Obstacles Investors Face in Nigeria
By Sebastine Obasi
Sunday, August 17, 2008
Bart Nnaji, a professor of robotic engineering and chairman/chief executive officer of Geometric Power Limited, is an International Scholar of repute. Geometric Power Limited is the first indigenous private sector power company in Nigeria. In 2001, Geometric Power and Renatech, a subsidiary of Geometric Power Limited, designed, financed and built an emergency power plant in Abuja, to supply electricity to Power Holding Company of Nigeria. Recently, Nnaji, who is also a former Minister of Science and Technology, spoke to Sebastine Obasi, senior staff writer, on the energy problem in Nigeria, environmental challenges of investors, the independent power plant being built in Aba, Abia State and other national issues. Excerpts:
Newswatch: Recently at the Enyimba Forum lecture held at Aba sports club, you said that the IPP is akin to going to the land of the spirits to fetch fire. What did you mean by that?
Nnaji: It is all about the complexity of doing a project of this nature in Nigeria - the obstacles, the challenges, the enormity of it, which an average observer would not comprehend, the regulatory challenges, the bureaucracy itself, the community issues and very critically, convincing the international community that Aba is a place to do a project of this nature. Again, convincing them that Aba does not have all the problems of Niger Delta as portrayed in the media and being able to have convinced the government in the first place, that it is a very good solution to our power problem. Simply because many people did not buy completely the model of this nature.
Newswatch: What informed your choice of Aba as the place to locate the project?
Nnaji: Two main things. One is the diversity of industries and people that need power. And to ensure that for whatever amount of power that is sold you are able to receive the revenue, you need diversity of customers, so that if one customer suffers the loss, others can continue. It is more like what the insurance people do. They kind of count on the fact that you will leave for a longer time, when you buy life insurance from them. Secondly, nearness to gas sources. Gas is less than 30 kilometres from where we are. The place is Owaza, just along Imo River, on the border between Abia and Rivers States.
Newswatch: You said you were able to convince government to approve the project. Why did you need to do that? Is the government involved in it?
Nnaji: Of course, government has to be involved, not as an investor, but it has to be involved for a project of this nature to happen. And that is the federal government in particular and then the state government providing support, but none of these is financial support.
Newswatch: What type of support are they giving you?
Nnaji: Too many. This is a country. We don’t own an island. We have to do a project of this nature in a country that we have to give employment. To operate a business of this sort, you need a license to set up a generating power plant, a license to distribute and provide certain incentives where possible. For the state government, it has to waive some duties normally imposed on projects, which is what we are trying to get governments in the country to do, to attract investors. The way the country is set up, there are levies on all manner of things. For example, if you go to borrow money from the bank, the stamp duty is so expensive. The registration at CAC is too expensive, just to register a security. You are borrowing, yet you have to pay a certain amount of money on the face value of it, between 1.5 to 1.75 percent. So, it is unreasonable, totally unreasonable. These are some of the things that legislation should take care of. But there are some other things that the government can willingly waive to ensure that things work.
Newswatch: How much does the project cost?
Nnaji: It is $385 million.
Newswatch: What is the capacity?
Nnaji: 188 megawatts in the first phase. In the second phase, we will have 300 additional megawatts to bring the total to 488 megawatts.
Newswatch: We know that funding is usually a problem in executing a project of this nature. How did you mobilise funds to execute the Aba IPP.
Nnaji: That is part of going to the land of the spirit to fetch fire. You have to understand that there are different ways of financing a project. One way is to simply pay for the project which government normally does? The second way is to do it through corporate finance, which means the corporation has enough assets and funds to simply borrow money to do it and guarantee the borrowed amount. The one that is most difficult is the non-records finance. This means that the project stands on its own. You can’t go to anybody to claim anything. There is no guarantee from anybody. It is just on its own. That is the most difficult and that is the course we took to finance our project, which means that every aspect of the project has to be bankable. I can’t begin to describe the whole thing that is required. Everything has to be totally clear and clean and bankable to international standards, for the money to be made available. That is the bottom line.
Newswatch: Which financial institutions are involved in the funding?
Nnaji: Internationally, we have the International Finance Corporation, IFC, of the World Bank, European Investment Bank, Emerging African Infrastructure, which is managed by Standard Bank of England. Locally, we have Diamond Bank and Stanbic IBTC, for now.
