With new service-reflective tariff, investor interest in power sector grows

Weary investors are now renewing their interest in Nigeria’s beleaguered electricity sector as they count on the new service-reflective tariff regime kicking off today to breathe new life into the sector by vastly improving liquidity across the value chain, BusinessDay investigations reveal.

One critical electricity venture that has been stranded for years, the $500 million Geometric Integrated Power project in Aba, could be the first beneficiary of this renewed investor interest, our reporter learnt at the weekend.

According to BusinessDay investigations, the Cairo-based pan-African multilateral trade finance institution, Afrexim Bank, has indicated its willingness to open a credit line of $100 million to complete the Geometric project in Aba now that the service-reflective tariff regime proposed by NERC is coming into effect and following a resolution by National Council on Privatisation (NCP) of the long-running battle over the separation of Aba Disco from Enugu DisCo, between Interstate Electrics (core investor in Enugu Disco) and Geometric Aba Power Limited, a dispute that dates back to the privatisation of Enugu Disco in 2013.

Under the terms of the resolution, brokered at a meeting of the NCP on August 16, 2020, Geometrics will pay $26 million to Interstate to acquire the area around Aba from Interstate (Enugu DisCo) and pay another $7 million to the Federal Government for the acquisition of government’s 40 percent equity in the concession.

The resolution will also require the Bureau for Public Enterprises (BPE) to sign a share sale and purchase agreement (SSPA) transferring the remaining 40 percent interest held by the Federal Government in the now created Aba Disco (the ring-fence area created around the old NEPA Aba Zone) to Aba Power Limited, which is the sister company of Geometric Power Limited.

This will enable Aba Power Limited own the distribution concession 100 percent, allowing it enter into a power purchase agreement with its sister company, Geometric Power Limited, which built a 144-MW power plant in Aba along with associated gas supply and metering assets.

Under a 2006 agreement between Geometric and the former state owned NEPA, Geometric entered into a concession for the Aba Zone on the basis of which it increased the number of injection sub-stations in the Aba Zone from three to seven and revamped the electricity reticulation network by building over 140km of overhead 33kV and 11kV distribution lines across the entire Aba Zone, between 2007 and 2013.

With the compromise brokered by the NCP and the SSPA executed between BPE and Geometric, the 144MW Geometric Power IPP and the Aba Power distribution concession will become Nigeria’s first active fully integrated gas supply, electricity generation, transmission and distribution entity in the country.

As a prelude to firing the plant, Geometric Power has sent the IPP’s power plant turbine engines, which were installed without commissioning and unutilised at Aba for over 7 years, back to its OEM, General Electric, in Houston, USA, for recertification of the original manufacturer’s warranties.

Geometric Power has also executed gas supply agreements with a major oil and gas company for a reliable gas supply to the IPP through a 26-km gas pipeline it also built to ensure uninterrupted power supply to the Aba region.

The operationalisation of the Geometric Aba integrated project stalled due to the privatisation of the Enugu Disco and the subsequent reluctance of Interstate Electrics to recognise and give effect to the lease agreement made in 2005 between Geometric and the Federal Government, under which Geometric leased the old NEPA Aba and Osisioma Districts (which now make up Aba Disco) and was also granted the first option or right of first refusal to purchase all of the electricity distribution facilities in the leased area should the government wish to privatise the entire electric assets in the (old Enugu Zone, now Enugu Disco) area.

Based on this lease agreement, the owners of Aba Power invested over $400 million to build a 144MW IPP and upgrade the electricity distribution assets in the leased area. The IPP was 95 percent completed while all the electricity distribution work had been completed by the time of privatisation in 2013.

With this resolution by the NCP and the interest Afrexim has shown in financing the completion of the project, a way has been found to end this long-running and perhaps avoidable dispute, while over N109 billion in principle and interest could be taken off the books of AMCON and the various banks that provided debt capital to Geometric.

Senior government officials also say they are making progress with the search for new buyers for the troubled Yola Disco after the core investor, Integrated Energy, pulled out several years ago following the disruptive effect of Boko Haram insurrection in Nigeria’s North East.

The initial attempt at a re-privatisation in 2018 did not succeed mainly because it was launched too close to the 2019 presidential elections.