Lagos (Reuters) – The initial sell-off of state power assets, designed to end decades of electricity shortages, mostly attracted local oligarchs, while foreign firms with the technical know-how shied away from the risks of doing business in Nigeria.
But that may be changing, the chairman of the presidential task force on power Bekindo Dagogo-Jack told Reuters on Tuesday.
Speaking on the sidelines of a power conference in Lagos, Jack predicted a “second wave” of privatisation as the local tycoons sell assets to foreign players, after showing that this messy sector with massive pent-up demand can be profitable.
A second round of bidding, this time for brand new power plants, had seen a lot more interest from outside than the round concluded this week for old assets, which went to local buyers.
“There’s been … interest in buying these assets from businesses across the world,” he said, adding that a group of U.S. investors had lobbied through diplomatic channels to try to extend the deadline for submissions.
He declined to give specific details of bidders, but indicated foreigners were warming to the sector.
A successful privatisation process that improves supply would leave President Goodluck Jonathan with a lasting legacy, and help answer critics who complain about the slow pace of reforms and question his record on graft and security.
It may also be the best chance yet to unlock the potential of Africa’s most populous nation and second biggest economy.
Jonathan handed ownership of the bulk of the moribund state electricity company to private buyers on Monday.
Most bid winners were oligarchs connected to the political elite, like former military president Abdulsalami Abubakar, former military governor of Kano state Sani Bello and tycoons Emeka Offor and Tony Elumelu, but with some recognised technical partners like Siemens and Manila Electric.
Dagogo-Jack said this was to be expected.
“Lending agencies were asking for a lot before they put their money down. That makes it difficult for technically competent investors to show,” he said.
“The so-called local oligarchs were born here, they grew up here. What others call risk, they call opportunity.”
That would change if the oligarchs can turn things around.
“There could be a second wave privatisation when people will now know that their fears did not materialise … between the so-called oligarchs and … (foreign investors),” he said.
In the next phase, the government is seeking investors for 80 percent stakes in 10 new gas power plants. The price tag of $500 million initial investment per plant is five times that for older state assets, industry sources said.
Potential buyers have also raised concerns about the reliability of gas supply and the transmission network.
Dagogo-Jack said plans to deregulate the gas price — so producers get the same as on the international markets — would solve that problem, unlocking the world’s ninth largest gas reserves. “You can’t get a better incentive than that,” he said.
He added that the transmission network would eventually be privatised too, but only when the market is more mature.
Despite being the continent’s top oil producer, Nigeria’s power output is a tenth of South Africa’s for a population triple the size, putting a major brake on economic growth.
He said power supplies — which have dwindled in the past year because of gas supply problems — would improve in the next few years.
“It will take time, but they have their eyes on profit and the only way to improve profit is to produce more electricity.”