Following the successful privatisation of the Power Holding Company of Nigeria’s (PHCN) 10 distribution companies (Discos) and five generation companies (Gencos), development finance institutions (DFIs) and Nigerian banks are increasingly keen to mobilise funding for prospective buyers of the assets of the 10 new National Integrated Power Projects (NIPPs), BusinessDay has learnt.
The 10 new plants being built by the Niger Delta Power Holding Company Limited (NDPHC) have capacity to generate 4,774 megawatts of electricity. At an estimate of $1.2 million per megawatt, the sale of an 80 percent equity stake by the Federal Government to core investors will amount to about $4.5 billion.
It would be recalled that in June 2013, the NDPHC, owners of the NIPP assets, ran a series of road shows in Lagos, London, New York and Hong Kong to generate interest in the sale of the power plants.
The recent privatisation exercise which has been described as “a big bang” has whetted the appetite of DFIs like International Finance Corporation (IFC), Africa Finance Corporation (AFC), African Development Bank, Proparco, Deutsche Investitions und Entwicklungsgesellschaft and Dutch development bank, FMO, BusinessDay investigations have shown.
DFIs are alternative finance institutions that play crucial role in providing finance to the private sector for investments that promote development and help companies to invest, especially in developing countries. Already, Nigerian commercial banks provided the lion share of the financing required by buyers of the PHCN successor companies, whose physical handover is expected anytime soon.
The acquisition of the companies, which was recently concluded with the payment of the 75 percent balance of the bid prices on August 21, generated over $2.7 billion for the government.
“There is keen interest from DFIs to invest in power projects in Nigeria. The expectation is that the local commercial banks will continue to play their part and I think what we need to look for is a situation where the appropriate party is taking the appropriate risk,” said Femi Akinrebiyo, senior investment officer and power sector country coordinator for Nigeria and Ghana, IFC.
According to him, the DFI community can lend for much longer tenure; commercial banks have limitations in the sense that they mobilise short-term funding, and if they are going to be lending to infrastructure projects, it requires long-term financing. “So this is where the DFI community comes in,” he added.
Olivier Follin, country manager of Proparco, who spoke at FBN Capital Project and Infrastructure Finance Conference recently, said there was no competition between DFIs and commercial banks as the capital requirement for the power assets financing was huge.
“It is about risk sharing. That is why you would hardly find any of the PHCN assets that were financed solely by one bank. Even the DFIs have a posture that requires that they include local commercial banks. There are certain kinds of risks and tenures which they can bridge that commercial banks may find a little bit challenging, not in terms of funds, but tenures,” Samuel Egube, corporate banking director, Diamond Bank, said, noting that the NIPP plants are technically easier to finance because they are new and strategically located, and that Nigerian banks would still have the interest to support the acquisition, just as they did during the sale of PHCN assets.
Egube added that since banking is a competitive environment and to the extent that there is healthy competition, various banking institutions would look for the best possibilities. “So to that extent, they will position themselves to have the best. There is sectoral limitations internally set by each bank, and that will determine how aggressive they will play and how they will diversify their risks within the sector,” he said.
Ayodele Oni, an energy law and policy expert and senior associate in the law firm, Banwo & Ighodalo, gave reasons why DFIs and local banks are interested in the 10 power plants.
“The reasons for such interest would include the success recorded so far in the privatisation of the PHCN power companies, despite the attendant challenges, especially since those challenges are unlikely to be encountered in relation to the NIPP plants,” he said.
Oni added that all of the NIPP plants are new plants without any liabilities or labour issues as are being encountered with the PHCN power companies, saying he believes these prospective financiers would have done their due diligence and are convinced about the state of the plants.
“It is also pertinent to note that the Federal Government of Nigeria, under the leadership of President (Goodluck) Jonathan, has shown a lot of political will in seeing the reforms in the power sector through. Apart from the foregoing, the gap in electricity demand, particularly where everything else is right, gives sufficient hope that the transactions in relation to the NIPP plants are bankable,” he said.
NDPHC recently announced the decision to sell 80 percent in the 10 power plants, which was informed by government’s intention to involve private sector operators who have the technical know-how to run the plants in an efficient manner.
About two weeks ago, the 434MW-capacity Geregu II plant, one of the NIPP assets, was commissioned by President Jonathan in Kogi State, where he indicated that the privatisation of the plants would be concluded before the end of first quarter (Q1) of next year.
The NIPP generation portfolio comprises 10 gas-fired power plants with a combined design capacity in excess of 5,453MW at ISO conditions and 4,774MW (net) with each of the power plants incorporated as a subsidiary company of NDPHC.
The 10 generation plants include Gbarain (225MW), Ihovbor (451MW), Omotosho (500MW), Egbema (338MW), Omoku (250MW), Geregu (434MW), Calabar (561MW), Ogorode (Sapele 451MW), Alaoji (961MW), and Olorunsogo (676MW).
Nigeria is targeting 40,000MW generating capacity by 2020 and will need to spend about $10 billion annually for the next 10 years to achieve this.
Information from Business Day was used in this report.