Initiative to electrify Nigeria promises to slash business costs

Initiative to electrify Nigeria promises to slash business costs

$14 billion worth of investment will be needed each year between now and 2020 to bring Nigeria’s electrical infrastructure in line with demand. It’s estimated that as much as 40% of the cost of doing business in Africa’s fastest growing economy is power related.

Nigeria GE

Nigeria has suffered from decades of under supply in electricity. Infrastructure company GE is supporting the government and private companies as they work to reform and expand the country’s power infrastructure.

The Federal Government’s privatisation of the power sector is driving massive growth and investment into generation infrastructure. The first auction of state-owned generating companies in 2010 generated $2.5 billion in bids, and resulted in the sale of 15 companies into the private sector.

Professor Barth Nnaji was the Minister of Power during the first phase of the privatisation and reform agenda. Today, he heads Geometric Power, the first private indigenous power producer in Nigeria.

“GE is a visionary company in making the moves it made when we were accelerating the power reform programme,” Nnaji says. “We wanted to grow power as quickly as possible, and it required Nigerian companies and international companies.

“GE, despite the fact that they used to just sell equipment to us and do long-term maintenance, brought the idea that they should become investors, and take an equity role in building power.”

The second phase of the privatisation process is also now under way, with the government selling up to 80% of its stake in 10 generating companies. The government hopes to massively increase capacity, adding 20,000MW of installed capacity by 2020. GE, which has provided gas turbines for Ughelli Power since the 1970s, is supporting this goal with a commitment to work with other partners to add 10,000MW of incremental power to the national grid over 10 years.

Geometric Power will be part of that 10,000MW transformation, Nnaji explains. The company is already working with GE on a huge, $600 million expansion of its generation capacity. The first phase, a 500MW project, is underway, and will be followed by two further phases, taking the total generation capacity to 1,080MW.

Since its founding in 2004, Transcorp has become one of Nigeria’s most successful conglomerates, with interests spanning hospitality, energy and agribusiness. It was natural that the company would look to become involved in power generation and distribution when the government began to reform the sector.

“There was a clear understanding that there is a massive need. There is a stable market. The reforms were there,” says Ade Fadeyibi, the CEO of Transcorp Ughelli Power Ltd, the company’s power generation subsidiary. “We wanted to be the pioneers in coming into the private sector… We understood the processes, we understood the cost bases and the financial models. We understood in terms of the rehabilitation [of the infrastructure] what it would take.”

Transcorp was among the buyers in the first phase of privatisation, acquiring Ughelli Power, which operates three gas power stations, and has an installed capacity of 900MW. The $300 million deal was concluded in 2013, and Transcorp took over full operation in November.

The chairman of Transcorp, Tony Elumelu, met with GE’s global chairman, Jeff Immelt, in January 2013, signing a framework agreement to collaborate on infrastructure projects, particularly in power and transportation. A year later, the two companies announced a deal to expand capacity at the Ughelli Power Plant by 1,000MW and to renovate a damaged turbine.

One role that GE has played, alongside its technical and financial support, is in proving that the new environment for power investment is credible, Nnaji says.

“You’re talking about a company that has a proven record and the integrity to build the infrastructure. The financial structures will work and will be trusted by international investors,” he says. Major global companies and international development financiers have participated in the privatisations, in part due to the baseline of trust created by GE’s presence. This, he believes, will make the reforms sustainable.

“Trust that has been created through the private sector partners,” Nnaji says. “That’s why I know it is going to work this time.”

This article was written in collaboration with Global Electric.

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Written by African Business Magazine

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