Dangote, Blackstone, Carlyle in $5bn tie-up for energy infrastructure

Africa’s richest man Aliko Dangote has partnered Blackstone Group LP and Carlyle Group LP, the world’s two biggest private-equity firms, to invest in energy infrastructure in Nigeria and Africa.

“They want to invest heavily,” Dangote said in an interview with Bloomberg news.

“They couldn’t really find a local partner to work with and you are not going to move down here and sit here and make sure it is done, because you are doing business all over the world,” he said.

BusinessDay reported exclusively yesterday that the Federal Government was considering offering gas fields to power sector investors to boost electricity generation and end chronic power shortages in the country.

Dangote said in the interview that he struck separate agreements with the private-equity firms to invest a combined $5 billion by 2019 with New York-based Blackstone in power projects.

It is estimated that Nigeria needs an annual investment of $3.5bn to achieve its generation capacity target of 40,000 megawatts (MW) by 2020.

 Nigeria’s, current peak grid power generation stands at about 3,849 MW with a per capita electricity usage of 136 kilowatt hour (KWH).

 This compares with an average per capita electricity usage of 4,803 KWH in South Africa, which generates about 41,000 MW.

 Blackstone will commit half of the $5 billion in the next five years, with the remaining $2.5 billion coming from Dangote Industries Ltd.

“We can change people’s way of life, increase economic growth, and I think we will do very well for our investors too,” Steve Schwarzman, Blackstone’s chief executive officer said.

Schwarzman said he expects returns from the Dangote venture to be in line with those produced by leveraged buyouts. Blackstone’s private-equity funds produced internal rates of return after fees of 16 percent as of June 30.

Dangote Industries and Blackstone will search for projects through Black Rhino Group, an African infrastructure developer in which Blackstone invested.

Blackstone has done $25 billion globally in deals known as Greenfield, in which it constructs operational facilities.

Carlyle which raised $698 million for its first sub-Saharan Africa fund, counts Dangote among its limited partners.

The IMF projects 7.3 percent growth for Nigeria in 2014, up from 6.4 percent last year.

However, the country could sustain double digit growth rates if daily power shortages were to come to an end.

Nigeria, home to the world’s ninth biggest gas reserves, with about 187 trillion cubic feet (Tcf) of proven gas, has seen drastic drops in power supply in many parts of the country as it grapples with gas supply shortfalls.

The Department of Petroleum Resources (DPR) plans to auction 31 fields in the next marginal fields programme, while several oil majors, including Shell and Chevron are divesting multiple assets onshore and in the shallow waters of the Niger Delta, which Nigeria could target for power investors, industry sources said.

As part of measures to attract investment into the power sector, the government increased the domestic gas price to $2.50/1,000 Mcf from $1.50/1,000 Mcf over the weekend.

Diezani Alison-Madueke, minister of petroleum resources who announced the new gas price, said the government also approved $0.80/Mcf as transportation costs for new pipeline capacity, adding that the new prices reflect the current market value, which would now be benchmarked against US inflation annually.

The new gas pricing regime – a key demand by investors in the gas supply chain, according to the minister, would help to accelerate new investments into gas projects analysts say.

PATRICK ATUANYA with agency report