Why $2.5 Billion Solar Power Projects are Stalled
FG withholding PCOAs on account of opaque, costly negotiated PPAs
THISDAY has exclusively obtained documents at the weekend, which provide details on why progress has been quite slow on the consummation of outstanding deals and construction of 14 new solar power plants that could generate 1,125 megawatts (MW) of power to the grid.
The facts in the documents are, however, at variance with recent claims by the Minister of Power, Works and Housing, Mr. Babatunde Fashola, that the IPPs had made demands the federal government could not meet, hence their construction delays.
Fourteen solar independent power producers (IPPs) signed power purchase agreements (PPAs) with the Nigerian Bulk Electricity Trading Plc (NBET) in July 2016 for the construction of power projects in mostly northern states at a total cost of $2.5 billion.
THISDAY learnt that further developments on them have, however, stalled for reasons relating to opaque procurement of their PPAs, as well as the expensive tariffs approved therein.
In the documents from the ministry of finance, the government through the Minister of Finance, Mrs. Kemi Adeosun, had following the signing of the 14 PPAs in July 2016, queried the 11.5 cent cost of power approved for the projects. It also claimed the procurement processes were not clear to it and as such it would hold back approval of Put Call Option Agreements (PCOAs) for them.
It also insisted that the average cost of procuring solar power globally had continued to decline and that on that basis, Nigeria was at the risk of an unhealthy sovereign risk exposure if it went ahead to approve PCOAs on 11.5 cent per kilowatt hour (Kwh) for the projects.
The documents, which also included details of what may have transpired in the process suggested that trouble started after a former Managing Director of NBET, Mr. Rumundaka Wonodi, who reportedly advanced the process in the PPAs, but did not agree to a price with the investors was abruptly removed from office in May 2016.
Accordingly, Wonodi’s removal paved the way for some officials in the NBET and power ministry to cut deals with the investors, and the 11.5/Kwh price was approved for them.
It was also learnt that negotiations on the price were singlehandedly done by a top official of the power ministry and conclusion subsequently handed down to the NBET to act on without interrogating the outcomes.
As was described by a credible source close to the development, “it was like a bazaar. Every other week, an email will come informing us that a tariff has been agreed and we should sign PPA. Within two weeks, we had 14 PPAs to sign.”
Also, THISDAY gathered from a notice of operational licenses approved by the Nigerian Electricity Regulatory Commission (NERC) that some of the solar power investors, who got the PPAs were licensed by the NERC few months to their signing of the PPAs. One of the projects to be sited in Nasarawa got its licence in November 2016, some four months after getting a PPA.
Notwithstanding, Adeosun, in response to the requests by the power ministry and NBET to approve PCOAs for the projects on this price, refused to, and in one of the many official letters exchanged on this, pointed out that development costs for solar power had significantly declined in the past few years and that prices for the projects’ Kwh of electricity must be reasonable. She even made references to similar competitive procurements South Africa, Zambia, Egypt and Ethiopia had made within the period Nigeria had hers, and which prices were between five and seven cents per Kwh.
She further explained in the letter that considering the risk cover to be provided by the government in the form of Partial Risk Guarantees (PRGs) and PCOAs, the tariff in Nigeria should at least be at par with that of these countries, while project costs should reflect what obtains across the globe.
Additionally, Adeosun informed that the government would not approve PCOAs for the projects or any other one unless it was convinced the pricing was fair, competitive, and projects viable and needed by Nigeria.
To buttress the government’s stance, Adeosun, in one of her responses to NBET after its current Managing Director, Dr. Marilyn Amobi, was appointed, asked that it renegotiate the tariffs in the PPAs before she would approve the PCOAs.
To this end, THISDAY learnt that two investors – Afrinergia Power Limited and CT Cosmos Limited, have reviewed their rates to 7.5 cents per Kwh and also got Adeosun’s approval of their PCOAs in December 2017.