Industry experts have suggested how Nigeria can replicate the success story of Azura, following Siemens’ technical hand-over of the 450MW Open Cycle Gas Turbine power station last week.
According to them, for Nigeria to have more power plants like the Azura project in place, sweeping market reforms must happen to give the electricity industry a much-needed face lift.
They added that efforts should be made to fix the fundamentals so that every megawatt that is generated has value by paying a market-determined tariff, paying for power and gas.
Without market reforms, Africa’s largest economy may continue to build idle power plants lacking in attractiveness to private investors.
Deputy Managing Director of Azura Power, Mr Edu Okeke, told BusinessDay that one of the ways Nigeria can build more viable projects like Azura, is that it should be private sector-driven.
Okeke said if government insists on driving that market, it must fully take the responsibility of financing the projects, adding that in reality, however, the government does not have the money to build such projects now and the smart option is to allow the private sector take the driving seat.
The Azura Power boss said “What Azura project has done is to create a template that both local and international lenders can look at and say it’s good enough for them to key into.
“If they are fine with this template, we can lend money to a project in Nigeria. We just have to replicate it so that any other investors coming into the country would not have to reinvent the wheel because the template is already in existence,” Okeke told BusinessDay in an interview.
Also speaking John Uwajumogu, partner, Transaction Advisory Services of Ernst and Young Nigeria, said if Nigerian electricity supply industry fundamentals can be fixed, then other investors would want to replicate Azura in the country.
Uwajumogu said that the Nigerian Electricity Regulatory Commission (NERC) has taken some step towards this direction with its eligible customers’ policy as this is expected to make the electricity value chain valuable.
He said building large scale power industry in Nigeria is not valuable because all the problems associated with power value chain.
“If the ultimate customers are not paying for electricity then you cannot have large scale electricity market in the country. Tariff needs to be cost reflective. This will lead to more power projects coming into the country”, he said.
Okeke however said this is the first financed Independent power project.
“Project finance does not depend on collateral or lenders to give money. so it is not like they want to build power plant and have an oil block and you tell the lenders give me the money and if I failed you can come and take my block. The thing about this is about papers, the agreements that make up the whole contractual structure. So it is making sure that risk in the whole project is apportioned to the right parties to bear,” he explained.
He stated that when one thinks about this particular project, from gas supply to generating power whatever that is being done is based on agreement between Azura and Seplat Petroleum Development, which are two private companies.
“So the risk is with us as Azura because we solicited and we found a party that would supply gas to us and we have an agreement. Of course the penalty for this is that if they don’t supply the gas, we are not going to pay them”, he said.