While the Federal Government is seeking to raise letters of credit from the preferred bidders of the power plants it is putting up for sale, the proposed investors insist on keeping the sale value in an escrow account pending completion of the sale transaction, BusinessDay has gathered.
Sources tell BusinessDay that the bidders want issues such as lack of firm gas supply, inadequate transmission evacuation infrastructure, and in some cases, non-completion of the NIPPs including Gbarain, Egbema, Alaoji and Omoku to be sorted out before the money is released to the Federal Government.
The financial offers for the National Integrated Power Plants (NIPPs) were made in 2013 and since then, the NIPP GenCos have suffered depreciation, wear and tear due to operations and the passage of time. The preferred bidders want the sale mechanism to factor this depreciation, loss of value and time-frame for fixing them in negotiations but Nigeria wants the funds immediately.
“A potential wrinkle that the proposed renegotiation may occasion is that the reserved bidders, and indeed, the other unsuccessful bidders for the NIPP assets may see the change in the payment terms as an attempt by the government to relax the rules in the middle of the process. Such unsuccessful bidders may legitimately challenge the renegotiation on the ground that they would have bid differently if they were aware that NDPHC was going to grant a significant concession on the payment terms,” Wolemi Esan, partner at the law firm of Olaniwon Ajayi LP., told BusinessDay.
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Africa’s largest economy plans to raise $5.7 billion from selling three power plants to fund the 2018 budget but the calculations may be overly optimistic as 30 per cent sale value translates to $1.7 billion and at the current official exchange rate of N305/$, is only N516 billion.
This is a far cry from the N2 trillion required to fund the 2018 budget deficit.
According to the NPDHC, the preferred bidders include EMA Consortium, with a price of $625m for Calabar Generation Company, Dozzy Integrated Power with $415.7m offer for Egbema Generation Company, Seoul Electric Power Limited for Geregu Generation Company with a bid price of $690.2m, KDI Energy Resources for Gbarain Power plant with an offer of $340m and Omotoso plant with $659.9m by Omotosho Electric Power.
Chinedu Ugbo, the managing director of NDPHC said the company is working with the Bureau of Public Enterprises (BPE) and the National Council on Privatisation (NCP) to conclude the privatisation process. “We are just waiting for certain approvals now if the options we are proposing are accepted.”
On the delay in reaching financial close, he said, “It is just to clear the market risks around the plants so that the lenders can provide the funds to the investors. The business must make sense before the lenders will put their money there.”
Barth Nnaji, a former minister of Power, at a recent Power Dialogue in Abuja said issues such non-credit worthiness of the power companies, the poor reflective tariff, the imbalance in value chain and non-liberalisation of gas prices, constraints the market.
This raises a cloud over the possibility of market stability in the medium to long-term.
The worsening bankability and liquidity crisis in the Nigerian power sector has reached over N1 trillion and the National Bulk Electricity Trader (NBET) is yet to activate Power Purchase Agreements (PPA) necessary for the sale of the NIPPs.
Worse still, the industry does not have bankable industry agreements such as the Put/Call Option Agreement (PCOA) necessary for Preferred Bidders to secure debt financing.
The biggest challenge, however, is the inadequacy of the existing transaction and industry agreements in reflecting these constraints and mitigating the risks for lenders according to those familiar with the matter.
The bids for the NIPPs were based on NBET paying 100 percent of both capacity and energy payments to Gencos under a bankable PPA.
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The valuation of the NIPPs by the bidders was also subject to government ensuring that there were gas supply and transmission evacuation facilities as well. Government also promised to take both gas risks and transmission risks under the PPA to ensure that the bidders in the NIPP were not exposed to these risks.
But this is not current reality. Despite a capitalisation of $850 million, NBET is only able to pay an average of 26 percent monthly to Gencos for power they generate.
The N701 billion Central Bank Nigeria guarantee to gas suppliers is insufficient for the market and only pays Gencos up to 80 percent of their invoices to NBET. It does not cover 100 per cent payment. Also, N701 billion will end in 2018.
Analysts say the government cannot continue to vacillate on the NIPPs. NDPHC, a project company which was not set up to operate generation, transmission and distribution assets built under the NIPP, manages these assets and could create another NEPA/PHCN problems, with likely similar outcomes such as bloated bureaucracy, workers compensation issues and others.
It is unlikely that the Federal Government would realize financial offers totalling $5.7 billion harvested from the NIPP preferred bidders should it decide to cancel the transaction and re-advertise for fresh bids.
Analysts believe that privatization of NIPP Gencos is the catalyst for ramping up power generation and growing the gas-to-power value chain in the country.
ISAAC ANYAOGU
