Delivered ahead of schedule and on budget, the 450 MW Azura Edo IPP has emerged the gold standard for project execution in Nigeria, but this pattern may be impossible to replicate, given the Federal Government’s unwillingness to grant Sovereign Risk Guarantee (SRG) to new projects.
This was one of the themes that emerged from the discussions at the 19th edition of the Centre for Petroleum Information (CPI) Energy Finance Forum, an annual event, Chambers Oyibo, chairman of its board of governors said was set up to share knowledge on the energy sector and to network at very senior levels.
A panel discussion on gas and power financing found that unless the Federal Government agrees to the same terms as it did under Azura, new projects would be difficult to reach financial close.
Kayode Akinkugbe, MD/CEO of FBN Quest Merchant Bank said unless there is willingness to include take or pay provisions by NBET in PPAs, investors will look elsewhere. Dolapo Kukoyi, partner at Detail Commercial Solicitors said that after Azura the Federal government has not taken such huge commitments.
“This is why the 14 solar PPAs have stalled, the kind of comfort lenders were looking for, they didn’t get it and it might be difficult in this current environment.” said Kukoyi.
Promoters of the Azura IPP presented a watertight project complete with partial risk guarantee from the World Bank and backed the government to a corner. A default could cause reputational risk for Nigeria in the event the Federal Government decides to treat the contract in its usual cavalier manner.
Odion Omonfoman, an energy consultant and the CEO of New Hampshire Capital Ltd had told BusinessDay that Azura IPP, backed by a Partial Risk Guarantee (PRG) from the World Bank means that if the power generated is not paid for, Azura would be paid by the World Bank. This effectively becomes a World Bank loan to the Nigerian government. Thus Azura coming on stream potentially could increase Nigeria’s sovereign debt portfolio, in the event of a payment default by the Nigerian Bulk Electricity Trader (NBET) to Azura.
Since Azura, every investor now wants an SRG but a cash-strapped Federal Government forced to dip hands into the N701bn intervention funding meant to power generation companies to settle obligations to Azura, to the consternation of GenCos, has been unwilling to grant SRGs to new projects from solar power producers to gas fired plants.
Worse still, the Nigerian Electricity Regulatory Commission (NERC), the power sector regulator, which is weak and pliable to government control, has prevented DisCos from charging market rates for electricity supplied to consumers. This has contributed illiquidity in the sector and encouraged every investor to seek the Azura-styled commitments before coming into the sector.
The debt financing for the $900m Azura power plant project is provided by a consortium of 15 banks from 9 different countries, including most of the European development finance institutions.
“Part of the reason the Azura project was able to get funding and construction started was because the government committed to it and it has a very solid power purchase agreement based on the realities on ground”, Jubril Kareem, head of energy research at EcoBank had earlier told BusinessDay.
“Nigeria is one of the most expensive places to generate power and if they are being paid according to the terms of the power purchase agreement, there is nothing wrong with that.
Azura Power is the first Nigerian power project to benefit from both the World Bank’s “Partial Risk Guarantee” structure ($237 million of debt used to build the plant), the political risk insurance supplied by the Multilateral Investment Guarantee Agency, Azura delivered on budget and ahead of schedule by 7 months and could raise Nigeria’s peak generation from 5,155MW to over 5,500MW.
ISAAC ANYAOGU
