Nigerian Bulk Electricity Trading Plc, which acts as a clearing house for power generating and distribution companies, will guarantee all purchases in the market’s transitional phase, Chief Executive Officer Rumundara Wonodi said.
During a trial period expected to last five to 10 years, the state-owned bulk trader will do “all the procurement on behalf of the market” to ensure stability of power supply, Wonodi said in a Jan. 17 interview in Abuja, the capital. “If somewhere along the line the distribution companies are unable to make payments to the generation companies, it has been provided for.”
Nigerian President Goodluck Jonathan in September handed control of 15 power generation and distribution companies spun out of the state-owned power utility to new owners including Siemens AG, Korea Electric Power Corp. and Transnational Corp. of Nigeria Plc., marking the start of a market-based electricity industry, where producers and distributors trade energy in the West African nation. Africa’s most populous nation of more than 160 million people sold majority stakes in the Power Holding Co. of Nigeria, the former state-owned monopoly, to private investors in September to boost output and end blackouts in the country, where demand is almost double the 4,000-megawatt capacity.
The bulk trader, created in 2010 and capitalized with $750 million, is the custodian of agreements authorizing transactions among power companies, Wonodi said. This enables it to receive payments on behalf of electricity generators from distribution companies, he said.
The government is working to fix problems of irregular gas supply and an unstable national grid to boost electricity to consumers in the coming months, Wonodi said.
“We will begin to address in the short-term issues of redundancy in gas transmission facilities and also cable transmission,” he said. “We can break the jinx on additional supply of gas and we can have a comfortable price level that makes suppliers willing to make investments with the comfort and confidence that they will be paid.”
Nigeria plans to boost electricity output to 20,000 megawatts by 2016. The Bureau of Public Enterprises, the country’s privatization agency, plans to sell 10 state-owned gas-powered plants with capacity for 5,400 megawatts this year while investors are required to add 5,000 megawatts to the national grid every five years.
Incentives include a five-year tax break, a new electricity pricing system that allows for a progressive increase in tariffs and a $1 billion partial-risk guarantee backed by the World Bank, to provide liquidity to the power industry.
“The bulk trader, conceptually, makes it safer to do business,” Bismarck Rewane, chief executive officer at Financial Derivatives Co., a risk advisory company, said by phone from Lagos today. “Power companies can now commit themselves and be sure of payments, they can pledge proceeds of their revenue as collateral for borrowing to boost their capacity.”