of its key stakeholders. To achieve this ambitious vision, its governance approach lives and breathes by its slogan, ‘long live ambition’, through its continuous monitoring, dialogue and fresh initiatives, and enables ADCB to meet the evolving interests of its stakeholders and deliver sustainable growth and long-term value.

Going forward, the bank intends to focus on key governance areas, such as in-depth reviews of: risk governance (to consider risk issues and ensure full board awareness); Islamic banking; organisational transparency (including e-learning training on corporate governance); and remuneration governance.

INA to explore unconventional reservoirs in Croatia

The oil and gas industry is undergoing a transformation. This is due to huge investments and growing costs of exploration and production, where there’s a strong increase of oil production from unconventional sources in the US, and refinery overcapacity in Europe. There is also increasing competition stemming from the Middle East and India. Coupled with changing product trade balances between the US and Europe, vast changes are happening in the demand and the development of new fuels.

Demand for energy in general in developed economies is in decline, in terms of the energy needed to generate additional units of GDP, due to advances in technology and energy efficiency. The current unfavourable economic situation in Europe has also affected demand for refined products and gas. Now and into the foreseeable future, emerging economies will drive global demand growth for oil and gas.

Some of the trends coming to the forefront are increases in offshore oil and gas production, which is expected to equal on-shore production in the next 20 years, and re-exploration of onshore reserves. Developing countries still continue to be one of the most important targets of new explorations.

Risk-based operations
Today, companies are forced to conduct more risky explorations in extreme geographical, climatic or political conditions, where exploitation and production becomes difficult, and simpler options have disappeared. For example, the cost of setting up one rig onshore is $1m, but offshore this cost is significantly higher, where the cost of drilling in the Adriatic Sea is $50m to $70m. Often, the geologic picture is not enough, nor is it crucial for estimating the feasibility of investment.

Did you know?

Total energy consumption is almost 6 times what it was in 1950 & per capita use has nearly doubled

Besides exploration and production challenges, the industry has to tackle the issue of climate change and resilience. If we take into consideration that total energy consumption per year is almost six times what it was in 1950 and that per capita use has more than doubled, it is clear that the oil and gas industry has to develop capacities for flexibility and adaptation in order to ensure long term sustainable business operations, and security of supply.

According to the National Intelligence Council, demand for water, food and energy will grow by another 50 percent, primarily due to development in Asia, Africa and South America. Having in mind the planet’s limited recourses, energy companies will have to find ways in which to minimise the use of natural resources like water – production of energy is water intensive – and decrease their greenhouse gas emissions.

INA leads the way in Croatia
As a medium sized European oil and gas company, INA leads production in Croatia, with oil processing and oil products distribution activities. Given the big energy transformation currently taking place in Europe, INA has been intensifying its exploration activities both in the continental part of the country and offshore, driving the social and economic development of Croatia, while reconciling environmental, economic and social demands into a long-term coherent sustainable strategy.

State regulations are still one of the major issues for investors and companies in Croatia. Legal uncertainties caused by frequent amendments and the change to EU regulations are a significant obstacle for investment. Other important issues that influence the business climate are complicated public administration, high para-fiscal charges and frequent changes in the tax-code.

Croatia entered the EU on July 1, 2013, which marked the start of the new game realities for Croatian energy companies

Over the years, development of Croatian energy policy was closely linked to the process of accession to the EU. The main goals of energy policy are the continuity (safety) of energy supply, competitiveness of the energy system and sustainable energy development.

Croatia entered the EU on July 1, 2013, which marked the start of the new game realities for Croatian energy companies. In that respect, the Croatian energy sector is focused on increasing the exploitation of energy sources to satisfy domestic needs, but also to potentially become an exporter of certain energy sources, including natural gas.

To facilitate investments and the entrance of new market players, the state passed a new mining act in May 2013, which made prerequisites for new investments, and the new Hydrocarbons Exploration and Exploitation Act two months later. The government announced that this year it would publish first tenders for oil and gas exploration in the Adriatic Sea.

INA, as a recognised and desirable partner is ready to apply and set strong partnership with some distinguished oil companies, not only in Croatia, but also on the territory of Montenegro. Unique regional knowledge – in terms of quality insight in geological terms and specifics of the local market – puts INA into advantageous position and could therefore be a good ally to any oil and gas company in the forthcoming upstream projects.

Tertiary methods on the domestic market
Since it was founded, INA has been involved in exploration and production operations in 20 countries. Today, it is focused on Angola and Egypt. Until 2012, the company conducted successful business operations in Syria where it participated in exploration activities with peak production in 2011. In order to secure long-term sustainable business, INA will focus on exploration and acquisition of reserves abroad in the coming period.

The use of tertiary methods is on the rise in order to revitalise mature oil reservoirs. These methods use the most gas injection of CO2, which increases the level extraction by more than 60 percent. According to the International Energy Agency, such enhanced oil recovery techniques could release around 300 billion barrels of oil globally. Oil fields in Croatia are around 30 years old, and the older they get, the faster the drop in production.

INA goals for the next two decades

3.4m

Tons of oil

500m

Cubic metres of gas

Therefore, the company turned to extracting additional quantities of hydrocarbons from older fields using the mentioned technologies. This year INA is going to start extracting additional quantities of hydrocarbons in domestic oil fields, using for the first time enhanced oil recovery methods in Croatia. The project includes injecting CO2 and water into partially depleted oil reservoirs, and besides the economic dimension, it also brings ecologic value due to decrease of CO2 emissions.

Over the next 20 years and further, INA expects to extract an additional 3.4 million tons of oil and approximately 500 million cubic meters of gas using this and similar methods.

