Transcorp: How militants scuttled $1bn investment for 1000MW of electricity | Nigeria Newspaper- Nigeria News| Naija News

15.8.16

Transcorp: How militants scuttled $1bn investment for 1000MW of electricity

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The recent decision by management of Transnational Corporation of Nigeria (Transcorp) Plc, to back down on its plan to build one of the nation’s biggest power plants at a cost of $1 billion in the Niger Delta region, sent shivers down the spines of operators in the the power sector, including contractors and the entire citizenry.

The decision is coming at a time that power generation in the country is at its lowest ebb, hovering around 2,800 to 4,000 Mega Watts (MW) and 4,000MW in rare cases for a population of over 170 million.
Transcorp Power Limited, owners of the 900MW four power plants, Delta I, Delta II, Delta III and Delta IV, had hinged its decision to suspend the project over gas shortage and a downturn in the nation’s economy that is hindering efforts to raise funds for the project.
The company had in 2014 said it would raise $1 billion to build a 1,000MW gas-fired facility after it bought the Ughelli plant in Delta State from the Federal Government and more than doubled its output to 700MW in two years of operation.
But attacks on pipelines by militant groups have since cut gas supplies to power stations leaving millions of Nigerians in darkness.
Transcorp/Transcorp Power reacts
Meanwhile, the Chief Executive Officer, Transcorp, Emmanuel Nnorom, was quoted by Bloomberg as saying, “how do you make the investments when you are generating far below your current capacity due to gas problems?”
Transcorp, which has interests in agriculture and energy, is owed N28.29 billion by the government-owned Nigerian Bulk Electricity Trading Plc for power generated and not yet paid for, he said.
“My number one problem will be gas, owing to much capacity available that is not put to use,” the Chief Executive Officer, Transcorp Power Limited, a subsidiary of Transcorp, Adeoye Fadeyibi, was also quoted to have said in the same interview.
Ughelli’s generation capacity slumped to 70MW this year before rising to 300MW, or less than half of what it is capable of generating, he said.
Transcorp is in discussions with some foreign companies to diversify its sources of electricity to include solar, which will enable it to lower constraints from gas supplies, Fadeyibi said.
Already, the Federal Ministry of Power, Works and Housing has signed agreements with 14 solar electricity generating companies last month to supply 1,125MW to the national grid. While Transcorp was not part of that agreement, it is looking at deals that will be competitive based on its projections, Nnorom said.
Reasons beyond gas shortage
The Gencos recently lamented that they have been at the receiving end of the lapses and deficiencies in the Nigerian power sector, as well as the seemingly insurmountable challenges of operating within the sector.
‘‘The fact is that Gencos have been and do remain far more vulnerable than any other player in the electricity supply value chain. For whatever reason, very little has been put in place to give the Gencos a legitimate chance of survival based on the realities on ground.
“While the Gencos have been carrying the burden of ensuring that the power sector remains functional, and hoping that the obvious gaps, deficiencies and threat to their existence would be addressed, we are presently cringing under the excruciating pains of carrying this burden,” the Gencos lamented.
It is equally on record that when the Gencos acquired the power assets, the exchange rate of United States dollar to Nigerian naira was $1/N157. About three years down the line, the cost of the equipment needed to carry out repairs of turbines and associated auxiliaries remain the same on the international market but has increased by about 100 per cent in the last three years arising from the devaluation of the naira.
Similarly, dollar shortages blamed on a 15-month currency peg removed on June 20 has raised import prices and inflation, with the economy contracting in the first quarter. This specifically could be a major reason the project could have been suspended.
“Given the fact that most of parts and equipment procured by the Gencos are sourced from outside the country, this has had significant impact on the Gencos’ purchasing power and inevitably on their ability to upgrade their various power plants,” the Gencos had said recently.
Ughelli experience may have informed decision
‘‘My suspicion is that the recent experiences with the Ughelli power plant (which was purchased by Transcorp some years ago) may have informed this decision, however minute,’’ said a power expert and partner with Bloomfield, Mr. Ayodele Oni.
Oni argued that it would appear that a critical issue leading to the suspension of its plans to develop the project is the shortage of gas supply, which would invariably lead to under-utilisation of the capacity of the power plants and apparently, there is no clear path to reaching a solution to the problem, which has been primarily caused by vandalism of pipelines in the Niger Delta region.
Although he said the government has been considering the concept of a virtual pipeline to ameliorate gas supply shortages, he added that a virtual pipeline system still requires some measure of investment and may not provide the sufficient gas required for such a large project, considering that there would be competition from other projects for the same gas.
But beyond that and consequent upon the challenges with gas supply, the Bloomfield partner said the power plant may not be operated at full capacity, and where that is the case, Transcorp may be unable to generate funds to service debt borrowed for the development of same. Based on the foregoing, he maintained that Transcorp is likely to eventually default on facilities procured for the power plants notwithstanding that such facilities may be of a limited recourse/project finance type. Hence, even the banks would be reluctant to provide the debt finance required for same.
‘‘Furthermore, the economic downturn has seen Transcorp’s earnings drop as it continues to be owed about N20 billion by the NBET Plc. It therefore appears that this is a business decision aimed at controlling any perceived losses that Transcorp may incur if it were to proceed with the project given the foregoing challenges. While it is instructive to note that ancillary costs have already been incurred, there is no doubt that Transcorp is of the view that the probable future losses it is likely to suffer, far supersede any ancillary costs already incurred,’’ he submitted.

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