Concerned that their share of the pie could be significantly reduced, power generation companies are fretting over the decision of the Federal Government to include the Azura Edo IPP among beneficiaries of the N701billion power guarantee fund announced last year.
BusinessDay learnt that this decision was to forestall a possible default by the Nigerian Bulk Electricity Trader (NBET) of its obligation to pay for power supplied to the national grid in December by Azura.
This situation could open old wounds as the inability of electricity Distribution Companies (DisCos) to settle their market invoice led to power Generating Companies (GenCos) threatening to shut down power plants. The Federal Government persuaded the Central Bank to set up the fund which was supposed to last for two years after the Power Sector Recovery Plan had been implemented. DisCos are still only able to settle 30 percent of their market invoice.
“The inclusion of Azura IPP will mean that significant funds would be diverted to the project possibly derailing the plans, this is why GenCos are resisting the move because it spells trouble for their business,” says Chuks Nwani, an energy lawyer.
BusinessDay contacted Sahara Group but did not get a response on their reaction to the development. Hakeem Bello, spokesperson of the ministry of Power did not provide comments on the developments.
But Azura does not seem overly anxious about a possible default – at least not yet.
“Just seen a scurrilous press report claiming that NBET is in default on its payments to Azura. Stuff and nonsense. NBET and its principal, the FGN, are great partners in whom we, and all our investors, repose full faith and credit,” Azura power said in a post on its social network page, Twitter.
This is in reaction to a Cable Newspaper report alleging a possible default on loans to the power plant based on a letter written by Kemi Adeosun, minister of Finance dated February 13, 2018, which purportedly warned that if the invoices are not settled, “a default by the FGN in the Partial Risk Guarantees will not only significantly impact Nigeria’s borrowing ability in the International Capital Market but also increase our cost of borrowing.”
However, sources involved in the transaction said it is still too early to talk about a default on the loans obtained by Azura, since the company is still drawing down on the loan and commissioning of the plant won’t happen until April this year.
Azura secured a $900m debt financing from a consortium of 15 banks from 9 different countries, including most of the European development finance institutions to build a 450MW Open Cycle Gas Turbine in Benin City, Edo State,
This was the first Nigerian power project to benefit from both the World Bank’s “Partial Risk Guarantee” structure ($237 million of debt used to build the plant), the political risk insurance supplied by the Multilateral Investment Guarantee Agency, and Azura delivered on budget and ahead of schedule by 7 months and could raise Nigeria’s peak generation from 5,155MW to over 5,500MW.
But it could also cause reputational risk for Nigeria in the event of default if the country treats the contract in a cavalier manner. “This is the reason why Okonjo Iweala didn’t want to sign the deal, because the risks are too high,” says Nwani.
The terms of the Put and Call agreement the Federal Government signed with Azura, empowers the company to go to the key lenders JPMorgan Chase & Co., Standard Chartered Plc and Standard Bank Group Ltd, present their claim and get paid while Nigeria’s sovereign ratings will take a beating upon calling the partial risk guarantee from the World Bank. This will in effect be a loan to the country.
Last month, Azura sent to NBET, the market bill for test power from a single turbine of 153MW delivered to the grid on December 20. Tests on the second turbine are on-going and the tests on the third turbine will commence at the beginning of March 2018. The commissioning process will then conclude at the end of April 2018 when the plant is scheduled to reach full commercial operations.
During this four-month commissioning period, the plant will produce over 100,000 megawatt hours of electricity which will be sold by NBET to DisCos. The invoice will be due for payment in June this year but already feathers are being ruffled in the finance ministry.
“The sums involved are relatively small, the symbolism of this will be noted by investors around the world and will, no doubt, help to boost Nigeria’s credit rating during the first quarter of next year,” Azura said in a December release.
ISAAC ANYAOGU