Likewise, the company plans to fracture and explore unconventional reservoirs on several rigs. First unconventional drillings had been made in late 2013. Along with this, the company is focused on increasing the production of hydrocarbons from existing onshore fields, and produce additional significant quantities of hydrocarbons in the following years.

Fighting an unfavourable environment
For five decades now, INA has been one of the strongest Croatian companies and a reputable regional energy company. Introducing the new corporate governance model in 2009 its management has set the preconditions that enabled INA to be more adaptive to the market and to answer the business challenges in a more efficient and successful manner.

The current economic environment in the eurozone is unfavourable, and Croatia has been in recession for the past five years, which has resulted in a drop of demand. In such an environment, INA still invests more intensively in order to ensure stable oil and gas production and supply.

Currently, it is the only company in Croatia with the necessary knowledge, experience, equipment and projects that can accelerate exploration activities onshore. Those activities were significantly intensified during last few years, and therefore became a major growth factor for capital investments. Moreover, INA made three discoveries of oil and gas in the past three years.

In the refining sector INA operates in an increasingly harsh environment, as the European refinery sector is facing a number of structural trends that have led to shutdowns of almost 20 European refineries in the past five years, and the trend is continuing. After $1bn of investments into refineries in last five years, we need to review our further investments in this segment, due to a challenging business environment, including economic and industrial aspects.

Innovation and sustainability in retail
INA holds the leading position in retail and manages a regional network of almost 450 petrol stations. Advanced retail services are in the focus of INA’s business, and sustainability plays a significant part. With this in mind, INA started a project named “Energy for the future” aimed at building a self-sustainable, ecologically acceptable and innovative petrol station.

Now and into the foreseeable future, emerging economies will drive global demand growth for oil and gas

As the leader in applying sustainable practices, INA wants to set new standards in Croatia by applying green technologies in the energy retail segment, and offer added value to its customers and the community in accordance with its commitment to promote energy efficient projects.

New petrol stations will use different technology solutions for more rational usage of resources needed for everyday work, including storage and usage of heat in the heating system, using alternative energy sources in the cooling system, use of rain water, as well as using nanotechnology, LED lightning and recycled materials wherever possible.

Over the last couple of years INA has focused on most promising aspects for its long-term survival, by finding and exploring new gas and oil wells in order to secure supplies. Operating in a turbulent environment the company, like other energy companies, faces the challenges of ever-accelerating change.

Constant effort in maintaining its solid financial position have also stabilised the gearing levels at less than 30 percent at the end of 2013, from the dangerous 44 percent level in 2010. The crisis opened creative potential, which promotes positive effects and maintains motivation.

We share realistic optimism, which means that we do not expect that in 2014 and beyond things will improve on its own. Rather, we will continue to seek new opportunities to improve our future performance, while grasping the future as it emerges, while at the same time exploring and taking advantage of current trends.

Chinese Premier outlines ambitious growth targets

China’s Premier Li Keqiang has released his first work report since taking charge during the latter stages of 2013, with the headline being that China’s GDP growth forecast this year will remain unchanged from the last at 7.5 percent.

“We must keep economic development as the central task and maintain a proper economic growth rate,” said Li before the annual meeting of the legislature today, as the country sets its sights on ambitious GDP growth.

Some say, however, that the forecast is overly optimistic and that surely growth on this scale cannot help but stymie reforms.

It’s unlikely that China’s economy can continue at quite the same pace if it’s serious about opening up state-controlled industries to private parties, boosting consumer spending and making banks far more market-orientated, among a host of further reforms aimed at achieving more sustainable growth.

Nonetheless, Li insists that the targets laid out in the report will not inhibit reform, and that he will continue to make changes and balance the country’s economy.

“Reform is the top priority for the government,” said Li to an audience of 3,000 delegates. “We must have the mettle to fight on and break mental shackles to deepen reforms on all fronts.”

The 7.5 target “is in keeping with our goal of finishing building a moderately prosperous society in all respects, and it will boost market confidence and promote economic structural adjustment,” he said.

China’s performance so far this year has been something of a mixed bag, making it difficult to predict what exactly the future holds for the world’s second-largest economy.

The country’s manufacturing activity fell to an eight-month low in February, according to the official Purchasing Managers’ Index, whereas China’s annualised trade surplus rose 14 percent in January, only for its export and import growth to slow through February.

The inconsistency of China’s performance thus far this year serves to underline the importance of reform if the country is to maintain sustainable growth.

Although a 7.5 percent growth rate would signal a two-decade low for the economy, the figures here should be seen as second fiddle to the essential task of balancing China’s economy.

Report highlights

Major targets for 2014:

  • GDP growth of 7.5 percent
  • Consumer Price Index increase of 3.5 percent
  • Creation of 10 million more urban jobs
  • Keep registered urban unemployment rate at maximum of 4.6 percent
  • Increase personal incomes in step with economic development

Three key principles: the government should…

  • … create impetus by deepening reform;
  • … keep economic performance within a proper range;
  • … work hard to raise the quality and returns of development, promote industrial upgrading and keep improving people’s wellbeing.

 

PPPs give Greek economy the boost it needs

Despite Greece’s six-year recession, one of the strongest signs yet that the country has been working to repair its ailing sectors in a coherent and structured manner is in municipal solid waste management through PPPs. There are four preferred bidders that have been announced in the Western Macedonia Peloponnese, Central Macedonia (Serres) and Western Greece (Ilia) regions, and eight tender procedures are in progress.

A long history in PPPs
Culminating in the establishment of a sound legal framework (L/ 3389/2005), PPPs in Greece have a longstanding history. With a single law designed for PPPs the legal gap that led each project to parliament for ratification was overcome.

