Blended finance expands medical oxygen production in East Africa

A new initiative aims to expand medical oxygen production and supply in East Africa by strengthening local manufacturers’ capacity and using a mix of financing instruments. Medical oxygen is a lifesaver for a range of illnesses and conditions, such as pneumonia and hypoxemia — oxygen deficiency in the blood. But it’s not widely accessible in low-resource settings. One estimate finds nearly 25 million deaths annually are due to lack of oxygen access. During COVID-19, deaths were reported due to oxygen shortages in many places, including in parts of Africa. While there are companies producing and delivering medical oxygen on the continent, COVID-19 made clear that it wasn’t enough. The East African Program on Oxygen Access is a multipartner initiative whose core goal is to develop a regional network of liquid oxygen production facilities that can provide this lifesaving tool both in peacetime and during emergencies. The aim is to be able to treat endemic conditions such as pneumonia, and be of use in the case of disease outbreaks, as during the COVID-19 pandemic. East Africa currently produces just 750 tons of oxygen per month, significantly lower than the estimated need in the region of 7,000 tons per month. That’s according to Robert Matiru, director of programs at Unitaid, which is investing $22 million in the new initiative. “What our regional program will do is close the gap by a third. We're going to increase production to 2,000 tons per month as a first step,” he told Devex. The new initiative’s announcement follows the launch last week of the Global Oxygen Strategic Framework and Investment Case by the Global Oxygen Alliance, a collaboration of 20 global health organizations and civil society groups. This calls for investments of $4 billion in development financing over the next six years to increase access to oxygen in low- and middle-income countries by 25%, to benefit 24 million patients and save 860,000 lives. The support The East African Program on Oxygen Access will support three local companies – Hewatele and Synergy in Kenya, and TOL Gases Limited in Tanzania – in the form of grants, concessional loans and volume guarantees, which ensures a portion of the sales for the product for a given period. Synergy and TOL Gases Limited had been producing liquid oxygen, but at a small scale. They are using old air separation unit plants, which produce bulk liquid oxygen, but need upgrading. Grant funding from Unitaid will help decommission these plants and replace them with new ones, which Matiru estimated could quadruple their production capacity. Unitaid will also provide them technical support when it comes to bringing their product to market. Synergy’s facilities are located in Mombasa, and TOL Gases Limited in Dar es Salaam. Another facility for Synergy will also be built elsewhere in Kenya. Matiru said they are still determining the location, but they expect it to be in western Kenya, near Kisumu. Synergy is seeking loans for its expansion, but Matiru said they’re still identifying the right partner to provide the loan. “That could be an established development finance institution, for example like the European Investment Bank or the U.S. [International Development Finance Corporation], or it could be actually a commercial bank, and then we would look to see how we partner with them to agree on a good term for the loan, and they need to subsidize interest rates,” he said. Hewatele, meanwhile, is in the midst of building its liquid oxygen plant on the outskirts of Nairobi after securing debt and equity financing from development finance institutions, donor government agencies, and philanthropic foundations. Unitaid’s grant would help the company commercialize the product and develop delivery innovations. The company has been in the business of medical oxygen manufacturing for years, but focused on oxygen generators, not liquid oxygen production. MedAccess, a U.K. social finance company whose main purpose is to improve access to medical innovations, will provide all three companies volume guarantees. Typically, volume guarantees cover a period of three to five years once production begins. The initiative expects this to bring down oxygen prices by up to 27%, based on current Global Fund to Fight AIDS, Tuberculosis and Malaria tender pricing of $1.55 per liter of oxygen, according to Matiru. It can take 12 to 18 months to get the facilities up and running, Matiru told Devex. This means Hewatele, which broke ground earlier this year, could potentially be producing liquid oxygen by mid-2025, whereas the other two aren’t expected to be functional until 2026. The goal is for these facilities to supply medical oxygen not just in Kenya and Tanzania, but across neighboring countries in the region. Question of sustainability Matiru said Unitaid conducted an intensive landscape analysis to determine where to best start building out local and regional production capabilities for liquid oxygen on the African continent. They decided on East Africa after finding the region has “the most mature foundation” for the initiative given there are already local liquid oxygen manufacturers in the region. “We didn't find that level of maturity anywhere else from local producers,” he said, although they hope to also launch a similar program in West Africa as soon as they’re able to secure funding for it. But the sustainability of the liquid oxygen facilities will be critical. Matiru said roughly half of the $22 million grant investment from Unitaid will go to “demand-side investments” — working with communities and civil society on demand generation, and advocating for policy change, including getting governments to establish budget lines or increase their budget for medical oxygen. “If we're able to reduce the price of oxygen by 27% … this is a real incentive,” he added. According to a press release, the Clinton Health Access Initiative will lead on market strategy for the initiative, while global health nonprofit PATH will focus on community and civil society engagement. Unitaid also wants to invest in new business models to sustain oxygen investments, and issued a call for proposals for this in September.