The privatisation of assets held by Power
Holding Company of Nigeria (PHCN) would be one of the industry's success
stories of 2013, even had it not taken place in Africa's most populous
country.
In most cases, generation and distribution companies whose
divestment, recapitalisation, renovation and expansion has been promised
for years have finally been handed over to investors, most of whom have
met their financial obligations.
The management of the state transmission network is in credible hands
- after Manitoba Hydro International was finally confirmed as operator -
and its finances are under the control of a new institution, Nigerian
Bulk Electricity Trading (NBET), supported by the World Bank with $550m
capitalisation.
Another phase of privatisation is under way, for the National
Integrated Power Project (NIPP) plants, whose estimated 5GW capacity
should be on line by 2014, providing another huge boost.
This is an impressive performance by any measure.
It is remarkable in country where the increasingly impoverished north
is the scene of conflict between jihadist groups and the military,
where political settlement in the Niger Delta remains unresolved, the
2014 presidential election promises a bitter, cash-fuelled campaign with
the potential to trigger violence, and where oil theft, fraud, and
other crimes and governance abuses remain endemic.
Power privatisation's progress in 2013 owes much to government
reformists led by economy and Finance Minister Ngozi Okonjo-Iweala, and
supported by central bank governor Sanusi Lamido Sanusi.
President Goodluck Jonathan sees reforming electricity supply as the
key to his re-election, and has supported radical moves, while letting
other energy industry initiatives - notably the Petroleum Industry Bill -
slide.
Earlier this month, Jonathan stood before the cameras with more
evidence of his success, at the official commissioning of the 424MW
Geregu II gas-fired power plant.
Geregu is one of the NIPP facilities, owned by Niger Delta Power
Holding Company, which are now up for sale for scheduled divestment in
June 2014. Some powerful bid groups have been assembled, and
international executives have been touring the NIPP plants, some of
which offer real opportunities in the hands of the right operator.
(Some others may not: African Energy has heard reports of one plant
which, even if it had access to the necessary gas feedstock and
transmission lines to get power to market, would involve huge investment
because the existing structure is said to be fit only for demolition.)
This year's sale process has seen investor groups meeting the hefty down-payments demanded of them.
However, in many cases, these funds have been raised in the local
banking market by Nigerian partners who emerged as the main financial
players in the PHCN privatisations.
Lagos bankers are quick to argue that the Nigerian markets are very
liquid, but it is valid to question the extent to which local banks can
bankroll the huge phases of investment now needed to revitalise the
sector.
Much has been made for the potential of bond issues, backed by
continued multilateral lending. Such instruments will support many
projects; but can they underpin such a large industry, especially once
some less experienced, more politically connected concessionaires and
their backers come to realise that electricity supply permits are not as
tradable or profitable as the oil trading instruments they built their
fortunes on? (African Energy has heard that some of those who have
secured concessions have already been sounding out potential partners to
buy them out).
Also liable to face future pressures is NBET, to which Gencos that
generate more than 100MW should sell their output. The bulk trader
employs some very bright staff and has Okonjo-Iweala's support and World
Bank risk guarantees to back it.
But this level of support can go only so far, and the market may take
much longer to stabilise than optimists envisage. NBET could be around
for years, and will require sufficient capitalisation to maintain market
confidence.
The 2014 elections promise a renewed bout of political turbulence
that could unsettle investors. Key players like Okonjo-Iweala and Sanusi
are likely to leave office. The Nigerian electricity supply sector is
on the cusp of a renaissance that should significantly improve services.
But it will be enacted against the background of volatile politics
and insecurity not only in the north but also, possibly, in the Delta,
hub of the gas supply that will underpin Nigeria's new look power
market.
This is a View article from the African Energy newsletter, a
source of independent analysis on the continent's energy industries
produced by Cross-border Information,
a business intelligence company with a long established research focus
on the politics, energy and financial sector trends of Africa and the
Middle East. Culled From allAfrica.com
