Four of about 50 prospective Independent Power Producers (IPPs) are in pole position for World Bank partial guarantees to move them closer to acquiring operating licenses in Nigeria’s power sector.
Applications from about 50 companies are currently being processed by power regulatory agencies for licenses to produce electricity.
World Bank guarantees are long term credit covers with low interest rates which facilitate the Discos to accessing power from the Gencos, which cannot sell power to an otherwise bankrupt off-taker. Guarantees are required to get the Nigeria Bulk Electricity Trading Plc (NBET) to approve power purchase agreement (PPA) for IPPs.
Some weeks ago, the presidency approved the power purchase agreement (PPA) for Azura Power, gradually moving it to the final phase for license by the Nigerian Electricity Regulatory Commission (NERC).
To operate in the market, prospective IPPs must have PPA from the Nigeria Bulk Electricity Trading Plc (NBET) as part of the requirements for license from NERC.
Exxon Mobil, Geometric Power,Proton, Azura and Zuma Energy (Coal Power) are among the 50 IPPS that have their proposals for license at different stages before NBET, NERC and other government agencies in the power sector.
“The World Bank has targeted four IPPs for its partial guarantee” said Sam Amadi, Chairman, NERC.
“ExxonMobil is on track, and also Geometric. Zuma Energy that is doing 1,300MW of coal in Kogi State has also received our letter. We are finalising their PPAs and NBET is willing and ready to deal with them and several other IPPs.
“The Azura power project is about $900 million of foreign investment and is expected to produce between 450 to 500MW of electricity. the Federal Executive Council has approved the PPAs and the tariff, and the company is now ready for the financial closure of all the transactions”.
Earlier in the year, NERC forwarded the name of Proton Energy, a Sapele based project development company and other prospectors to NBET for power agreement.
Rumundanka Wonodi ,managing director, NBET, confirmed that Proton Energy and about 50 others were on the list of power licence prospectors that have advanced in the processes and have been issued with the power purchase agreement (PPA) draft to kickstart negotiation.
“We got a list from NERC about those that have applied for licence and who we can consider for PPA”.
Wonodi said the next stage for some companies is to get a PPA draft from NBET and to which responses are expected.
“We have sent a PPA draft and the first schedule to some, to get them to understand the process and what is required of them. What we expect from them now, are a list of issues and those that they had complied with” said Wonodi.
Power purchase agreement from NBET is a requirement prior to NERC approval for power license.
The number of prospectors for power license has raised the hope of better power supply for the country in the near future, according to Amadi.
“We have hope that in the next two, three, four years, there will be some significant increment in grid power because we can break our egg very well now due to regulatory framework that is clear, transparent and bankable. We have a tariff methodology that processes changes that are clear”.
Prior to this period, absence of institutions like NBET had made it difficult for several licensees to close their financial transactions because of lack of three critical requirements by financiers.
These are license to operate,pricing and tariff. Nigeria did not have a tariff structure until 2012 and up till date still lacks a proper tariff regime.
“What that means is that between then and 2012, we couldn’t have had a power purchase agreement signed up and the issue of off-taker to buy the power has been of concern to the would-be investors”.
Nigeria had a distribution company with no financial footprint of credit worthiness, and were owing for everything, making it scary for new investors to make investments to produce power that would be bought by bankrupt off-takers.
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This informed the setting up of NBET, a temporary bulk purchaser whose responsibility will be to provide credit guarantee to enable power purchase agreements to be signed, and then when the reform has worked and the new privatised Discos now show credit worthiness, pay their bills, then the NBET could ease out and investors can sign up PPAs on the basis of the credit worthiness of the entities themselves.
Amadi hinted that with NBET inplace, “We have nominated many companies because the rate of our closure days is now faster”.
BADEJO ADEMUYIWA & YANGE IKYAA
