Bintube: We Just Realised Our Vulnerability to Gas-to-Power Projects


Waziri Bintube is the acting Managing Director of the Nigerian Bulk Electricity Trading Plc, otherwise known as the Bulk Trader. He spoke to ChinemeOkafor on recent developments in Nigeria’s power sector, particularly the government’s sudden spirited interest in developing the solar energy. Excerpts:

The government is suddenly so interested in solar power. How did this come to be, how did you arrive at the new feed-in tariff for the 14 new solar projects?
Well, negotiations started about three years ago. It was an ongoing one and we started at about 32 cents per kilowatt hour and then along the line, the regulator approved a solar tariff in MYTO 2.2. But we knew that the tariff they proposed was not the optimum for the country and that we could do better. So, we kept negotiating but that became stalled during the elections last year and the aftermath when there was uncertainty about the economic direction that the incoming government might introduce.

It was a bit stalled but once the minister of power was appointed, he reintroduced new momentum in the whole thing, and we re-engaged the solar promoters again.

The way the government addressed the Azura Power stalemate was convincing because the transaction was stalled for nearly a year due to some disagreement on whether or not the government of Nigeria was going to sign an indemnity agreement. The Attorney General had an opinion that the government should not, on the other side, we felt that this was a frontline project and it was necessary we signed the agreement and restore investors’ confidence.

So, when the government came in, it tackled it head-on and resolved it quickly and once the new minister came in, investors became eager and we started talking. We talked about 17 cents per kilowatts hour from 23 cents but the minister held on that he was not going to allow Nigeria sign on at a rate that was higher while other places like Zambia had significantly lower solar tariffs.

After intense negotiations, we were able to arrive at 11 cents per kilowatt hour, which is considered very good for Nigeria, especially for the frontrunner projects.

But there are indications that the promptness was particularly from renewed militancy in the Delta and its attendant impact on the country’s electricity system?
In the midst of these, there were other issues like the vandalism of gas lines. Suddenly we woke up to realise that we are very vulnerable and relying almost entirely on gas for our energy. So, that was a trigger and it forced us to think about other quick alternatives we can bring in and upgrade the grid. It was then solar became a top priority because it is relatively easy to bring in and there won’t be issues of vandalism.

So, promoters are good to go with the PPA you signed?

Yes. The PPA itself is a document that enables the sponsors to raise funding for their projects. It also gives them assurance that there is an off-taker to ensure that payments are continuously made without interruptions. It is backed up with a put call option agreement to give them an assurance that should there be a major force majeure in Nigeria or expropriation, that the developer can get reimbursed for the entire amount he has invested and the government of Nigeria can take over.
If, on the other hand, for some security reasons, the government wants to have total control of the power plant, it can also buy over the plant and reimburse the entire amount for the plant. So, it is a complex document.

But looking at existing remittance challenges you are having with Discos, are you very capitalised to take on this and cover the new solar plants?
When we are buying power, the main source of payment is remittance from the Discos. They also give us letters of credit from their banks, and it is like a guarantee from their banks to say that should they fail to pay us, their banks will pay us. Out of the 11 Discos, about eight have given us that guarantee and it is just that we have not called on them because we are very sensitive to the impact it might have on the banking industry. But we have formed a structure and assigned our rights on those guarantees to the Gencos who can now call their banks and make them pay if the Discos fail.

So, there are three levels of the waterfall. The first one is the cash collection from the consumers, which the Discos are supposed to pay and if they fail, there is the LCs from their banks. Then third level is the World Bank partial risk guarantee, though, it is not all the Gencos that have it, but what it does for the Gencos that have it is that if NBET and the Discos fail to pay them, then the World Bank through that structure pays them. That is why it is called partial risk guarantee and not full but kicks in when the need arise.

NBET has a working capital; up to $350 million was given to us under the Euro bond facility and we have that amount in our kitty, which we can deploy in exceptional situations. In addition, the government has given us N50 billion from its privatisation proceeds from Egbin, which we have put in our escrow account. The purpose of that is to breach the time difference when the Gencos want their money and when they can be paid.

