Why international financiers shunned Nigeria’s power privatisation

Olorunshogo power plant25 March 2014, Abuja – Five months after the privatisation of the Power Holding Company of Nigeria, PHCN’s assets, uncertainty and transparency issues have been identified as reasons why international financial institutions shunned the exercise.

The Country Manager, AF Mercados, a specialist consulting and transaction advisory firm based in Madrid, Ms. Rahila Thomas, told Vanguard that these factors contributed to the non-commitment of international financiers.  

According to her, “For you to bring in international financing, a lot has to be done about the bankability of the projects, because international financing is not like local financing. They are much more thorough. They have limited room for risks.

“Some of the Nigerian banks have gone into this because they understand how the Nigerian society works. A lot of the banks here do corporate financing and not project financing.

“When you bring in international financial institutions, they want to do project financing. They will not get into corporate financing. You need to ensure that the tariffs are right. You need to ensure that all the documents – power purchase agreements, gas supply agreements, and transmission agreements are structured in a way that they pass risks around everybody that can bear the risk. And obligations are placed on the people that can meet those obligations.

“If that is clear and they can see a tariff path that they bank on, why not. That is why you saw that there was limited international finance during the PHCN transactions, because there were too many grey areas. You have the transmission issue, gas issue; generators are not able to produce. They are not getting their money in full.

Thomas, whose company consults for six distribution companies on regulatory matters, also said that the issue of tariff is a very sensitive one. This is because over the years people have suffered poor service delivery, customers are tired and people complain about estimated bills.

“What has happened over the years is that PHCN needed to increase their billing efficiency. Instead of trying to locate where energy is being stolen, they take out metered customers from energy and whatever energy is left, they spread across customers that are not metered. That is why the monthly bills are very high. People are paying more for the losses in the system, because they don’t have meters,” she said.

– Vanguard

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