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Sale of 10 Power Plants Awaits FG’s Plan to Reduce Investor Risk

Four years after preferred bidders were announced for Nigeria’s 10 independent power plants, the assets lie wasting away while large swaths of the country remain in darkness.

The deal to sell the power plants built under the government of former President Olusegun Obasanjo ran into troubled waters when it did not come with a firm gas supply agreement. Only the Calabar NIPP had a firm gas supply agreement with Accugas but the government has been unable to fully take the gas under the take-or-pay arrangement with Accugas and owes millions of dollars to the company for supply to the Calabar NIPP.

Analysts say restructuring the deal and providing financial guarantees could help close the deal, options that do not require the Federal Government spending money.

“As a way forward to resolving the issues, the Federal Government must sit down with the NIPP investors to come up with a more realistic and practical transaction structure that would address the current challenges of privatising the NIPPs,” said Odion Omonfoman, chief executive, New Hampshire Capital Ltd.

Omonfoman said that would also allow the investors to make the investment to acquire and also operate the NIPPs.

Beyond the absence of firm gas supply agreement, there were limited transmission lines to move power from the NIPPs to areas where it was needed and at the time of sale, some of the plants were uncompleted.

To worsen matters, Nigeria’s power sector is leaking money. DisCos do not collect more than a quarter of invoices issued, electricity pricing does not produce commercial return, and the government is unwilling to provide a sovereign guarantee so that the bidders could use it to secure debt financing.

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The Bureau of Public Enterprise and the Niger Delta Power Holding Company failed to provide commercially bankable transaction and industry agreements including share sale agreement, power purchase agreement with Nigerian Bulk Electricity Trading Company (NBET) and Put/Call Option Agreement with the Federal Ministry of Finance and the preferred investors that would enable them to raise the 70 percent debt financing for the acquisition in bid terms.

An industry source said despite being unable to provide investors with bankable contracts, BPE insists that they must post millions of dollars in bank guarantees covering 15 percent of their bid prices six years after the expiry of the initial bank guarantees posted by the investors. This has also stalled the NIPP privatisation, as preferred bidders have called on the BPE/NDPHC to address the transaction challenges with some going to court to force the government agencies to provide these agreements.

Analysts say this situation whets the ground for crisis.

“There’s no way the government can sell the assets in their current state unless it is restructured,” said Wolemi Esan, energy lawyer at Lagos-based law firm, Olaniwon Ajayi.
To curb these challenges, the NDPHC last year agreed with the bidders to pay 30 percent of the bid prices and defer the balance until the market matures. The deferred capacity payment structure was supposed to mitigate investors’ risks by ensuring that they are only paying for available capacity that can be put on the grid and for which they would receive capacity and energy payments from NBET. But the deal fell through.

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“The preferred bidders were unable to raise even 30 percent of their bid value then,” said Esan.
The assets too have suffered depreciation, wear and tear due to operations and the passage of time. The preferred bidders want the sale mechanism to factor this depreciation, loss of value and timeframe for fixing them in negotiations but cash-strapped Federal Government wanted the funds immediately and was unwilling to shift grounds.

Investors got more concerned as the Nigerian Bulk Electricity Trading Plc (NBET), the entity created to buy power from GenCos and sell to DisCos and settle everybody along the value chain, could only pay back about 30 percent of the invoices issued by power generation companies (GenCos).

Yet the plants remain a huge loss to the country and could have ramped by half the current generation output. The Federal Government planned to raise $5.7 billion from selling three power plants to fund the 2018 budget.

Then it had strong offers from EMA Consortium, with a price of $625m for Calabar Generation Company, Dozzy Integrated Power with $415.7m offer for Egbema Generation Company, Seoul Electric Power Limited for Geregu Generation Company with a bid price of $690.2m, KDI Energy Resources for Gbarain Power Plant with an offer of $340m, and Omotoso plant with $659.9m by Omotosho Electric Power.

Source: businessdayng

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