Nigeria nears deal for private power producers

Fri Jul 30, 2010 7:03pm BST

* Deal could make private power projects bankable

* Billions of dollars in potential investment waiting

* Could help end country's chronic power shortages

By Nick Tattersall

LAGOS, July 30 (Reuters) - Nigeria is close to agreeing a framework to make private power generation for the national grid commercially viable, potentially unlocking billions of dollars of investment and helping end chronic power shortages.

Finance Minister Olusegun Aganga said a presidential task force had met with independent power producers in the capital Abuja on Friday and had agreed to establish a new power purchase agreement within six weeks.

The aim of the agreement is to guarantee that independent power producers (IPPs) will be able to sell power to a credit-worthy single off-taker, which will sell electricity on to distribution companies and in turn repay the IPPs.

The current intermediary, the Power Holding Company of Nigeria (PHCN), is not regarded as a credit-worthy buyer of power partly because it is failing to collect its own bills efficiently from consumers and partly because it is selling power at government-subsidised rather than market rates.

That means private companies wanting to build power plants in Nigeria are unable to find the funding to do so because they cannot guarantee that PHCN will have the capacity to repay them.

"The IPPs want to ensure that the single buyer is a credit-worthy entity, which in turn makes them more bankable," Aganga's office said in a statement.

"The timetable agreed at the meeting stipulates that the government side shall present ... key terms and conditions for the PPA between the single buyer and the IPPs. The stakeholders will then negotiate and perfect the term sheet to produce a power purchase agreement for signing in six weeks."

Nigeria is home to Africa's biggest oil and gas industry yet is plagued by chronic power shortages, leaving its 140 million people without reliable mains electricity, and businesses and wealthy individuals reliant on expensive diesel generators.

The power crisis is a major brake on growth in sub-Saharan Africa's second-biggest economy. Solving it could unlock the potential of a country dubbed "Africa's sleeping giant" and yield huge returns for investors.

"PROBLEM HAS CHANGED NAME"

Andrew Alli, chief executive of the Africa Finance Corporation which funds infrastructure projects around Africa, told Reuters this month foreign investors were ready to pump billions of dollars into Nigeria's power sector if government could sort out the regulatory framework. [ID:nLDE6640QU]

He said large foreign power companies had been to scout for investment opportunities, while development finance institutions such as the World Bank and African Development Bank would also provide debt financing given the right regulatory framework.

Solving the power crisis in Africa's most populous nation would be a major coup for the president and his administration.

President Goodluck Jonathan has made boosting power supply a top priority since taking office in May, promising Nigeria will privatise generation and distribution next year. [ID:nLDE65R12L]

But elections are due in January and it is not yet clear whether he will contest.

Successive presidents have pledged to boost Nigeria's power generation -- which regularly plunges to well below its 3,000 megawatt capacity due to poor maintenance and mismanagement -- but little concrete progress has been made.

PHCN's predecessor, the Nigerian Electric Power Authority (NEPA) was dubbed "Never Expect Power Always". PHCN is known as "Problem Has Changed Name", or "Please Have Candle Nearby".

"Steady power supply is coming a step closer," the finance ministry promised in its statement. (For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Additional reporting by Camillus Eboh; Writing by Nick Tattersall)