October 14, 2010 / 12:13 PM / 9 years ago

Investors eye multi-billion dollar Nigerian power plan

ABUJA (Reuters) - Foreign utilities and engineering firms could invest billions of dollars in the privatisation of Nigeria’s power sector if it comes good on pledges to build a strong regulatory framework, executives said on Thursday.

Nigeria's Vice President Goodluck Jonathan attends the "India-Africa Forum Summit 2008" in New Delhi April 9, 2008. REUTERS/B Mathur

Industry executives and financiers from the United States, Europe, Canada, China, India, Russia, the Middle East and Africa are meeting with President Goodluck Jonathan and his government at a 2-day seminar to discuss the privatisation plans.

Jonathan unveiled the most comprehensive blueprint yet to end chronic power shortages in Africa’s most populous nation in August and a credible reform programme could help boost his popularity ahead of elections due next year.

“Today less than half of our citizens have access to electricity,” Jonathan told the conference.

“We expend about $13 billion every year providing power from diesel generators when we require only about $10 billion per year of investment over the next few years to develop our generation, distribution and transmission capacities,” he said.

The “presidential retreat” with investors in the capital Abuja is the first formal opportunity for the private sector to quiz the government on its plans.

Indian shipping-to-telecoms conglomerate Essar is among those considering investing and could over time pump some $2 billion into the West African country.

“We will wait and see how things go but our aim is to do 2,000 megawatts. We can always start with say 200, 400 megawatts ... You are looking at $1 million per megawatt if you use gas,” an official from the firm told Reuters, asking not to be named.

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 (kW h) compared to 239 in Ghana, 491 in India and 12,607 in the United States, according to Nigerian government estimates.

Its 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.

REGULATION, ELECTIONS AMONG CONCERNS

Under the reform strategy, Nigeria will privatise generation and distribution. Government will continue to own the national grid but its management will be privatised.

“There is lots of money that wants to come into Nigeria looking for good projects like power. There is the expertise, there is the need, but the country has been slow to reform the sector,” Paul Nickson, vice president of Geometric Power, a Nigerian power plant developer, told Reuters.

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.

“They seem to have a clear plan but it will be good to see how they implement it,” said Marcus Weber, an executive from the power division of German engineering firm Siemens AG.

Uncertainty around upcoming presidential elections, set to be the most fiercely-contested since the end of military rule a decade ago, could also delay some investment decisions.

“It’s a fantastic process but we have concerns around the speed. We have elections in six months and we think the timing is too aggressive,” said Alasdair Maclay, a director at London-based private equity firm Actis, which specialises in emerging markets.

A big stumbling block in privatisation in a country where most people survive on less than $2 a day has been setting a pricing regime which keeps power affordable 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 on paper be a fillip for Jonathan’s campaign in the polls. But for now, the tens of millions of Nigerians who will vote are unlikely to see much immediate benefit.

“I think everybody is going to wait until after elections before they put in real money. They may sign deals but they will wait and watch,” said Geometric’s Nickson.

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