Other hindrances that delayed the implementation of projects have been cleared out as well within the single legal framework, allowing PPP projects to be co-financed by private and public funds. This is something that happened in the past for the implementation of important initiatives, including the Rion-Antirrion Bridge and Athens International Airport.

The Greek PPP Law (L/ 3389/2005) is the result of an extensive consultation between the market and the state. Throughout the years we have seen that its main merit is the all-encompassing character of legal provisions from project inception through to contract signing.

The other attractive feature is the use of project finance practices, such as the establishment of a separate firm – the Special Purpose Vehicle SPV – that pulls off the web of contracts typical in limited recourse infrastructure projects. The comprehensible approval and tendering process given by the public sector for PPP projects adds to the mix.

The awarding actions are clearly drafted and in line with European directives

The awarding actions are clearly drafted and in line with European directives. Detailing the minimum content of a PPP contract specifies the contractual framework. The PPP Law acts in a wide spectrum since it can be used for the implementation of both concession projects based on users’ fees and PPP projects based on availability payments by the state. The strength of the legal framework is highlighted by a series of decisions by the Supreme Court providing a tested legal environment.

Adhering to PPP standards
PPP Inter-Ministerial Committee for PPPs (ICPPP) acts as the collective governmental body that sets the general policy for PPPs and approves projects that should continue the implementation through the PPP framework. This gives wide acceptance of the PPP project throughout the market and the state’s civil service. The PPP Special Secretariat follows the structure and role of equivalent units in other member states of the EU for the implementation of PPPs.

The PPPs Secretariat mission is to support and assist the ICPPP and public entities on identifying, preparing, procuring, implementing and monitoring PPP projects. The endeavour lies on the premise that we are trying to safeguard fair competition among bidders through transparent and intensely competitive tender procedures.

Therefore, the legal umbrella provides a solid decision base and transparency. All public sector procuring authorities follow its guidelines wholeheartedly. In many PPP markets there is a need to ensure the compliance with state budget. So, before approval the Secretariat is making sure that the capacity of the state to repay the availability payments is properly attested.

With this in mind, a 10 percent threshold of the annual Public Investment Program cannot be exceeded for PPP availability payments, making sure not to create liabilities that cannot be repaid and simultaneously giving the comfort to investors and lenders of a visible payment path.

The Hellenic PPP Program is actively supported by the European Investment Bank, which has funded the first PPP project to reach financial closure, for the implementation of seven Fire Stations by 50 percent. It has also approved in principle funding for three school building projects and the first Waste PPP project in Western Macedonia.

Waste not; want not
The implementation of PPPs in Hellenic municipal Solid Waste Management (MSW) follows a European pattern of planning and procurement of projects that secures and promotes competition, legitimacy of procedures and the implementation of operationally sound schemes.

Greece is one of the few EU member states that still uses landfill for most of its waste. The amount of MSW landfilled was 4.2m tons in 2010, equivalent to 81 percent of the total generated MSW. EU legislation urges for environmental protection giving the stimulus – through financial penalties – for the proper separation, re-use, recycle and treatment of waste.

Under this context, priority was given to the proposed waste management projects from local authorities that showed a strong willingness to solve their waste management problem. A key factor to the continued effort to procure the waste management projects was the commitment of the central government and the local authorities to the PPP method. Local authorities have certainly been encouraged to follow the standards given by the Secretariat regarding PPPs.

Certain features enabled the stakeholders to have a sanguine view of waste management through PPPs. The detailed service output specifications are clearly a detachment from subjective input-driven technical specifications that the whole public procurement system was based on.

For decades the choice of technology as per the way waste was to be managed was the apple of discord

Stakeholders have approved and accepted the transfer of the waste treatment risk from the public to the private sector, set upon a prescribed level of service that follows EU directives.

With PPPs, the role of the market regulator is upon the state officials. The local authorities and central government are planning and implementing waste PPP projects in complete coordination with each other.

For decades the choice of technology as per the way waste was to be managed was the apple of discord, delaying any advancement in municipal solid waste management.

In all PPP waste management tender procedures in Greece, all available technologies are allowed, as long as they cover all goals set by EU directives, national and local policy, and they have a proven track record. Waste PPP projects, under the PPP law, involve the design, finance, build, maintenance, technical management and operation of integrated waste management plants for 25 years.

The Western Macedonia PPP
The integrated waste management system of the region of Western Macedonia is the first waste management project via a PPP that follows the laws set out by PPPs, and will have an approximate capacity of receiving 120,000 tons of municipal solid waste serving the needs of 300,000 people in northern Greece.

Project design was carried out with the need for pre-emptive reduction in mind for the generation of municipal waste, and the requirements from the Western Macedonian authorities that followed national and EU regulations.

The partnership will shape the Greek waste management practices and is completely compatible with the core of the EU strategy in the waste management field. It ensures that the reduction of waste volume is being led to landfill and the minimisation of environmental hazards through the diversion of biodegradable waste from landfill. This project is a performance-based agreement in which the private sector will be assessed against the contracting authority requirements in delivering the services.

These were expressed through a set of more than 100 key outcome targets that have been developed, and refer to every aspect of the private sector services. The PPP Secretariat’s involvement was in project preparation, implementation and monitoring, and approved the consistency of the tender documents and the overall project structuring according to international standards and the PPP law.

It is worth noting that the whole contractual framework, including output specification, key performance indicators (KPIs), and the payment mechanism, has followed the UK model and the project has been approved in principle by the European Investment Bank.

