Transcorp purchase of Afam plant signals renewed confidence in power sector

In signs of renewed confidence following new policies geared at improving Nigerian power sector liquidity, Transcorp has completed the acquisition of “Afam Power plc” and “Afam Three Fast Power,” in a deal the Federal Government says is a milestone in accelerating power sector reforms.

The Federal Government and Transcorp Consortium signed the Share Sale Agreement on Thursday, transferring majority ownership of the power plant to the company.

The Nigerian Electricity Regulatory Commission (NERC) has improved the cash flow situation in the electricity sector by implementing a Service-based Tariff policy that provides different service bands, and customers who enjoy more hours of power supply in a day pay a higher tariff.

In addition, the Federal Government is implementing the National Mass Metering Programme (NMMP), which provides for the distribution of free electricity meters to Nigerians across the 11 distribution companies (DisCos).

The NMMP is to roll out 6 million meters for all connections points on-grid without meters over the next 18 to 24 months. It is estimated that this will impact 30 million consumers.

“This is the first transaction of its size and significance since the last of the 2013 privatisations and the completion of Azura IPP, and it represents a true ‘oasis in the desert’ of the Nigerian power sector,” said Wolemi Esan, partner at Olaniwun Ajayi, who advised on the transaction.

“I am optimistic that this transaction is one that would trigger a resurgence of investor confidence in the Nigerian power sector, as it demonstrates that transactions of this size and complexity can still be closed successfully, if appropriately structured,” Ajayi said.

Yemi Osinbajo, Nigeria’s vice president and chairman of the National Council on Privatisation, in an address at the signing ceremony of the purchase agreements of Afam Power and Afam Three Fast Power Limited on Thursday, said the investment was first of many new investments planned in the sector across the value chain from generation to distribution.

The Buhari administration has a goal to eliminate challenges in the power sector by improving liquidity in the market through a host of measures, including the recently announced NMMP and the transition to Service Based Tariff, Osinbajo said.

“We need a power sector that can provide quality service to Nigerian consumers and sustain itself.

“The Afam Power and Afam Three Fast Power Limited plants have a combined capacity of almost 1,000mw. The current usable (operational) capacity of 240mw from Afam III and about 100mw from Afam plc speak to the opportunity that the Transcorp acquisition can bring,” the vice president said.

Recall that last year, the National Council on Privatisation approved Transcorp Consortium as the preferred bidder for the 100% acquisition of Afam Genco (Afam Power and Afam Three Fast Power Limited) with a bid price of N105.3 billion.

“We expect that under Transcorp’s ownership the operational capacity of the facility will be raised to its full capacity. We have seen the progress that Transcorp has made with the Ughelli Power Plant in raising the operational capacity significantly (since it acquired the plant in 2013) and we expect nothing less from the Afam acquisitions,” Osinbajo said.

Valentine Obi, CEO of Transcorp plc, said in an interview last year that if the bid succeeds, the company would be generating power for one out of every four Nigerians.

The Afam cluster houses multiple power plants outside of those being acquired by Transcorp (including those owned by Shell Petroleum Development Company and Sahara Energy) and is an energy hub for Nigeria.

“We have no doubt that the addition of Transcorp to the community will come with the forward thinking Corporate Social Responsibility initiatives that Tony and his team are known for,” the vice president said.

Afam Genco has a total installed capacity of almost 1,000mw generated from a natural gas-powered plant in Rivers State. With this new acquisition, the company’s combined installed generation capacity will go up to almost 2,000mw in line with its short- and medium-term strategy objectives.

Nigeria privatised the power sector in 2013 to attract investments needed to revamp electricity generation and distribution. Over the years, companies including Transcorp have invested more than $3 billion for controlling interests in 15 power generators and distributors.