Nigeria CCGT deal a bellwether [NGW Magazine]
Nigerian Transnational Corporation (Transcorp), a diversified conglomerate, announced November 5 that its subsidiary, Transcorp Power, had fully acquired the state-owned Afam generating company. Afam Power and Afam III Fast Power have a combined installed capacity of 966 MW. It paid an outright price of naira 105.3bn ($274.5mn).
Nigeria’s vice-president, Yemi Osinbajo, represented the government at the sale and purchase agreement ceremony with Transcorp’s chairman, Tony Elumelu at the state house, Abuja.
During the signing ceremony, Osinbajo said the government expected that under Transcorp Power’s ownership the operational capacity of the Afam facility would reach maximum.
The Buhari administration had previously said it would consider more local private sector investments across the power value chain, in order to increase power output from the national grid, for the 200-mn strong population.
In fact, without privatisation through sales such as this, Nigeria’s power sector has little hope of progressing as the state is a very slow decision-maker.
Nigeria’s national grid is powered by natural gas and hydropower. Owing to poor power supply, diesel generators are sometimes run by individual households. Transcorp Power has previously said it intends to meet a quarter of Nigeria’s electricity requirements, meaning that it may be interested in buying more power generating companies in the future.
During the signing ceremony, Elumelu spoke on his company’s belief in bringing dependable power to the Nigerian people.
“Our significant investments in the power sector are demonstrations of our contribution to the economic transformation that I know Nigeria is capable of. Power remains the single most critical factor for lifting our people out of poverty and job creation for our teeming youth,” he said.
In 2013, Transcorp Power purchased the Ughelli power plant in Delta State, with an installed capacity of 972 MW, in Nigeria’s South-south region. Transcorp Power is now in control of 1.938 GW thermal capacity.
That is about 15% of the country’s 12.522 GW installed capacity, of which 10.142 MW are powered by natural gas and 2,380MW by hydro. However, for a population of 200mn, power transmission cannot go over 7 GW owing to fragile and aging infrastructure.
As was the case of the Ughelli power plant that was bought by Transcorp in 2013, where all the control systems were built by Japan’s Hitachi and are fully computerised and equipped with anti-fire systems, it is expected that Afam will also be upgraded for increased productivity.
The Afam power plant is in the Oyigbo local government area of Rivers State, in Nigeria’s South-south region. It is a relatively small community but is also a power generation hub as it is home to four power plants: Afam Power Plant, owned by Sahara subsidiary First Independent Power [FIP]; the Afam VI Power plant, owned by the Anglo-Dutch major Shell; Afam I-IV Power plant; and, Afam Fast Power Plant, owned by the Nigerian government.
The last time Afam was in the news for a gas contract was in February 2020, when gas supplier, Accugas, a midstream company under Savannah Energy, signed a contract to supply gas to FIP’s Afam power plant.
In an exclusive interview with NGW in July 2020, Savannah Energy’s commercial head Oge Peters said the company, through its midstream company, Accugas, had the capacity to deliver 200mn ft³/d of gas to the Nigerian domestic market – grid-based power, industrial and ‘last mile’ customers – through its world-class gas processing plant at Esit Eket in Akwa Ibom State. It consists of two trains each of 100mn ft³/d capacity.
Aside from Afam power plant, Accugas also supplies gas to Ibom Power and Calabar NIPP. Peters also told NGW that gas supply to these power stations represent over 10% of the country’s available power generation capacity with contracts in place to increase this to over 15% in 2020.
The decision on the part of Transcorp Power and Accugas to increase investments in the power sector, may be pointers to an increase in investor confidence. This may be due to the fact that Nigeria recently increased its electricity tariff, to reflect market realities, encouraging power investors’ interest in the sector.
A September 2020 directive from the Nigerian Electricity Regulatory Commission (NERC) shows approval of higher electricity tariffs. According to NERC, tariffs will now be determined by market dynamics. Although the directive was put on hold after a threatened strike, the service reflective tariffs once again became active from November 1, 2020.
However, the new tariffs will not be applied to households that receive less than 12 hours of power on a daily basis.
Nigeria’s gas investments
Given that Transcorp Power has been an active player in Nigeria’s gas-to-power value chain, it follows that the Afam power plant purchase will attract attention from local and international gas players.
A gas to power analyst in Nigeria, who prefers to remain anonymous, told NGW in November that the Afam power plant purchase, could lead to more investments in Nigeria’s gas, especially as Transcorp Power is one of Elumelu’s businesses.
Elumelu’s reputation as a successful businessman will certainly help other prospective investors to make positive decisions: indeed, his purchase of Afam can be seen as a vote of confidence, the analyst said.
“There is no doubt that the Covid-19 pandemic brought about a halt in gas investments in the country. However, with this purchase, at least local confidence is likely to be restored to some extent. But we still have a long way to go if we will attract foreign investments because we still have not passed the petroleum industry bill (PIB) into law,” the analyst concluded.
Gas investments in Nigeria have experienced a sharp decline due to the Covid-19 pandemic. However, months after the first introduced lockdown in Nigeria, gas-centric projects like the Ajaokuta-Kaduna-Kano gas pipeline, Obiafu-Obrikom-Oben (OB3) gas pipeline, NLNG Train-7, and Assa-North-Ohaji-South gas project, are starting to take shape in the country.
A report put together by Wale Ajayi and Ayo Salami at KPMG in October highlighted the fact that Nigeria’s gas subsector has gone through tremendous changes in terms of policies needed to attract viable investments.
“Despite the challenges posed by the Covid-19 pandemic, the traction achieved by the federal government of Nigeria in implementing some of the policies introduced for the sector in 2020 (dubbed as the “year of gas”), has made stakeholders become more optimistic that the government is dedicated to stimulating the necessary investments in the sub-sector,” they wrote.
Government discounts legislative logjam
Although the PIB is over 15 years [sic] late, it is a very important set of principles that should direct the oil and gas industry in terms of administration, governance, finance and dealings with the host community. Some industry stakeholders have said the delay could negatively affect investor confidence.
However, the government has taken steps to assure both local and foreign investors of its readiness to welcome gas-centric investments.
These include the national gas expansion programme, intended to establish a market for compressed natural gas as domestically produced fuel for car transport; Siemens’ five-fold increase in national power generating output and its revamping of the power distribution and transmission systems in a massive construction project; and a central data management system that offers authentic data for electrification investors.
NGW recently received information that the PIB is likely to be passed in the first quarter of 2021 as the government has other matters to address before the end of this year.
Nigeria’s minister of state for petroleum resources Timipre Sylva said in a recent interview that although the National Assembly is concentrating more on the 2021 budget, the PIB has already passed the second reading at the Senate.
According to Sylva, the PIB draft is now with the parliamentary gas committee and in the last week of November 2020, the draft will be sent to the House of Representatives for debate. Only then will public hearings be heard on the various parts of the bill. After that, it can be signed into law.