The private bidders competed mostly in pricing terms, the lowest ‘gate fee’ that will burden the inhabitants of Western Macedonia. The bidders had to prove that they could achieve certain standards, such as a minimum percentage of biodegradable waste diversion at 75 percent, and the percentage of residual waste after treatment to be kept under 40 percent, and the shortest estimated time of service commencement.

For the first time in Greece we have introduced the process of ‘competitive dialogue’ which aims to introducing the thoughts and views of the market early in the tender process in order to shape the best environmental output, which can also be bankable.

An example of this course of action is the announcement of the preferred bidder in the integrated waste management system of the Peloponnese region that will serve approximately 600,000 people and assuage the region’s heavy waste management problem. In July 2013 and only after 13 days of an evaluation period a preferred bidder was announced, giving a solid proof of the market’s appetite to enter the waste management arena.

Looking forward, 12 waste management projects including the Western Macedonia are under procurement with a total value of €2bn, co-financed by EU funds, creating more than 2,500 new jobs during the facilities’ operation and 3,000 new jobs during construction works throughout Greece.

For further information visit www.espa.gr

ICS: taking the stress out of core banking replacement

Nowadays, the current competitive environment coupled with increasingly demanding customers is forcing banks, regardless of size, to use the latest banking technology. This core banking replacement process can either result in the bank leapfrogging to a high degree of differentiation, enabling it to compete on the customer experience and new product offering, or it can create huge risks for the bank if the transition is not managed properly.

As a result, the core replacement decision is often considered one of the riskiest and costliest IT projects a bank takes on. Another challenge facing financial institutions is standardising their operations. As many banks are comfortable using their legacy systems, they often tend to add modules from numerous vendors which results in having over-burdened systems that can potentially crash.

Out with the old
ICSFS has been providing banking and financial solutions for over two decades; its first packaged banking solution was launched in the early 1990s and has been awarded and recognised for excellence since. Its flagship, ICS BANKS solution, is parameterised so clients can quickly put to use the features they need with minimal time, risk, effort, and cost. ICSFS has recently faced a core banking replacement challenge with its new customer (Group of Banks), which consisted of replacing many legacy systems, one of which was an in-house system, and 25 banking satellite systems. The main requirements for the group were a fully-fledged bank-in-a-box solution that provides a full range of modules and also incorporates a flexible group model.

[C]ore replacement decision is often considered one of the riskiest and costliest IT projects a bank takes on

ICSFS’ philosophy has always entailed providing international standards packaged as an Off-the-Shelf (OTS) product with the value added capability of tailoring the product to consider local and country specific requirements. With this, the system flexibility starts from the outset. One of the company’s customers has witnessed a merger with four other banks that were successfully integrated and went live in three and a half months. They are now operating as a consolidated group.

Another record-breaking project completed was for a large bank in Nigeria, for nine banks mergers of which each bank had a different core banking system totalling to around 300 branches. ICSFS has also accomplished vanilla core banking implementations within weeks for several customers.

Operating in competitive market
In order to compete in today’s financial marketplace, once implemented a core banking solution should be robust, scalable, efficient, flexible, and serves for a long time. This is so banks can avoid an entire core replacement, which can take years and cost hundreds of millions of dollars. Bank customers are also becoming increasingly demanding. Many expect all information to be in real-time and integrated, regardless of the channel being used. That is why ICSFS invests in its products to meet all current and future needs of the banks and financial institutions.

Today ICS BANKS is running 24/7. This service is also scalable to measure that ICSFS had a benchmark for its system with IBM in France, and it attained unmatched performance results. This reflects ICS BANKS’ agility to provide high levels of operational efficiency, meeting end users’ ever-changing demands and evolving business requirements, and delivering powerful banking solutions designed for use by the world’s largest banks.

It is fully empowered by Oracle’s latest technologies and products that furnish the system with the newest technology and infrastructure trends. ICSFS was the first in the whole region to move its system to oracle 10g, then to Oracle 11g, and now it recently moved to Oracle 12c, which is the latest.

ICSFS has received many awards for being a creative and excellent solutions provider. It is present in 31 countries, three continents, and its client base includes 81 customers that are all running banks or financial institutions. More than 70 percent of ICSFS’ clients are in Asia, 21 percent in Africa, and eight percent are in Europe. After 33 years of non-stop effort, ICSFS’ vision is always to be on top among other solution providers and to keep its systems at an international level.

Can upcoming IBA event solve Europe’s energy problem?

The rampant search for new sources of energy has meant colossal amounts of money are being put into various schemes across the world in an effort to avert a global energy crisis. But with this rising investment comes a heightened level of risk, and so it is vital that the regulatory and legal framework surrounding such exploration is fully up-to-date. Other considerations include the impact on the environment, as well as the infrastructure requirements for each project.

With the US managing to move towards energy independence and China seemingly scouring the world for resources that will bolster its insatiable demand back home, Europe is facing heightened competition in securing itself the necessary access to energy. Concerns over its links to pipelines from Russia means that the EU needs to find a way to develop its own sources of energy.

In April, a gathering in Berlin has been arranged by the International Bar Association (IBA) that will see some of the leading figures in global energy and infrastructure come together to discuss the issues facing the industry. The ‘IBA Biennial Conference of the Section on Energy, Environment, Natural Resources and Infrastructure Law’ will bring together heavyweights from all the key industries involved in harnessing natural resources and developing new energy.

Arranged by the IBA Section on Energy, Environment Natural Resources and Infrastructure Law (SEERIL), and supported by the IBA European Regional Forum, the event will see attendees from industries that focus on the environment, energy, mining, oil and gas, construction, water, and infrastructure. Public regulators and academics will also be in attendance.