In addition, there are some off-the-line supports like the Central Bank’s Nigerian Electricity Market Stabilisation fund that was granted by the CBN to cover obligations in the market from the date of privatisation. That was another form of support to the market.
We are currently negotiating with the CBN again to come in with a second tranche. They have some amount that they are yet to disburse but even after that, we are looking at getting the board to approve another second tranche on top of the N213 billion that has already been approved. We are looking at about N180 billion.
Are you getting any kind of indications that this would happen soon?

Yes, we have the assurance of the CBN Governor; he is very dedicated to resolving the logjam and ensuring that all the key pillars of the economy work because they are interrelated.
If the power plants work, the manufacturers will have lesser problems; the banks will get paid for their products and then there will be less need for foreign products to come in. That reduces the request for foreign exchange. Just imagine that if our refineries are working, we will not need to depend on importation which takes away a lot from us including profits and jobs.

The transmission system is quite unstable. How are these solar plants going to cope with this sort of unreliable system?
The sponsors are also aware of the transmission constraints and have tried to locate their stations to areas closest to a transmission evacuation corridor. They are taking into consideration the existing constraints and optimising it within that kind of remit whilst requesting for more upgrade on the transmission.
The transmission constraints are being addressed, especially by the government now. The minister’s goal on incremental power is driving these issues and resolving the key challenges, which are not rocket science. There are some key transmission areas like the South East corridor that once you resolve them, will sort out other impediments in the system.

Could you give me an update on the remittance levels of the Discos, as well as how the market is trending right now?

The remittance level is a function of the energy that is delivered. Because of the very severe disruption on gas supply and its negative consequences on power generation, consumers are not buying power because it is not available and remittance has declined because of this drop in total energy generation.
If we don’t supply power, Discos are not able to collect money and we have seen that their remittances have declined to about 30-40 per cent at the moment. This can go up if the energy supply goes up. So, it is a function of how much energy is available and put on grid and then to households.

Gencos recently complained of how badly they are faring with poor remittance levels. Has this in any way impacted on your capitalisation? Have you had to draw down any fund to augment payments to Gencos?

Rightly, the parties that are most affected in the poor remittance scenario are the Gencos. Discos are in a better position because they collect cash from the consumers and can take some to meet their obligations before they remit to us and that is how it runs.
Gencos don’t have this access to cash. But in terms of ownership of the power, they produce but don’t sell. Yet, they don’t have total control on what they produce and that is their concern because contracts are not being respected as they should.
In terms of the impact on NBET, we are in between and at the moment. We cannot use our capitalisation to bridge this because our bind programme has not been approved by the National Assembly. To be able to do this, we will need a lot of approval from the government and the National Assembly. We have not used our capitalisation. It is 100 per cent intact because we are only taking from the Discos, aggregating it and paying to parties concerned without mark up or profits.

What sort of narrative are you looking to write in the solar power subsector?

We are guided by the national power policy and what the country is trying to do is to ensure that by 2020, we have this composition of energy mix: 33.13 per cent from renewables, 33.13 from thermal plants using gas, 33 per cent also coming from hydos. It is going to be a complete mix, so that the country is not over exposed to one particular source of power.
That is what we are doing aggressively with supports from Nexant and Power Africa to come up with bankable industry documents that can attract the required funding from financiers and that will give them confidence to be able to support the construction of more power plants and improve some of the enablers in the system.
Now, there are no doubts about the commercial viability of the telecoms industry in Nigeria and that is what we are driving at.

Are there new people on the line to sign solar PPAs with the NBET, apart from these 14?

Absolutely, we have a lot of interests from overseas and beyond. The appetite for Nigeria is huge because they know there is a huge supply-demand gap in Nigeria. The 14 we have signed is a tip of the iceberg but we are telling them right now to take it easy and one step at a time because we want to vet this 14 and ensure they are already on stream before taking on more. There is no need to take on additional obligations when we have not sorted out the one we have on the ground.

Was President Obama’s Power Africa involved in any way with the negotiations for the 14 solar power PPAs?

Yes, and I have to put on records our appreciation to President Obama’s Power Africa team working in Nigeria, especially contracting through Nexant. We had a training programme in Lagos and our people were there. We are generally very happy at the catalytic role Power Africa is playing in the evolution of a commercially driven electricity market.
Their role may not be visible but they are doing a lot in ensuring best practices. They were indirectly involved in the solar power negotiations, with transaction advisers and their lawyers like Georgia Iordanescu who was here with us negotiating the put call options for weeks.