Deputy Group Chief Executive Officer/Managing Director, Investment Banking at United Capital Plc, Mr. Bunmi Akinremi, in this interview with The Guardian, speaks on what should be the right strategy for private public sector partnerships in Nigeria's power sector and the role of United Capital.
United Capital Plc is a key player in Africa's investment banking; how has your organisation achieved this?
United Capital is transforming the African continent by providing innovative investment banking solutions to governments, companies and individuals. To date, we have achieved this by leveraging professional networks, relationships and proposing innovative techniques for mobilizing capital all across the continent. We cover a number of markets but most recently we have had some notable successes in critical sectors like Power, Oil & Gas, and Infrastructure.
We aspire to be the financial and investment role model across Africa, deploying innovation, technology and specialist skills to exceed client expectations, whilst creating superior value for our stakeholders.
What unique role does United Capital play in terms addressing prevailing challenges in Nigeria's power sector value chains?
In 2013, the Federal Government commenced a comprehensive reform of the power sector, a privatization move that was proclaimed as one of the boldest and most far reaching reform initiatives. United Capital was a leading Financial Adviser in this sector having advised three generation companies and one distribution company. In 2016, we also advised the Nigerian Bulk Electricity Trading Company ("NBET") on a structure to safeguard payments across the value chain.
We are very passionate about the power sector as we see this as a critical infrastructure that will boost the economy as a whole. We work to create innovative and creative structures, which will underpin the viability and self-sustenance of the sector as a whole.
From your perspective, what are the right investment strategies for private public sector partnerships (PPP) to work effectively in Nigeria's power sector?
As a first step, both the private sector and the public sector will need to have an alignment of interests being the development of the economy as a whole whilst ensuring the financial viability of the employed strategy. It will also be critical to agree at what point the public sector will "withdraw" from participation as an operator and focus on regulation and supervision.
From our experience, one major disincentive for direct investments in infrastructure in Nigeria is the lack of clarity around policy continuity on the government side. Investors always want certainty/clarity about property rights and the sanctity of contracts, especially for long-term investments. Most PPPs fall in to the long-term investment category. This is a key area that the government needs to pay close attention to. Also, the business environment needs to improve significantly to enable businesses thrive and also give comfort to investors who seek to recoup their investments over time.
What are the challenges attributable to the dearth of investments in the power sector at the moment?
Along the value chain, the challenges being faced are multi-faceted. However, we will highlight a few critical issues. On gas supply, 80 per cent of the power generation in Nigeria is fueled by gas-thermal generation plants. Accordingly, regulations guiding gas pricing will need to be reviewed to attract the necessary investments. Note that this is crucial as one of Nigeria's major challenges surrounds gas infrastructure.
The installed generating capacity of Nigerian GenCos is c.12,000MW, whereas the wheeling capacity of the Transmission company is c.7,000MW. This results in GenCos having to step down generation in order to ensure that the transmission network does not shut down.
GenCos and DisCos: ATC&C losses bring about a vicious cycle of issues as the value chain relies on the collections from the end users by the DisCos. In addition to this, the absence of supposedly cost reflective tariffs, results in a shortfall of payments due along the power sector value chain.
Another issue faced by GenCos and DisCos relates to currency mismatch as the acquisition financing taken in 2013 was sourced in US Dollars, whereas receivables are in Naira. This, coupled with the FX crisis resulted in inflated debt obligations on the part of the Borrowers. Note that long term financing is typically required for infrastructure financing, however as Nigerian banks funded 90 per cent of the acquisition loans, the maximum tenor secured by borrowers was 7-years.
How would you describe the future of investments in the Nigeria Power Sector given the current challenges?
Something will have to give. The centralised power model being operated will need to be adjusted to achieve some efficiencies. This will also assist in reducing transmission losses and enhancing private sector led growth. A zonal transmission model such as the one being pursued by Lagos State is a solution, which should probably be applied nationwide. With proper implementation, this will see to a significant reduction in transmission and distribution losses.
In addition to this, the diversification of power supply i.e. the incorporation of renewable energy such as wind and solar power, will need to be incorporated to reduce the seeming overreliance on gas.
Finally, we cannot over emphasize the need for long term funding to support infrastructural projects, which will ease the strain on debt obligations.
What is your strategy for adding value to both clients and the economy, considering the current economic challenges?
United Capital strives to always be ahead of the curve. We are strong believers in innovation, but also believe in being pragmatic and realistic. We note the importance of the Nigerian power sector and we are dedicated to doing our part to ensure the success of the sector. We are always keen to partner with the public as well as private sector players to debate/share experiences/find solutions that will improve the sector's long term viability.