The bulk of the financing required for the acquisition of the 10 National Integrated Power Project (NIPP) power plants, for which preferred bidders emerged last week, is expected to come from international financial institutions, with support from Nigerian banks.
In the first phase of the power sector privatisation exercise, the acquisition of the successor companies carved out of the Power Holding Company of Nigeria (PHCN) was mainly financed by Nigerian banks. This significant role played by the local banks may have emboldened international financiers, who are said to be showing keen interest in the NIPP asset sales.
Among Nigerian banks said to be showing interest in financing the NIPP asset acquisition are UBA, Ecobank and Stanbic IBTC, while some others are said to be studying the profile of some of the preferred bidders to enable them make informed decisions about participating in the financing.
Even though some of the Nigerian banks may not play prominent roles, it is believed that the foreign banks will have to go through local banks to channel their funds.
The $3.3 billion acquisition financing for the successor generation and distribution companies was provided primarily by Nigerian banks and the estimated $4.28 billion capital expenditure and rehabilitation expenditure is expected to be financed by Nigerian banks, with support from international financial institutions.
The sale of the NIPP assets, which is the second phase of the privatisation process, entails a divestment of 80 percent equity in the assets and is expected to generate about $6 billion for the government.
Last year, the Niger Delta Power Holding Company (NDPHC), owners of the NIPP assets, had run a series of road shows in Lagos, London, New York and Hong Kong to generate interest in the sale of the power plants.
“It is expected that the financing will be provided predominantly by international financial institutions because of local bank liquidity and single obligor capacity constraints,” said CBO Capital Partners in its power sector monitor.
It noted that international interest in the NIPP assets was partially because the assets were relatively new and construction risk would be minimal, adding, however, that post privatisation, “Nigerian banks will play a significant role in financing the day‐to‐day operational requirements, value‐added services, including funding the distributive trade network and trade finance”.
Robert Jibunoh, director, transaction advisory services, Ernst Young, said: “I think a lot of international investors are looking keenly at the ongoing privatisation and might be willing to provide financing for the acquisition of the assets,” adding that part of the quantum of the finance required by the preferred bidders could also come from local banks.
“Nigerian banks can finance the acquisition. The only hindrance might be the issue of sector limit because each bank has a limit as regards provision of finance to any sector. Some of the international outlets would likely collaborate with the Nigerian banks. Development Finance Institutions (DFIs) usually prefer collaboration,” he further said.
Bekuochi Nwawudu, director, CBO Capital, said finance from Nigerian banks and private equity would have a big role to play, adding that some strategic foreign investors from places like Asia and Latin America wanted to come in because they understood the power sector and would want to take a strategic position.
“It depends on the price of the assets and the debt/equity ratio. I still believe that Nigerian banks have the capacity to finance the asset acquisition,” Nwawudu said.
For instance, part of the rules for the financing of the acquisition of the PHCN companies was that the debt financing for such acquisitions was not to exceed 70 percent of the consideration payable.
Femi Akinrebiyo, senior investment officer and power sector country coordinator for Nigeria and Ghana, International Finance Corporation (IFC), said the corporation was looking at those NIPP assets that had expansion potential because their interest was to increase generation capacity in the country. “We will be willing to support the expansion plan of some of the preferred bidders,” he added.
The 10 gas-fired plants include Gbarain (254MW), Benin (508MW), Omotosho (513MW), Egbema (381MW), Omoku (265MW), Geregu (506MW), Calabar (634MW), Ogorode (508MW), Alaoji (1,131MW), and Olorunsogo (754MW).
The preferred bidders for the plants and their bid prices include AITEO Consortium for Alaoji power plant ($902 million); EMA Consortium for Benin and Calabar ($580 million and $625 million); Dozzy Integrated Power Limited for Egbema ($415,075 million); KDI Energy Resources for Gbarain ($340 million); and Seoul Electric Power Limited for Geregu ($690.200 million).
Others are Daniel Power Consortium for Ogorode ($531.777 million); ENL Consortium Limited for Olorunsogo ($751.240 million); Shayobe International Limited Consortium for Omoku ($318.710 million); and Omotosho Electric for Omotosho ($659.999 million).
The plants have capacity to generate 4,774 megawatts of electricity, with five out of them reportedly fully or partially operational as of March 2013.
NIPP was initiated in 2005 to supplement power generation from existing facilities. The sale process is expected to be completed by end of the second quarter of the year.
By: FEMI ASU