Fashola: How Investors’ Demands Stalled 14 Solar Power Projects

The Minister of Power, Works and Housing, Mr. Babatunde Fashola has given reasons why the 14 utility-scale solar power projects Nigeria had procured in 2016 to add to her energy mix have recorded measured progress. According to Fashola, the IPPs investors made demands the federal government considered too difficult to meet.

He said this affected the drive to go on to conclude processes that would lead to their construction and completion. He spoke at a meeting to educate civil society groups on the content of the government’s Power Sector Recovery Programme (PSRP) in Abuja.

The minister said the government offered investors in the solar projects some good head-starts when it signed power purchase agreements (PPAs) with them but they allegedly made demands it could not afford. Fashola explained that with the PPAs, the government made its commitment to the projects, but could not meet the demand of the investors to have it sign their Put Call Option Agreements (PCOAs) in naira. The PCOAs are also backed by the World Bank.

“Ideally, once you sign a PPA, your project is bankable, but there is another instrument they usually want – a Put Call Option Agreement (PCOA), it guarantees against if the project terminates or fails. And, I always ask them: are you planning for this project to fail because if we have given you the instrument that gives you the bankability, why are you spending so much time on the instrument that will help you to collect money if the project fails, are you planning for the project to fail?,” Fashola said.

He further stated: “But nevertheless, in spite of that, they now asked us to issue that document (PCOA) in dollars and that was at the time the economy was in recession, our dollar inflow was limited and I said: look, why should we issue you an instrument in a currency we don’t control, let us issue you in a currency we control, at least Nigeria has not run out of naira.

“They said, OK, what about fluctuations, and I said we will also cover it but they said they won’t accept it, and that is what caused delay until global market prices changed again,” he said.

The minister also informed that the World Bank was uncomfortable with backing the PCOAs at the tariffs the investors have in their PPAs, because it is of the view that the prices of solar power components were falling.

“They still have their PPAs, so there is nothing to fear, but there is a PRG or World Bank guarantee behind the PCOA, the World Bank is now saying, this thing is expensive, prices are crashing, and so, it is not me saying so, it is the ultimate party who would sign that is saying price is too expensive, and so it is not me, it is not our ministry and it is not our government,” Fashola added.

He insisted the government made good commitments to have the projects proceed but their investors failed to take advantage of that.

“But, they had the momentum, take your 11.5 cent, take your PCOA in naira, and go and deliver your project. They didn’t seize it at the time, but more importantly, the question I have asked them is that: are these projects not easier to deliver if you scale them down, some of them are looking at 100 megawatts, 50 megawatts, when most state governments’ secretariats and water works, key drivers of public service will run on 10 megawatts,” Fashola said.