A Review of the Nigerian Energy Industry

PPAs free FG from Olorunsogo, Omotosho loan repayment

Olorunshogo power plantOscarline Onwuemenyi

26 January 2014, Sweetcrude, Abuja – The Nigerian Bulk Electricity Trading Plc, NBET, says the recently signed Power Purchase Agreements, PPAs, with the operators of the 335-megawatts Olorunsogo and 335-megawatts Omotosho power plants has freed the Federal Government from loan repayments for the two facilities.

By the agreement, the Federal Government would formally stop its repayment of the 60 per cent worth of financial loans partly used in the construction of both plants by a Chinese consortium beginning with the Olorunsogo plant.

Government had in line with its power sector diversification programme ceded both plants, which are located in Olorunsogo, Ogun state and Okitipupa, Ondo state respectively, to the Chinese consortia of Sepco Electric Power Construction Corporation of China for Olorunsogo and China National Machinery and Equipment Import and Export Corporation, CMEC, for Omotosho. Both consortia are in partnership with indigenous company, Pacific Energy.

The consortia was designated as preferred bidders for the plants following their agreement to convert the loan into equity for the purchase of the companies and also in consideration that the 60 per cent Chinese loan for the construction of the plants was provided through them as contractors for the projects.

Mr. Rumundaka Wonodi, managing director of NBET, explained why the government had been freed from the loan repayment. His words: “The Federal Government made investment in two power plants built with equity of 40 per cent respectively in the Omotosho and Olorunsogo power plants while 60 per cent loan was from the Chinese. In the last couple of years, the Federal Government decided to divest from this assets by having the Chinese convert their loan to equity and at the same time pipe down the government’s contribution.

“The net effect is that the Chinese is paying for the balance of what government had invested less some certain costs; some of those costs are related to the transmission infrastructure because transmission cannot be held within the power plant, any investment in transmission is handed to the Transmission Company of Nigeria (TCN).

“As part of that transaction, there needs to be a power purchase agreement to be put in place, also a gas supply agreement which was executed when all the other industry agreements were executed.

“With the PPA signed, it will allow the investors led by Pacific Energy with Sepco in Olorunsogo and Pacific Energy with CMEC for Omotosho to go ahead with the rest of the transaction.

“The tariff has been approved by the regulator as well as the PPA and this allows us to conclude it and allow BPE to conclude the transaction for the balance of payment to be made to the government; also the loan stops to run because if we don’t conclude the PPA, we have to continue to make interests payments but once we conclude this, everything freezes and they make the supplementary payment”.

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