Nigerian Government Cuts to Crisis Power Chase with $1.8 Billion for New Generation Projects

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The director of Nigeria's Bureau of Public Enterprises (BOE) has reported that the unreliable power supply provided by the country's National Electric Power Authority (NEPA) (Abuja) is costing the national economy $1 billion a year. She said that with a total installed generating capacity of about 6,000 MW, only 3,400 MW was secure and available, in spite of money invested by the government. The BOE report suggested that between $400 million and $500 million needed to be invested annually in electricity distribution, until the industry is deregulated in three years.

The "$1 billion a year" cost to the economy makes for a good sound bite, but hides a greater malaise and a much greater basic need for increase in power output and availability in Nigeria. Three years is a very long time in Nigerian politics, as the country struggles to reform its systems and get rid of the 'big man' syndrome at the heart of top-down corruption, which is sustained by the rough-riders of the $30 billion a year export revenues from the two million bpd oil extraction industry.

This is a West African country twice the size of California, aspiring to regional leadership, with a population of 140 million. Nigeria has raised its actual power generation from 1,900 MW in 1999 to the current, often unstable, 3,400 MW. We are talking about starting from a low base here. This low base scenario should offer large opportunities for investors with intestinal fortitude, in project construction and power technology.

The last two months have seen a number of new power projects announced, and units currently under construction have had their financial backing confirmed. The government has also given multinational oil companies a 2007 deadline to complete independent power projects (IPPs). The Nigerian National Petroleum Corporation (Lagos) has pledged government assistance to oil firms venturing into IPPs, which are now considered as a feasible source of power generation to the NEPA. The necessity of making gas available as a feedstock has also been mooted.

In March President Olusegun Obasanjo commended Nigerian Agip Oil (NAOC) (Lagos) Company on completing its 480-MW IPP in Delta State and assured the company that the government would ensure that buyers of electricity would pay. (This assurance, in itself, tells of tales from the past about the ways in which projects have aborted through market and system dysfunctions).

Also in March, the federal government released $188 million to support the construction of four power plants now under construction in Papalanto (Ogun State), Omotosho (Ondo state), Geregu (Kogi State), and Ughelli (Delta State). The government finance represents about 45% of the total investment in the projects. The total investment in these units will be $420 million, and they will add 1,230 MW to Nigeria's power capacity.

The 335-MW Papalanto and Omotosho are being constructed by China's SEPCO (Shandong Electric Power Corp) (Jinan, China), while the 414-MW Geregu plant is being constructed by Siemens (NYSE:SI) (Munich, Germany), and the 480-MW Delta project is contracted to Japan's Marubeni (TSE:8002). The government has put another $32 million behind the construction of the 360- MW Alaoji power station in Abia State.

On April 7, the federal government announced that it would invest $1.8 billion over the next three years on the construction of seven power plants, gas facilities, and transmission and distribution infrastructure. One of the options being considered for funding the projects was monies accrued from excess crude oil sales and from foreign currency reserves.

The seven gas-fired power stations will add another 1,720 MW to the national grid. They are 100-MW Omoku (Rivers state), 300-MW Gbarain/Ubie (Bayelsa state), 300-MW Sapele (Delta state), 270-MW Ikot Abasi (Akwa Ibom state), 250- MW Eyaen (Edo state), 250-MW Egbema (Imo state), and 250-MW Calabar (Cross River state). Various domestic energy resource companies and international majors will source gas feedstock, and the federal government and Joint Venture partners will split the investment on gas resource development.

The minister of power and steel, Senator Libel Smoke, told the National Economic Council that with all projects underway, a total of 4375 MW would be added to the current level of 4,000 MW, which would leave a shortfall of 1625 MW in the 10,000-MW target for 2007. The 1,720 MW from the new projects could make up for the shortfall, he said.

$213 million will be spent over the next three years in closing the grid loop and removing bottlenecks in the network, to ensure that electricity access is increased from the present level of 40% of the population. The critical transmission projects are to be located in Rivers, Abia, Enugu, Benue, and Plateau states.

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