Azura power plant, 450MW Open Cycle Gas Turbine constructed near Benin City in Edo State, was yesterday synchronized to the national grid and began producing electricity for distribution across the country through one of its gas turbines.
Azura is set to become the first large scale project to be delivered on budget and ahead of deadline and could ramp Nigeria’s peak generation from 5,155MW to over 5,500MW.
Analysts say it sets a litmus test for contract sanctity in Nigeria and could also cause reputational risk in the event of default if the country treats the contract in a cavalier manner.
“Azura IPP is backed by a Partial Risk Guarantee (PRG) from the World Bank. This means that if the power generated is not paid for, Azura would be paid by the World Bank. This effectively becomes a World Bank loan to the Nigerian government. Thus Azura coming on stream potentially could increase our sovereign debt portfolio, in the event of a payment default by NBET to Azura,” Odion Omonfoman, an energy consultant and the CEO of New Hampshire Capital Ltd told BusinessDay.
The debt financing for the $900m Azura power plant project is provided by a consortium of 15 banks from 9 different countries, including most of the European development finance institutions.
It is also the first Nigerian power project to benefit from both the World Bank’s “Partial Risk Guarantee” structure and the political risk insurance supplied by the Multilateral Investment Guarantee Agency.
For each of the banks that have invested in the Azura-Edo IPP, the project has become a test of the Government’s commitment to the sanctity of contract as this is key concern for IPP investors in emerging markets.
“However, the leadership of NBET has consistently advised investors to put aside such negative sentiments; and the Azura-Edo IPP is proof of the trust reposed by the international investment community in the full faith and credit of the Nigerian government,” said the company.
Tangible evidence of this creditworthiness will be furnished in January 2018 when Azura submits its first invoice to NBET for the power produced during the commissioning of the first turbine. 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 the Nigeria’s credit rating during the first quarter of next year.
“Nigeria cannot afford to default as it could create a huge reputational risk for the country, as well as a possible downgrade of our debt ratings,” said Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy advisory firm.
This concern is real. Last year, the country unilaterally amended the NLNG Act without recourse to its partners and the recent fallout between the Nigerian Ports Authority (NPA) and Integrated Logistics Services (Intels) over non- compliance with the Treasury Single Account leading to revocation of the company’s contract heightened political risk of doing business in Nigeria.
“It is rather unfortunate for a country trying to improve its ease of doing business perception,” said Taiwo Oyedele, head of tax practice at PwC Nigeria in an earlier comment.
The milestone marks the beginning of a four-month period of intensive commissioning of the 459MW Azura-Edo IPP located in Benin City, Edo State. The plant is comprised of three Siemens turbines, each of which is capable of producing 153MW.
The first turbine was synchronized to the national grid today and will undergo a battery of tests over the coming five weeks. Tests on the second turbine will begin at the end of January 2018, with the tests on the third turbine commencing 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.
Edu Okeke, deputy managing director of Azura expressed his pleasure that the commissioning process will start before Christmas: “This festive season is one of the peak periods for electricity consumption in Nigeria and it’s a source of real pride for Azura that we were able to bring our first turbine onto the Grid before Christmas Day.”
The Azura project, whose construction began in January 2016 was anticipated to reach completion in December 2018. But with the vast bulk of the work already completed, the project is currently more than 7 months ahead of schedule. It has also become a standard-bearer for good health and safety practices, having clocked up more than 4 million man-hours of work without a single lost-time to injury.
Azura project has become a case study of what the electricity value chain was meant to be. Siemens and Julius Berger built the plant under the terms of the EPC Contract. The gas that was used to generate today’s electricity was supplied by Seplat PLC and the Nigerian Petroleum Development Company in accordance with the Gas Supply & Purchase Agreement.
The Nigerian Gas Company transported the gas to the site in line with the Gas Transportation Agreement. The energy generated was then transmitted across the country’s high voltage network by TCN per the Grid Connection Agreement. The same power was then bought by NBET under the terms of the Power Purchase Agreement and sold to the eleven distribution companies under the Vesting Contracts between NBET and the Discos.
ISAAC ANYAOGU
