by Alkasim Abdulkadir
The power reforms are on again, this time around the word “unbundling” is the buzz word, the catch phrase “being unbundling the power sector”. However, we are still travelling familiar terrains. Between 1999 and 2007, the two terms President Olusegun Obasanjo served as President, Nigeria it is alleged spent between 9-16 Billion USD on power sector reforms.
An inquiry into the power expenditure to unravel the rot, in the lower house of the National Assembly ended up in a quagmire of misdeeds. The loser in all these roller coaster of blinking light bulbs is the citizen. However, can we trust the power reforms this time around? What does the Eurobond market see in our power sector that we are not seeing? Let us trace this journey.
The Federal Government on July 2, 2013 made a return to the Eurobond Market to raise $1 Billion of foreign debt to be dedicated in its entirety to the electricity industry. The funds realized from the Eurobond will be split between three key entities in the electricity value chain; Nigerian Gas Company (NGC), Transmission Company of Nigeria (TCN) and the Nigerian Bulk Electricity Trading Plc. (NBET) also known as “The Bulk Trader”. These 3 entities have the following things in common, they are all wholly owned by the Federal Government of Nigeria (FGN), represent key risk areas for the reform and require significant financial investments to strengthen their ability to deliver, assuage investor doubts. The government’s focus on these three (3) areas is to strengthen the on-going reforms in the power sector and improve power delivery to the homes of Nigerians.
NGC, a subsidiary of NNPC is charged with the responsibility of developing an integrated gas pipeline network to fully serve Nigeria’s energy and industrial feedstock needs by ensuring the transportation of gas from the suppliers (the IOCs or local companies) to the end users.
In the electricity industry, the end users are the gas-fired power generation plants. TCN is responsible for making sure that the electricity generated reaches the distribution companies who are then responsible for getting it to our homes. NBET was specially set up by the FGN to catalyse investments into power generation (and consequently, the rest of the value chain) by establishing it as a creditworthy entity that is able to be make payments for all the electricity purchased through a Power Purchase Agreement (PPA) in a timely manner.
This year, Nigerians have watched with despair, what appears to be, a stall in the marked improvements in power delivery witnessed in 2012. Major fluctuations in the availability of electricity to the end consumer remain at odds with the reports of completion of a number of the long awaited NIPP power plants such as Geregu, Sapele, Olorunsogo and Omotosho power plants which have a combined capacity of about 1700MW. A concerned citizen would be justified to ask, where is the commensurate increase in power supply?
One major reason is a lack of sufficient gas supply to these newly built plants. Gas constraints have been responsible for an average 1500MW in idle capacity. To resolve these constraints, NGC has a number of expansion projects ongoing designed to expand the gas supply to these plants particularly in the southwest.
Beyond those projects however, NGC has bigger projects such as Obiafu/Obrikom-Oben (Ob3) pipeline that connects the eastern gas networks to the western network and the Calabar/Ajaokuta/Kano (CAP/AKK) gas pipeline that takes power to the north. NGC hopes to fund these projects using a PPP funding scheme but the portion of the funds from the Eurobond dedicated to NGC will allow for quicker movement on these projects.
In the same vein the portion of the funds going to TCN are dedicated to key expansion and reliability projects to improve the stability and capacity of the national grid. Finally, for NBET, the funds from the Eurobond in addition to other funds made available by the NCP and through appropriations (about $800 million) mean that it is sufficiently capitalized to cover at least six (6) months’ worth of PPA payments if no money was remitted by the distribution companies. This amount would translate to about a year of coverage, if the distribution companies remit 50% of their bills and so on. This provides comfort to the generation companies, not just the Greenfield IPPs but also the privatized successor PHCN generating companies and their financier.
Granted, the $1bn is a drop in the bucket in an industry that needs an estimated $10bn a year injection over the next 10 years. But this is an encouraging start. TCN, in particular, requires much more funding if Manitoba hydro is to meet its targets and the Ministry of Finance has mentioned that it continues to look into further ways to provide the necessary funds. We (and I’m sure most Nigerians) eagerly look forward to seeing what the Ministry comes up with.
Looking that the overall impact in the $1bn Eurobond, the Federal government has made the right call on its utilization, showing in yet another way its dedication to the fulfilment of the reforms in the electricity industry.
It is interesting to note that even with Shell’s 650MW Afam VI being out due to vandalism of its pipeline, the nation has still managed to average about 3300MW of generation.
It remains to be seen if these will come to pass, let there be light.