Supplying energy
According to SEERIL Council Member Dr Claus Peter Martens, a partner with Rolema Attorneys and Notaries in Berlin, “The question of energy supply is one of the most vital issues today.”

Fracking has been the buzzword of the last few years in global energy circles, especially with the apparent success that the US industry has enjoyed in uncovering large deposits of natural gas. As other countries look to get in on the natural gas action, governments have been keen to attract investment from across the world in developing this potentially rich new source of energy. However, many governments have been cautious about shale gas, highlighting the potential risks to the environment that it might bring.

Germany, France and Bulgaria have all banned fracking over the concerns of its effects on drinking water and the wider environment. The UK, by contrast, has enthusiastically embraced the idea of developing its own shale gas industry, and has even been offering incentives to local communities that allow for drilling to take place in their territory.

Dr Martens says that ensuring Europe is able to compete on the global energy markets is essential to the continent’s future. “Europe as a trading block is in competition with the US and China. China is increasingly getting more access to resources in Africa. How Europe keeps its access to energy is one of the fundamental challenges facing it.”

Despite its rejection of fracking, Germany is looking at uncovering more natural resources, especially in the search for precious metals. “In Germany, mines are re-opening, including new metal mines, particularly in the Saxony region. They are now seen as crucial to industrial development,” says Dr Martens.

Coming together
The event, which will take place on April 27-30 at the Hotel Adlon Kempinski in Berlin, will allow all those attending to get a unique insight into the key issues affecting this search for new energy. Topics the event will focus on include environmental financial assurances for infrastructure and resource developments, financing power projects, and key developments in resource litigation.

Ensuring Europe is able to compete on the global energy markets is essential to the continent’s future

It will also look at how wind farm projects are developed, the issues around fracking, new nuclear power station builds and the lessons learnt from the Fukushima disaster, the dangers of mining near cities, and the impact of global changes in commodity prices on the pricing and distribution of natural gas in Europe.

The IBA is the ideal organisation to arrange this sort of event, as it will keep the focus on the most important aspect of such developments – regulations. Without strict adherence to and proper insight into the different regulations and laws in numerous jurisdictions, major energy projects will struggle to get off the ground. The regulatory landscape is also undergoing dramatic change, and so the IBA’s expertise will allow a first class insight into all the potential reforms being made in different regions.

Established in 1947, the IBA is the world’s leading association for legal professionals and law societies, and helps influence international law reforms. With a membership of over 55,000 individual lawyers and 206 bar associations, its influence stretches across the globe.

Pakistan energy sector ‘to flourish’, asserts Engro CEO

The installed generation capacity of Pakistan increased by about 3,500MW during the period 2009-12, resulting in a total installed capacity of 23,500MW in 2012. During the same period the demand supply gap went over the 7,000MW mark. This shows that there is investment in the sector, but demand continues to outstrip supply. Therefore, in order to meet the forecasted demand of 36,000MW by 2020 an additional supply of 12,500MW is required in the system over the next few years.

The policy framework in Pakistan is geared to attract investment in the power sector. The current Power Policy 2002 (as amended in 2006) provides for lucrative dollar based equity IRR and a sovereign guarantee to projects on the condition that the power purchaser is a federal entity and that the tariff is approved by NEPRA.

The derailing of the power sector was mainly due to the formation of the circular debt. This surfaced in 2008, mainly due to the delayed notification of various tariff increases from 2003 to 2007 which resulted in delayed billing of the differential amount.

In 2012, the circular debt figure rose to a near $5bn mark. The situation became so dire that the Government of Pakistan (GoP) defaulted on its sovereign guarantee for the first time in the history of the country, defaulting on payments of approximately $450m to nine IPPs’ that generate 1,700MW of electricity.

Since 2008, the cost of power generation increased three-fold. The average generation cost/tariff currently stands at PKR 13.68/kWh, making the need for subsidy to also increase threefold. The lowest cost of generation is PKR 0.16 /kWh for hydro and the highest cost of generation comes from HSD and RFO being PKR 21 /kWh and PKR 16 /kWh respectively. Hydro generation stands at 32 percent, whereas HSD and RFO is 36 percent of the total generating capacity of the country.

This situation mainly came about due to the dependence on conventional thermal fuels with accelerating prices for power generation. This was further aggravated by subsidising gas, a depleting fuel in Pakistan.

The weightage of heavy fuels in the power mix, pulled down investment in the sector as the receivables continued to mount, and the subsidy provided by the GoP was unable to keep pace with the rising price of expensive fuels.

The turnaround year
The new government has also directed an un-popular but necessary tariff hike in two phases. A 40 to 45 percent hike for industrial and commercial users in August last year and a 20 to 50 percent increase for the residential bracket in October 2013 in order to implement IMF’s plan for phasing out the subsidies.

Energy in Pakistan

23,500MW

Installed capacity (2012)

36,000MW

Forecasted demand for 2020

A move toward cheaper fuel sources has been seen in the development of the first Thar coal mine in Pakistan. Engro plays a vital role with the government of Sindh in developing Thar coal. A ground breaking ceremony of the project took place in February this year where the Sindh Engro Coal Mining Company (SECMC) will set-up a 3.5 Mt/a (600MW) capacity mine in 3.5 years after financial closure that can quickly be expanded to 6.5 Mt/a (1,200MW), and then up to 19.5Mt/a (3,600MW) in the future.

Engro also has the capacity and expertise to facilitate the conversion of existing furnace oil based power plants to Thar coal, and it will be analysing the prospect. It is simultaneously developing the needed infrastructure for the LNG import to provide for the much needed energy on a fast track basis.

