Nigeria rolling out investment incentives to improve power generation

Nigeria rolling out investment incentives to improve power generation
December 1, 2016 Advocaat Law Practice

Three years after the start of Nigerias power privatisation programme, the government is looking to burnish the attractiveness of the sector by providing a range of new incentives and guarantees such as  extending partial risk guarantees.

In November the World Bank and state-owned Niger Delta Power Holding Company (NDPHC) signed a partial risk guarantee (PRG) agreement for integrated gas company Seven Energy to supply 3.7m cu metres of gas to the $500m Calabar gas plant in Calabar City, as part of a number of deals expected to add 500 MW to the national grid.

PRG programmes are being used by the current  administration as a way to incentivise independent power producers (IPPs) and attract fresh capital into Nigerias power sector, which has long been hampered by a significant shortfall in production. PRGs provide guarantees – in this case, backed by the World Bank – that protect investors against a default by power companies.

For example, in the event that the Calabar Generation Company, which is owned by NDPHC, is unable to make payments, the agreement guarantees that JP Morgan under the World Bank will pay and be reimbursed over a one-year period, according to press reports.

The Calabar agreement is not the only PRG currently in effect. Under the World Banks Power Sector Guarantees Project for Nigeria, approved in May 2014, the bank has offered $670m of PRG financing, with approximately $237m of the funding used for the 459-MW, $900m Azura-Edo PRG package, the first commercial IPP to produce electricity for Nigerias grid.

The Azuro-Edo gas-fired power plant is being financed by 20 private equity funds and international banks and is being built by a joint venture of Siemens and local company Julius Berger. The plant, located near Benin City, is expected to be operational by 2018.