Newswatch: When do we expect the first phase to be completed?
Nnaji: We expect completion in about ten months from now. In other words, it should be commissioned in March, 2009.
Newswatch: You did an IPP in Abuja earlier. Is there any similarity between that one and the Aba IPP?
Nnaji: The project in Abuja is a smaller project. It is a 22 megawatts project, guaranteeing 15 megawatts to NEPA. The similarity is that we designed, financed and operated that power plant. We supplied the electricity to NEPA, but distributed it locally. It was distributed in the Central Area of Abuja, thereby making electricity supply there reliable. But the difference is that we did not do the distribution. NEPA did the distribution. And the second difference is that the power plant was built on diesel. It is powered by diesel.
Newswatch: Distribution is usually a major problem as regards electricity in Nigeria. How do you intend to reach your target customers vis-à-vis the already existing structure of PHCN?
Nnaji: The distribution will be handled by a separate company affiliated to Geometric Power Limited. We set up special purpose vehicles to do the project. One is for generation, while the other is for distribution. So an investor can invest on Generating Company or in Distribution Company, or in both. Now, there is a distribution company that handles distribution network in Aba, and builds an additional distribution network. For example, we are building additional power sub-stations. We are also building up to 110 kilometre overhead lines of which a hundred of that will be 33kv lines that would supply electricity directly to industries. So, all the industries in Aba would be getting electricity from new lines directly from 33 kv lines. That is how we will do the distribution.
Newswatch: Are there plans to extend similar projects to other towns in Nigeria?
Nnaji: Yes, we have some other places in mind. We are working on it.
Newswatch: Can you mention some of the places.
Nnaji: No. Not for now.
Newswatch: IPP is a highly technical project, who are your technical partners?
Nnaji: Geometric Power is the main company doing it. You have to understand that a power project is about development. The implementation can be done by a contractor because it is like reading a building plan. The architects and engineers would design the building and they simply hand over to an implementer. In our company, we have a lot of people who are seasoned in power development. My vice-president comes from the World Bank. He was the number one power expert in the IFC of the World Bank. His name is Paul Nixon. He is a Canadian. We hired him from the World Bank. And a whole number of others, who work in the firm, people in the finance team, the legal team etc. but then we have other partners, some of them are advisers, some are contractors, some are suppliers, like we have General Electric and Group Five of South Africa as the contractors for sub-stations. We have ABB Powerline as the contractor for power lines. We have also International and local lawyers. We have financial advisers like KPMG. We have local law firms that are quite good at this, like Paul Usoro and company, Landers, Udo Udoma and so forth. We have a whole lot of people like Shell supplying gas. So, a project of this nature involves a whole bunch of players.
Newswatch: How many Nigerians are being employed?
Nnaji: Of the people who work directly with Geometric Power, who are not contractors, at least 97 percent of them are Nigerians.
Newswatch: How is the relationship between you and the host community like?
Nnaji: It is work in progress, I would say that our own people are beginning to copy the negative aspects of what is going on in the Niger Delta. In the Niger Delta, it seems that the communities, when they started their issues, had some legitimate reasons for doing it, in that there is oil in the ground and the oil is being taken out of the ground from them, exported and they are left with little development and so they had to grouse. Of course, some people have hijacked the whole rationale for it and turned it into some negativism thereby making it difficult to rationalise some of what they are asking for. Unfortunately, some people in the area have taken this negative aspect, even when there is nothing being taken from the community; rather investment is coming into the community. Then, they seem to be wanting the same sort of things that people of the Niger Delta want, without having the same kind of grudge. And that is the problem in Nigeria. Because the rest of the country copy that, it will impede development significantly. Only an indigenous company like us will endure that, since we are not taking something from the ground, we are only bringing development. If a community prevents development in the area, the people are the ones that will suffer the most. So, we are making progress. Some people in the community are beginning to understand. Some who are merely very much interested in what will come today, like we had some people who said they don’t care about what they will get tomorrow or what their children will have. They only care about their pockets today.
Newswatch: You are a professor of Robotic Engineering. What made you to go into that aspect of engineering?
Nnaji: Engineering is about the only profession that I enjoy very much. All other professions are there and I like them. But I like engineering the most. And for robotic, I like solving big challenging problems. Building a robot is complex, because you have to build the machinery and give it deductive powers.
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