By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)
INTRODUCTION
In Nigeria, the accessibility of stable electricity presents a significant challenge, impacting approximately 59% of the population with irregular power supply. This concern not only impedes the country’s economic advancement but also undermines poverty reduction efforts. Notably, the Nigerian National Electricity Grid encompasses generation companies, distribution companies, and the Transmission Company of Nigeria (TCN), forming an integral part of the nation’s infrastructure. The transmission system comprises 330 kV and 132 kV circuits, alongside substations. Thermal generation facilities are predominantly situated in the southern region near gas reservoirs, while hydro-generation plants are strategically positioned further north at Jebba, Kainji, and Shiroro. Distribution is structured into 11 zones, each equipped with networks featuring 33 kV, 11 kV, and low-voltage circuits. Nevertheless, the system has encountered various challenges, encompassing technical issues such as extended transmission lines, transformer losses, and ageing infrastructure, alongside non-technical challenges like vandalism, financial constraints, and revenue losses, all of which significantly impact its efficiency and reliability.
To address these challenges, the Electricity Act of 2023 was enacted, with the primary goal of attracting private sector investment into the Nigerian electricity supply industry (NESI) by providing a comprehensive framework for the operation of “a privatized, contract- and rule-based competitive electricity market in Nigeria through transformative policy and regulatory measures”.
This article explores diverse private financial strategies accessible for private investments in power transmission projects within Nigeria, intending to enhance the sustainability of the energy sector. Additionally, it addresses pertinent legal considerations associated with these investments.
LEGAL FRAMEWORK FOR PRIVATE FINANCING STRATEGIES
MODELS FOR PRIVATE FINANCING
A Build-Operate-Transfer (BOT) agreement is a legally recognized financial arrangement commonly employed for large-scale projects, particularly in the realm of infrastructure, facilitating collaboration between the public and private sectors. Within the framework of a BOT agreement, the host government grants a consortium of private investors or companies the authority to finance an infrastructure project. These investors are responsible for the construction, development, and operation of the project over a predetermined period, to cover costs and generate profits. Upon completion of this period, ownership of the project is transferred to the government without any additional charges. The private entity involved, often referred to as the concessionaire, holds a concession from the public party, known as the principal or client, for a fixed duration to develop and manage a public facility.
The relevance of the BOT model is significant in the context of power transmission in Nigeria, as evidenced by its successful implementation in various countries, such as the Philippines, wherein the Lligan Combined-Cycle Power Plant, constructed in 2005, stands as the largest natural gas facility in the Philippines, encompassing 1200 NW combined-cycle, dual-fuel electricity generation facilities with a design life of 25 years.
A Public-Private Partnership (PPP) is a collaboration between a public agency (at the federal, state, or local level) and a private sector entity. The partnership aims to provide a service or facility for the benefit of the general public. Both parties contribute skills and assets and also share the risks and rewards associated with the project. PPPs often focus on service delivery and form a genuine partnership between the public and private sectors.
PPP models have been widely used globally in various sectors, including the power sector. One successful example is the Azura-Edo Independent Power Plant (IPP), located in Edo State, Nigeria, which addressed power transmission challenges and attracted private sector investments to bridge the significant deficits between electricity demand and supply.
Independent Power Transmission Companies, also known as Independent Electricity Distribution Network Operators, are private investors who have opportunities to collaborate with the Transmission Company of Nigeria (TCN) Plc. and invest in transmission assets following the Commission’s regulatory framework. These independent operators are actively engaged in the distribution of power sourced from their respective embedded generation plants, with operational licenses and operational status granted to them.
According to the NERC report in 2023, the Commission has granted licenses to a total of seventeen (17) independent electricity distribution network (IEDN) operators, with eleven (11) of them currently in operation.
FINANCING INSTRUMENT FOR ENERGY DEVELOPMENT IN NIGERIA
The financing options for power transmission project development in Nigeria include:
Project finance plays a pivotal role in Nigeria, driving essential initiatives, addressing infrastructure gaps, and fostering economic growth. This collaborative effort involves government bodies, private enterprises, and international investors, resulting in ventures that have far-reaching societal implications.
In essence, project finance involves securing funding for industrial production, infrastructure development, and public services. Lenders, including commercial banks, investment banks, institutional investors, and multilateral agencies, provide long-term debt and equity, assuming associated risks. Repayment is derived from project-generated cash flows, utilizing instruments such as loans, equity, and guarantees. This approach is particularly favoured by the private sector for off-balance sheet financing, allowing ventures to exceed their capital capacity.
Nigeria’s focus on enhancing electricity generation and distribution underscores the transformative potential of project finance. Notable projects, such as the Azura-Edo Independent Power Plant (IPP) in Edo State, serve as tangible examples of how project finance positively impacts the nation’s infrastructure landscape.
Private equity firms specializing in infrastructure focus on investments in assets critical for providing essential utilities and services, such as energy, social infrastructure, transportation, and utilities. In the context of Nigeria, private equity investments in infrastructure primarily targeting power transmission projects involve private equity firms or investors providing capital to support the development, construction, and operation of power transmission infrastructure in the country. The primary aim of these investments is to address the pressing need for modernizing and expanding Nigeria’s power transmission network. Through these initiatives, they contribute to enhancing electricity access, reliability, and efficiency nationwide. Private equity investments in power transmission projects encompass various elements, including financing, project development, construction, operation, and risk management.
LEGAL CONSIDERATIONS FOR PRIVATE FINANCING
Project finance and infrastructure private equity investments serve as viable means for private investors to engage in electricity generation and distribution in Nigeria under the relevant statutes, aiming to address challenges within the Nigerian Electricity supply industry. However, navigating the legal complexities of project finance requires careful consideration of various crucial factors. Therefore, it is essential to seek guidance from legal professionals to minimize risks and potential legal consequences. They include:
CONCLUSION
Private financing strategies present promising opportunities for power transmission projects in Nigeria. Private investors can address the country’s energy needs and bring much-needed capital, efficiency, and innovation to the power sector through mechanisms such as Build-Operate-Transfer agreements, Public-Private Partnerships, and Independent Power Transmission Companies.
However, successfully navigating the legal aspects of project finance requires engaging legal professionals. This is crucial to mitigate risks and ensure adherence to relevant statutes, careful attention to securities laws, documentation, insurance, due diligence, and compliance with anti-fraud regulations.
Moreover, collaboration between the public and private sectors is essential for Nigeria to modernize and expand its power transmission network. This will lead to a more dependable and sustainable energy future, economic growth, and improved quality of life for its citizens.
Snippet: Project finance and infrastructure private equity investments serve as viable means for private investors to engage in electricity generation and distribution in Nigeria under the relevant statutes, aiming to address challenges within the Nigerian Electricity supply industry
Keywords: Project finance, Infrastructure private equity investments, Build-Operate-Transfer, BOT, PPP in Nigeria, Public-Private Partnerships
AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)
Mr. Oyetola Muyiwa Atoyebi, SAN, is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).
Mr. Atoyebi has expertise in and vast knowledge of Corporate and Commercial practice, and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at atoyebi@omaplex.com.ng
CONTRIBUTOR: Chikezie Iwu
Chikezie is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate Practice.
He can be reached at chikezie.iwu@omaplex.com.ng
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