Wanna buy a used power plant?

By the end of 2012, the Nigerian government will have sold off 18 power assets to private investors. PwC experts explain the privatization process.

Uyi Akpata, Head of Energy & Utilities

Uyi Akpata, Head of
Energy & Utilities

Initiated in 2001, the power reforms in Nigeria included the dissolution of old structures, their replacement with new administrations and regulatory bodies, and the creation of 18 successor companies (SC). These include six generation companies (Genco), 11 distribution companies (Disco), and one transmission company (Transco). These SC companies are in the process of being privatized under the auspices of the Bureau of Public Enterprises (BPE).

The Nigerian power sector is now considered to be in its “pre-transition stage” with the unbundling process of the SCs. This stage is characterized by the injection of power into the Transmission Company of Nigeria (TCN) grid system by the existing generation companies. The TCN, as transmission carrier, then supplies power to the Discos. This pre-transition stage will include the divestiture or concession of Gencos and Discos.

In the medium- to long-term, the market will progressively be opened to competition and eligible customers will be able to enter into contracts with the Gencos or other power suppliers. Towards the end of the transition stage, the governmental bulk trader (NBET) will gradually be phased out as power purchase agreements between the Gencos and Discos replace the need for a middle party. In the final stage of market reform, it is envisioned that the market will open to any consumer, whatever its size, to enter into contracts with suppliers to provide electricity, allowing full retail competition.

Opportunities abound

The Nigerian government is optimistic that the reforms in the power sector would replicate the telecoms privatization. In 2002, Nigeria licensed two mobile operators with a combined installed capacity of 1.3 million lines. By 2011, privatization had exceeded expectations: there were four major operators with about 90 million subscribers between them. By 2009, telecoms contributed 3.66% to Nigeria’s GDP.

The Nigerian government targets 40,000 MW by 2020 – about ten times current power output. It is estimated that investments of $3.5 billion per annum for the next ten years will be required in power generating capacity alone. Compared to similar-sized economies, such as Egypt (24,000 MW of capacity).

Correspondingly large investments will also have to be made in the other parts of the supply chain (i.e. the fuel-to-power infrastructure and the power transmission and distribution networks).

Investors must be aware of the risks associated with the privatization of the Nigerian power sector. These risks include: shortage of gas supply; poor condition of the transmission infrastructure; outstanding liabilities not assumed by government special purpose bodies; outstanding receivables of Discos; availability of adequate human resources to service the emerging market; metering gaps in both retail and wholesale market; implementing financial reporting standards; and enterprise resource planning issues.


Further information:
Uyi Akpata, Head of Energy & Utilities, uyi.akpata@ng.pwc.com, +234 1 271 1700