Nigeria promises investors stability in power sector

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Elisha Bala-Gbogbo Abuja

Nigeria would guarantee the stability of legislation and offtake agreements for power producers as the country sought to expand electricity output, its sector regulator said this week.

Measures taken to protect investments against regulatory changes, the risk of losing invested funds and guaranteeing electricity trading through a state-owned bulk power purchaser were meant to reduce business risk and improve profit margins, Sam Amadi, the chairman of the Nigerian Electricity Regulatory Commission, which oversees the power sector, said in an interview in Abuja.

“We’re looking at an industry where the decision to invest will not be determined by risk but rather by profitability,” he said.

In September last year President Goodluck Jonathan handed control of 15 distribution and generation companies spun out of the state-owned Power Holding of Nigeria to new owners, including Siemens, Korea Electric Power and Forte Oil. The aim was to increase output and end shortages in the country, where demand is more than double the 4 000 megawatt capacity.

The regulator licenses power generating and distribution companies, and regulates prices and transactions among companies in the industry. Investments are covered by World Bank-backed guarantees and have incentives, including five-year tax breaks.

“We’ll move from scarcity to choice, where five or six years down the line we’ll be thinking about unbundling the retail component, separating distribution from retailing,” Amadi said.

The agency also has in place regulations that allow off-grid power producers, such as manufacturing companies that generate their own power and alternative energy producers, to supply the excess to the national grid, Amadi said, adding that distribution companies just entering the market “will be more willing to seek out” these producers.

Blackouts are a daily occurrence in Africa’s second-biggest economy by current measures and most populous country, with about 170 million people.

To boost electricity output to 10 000MW within five years, the unbundled power companies will need to spend an estimated $24 billion (R263bn) over this period, according to the Bureau of Public Enterprise, Nigeria’s privatisation agency.

Some investors were holding back capital spending while seeking higher tariffs that would guarantee quicker returns, Amadi said.

“We’re committed to ensure that the efficient investor or operator recovers all project cost.”

Under Nigeria’s tariff system, electricity prices are reviewed every five years, enabling adjustments, to guarantee cost recovery for investors.

Electricity output fell to 1 900MW last month after the rupture of a gas pipeline shut 50 percent of the total deliveries to power plants. Gas-fired plants account for at least 70 percent of electricity output in Nigeria, the holder of Africa’s largest gas reserves, according to the Power Ministry. – Bloomberg

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