Federal Ministry of Power, Works and Housing has signed an agreement with two firms, Afrinegia Nigeria Limited and CT Cosmos Nigeria Limited, to provide cover against a premature termination of the power purchase agreement it signed with 14 solar power companies last year, for $2.5 billion towards a yield of 1,200mw.
Known as Put/Call Option Agreement (PCOA), it is the last stage of getting a power projects agreement to financial closure, providing a payment guarantee that in the case of default, someone else will pick up the tab.
Afrinegia Nigeria Limited will deliver 50mw from its solar project at Onyi Kokona LGA of Nassarawa State, while CT Cosmos will deliver 70mw to the grid on completion from its own project at Panyam, Mangu LGA, Plateau State.
Babatunde Fashola, minister of power, works and housing, who presided over the signing on April 11, said the agreement co-ordinated by the Nigerian Bulk Electricity Trading plc (NBET), would ensure that the solar PPAs stalled since July last year, could now proceed to financial closure and benefit Nigerians.
“Sooner rather than later, communities that are yet to experience and benefit from access to energy would begin to feel the impact,” Fashola said, while expressing gratitude to the investors.
Fashola called the development a ‘milestone,’ saying, “It sits very well with our Ministry’s Energy Mix to deliver 30 per cent of our total energy capacity through renewables by 2030. So, it has ticked all of the right boxes; what remains now is to tick the final box to get power to peoples’ homes.”
Sourcing energy from renewables is part of the incremental policy of the Federal Government and part of the reasons it is seeking a $1 billion loan in the current Power Sector Recovery Implementation Plan.
Nigeria is also a signatory to the Paris Agreement, where countries agreed to cut back on their carbon footprint, through ramping up renewable energy capacity.
“We also are very close to concluding the signing of the contract to commence the biggest hydro plant in Nigeria, the Mambila,” he said.
The government also plans to procure six more hydro dams as well as completing ongoing work at Dadin Kowa, Zungeru and Gurara.
Legal analysts at Udo Udoma & BeloOsagie explain that a put option allows the holder of the option, usually the IPP, to compel the government, upon the occurrence of certain events, to purchase a power plant at a predetermined price.
“A call option, on the other hand, permits the holder of the option, usually the government entity, to compel the seller, upon the occurrence of certain events, to sell the power project at a predetermined price. The quantum of termination payments that will be received by an IPP under the PCOA will depend on whether the termination of the PPA was the result of a seller default, a buyer default, or a force majeure event,” in the opinions of Adeola Sunmola and Nicholas Okafor, partners at the firm.
In her remarks, Marilyn Amobi, managing director/CEO of NBET, expresses delight that the process was now at a very high level of conclusion, leading to the actual execution of the contract.
Also present at the signing ceremony were Bestman Uwadia, chairman of Afrinegia, and his CT Cosmos counterpart, Phillip Chukwueke, who signed on behalf of their organisations.
This development notwithstanding, Fashola still has his work cut out, tasking developers obligated to handle upfront costs of sizing, procuring and installing the solar PV system, challenged by foreign exchange uncertainty and inflation that have pushed the project above initial projections, to get to work on them.
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