The move away from conventional fuels was also reflected in the vision statement of the National Power Policy in 2013, where it was stated that “Pakistan will develop the most efficient and consumer centric power generation, transmission, and distribution system that meets the needs of its population and boosts its economy in a sustainable and affordable manner”.

The long-term steps required for the development of the power sector require new investments in alternate energy projects. Thermal currently constitutes 62 percent of the generating mix and a 68 percent installed capacity.

Engro also has the capacity and expertise to facilitate the conversion of existing furnace oil based power plants, and will be analysing the developments. By developing the required infrastructure on a fast-track basis, more energy efficient opportunities will become available.

Paving a nuclear path
With the federal government, in November 2013 it was announced that there would be development in nuclear power with the KANUPP-2, and KANUPP-3 power plants. They are expected to add 2,200MW to the national grid. The first 1,100MW is due to be commissioned by 2019. Last year also saw the announcement of Gadani coal power project of 6,600MW in Baluchistan with the first 1,320MW expected to be commissioned by 2017.

[Nuclear plants] are expected to add 2,200MW to the national grid

For long-term sustainability and to abate the consequences of peak oil, hydel and renewables (mainly solar) need to be explored rather than solely developed like nuclear and non-renewable energy. For solar energy, small and off-grid solar parks can be commissioned in areas with high Global Horizontal Irradiance (GHI).

The higher the GHI the more you are able to utilise the energy from the sun. In Pakistan, Quetta has the highest GHI. On grid solutions can also be developed for the industrial hub. Engro has been the first to venture into the solar space, by initiating a 360kW grid connected to a solar generating unit in March last year.

Even though 360kW is a small project, this is the largest solar power generation facility in Pakistan. This unit is expected to generate power for the Daharki colony with the capability to provide power to the grid on a net metering basis.

The project is currently in its test phase and has encouraged us to take the next step and expand this experience on a commercial scale. In the solar field the government of Punjab, along with Punjab Power Development Board (PPDB), has initiated a Quaid-e-Azam solar park for the development of 1000MW of solar power in the Bahawalpur region of Punjab, which was also initiated in 2013.

Another crucial factor for the development of the power sector is to improve the efficiency of state-owned units. In the meantime fuel supply should be diverted to the efficient IPPs rather than state owned power units, which tend to be inefficient due to old technology.

Distribution-loss-in-Pakistan

The federal government also needs to revisit the transmission strategy and the distribution network to reduce the gap between the government notified tariff and the NEPRA notified tariff, which not only provides for higher fuel prices as part of the subsidy given by the government, but also the inefficiencies of the transmission and distribution network.

Of the nine distribution companies (DISCOs), PESCO and HESCO are known to have high losses with numerous sub divisions routinely showing losses in excess of 70 percent. For efficiency in the network National Transmission and Distribution Company (NTDC) and the DISCOs need to be privatised (see Fig. 2).

We have a success story from the privatisation of the Karachi Electric Supply Company (KESC) that has improved on its recovery by incentivising neighbourhoods that have no theft and recovery issues, and with no load shedding. Pakistan has all the right policy incentives, a known 25-year power tariff with pass through fuel costs and taxation, and the risk of exchange rate variation is covered by providing for dollar indexation, and the sector also has government guarantees and protection.

In a policy framework like this, Pakistan is set to flourish in the power sector, with continued progress and implementation of stakeholder recommendations.

Intelec Holdings sees Mozambique prosper

Mozambique is virtually indistinguishable from the country of a few years previous, and anyone returning to the southeast African nation after such a time will recognise just how far the country has come in terms of socioeconomic development. After a stint of extraordinary growth, Mozambique’s newfound prosperity has given rise to economic and financial advantages for various sectors. Underpinned by the country’s vast resource base, political stability, and thriving business environment, Mozambique has emerged as an attractive environment for business and an economic climate filled with potential.

The southeast African nation is forecast to exhibit the second-highest growth rate in the continent from now until 2017, with an estimated average annual GDP growth rate of 6.88 percent, surpassed only by Malawi with seven percent. The country’s expansion from thereon is expected to exhibit even more impressive gains, with some analysts predicting that it will reach a peak of 15 percent by 2020.

Booming sectors
Among the best performing sectors to date are energy, mining, construction, agriculture and tourism, all of which have exhibited impressive gains and will likely continue to do so, provided the country remains on the same track.

In the field of infrastructure and civil construction, Mozambique currently ranks seventh in Africa in terms of number of projects, representing around $32bn. The sector also looks on course for continued expansion in the near future as foreign investors seek to exploit the country’s natural resources and improve upon its infrastructural capacity.

With regard to Mozambique’s agriculture, the Economist Intelligence Unit (EIU) estimates that over the course of the next few years investment in the sector will reach as much as $3.8bn dollars. Growth in the agriculture sector is especially positive for Mozambique, given that it accounts for the largest source of revenue for Mozambican families.

The tourism sector has also attracted several major foreign investors who’ve focused predominantly on constructing lodges and hotels to facilitate growth in the coming years. As a consequence, the market for travel agencies and tourism has matured, with each of the country’s various attractions seeing significant sales boosts as a result.

Among the best performing sectors to date are energy, mining, construction, agriculture and tourism

The country’s natural resources, in particular minerals, represent the largest natural capital in the country’s possession and perhaps the area of most significance in terms of revenue. Mozambique is among the 10 largest producers of coal in the world, and is believed to harbour as much as 23bn tonnes in reserves.

With regard to hydrocarbons, it is important to note that Mozambique boasts an impressive reserve base of approximately 200trn cubic feet, not to mention that petroleum will soon be made available in Mozambique, with the country’s first exploration due for commencement in 2014.

