Revenue in the power sector is expected to jump by 223 percent from N300 billion to N1 trillion by 2017 as technical losses fall and power output ramps up, analysts have said.
“The cash generation of the Nigerian power sector is massive. When you have an entity that has such immense cash flows, it offers a huge opportunity for securitisation,” said Taiwo Okeowo, deputy managing director and head, investment banking, FBN Capital, at the Euromoney Nigerian Banking and Capital Markets Conference held yesterday.
“We envisage industry revenues of N1 trillion in the next three years as aggregate technical losses on distributed power falls and generation output is set to rise with all the power plants coming on stream,” Okeowo said.
He emphasised that the Nigerian power sector was a Nigerian thing as the bulk of their assets were in the local currency, adding, “The bulk of the value chain in the sector is generated in the local currency, with the power sector much bigger than the telecommunication sector.”
Losses in the power sector are about 40-50 percent of revenues; however, approximately half of losses are expected to be eliminated within next year.
Even as revenue in this sector rises, the local capital market is expected to see increased activity as capital would need to be raised by these firms to replace power assets. Replacement of these assets is expected to begin in the next five years.
Prior to listing on the stock market, power firms are expected to de-risk first through securitisation of loans.
Before June 2015, there may be new deals in the energy sector, approaching $15 billion, according to Albert Okumagba, CEO, BGL plc.
The need to raise capital is being driven by these transactions. “The eleven distribution companies should be quoted in five years,” said Okumagba.
Over 14 Gencos and Discos have been privatised to date.
The government is reacting to the risk affecting the power industry as a whole and the sustainability of the reforms in the sector.
The Nigerian government dismantled its power monopoly and sold the hydro-and-gas-powered plants in a bid to bring in needed investments and also meet the ever rising demand. The challenges in the supply of electricity are enormous in Nigeria. Demand in Nigeria is said to be more than three times the current output of about 3,800 megawatts (MW), affecting businesses and investment in the real sector.
“Discos, Gencos and the transmission firms generate an almost guaranteed steady stream of cash flows, an attractive feature for credit securitisation. It is expected that securitisation will commence between 2015 and 2016,” Okeowo said.
He added that equity raising by power sector firms was expected to be a success as there was a huge demand for long-term assets by local investors. And dual listings would be beneficial to firms in this sector to enable access to both local and offshore investors.
