Nigeria power opportunity seen overshadowing risks

The huge opportunities inherent in Nigeria’s power sector eclipse the risks for investors as new investments are set to spike in 2016.

“Power is the biggest and most attractive business opportunity today in Nigeria that I have seen in years,” said Philip Lindop, head of Africa Banking, Barclays Africa Group at a conference in Lagos.

Nigeria needs at least 20,000 megawatts of electricity to meet current demand but generates less than a quarter of that for a population of 180 million people.

Analysts say annual investments of $3.5billion are needed to achieve its targeted generation and distribution capacities.

The International Finance Corporation (IFC) which has an investment portfolio of $1.7 billion in Nigeria, says it is optimistic about the power infrastructure space in the country despite risks. “We expect 2016 to be a big year for power in Nigeria,” Eme Essien Lore, the Nigeria country manager for IFC said.

“The continuing reform agenda in the NNPC is expected to unlock the gas issues. Long term, we are bullish on the sector, despite short term concerns relating to access to forex and convertibility risk on FX.”

Nigeria privatised its power sector in 2013 by selling stakes in government owned power plants and distribution networks to investors, including Forte Oil, Sahara Power and Transcorp.

The new private owners of power assets are however struggling to meet capital expenditure pledges made, as issues ranging from gas unavailability for power turbines, need for market reflective tariffs and power cheats from bypassed meters and unpaid bills crimp revenues.

Barth Nnaji, Nigeria’s former Minister of Power and chairman of Geometric Power, an independent power producer, said Government should rigorously follow through on the reform initiative and see that private sector owners of power assets are doing what they signed up to do.

Geometric Power, which has built a ring fenced $530million, 141 Megawatt plant and distribution network for Aba metropolis will be switching on the project soon, Nnaji said at the conference.

“This government is working to see that the problems hindering this project are sorted out and by the middle of the year to 3rd quarter 2016, we can commission that project,” Nnaji said.

Nnaji also disclosed that Geometric Power was building a three-phase green-field, 1,080 mw gas fired OMA power plant in conjunction with General Electric (GE) in Abia state.

The first phase of the OMA Power project, a 500MW (gross) simple cycle facility driven by General Electric Frame 9 turbines will have financial close before year end,” Nnaji affirmed.

Major risks investors currently considering coming into Nigeria perceive corruption, currency and complexity, according to Andrew Skipper, partner and head of Africa Practice, Hogan Lovells.

“The currency issue is a problem. Clients are worried about moving money in and out of Nigeria and availability of FX to buy equipment. There are too many taxes and regulations, as well as uncertainty,” Skipper said.

Renewable energy will be an increasingly major part of Nigeria’s power solution going forward, stakeholders say.

Government will make significant moves on solar in coming months, according to IFCs Lore. “The programme is in place and the government is working on rolling that out,” Lore said.