If the country manages to secure a steady stream of investment and improve upon its current infrastructural capacity in the coming few years, the near future could see hydrocarbons emerge as a major constituent of the Mozambique national economy. As an extension of this eventuation, if Mozambique’s recoverable assets are properly exploited, the country could quite possibly become one of the largest producers of natural gas worldwide.

Clearly there are a multiplicity of opportunities at hand in Mozambique, though for the country to go on to unprecedented economic successes and attract investment from further afield, companies must seek to take advantage of the sectors already exhibiting growth.

Growing the economy
Intelec Holdings, which was established in 1997, has accompanied and contributed to Mozambique’s economic development in the various sectors in which it operates, these being some of the biggest departments that have generated investment and boosted economic growth.

The holdings group was recently named the 11th-largest company in Mozambique, as part of the 15th edition 2013 of KPMG’s top 100 Companies, and also bears the ‘Made in Mozambique’ seal (acknowledging the company’s dedication to domestic products and industry) – something that represents the company’s commitment to furthering the country’s development.

The company is currently focusing on diversifying its investments to better leverage its existing channels, thus ensuring a better and safer return for investors. Intelec’s strategy in a very broad sense is to identify partners with knowledge of how best to serve the markets in which it operates.

Intelec Holdings’ mission is to act as a strategic partner for the various sectors in which it is active, and to further boost national development. The company’s vision is to contribute to the diversification and integrated growth of energy, mining and the other sectors in which it participates, in order to encourage national economic growth in Mozambique and improve upon the country’s business climate.

Intelec Holdings represents a number of key players in the energy sector, among them Electrotec, Electro Sul, Aberdare, and Gigawatt, who together play an integral part in powering Mozambique. Electro Sul in particular, which is certified by ISO 9001, KEMA, ISO 14001 and STS, has played a key role in advancing the country’s electrical and electronic engineering proficiency, as well as in the management of energy networks. The Intelec subsidiary was selected for the World Quality Commitment Award – Paris 2010 in recognition of its commitment to quality, leadership, technology and innovation in the field. Electro Sul is also a major partner of Electricity of Mozambique (EDM) and constitutes a considerable part of the country’s electricity demands as a whole.

In the textiles field, Intelec Holding is preparing to revitalise the sector following a factory reactivation in conjunction with three major Portuguese partners. The project is entitled MCM (Mozambique Cotton Manufacturers) and the amount of money involved equates to an investment sum in the region of $40m.

Foreign investment
External business partners have given monetary authorities reason enough to support foreign investment, whereas the state, through the implementation of its fiscal policy, regulates and streamlines the most important socioeconomic areas and creates a suitable business environment for private enterprise. Extensive legal reforms in aspects of law as far ranging as financial, tax, labour, trade legislation and ownership have also strengthened Mozambique’s business environment and encouraged private investment by quite a margin.

The economic potential of the country with respect to investment in agro-industry is formidable, and is best characterised by the industry’s generous tax incentives. With the aid of various economic agents, together with the family sector, developments such as AgroMoz in the provinces of Nampula and Zambézia, which together equate to approximately 60,000 hectares, have been made possible.

Intelec’s achievements in innovation and national development are also quite evident in technology and human resources, which are both emerging as significant contributors to the Mozambique economy. What is certain is that the country is growing, and Intelec is living up to its ambitions to form a vital part of Mozambique’s growth process.

The success of the company also lies with its visionary Chairman Dr Salimo Abdula, who has seen opportunities where others have seen threats and positioned Intelec in an ideal spot to make real progress. In addition to being the Chairman of Intelec Holdings, Abdula is also Chairman of Vodacom Mozambique, a company of which Intelec Holdings is also a shareholder. Further still, Abdula is President of the Business Confederation of Portuguese Language Countries (CE- CPLP) and the Chairman of the General Assembly at the Confederation of Business Associations of Mozambique (CTA).

Abdula is believed by many to rank among the 100 most influential figures in Africa, and has played a crucial part in Mozambique’s socioeconomic development. Intelec Holdings, under the guidance of Abdula and the rest of his team, looks forward now to continued growth, wider development and improvement in all the sectors in which it operates, while simultaneously seeking to create value for its shareholders, partners, and the communities in which it works.

Is Alinma redefining Islamic banking?

What is in a name? Apparently quite a lot if you are in the business of being an Islamic/sharia-compliant bank. In fact, in early January, Noor Islamic Bank of Dubai made the costly strategic decision to adopt the simplified moniker, Noor Bank. Most startling of all was the reasoning behind the shift.

Said Noor Bank Chief Executive Hussain Al Qemzi: “The oldest Islamic banks started by adding the Islamic term into their names because the idea at that time was new. But over time, the majority of Islamic banks – including the biggest ones such as Al Rajhi, Baraka and Kuwait Finance House – don’t have it in their names because it doesn’t add value.”

If ‘Islamic’ doesn’t add value, this raises the question: just what is Islamic banking?

Uncertain terms
To a certain degree, it has to be recognised that the whole is greater than the sum of the parts when it comes to defining the difference between Islamic and ‘sharia-compliant’ banking. In truth, anyone can be sharia-compliant. For instance, no one would ever argue that HSBC is an Islamic bank, yet with its Amanah brand, HSBC met all the requirements for sharia-compliance.

And therein lies the rub: sharia-compliant banking is mechanistic while Islamic banking is holistic. The problem is, how do you apply regulations, rules, standards and practices to something that is as nebulous and undefined as the term ‘Islamic’? Most people in the industry and most consumers know ‘Islamic’ when they see it, but they would be hard pressed to provide an accurate description and definition.

