Business
Nigeria state-firm to guarantee power suppliers
Nigerian President Goodluck Jonathan announced on Tuesday a new state company that will guarantee to pay for power generated in Africa’s most populous nation, potentially opening the way for billions of dollars of investment.
Nigeria has the world’s seventh-largest natural gas reserves, yet is blighted by persistent electricity outages which force businesses and individuals who can afford them to rely on diesel generators.
The African Finance Corporation, which funds infrastructure projects across the continent has said investors are ready to pump billions of dollars into the Nigerian power sector if the regulatory framework can be resolved.
With a population of more than 140 million Nigeria is a massive potential market. Nigeria’s booming mobile phone industry is viewed as a blueprint for success.
But one of the major problems is the current distribution company, the Power Holding Company of Nigeria (PHCN), is not regarded as a credit-worthy buyer of power partly because it is failing to collect its own bills efficiently from consumers and partly because it is selling power at government-subsidised rather than market rates.
“We are unfortunately faced with a situation where our power distribution companies find it challenging to collect enough revenue from their customers to pay for power they receive from generating companies. In this situation, potential investors do not have the confidence that when they produce and deliver power, they will receive payment,” Jonathan said in Abuja, following the inauguration of the board.
“Government has therefore incorporated the Nigeria Bulk Electricity Trading Plc (Bulk Trader) as a guarantor to boost confidence to potential investors that they will be paid for the power they generate and sell to the distribution companies.”
Former World Bank chief and new Nigerian finance minister and coordinator of the economy, Ngozi Okonjo-Iweala, will be chairman of the board of Nigeria Bulk Electricity Trading Plc, which is expected to start signing agreements with power producers, Jonathan said.
He said international partners, including the World Bank, were providing partial risk guarantees to support the company.
Jonathan pledged before his election victory in April to privatize electricity generation and distribution.
Nigeria’s privatization agency has said it hopes to complete the sale of six power plants and 11 distribution firms by the first quarter of 2012 as part of a multi-billion dollar plan.
Power shortages are a major brake on growth in sub-Saharan Africa’s second-biggest economy, pushing up the cost of business for manufacturers and making Nigeria uncompetitive as an investment destination for industry, despite a population which makes it one of the world’s largest untapped frontier markets.
South Africa, with a third of Nigeria’s population, has 10 times the generation capacity.
Power shortages also perpetuate social inequality in a country, depriving many of light at night or the ability to power water pumps, let alone recharge mobile phones or access the Internet.
The central bank says 60 million people rely on generators and spend $13 billion a year fuelling them.
Power minister Bart Nnaji told Reuters this week Nigeria was producing around 4,000 megawatts of electricity and he hoped to increase this to 5,000 by the end of the year, on the path to hitting his target of 6,000 in 2013.
Source: Reuters