1 June 2012

Nigeria: Power - FG, Daewoo Corporation to Sign Multi-Billion Dollar Deal

As the new electricity tariff regime takes effect today, it has emerged that more foreign investors have indicated their willingness to invest in the Nigerian power sector.

The latest in the series, THISDAY learnt, is a multi-billion dollar investment deal to be signed next week with Daewoo Corporation South Korea.

World's largest electricity company, General Electrical, had earlier in the year, signed a Memorandum of Understanding (MoU) with the Ministry of Power to build of 10,000MW -capacities power plants in the country. The deal, which is GE first ever investment in West Africa, will see the company also investing between 10 and 15 percent in the new plants.

The Power Ministry also recently signed an MoU with Siemens of Germany to assist Nigeria generate 10,000MW, and invest in new power stations as well as build a service station in the country.

A source at the ministry confirmed yesterday that the MoU with the South Korean integrated company would be signed on Thursday. It however said details of the planned investment would be made available early next week.

The source also hinted that international investors' community had in the last few months expressed great faith in the direction which the Nigerian power sector is now heading, adding that more foreign firms have expressed their willingness to invest in the sector since the news of the electricity tariff review.

It recalled that the World Bank, world class companies like US Exim Bank, Essar of India and Tata of India as well as Manitoba Hydro International of Canada, have taken concrete steps to participate in the ongoing power sector reform in Nigeria.

Throwing more lights on the new tariff regime, the source explained that residential consumers who fall into the categories of Residential R3 and R4, made up of very rich people, including industries, would be paying about 40 per cent higher under the new tariff structure and not the 88 per cent reported by a section of the media earlier in the year.

It said: "Consumers who will notice a significant tariff increase are those who fall into the categories of R3 and R4, made up of very rich people, including industries. They will be paying about 40 per cent higher, and not the 88 per cent which a section of the media had earlier in the year reported for even all categories of electricity consumers. Nigerians are willing to pay a little higher for electricity if they are assured of constant and quality supply," the source said.

Announcing the June 1 take -off date on May 18, NERC Chairman, Sam Amadi explained that the new tariff was structured to attain cost reflective pricing that will ensure private sector investment in the generation, distribution and transmission of electric power in Nigeria.

Amadi said under the new tariff regime, different classes of consumers will pay different rates applicable to their classes for their electricity supply. He clarified that low income earners who use less electricity will pay less than high income earners who consume more electricity.

He further explained that the low income households will pay much less because they "will enjoy the special benefit of not paying a fixed charge for their electricity," as well as the removal of maintenance charge for all classes of consumers.

The NERC boss said to cushion the effects of the new electricity tariff, the Federal Government has agreed to pay about N100 billion in subsidy over the next two years under the second phase of the (MYTO 2).

He clarified: "The subsidy will be paid at the rate of N50billion in the 2012 financial year, and another N50billion in 2013, and thereafter cease to pay anymore electricity subsidy, as it is anticipated that as time goes by, more power will be available, and less need for subsidy".

Part of the incentives is the distribution of free meters and electric bulbs to customers Amadi said. Adding that the DISCOs are expected to begin the distribution to all classes of customers within the next 12 to 18 months to reduce the incidence of estimated billings.

To achieve the desired result, all distribution companies had been directed to submit their meter installation plan to NERC in order to receive the meter component of the tariff, before itself.

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