Is it sufficient to be a purveyor of products and services that have been certified as being halal by qualified Islamic scholars? What if a provider of such services doesn’t have a sharia board, opting rather to apply its own research findings in this matter? Is it still Islamic?

Are there requisite business practices that must be followed in order to be ‘Islamic’? For instance, must there be separate branches for men and women? Must the employees follow a dress code? Are there limitations on the use of imagery in advertisements? Or is it sufficient to simply structure products to be in line with Islamic banking standards?

Religious guidelines
One can see how a web of idiosyncratic standards can crop up when trying to define what is Islamic. Sharia-compliance, on the other hand, can be proved by analysis of a bank’s adherence to the well-defined religious guidelines set forth in both the classical and contemporary books of Islamic jurisprudence. You no longer have to guess as to the nature of the banking being done, because the industry landscape has already been shaped by strong legal tradition and precedent.

The problem is, how do you apply regulations, rules, standards and practices to something that is as nebulous and undefined as the term ‘Islamic’?

Thus, arguments can be avoided over just how Islamic one bank is versus another. Such arguments are unseemly, and their accusatory nature would actually threaten the integrity of the industry as a whole. However, by using sharia-compliance as the measuring rod, argumentation is avoided and consumers are given the power to evaluate products and services for their individual adherence to the standards and practices that consumers and their societies deem important. And indeed, in this discussion, the consumer is truly the key.

Dubai, which has not been coy about its designs to take the leadership position in the Islamic banking industry, now has a bank (Noor Bank) that feels confident that it can move forward and secure market share without directly presenting its Islamic bona fides via the name of the bank. This means that, in Noor Bank’s estimation, they can address consumer concerns over the structuring of their products without appealing directly to Islam in an in-your-face manner. Saudi Arabia is prime example of this approach in practice.

A bank is a bank
Of the 12 commercial banks licensed to operate in Saudi Arabia, four function as fully sharia-compliant entities: Alinma Bank, Bank AlBilad, Al Rajhi Bank and Bank AlJazira.

The word ‘Islam’ or ‘Islamic’ is clearly not present in their names, and you will furthermore not find mention of those words on their websites or in their marketing materials. In fact, the Saudi Arabian Monetary Agency (SAMA) does not differentiate between Islamic and conventional banks. For SAMA a bank is simply a bank, and all banks must adhere to requisite SAMA policies related capital adequacy, transparency, accounting, etc.

Alinma pushed the envelope even further by using a colour palette consisting of dark browns combined with fresh pastels. Not exactly what one might expect from an Islamic bank

It is up to the banks themselves to determine how to position themselves in the market and establish their aforementioned Islamic bona fides. And in a country where Islam is part and parcel of nearly every aspect of daily life, banks have found that it better suits their needs as institutions, and better addresses consumer concerns, to lead with the notion of sharia-compliance rather than the notion of being Islamic.

Even if one looks to the brands of these Islamic banks themselves, you find them eschewing some of the more traditional imagery that one might associate with an Islamic brand. The colour palettes of these banks, for instance, show an attempt to stand out in an environment flooded with Islamic imagery such as ornate Arabic calligraphy and the ubiquitous use of various shades of dark green.

Alinma Bank, which launched most recently in the Kingdom, had every opportunity to invoke Islam more directly, and might have been justified in doing so given that its competitors were utilising unique colour schemes and non-traditional imagery. Yet Alinma pushed the envelope even further by using a colour palette consisting of dark browns combined with fresh pastels. Not exactly what one might expect from an Islamic bank.

However, in an atmosphere where Islam is so ubiquitous, there is no need to force the Islamic concept upon the public. That would make a bank passé. Alinma and others have continued to explore the limits of creativity and have, most importantly, chosen to push a values-based approach when communicating the extent of their sharia-compliance.

Local trends: sharia-compliant banking in Saudi Arabia
It has been said that all real estate is local. That is to say that despite national trends, local realities still hold sway in the determination of real estate valuations. Something similar can be said of Islamic banking. What applies to Saudi Arabia may not, and often does not, apply in other markets such as the broader GCC area, Malaysia, London, etc.

Saudi Arabia has a population of 25 million and an economy that is rapidly diversifying. For banks, opportunity abounds, and there is not as much incentive to look beyond the Kingdom’s borders. Therefore, banks’ decisions to position themselves as being sharia-compliant really only makes sense in the Saudi context. The same rationale doesn’t apply to Dubai, where banks might need to think about what best serves a regional or broader international strategy.

It must also be noted that it is the unfortunate reality that the geopolitical climate over the past decade has led to a tarnishing of the Islamic moniker. And in some markets, even invoking sharia can be detrimental to the image of an institution. In a market such as London, there may be a need to refer directly to Islam and sharia-compliance in order to secure a core segment, but in terms of dealings beyond that niche, the word ‘sharia’ could be problematic.

There is also a difference between retail and corporate banking markets. At a corporate level, business is just business, and there is arguably less of a concern over the name of an institution. It is really at the retail level where the brand becomes paramount as a bank goes about pleading is case to the masses. And one would be remiss not to mention that there might also be third option, that of dropping Islamic references altogether.

At the end of the day, Islamic/sharia-compliant banking is essentially asset-backed banking that has an ethical angle to both how it operates and deals with customers. As such, the creative minds in branding might look to create a moniker that captures those two aspects and packages banking in a way that appeals entirely to the values of institutions and the mechanisms used to develop and sell products and services.

Perhaps, in a Western context, calling it something as simple as ‘classical’ banking would be more fitting. Either way, it seems that Islamic banking is here to stay and will continue to develop creatively to fit the markets in which it operates.