Engineering firms, utilities companies and financiers from around the world met with President Goodluck Jonathan on Thursday to get more information on his multi-billion dollar plan to privatise the power sector.
In August, Jonathan unveiled the most comprehensive blueprint yet to end chronic power shortages, and a credible reform programme could help boost his popularity ahead of elections due next year. The president estimates the nation will need an annual investment of at least $10 billion over the next decade to meet its domestic energy needs and is seeking to woo foreign investors with pledges to improve regulation, Reuters reports.
He told the gathering that the only way to satisfy Nigerians’ appetite for power is for the private sector to participate in the power sector. Jonathan said that the manufacturing sector is the greatest casualty of power failures in the country, adding that over $13 billion used annually by the sector to generate its own power adds to cost of production. Jonathan stated that the privatization process would be wound down by 2011, including the Power Holding Company of Nigeria (PHCN).
“The reforms will allow investors opportunities in two ways – concession and privatisation. Concession will involve mainly management contracts for improvement in efficiency, especially through the National Independent Power Producers (NIPPs) He said that as part of the power sector reform, consumers will be required to pay tarrifs which reflect the cost of electricity provision. Barth Nnaji, special adviser to the president, stated there would be a major review of electricity tariff in quarter four of this year.
Nnaji also noted that the Nigerian Electricity Liability Management Company (NELCOM) will take over PHCN stranded assets and liabilities in the first quarter of 2011, saying that government has released N57 billion for PHCN liabilities. In the same first quarter, generation companies would have been handed over to the new owners, he said. The World Bank also gave an assurance to investors and the Federal Government that it would provide partial risk guarantee of $500 million for the power sector to cover risks outside of the control of would-be investors in the sector.
The 2-day “presidential retreat” facilitated by the Commonwealth Business Council, to which 200 delegates have been invited from ministers to private power companies and investment funds, is the first opportunity for potential investors to challenge government directly on the plans. “Looking at the huge challenges ahead of Nigeria, we just want to see how serious they are first,” said an executive from one European engineering firm already active in Nigeria. “There’s been lots of talk ... Nigeria could be a big potential power market in the future, but investment in power plants is big money and it takes time,” he said.
Despite being a major oil and gas producer, Nigeria relies on diesel generators to power everything from phone chargers to luxury hotels because of constant power outages. Average per capita energy consumption in the nation of more than 140 million people is just 129 kilowatt hours (kWh) compared to 239 in Ghana, 491 in India and 12,607 in the United States, according to Nigerian government estimates. The country’s energy deficit is estimated to be 23,000 megawatts (MW), representing an annual opportunity cost to sub-Saharan Africa’s second biggest economy of some 20 trillion naira ($130 billion). Under the reform strategy, Nigeria will privatise power generation and distribution. Government will continue to own the national grid but its management will be privatised. Previous privatisation efforts, most recently of former state telecoms monopoly Nitel, have been dogged by controversy, and investors say the roadmap for reform will need to be backed up by cast-iron guarantees on the regulatory framework.
“We have flown in for this conference because we feel the government is serious about this. This is the first time we are seeing a robust framework like this in the power sector,” said an executive from a second European engineering firm who has been visiting Nigeria for years. A big stumbling block in privatisation in a country where most of its people survive on less than $2 a day is setting a pricing regime which keeps power affordable for the poor, while allowing private firms to recoup investment.
Jonathan’s blueprint foresees a “lifeline tariff” for the poorest and a rate which varies with consumption and can be pre-paid, making it more affordable for the lowest-volume users. A positive reaction from such a large gathering of foreign investors could be a fillip for Jonathan’s campaign in what is set to be Nigeria’s most fiercely-contested presidential elections since the end of military rule a decade ago.
Polls always raise political uncertainty in such a young democracy but investors appeared to shrug off any concerns. “We are not too worried about elections. We feel there’s a lot of high-powered negotiations going on and we are ready to start if we get a deal today,” said the second European engineering executive.
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