Austria to invest $ 5 bn in Nigeria's energy sector

Dec 21, 2005 01:00 AM

The Government of the Federal Republic of Austria has proposed an investment package totalling about $ 5 bn from its private investors to assist in the development of the Nigerian energy sector.
The Nigerian National Petroleum Corporation (NNPC) and its Joint Venture (JV) partner, Mobil Oil Producing Nigeria (MBN), struck a deal with a consortium of eight Nigerian banks for a $ 600 mm non-recourse project financing to fund three out of the 22 undeveloped satellite oil fields within the JV concession area.

The Austrian government was reported to have announced during a meeting with Nigerian trade mission in Vienna that it had constituted a task force comprising government and private sector officials to undertake an investment tour of Nigeria February 2006 to explore opportunities for investment in the energy sector.
Speaking about the outcome of the visit by the presidential delegation to Austria, the leader of the group and Special Adviser to President on Energy, Prof. Anthony Adegbulugbe, said the Austrian economic team would involve the country's top energy companies, engineering firms and investment bankers.

He quoted the Special Adviser to the Austrian Prime Minister on Capital Market and Special Project, Dr Richard Schenz as having applauded Nigeria's privatisation policy and other economic reforms, saying the measures have the capacity of pooling investments to the country.
Schenz, however, tasked the Federal Government on the removal of bureaucratic bottlenecks that discourages investors.

Commenting on the efforts by Nigeria to develop the energy sector, Adegbulugbe said study estimates show that about $ 36 bn investment will be required if we are to meet the country's electricity supply needs in the next 10 years.
He said President Olusegun Obasanjo has introduced a number of initiatives aimed at encouraging foreign and domestic private investors in the energy sectors. These include the on-going privatisation of refineries, the gas to power projects, the unbundling of the Power Holding Company of Nigeria (PHCN), and provision of incentives for private investment in Independent Power Projects (IPP).

The Adviser who is also heading a new multi-sectoral Energy Access Committee recently set up by the President to fast-track development in the power sector, said Nigeria would require at least close to 26 MW.
"This will require a lot of investment, most of which would go to the setting up of gas-power plants. The infrastructure that would support these gas power plants has been estimated to cost in the region of $ 36 bn", he said.

Adegbulugbe said that it is the thinking of the President that allowing government to foot this huge investment alone is not healthy and feasible unless private investors are attracted to drive the sector. He said his office, alongside other participating ministries in the committee, have been pursuing programmes aimed at establishing a proper framework that would rid the energy sector of all obstacles hindering effective development.
He said a target date for the realisation the objective of the committee has set for the last quarter of 2006.

Meanwhile, Nigeria National Petroleum Corporation (NNPC) and its Joint Venture partner, Mobil Oil Producing Nigeria (MBN) struck a deal with a consortium of eight Nigerian banks for a $ 600 mm non-recourse project financing to fund three out of the 22 undeveloped satellite oil fields within the JV concession area.
The banks involved in the deal include, IBTC, Standard Chartered Bank, United Bank for Africa (UBA), Union Bank, Guaranty Trust Bank, Zenith, Access Bank and First Bank while Credit Suisse First of Boston (CSFB), is to act as financial advisor to the transaction.

A reliable source told that the agreement was in response to Federal Government's directive to NNPC to seek ways of developing alternative funding for its JV oil exploration projects.
"Today's presentation provides an overview of the Satellite Oil Field Project Finance Programme (SOFP), which CSFB andNNPC-MPN joint finance team developed, and demonstrates that NNPC-Mobil JV can successfully put in place a project finance programme in today's financial markets", said the source. It said the agreement has a future flexibility should the partner chooses to fund additional non-recourse project for the remaining 19 undeveloped satellite oil fields.

Following the growing demands for greater funding and investments into crude oil exploration and production activities in the country and Federal Government's reluctance to free more scarce resources for that purpose, authorities came up with a strategy to fashion out means of financing oil projects from sources other than federation account.
If the alternative financing initiative successfully takes off, it would be the first project finance programme ever structured under the JV to jointly execute upstream hydrocarbon developments in Nigeria. However the ceremony scheduled to cement the financial agreement by the parties were inconclusive due to non-arrivalof some of the officials of NNPC and representatives of some of the banks who could not catch a flight to Abuja.

In a related development, Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Ransome Owa also said that 18 companies are expected to operate the power sector when the Power Holding Company of Nigeria (PCHN), wounds up early next year. He told that 6 companies would be in charge of power generation under one power transmission entity while 11 companies would see to power distribution.
"Every utility company has three distinctive models. There is generation, transmission and distribution. These are the three components of the power utility sector. The reform process raised it to 18 companies, 6 generation companies, 1 transmission entity and 11 distribution companies. They will not be reporting to any headquarters anymore, NEPA or PCHN will cease to exist early next year and the sector will be run by independent companies", he said.

He noted that "they will still enjoy some protection for the transmission entity as competition will be most pronounced in generation. By law and by the technology, every Nigerian is an independent power producer as they are producing their own power with their generators".
Continuing, he said "those who want to become independent power producers can build their own power plants anywhere they want but they will have equal access to the grid. Operators would be known as system operators. They cannot discriminate, their prices must be transparent. It is like driving on a highway, at the toll plaza, you have tolls A, B and C. Our job is to set those tariffs for all classes of customers. And so once they produce the power, it is put into the grid and transferred to those 11 distribution companies and they take the power direct to your homes."

The NERC boss noted that the aforementioned measures were designed to instil efficiency and effectiveness in the sector just as he hinted that the companies are expected to evolve pre-paid metering systems or pay as you go in their billing system.
He said the commission's job entailed adequate production, transportation and delivery of electricity at affordable prices while maintaining that "until the sector succeeds, the commission does not succeed. The way I look at the main job is to work together to keep the light on. Once we succeed in keeping the light on both the sector and the commission would have been deemed a success".

He noted however, that building a power plant was capital intensive and could take three years to complete and realise results.
"The Power Holding Company has been trying to improve the situation but with the commission being in place, we will ensure that overtime, the transparency issue would be solved. Our job is to come out with clear market rules for each participant, generators, distributors and transmission companies. If somebody wants to build a power plant in this country, we will tell him here are the rules", he said.

Source: This Day
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