If the National Assembly and the Federal Government disregard the integrity of contracts, particularly the $1 billion investment by the Azura Edo Power plant, the Nigerian power sector could suffer in investment deficits and poor performance, energy experts told The Guardian yesterday.
The stakeholders asked the government to take the necessary action and upgrade the transmission and distribution network to enable the wheeling of electricity produced by power plants rather than scaring away investors from the country at a time when the $2 billion Siemens power project was still the subject of a game of wits.
The stakeholders charged the MPs with using the electricity industry as a political football, harming the economy, even as they battled to ease the difficult operating climate and entice international investment.
The House of Representatives Committee on Finance argued that the Nigeria Bulk Electricity Trading Company (NBET) had forced the nation into Power Purchase Agreements that were against its best interests, even though this isn’t the first time that lawmakers have brought up the Azura issue.
The Azura plants were constructed as the largest private sector investment in power generating in Nigeria with a current output of 461 megawatts, in contrast to the majority of power generation facilities in Nigeria, which are brownfields. Azura contributes more than 10% of the daily electricity generated on the grid, making it a crucial asset in the power sector.
The Federal Government and the company had a contract in place that required them to wheel all of the company’s generated energy out of the country, or else bear the risk associated with it. However, the imbalance in the nation’s transmission capacity has remained a major obstacle to the agreement, making the government the loser whenever it is unable to do so. The Put Call Option Agreement’s loss might reach $30 million per month at times.
Industry experts who spoke with The Guardian stressed that the National Assembly needs a better understanding of the contract and how government should take responsibility for not providing the needed wheeling capacity as envisaged. They noted that the bleak investment outlook in the power sector could worsen if government tampers with the pact it sealed with the investors.
Dr. Joy Ogaji, an energy specialist, emphasized that the implications of a negative reputation for not honoring contracts constitute a severe threat to the Nigerian economy, particularly at a time when the nation is already dealing with declining investment and an unfavorable operating climate.
The result is that there are now direct linkages across markets because commerce and finance are conducted across national boundaries, according to Ogaji. An economy could suffer an incalculable cost if the market gains a bad reputation for breaching its contractual responsibilities.
The following concerns plague the majority of investors when considering an investment in the NESI because there is no sanctity of contract: Would a written agreement or promise between an investor and the government be honored? In the event of default, can an investor enforce the terms? An investor might have a solution. And even in cases when a solution exists, will the government uphold the corrective measures?
Ogaji added that the necessity for the government to uphold its obligations under the contract remained a critical problem, raising the question of whether the previous administration’s pledges would be honored by the future administration in the event of a change in government.
Bode Fadipe, a participant in the sector, stated in his contribution that the sanctity of contract continues to be an essential safety valve for economic growth and development in any economy.
“It will be impossible to work with nations, corporations, and individuals who do not honor agreements. Every aspect of a nation’s socioeconomic and political well-being is gravely affected by respect for contracts or the sanctity of contracts, he said.
Kunle Olubiyo, President of the Nigeria Consumer Protection Network and Member of the National Technical Investigative Panel on Power System Collapses, System Stability, and Reliability stated that the current situation demonstrates the National Assembly’s lack of in-depth technical knowledge regarding the requirements of the energy economy, investment climates, and rules of international best practices.
According to Olubiyo, “In 2013, the Nigerian Government practically worked hand-in-cap to entice international investors to join in the privatization exercise in the upstream and downstream sub-sector of the energy sector value chain.
The concern of most investors is what is currently in play, he continued, adding that it’s possible that the NASS was misguided, ignorant, or sensational in its pursuit.