A Questionable Loan

Lanre Babalola, Power Minister.

Mixed reactions trail the Federal Government’s $300 million loan facility secured to finance the Nigeria Electricity and Gas Improvement Project (NEGIP)
By Oji Odu
The Power Holding Company of Nigeria (PHCN), Nigerian Electricity Regulatory Commission (NERC), Rural Electrification Agency (REA), and the National Independent Power Projects (NIPP), have all been casualties in the nation's chaotic power sector, with barell tangible impact despite the billions of naira so far invested.
Despite this sitution the Federal Government recently initiated the Nigeria Electricity and Gas Improvement Project (NEGIP), a renewed bid to improve the nation’s power transmission and distribution networks.
The government had recently secured a $300 million loan facility from the International Development Association (IDA), to finance the NEGIP. The Source learnt that out of the amount, $200 million will be used to improve power transmission and distribution infrastructure, while the remaining $100 million will be allocated to funding the partial risk guarantee for gas supply needed to boost the power generation capacity of the PHCN.
Minister of Information and Communication, Professor Dora Akunyili, commenting on the loan said that the facility was extended to Nigeria under the World Bank Special Facility for Infrastructural Development. The Minister stated that the loan would be used to finance critical areas in the power sector that will boost power transmission and distribution.
Her words: “The credit is to be utilised for funding of critical investments in the power sector, particularly to strengthen electricity transmission and distribution. The facility will also assist in the reform programmes in the distribution sector, provision of technical assistance and acknowledge transfer.”
Akunyili further explained that the loan which is repayable over a period of 40 years would be “lent to the PHCN on the same terms and conditions offered by the IDA to the Federal Government.”
The credit facility, The Source learnt, is highly concessionary. It has a service charge of 0.75 per cent per annum on the actual amount drawn from the credit, and commitment charge of 0.5 per cent per annum on the undisbursed balance .
Throwing more light on the loan, Lanre Babalola, minister of Power, , stated that apart from the $200 million for power transmission and distribution, the $100 million “will give comfort and risk mitigation mechanism for people supplying gas to the power sector.
“What this means in effect is that there are some attendant risks in the supply of gas to the power plants from the actual volume of gas required per power station, the quality of gas, and the risks involved in the transportation which is militating against the adequate flow of gas to these power stations,” he said.
The minister further explained that the $100 million was to guaarantee gas supply to power generating companies.
“It is some sort of guarantee and not an actual credit, and this guarantee will take the form of a letter of credit. And if at any point, the PHCN does default, the gas suppliers can draw down on the facility,” Babalola stated.
Since the Federal Government announced the loan facility, however, not a few have criticised the action, especially at a time when peace has returned to the Niger Delta region following the acceptance of the amnesty offered by President Umaru Yar’Adua, by militants who have stopped pipeline vandalisation.
But Babalola explained that the issue went beyond the guantity, but also the quality of gas, including that of inadequate infrastructure. Therefore, for these to be tackled, he said, there must be constant investment in the sector.
Babalola: “The issues to do with power supply go beyond the volume of gas, there is the issue of quality of gas, we also have the issue of inadequate infrastructure and it’s an array of issues.
“The most important thing to bear in mind is that to ensure constant flow of gas, you have to constantly invest, just like maintaining your car to make sure it gives you value for your money,” he said.
The skepticism of many Nigerians on the appropriateness of the $300 million loan stems from the poor results of past huge investments in the sector.
For instance, on November 21, 2007, the Federal Government had approved contracts worth N33.5 billion for rehabilitation of the Egbin Power Plant (N1.2 billion) and the construction of 19 transmission lines (N32.3 billion).
Earlier in the year, the Federal Government earmarked $5.6 billion to complete the NIPP and achieve its target of 6,000 megawatts (MW) electricity by 2009 and 10,000mw by 2011. The sum of $3.3 billion, sources said, has already been spent from the $4.3 billion NIPP, leaving a balance of one billion dollars still in the custody of corresponding banks till date. The $3.3 billion was funded and secured with Advanced Payment Guarantees from first class Nigerian banks and Letters of Credit issued by the Central Bank of Nigeria (CBN).
According to Lanre Adedigba, co-ordinator, National Coalition for Power Reform (NCPF), the Presidential Steering Committee on the NIPP’s report showed that “majority of the contractors for transmission projects have received their advance payment and letters of credit to facilitate the placing of equipment orders.
“So what does the government need $5.6 billion for? The difference between the original project cost and the financial instruments advanced so far is $1 billion. So, if we deduct $1 billion from the new $5.6 billion government plans to spend, we have a balance of $4.6 billion.
“What is the rate of inflation since this government came in that justifies an increase of $4.6 billion? Has the scope of the project failed? Has any of the contractors demanded a variation? $6.4 billion sparkaroos. The figure is making me dizzy,” Adedigba lamented.
However, in a telephone chat with The Source, Eloka Zikora, Public Affairs Officer of Geometric Power Plant, Aba– a private power producer, – said that the NEGIP is in order because the gas supply network is inadequate.
Zikora: “The project (NEGIP), is a welcome development in the power sector. The gas supply network in the country is really inadequate, what we have is not enough to move gas from the various Shell gas gathering fields.
“This is why the gas improvement project will lay major gas pipelines from Calabar to Enugu, to Ajaokuta, et cetera. What happens is that any industrial projects that make use of gas can hook up on the major gas pipelines that cross their area,” Zikora added.
But Pekun Adeyanju, Principal Manager (Public Affairs), PHCN, Ikeja Distribution Zone, Lagos refused to comment on the project and the $300 million loan facility. He told The Source: “I’m sorry, I cannot comment on this issue because it is above my jurisdiction for now. You can contact Abuja for reactions.”
Another PHCN staff that spoke to The Source on the condition of anonymity said that although taking the loan in question appears suspicious, it is, nonetheless, a good thing if the investments are painstakingly executed.
Noted the official: “Although this loan looks suspiscious, the reason is in order because more investments are needed to complete the electricity transmission and distribution projects, and increase gas supply channels to achieve the target of 6,000mw and 10,000mw.
“The only fear is that if the implementation is not monitored, the money may end up in the pockets of politicians who are desperately sourcing for funds to finance their political objectives, come 2010,” he said.
Some other analysts insist, however, that the project may be one in the series of many White Elephant Projects lined up to raise funds for the upcoming election.