An event and a comment in Germany by our President led me to write this piece in light of the recent discussions we have been having on role of Government in business, Public Private Partnership and the long tem bond market.
The comment was by our President, he said Nigeria cannot fund the Independent Power Projects any longer from the excess crude account. In English he was saying any money to build power plans must be put on a budget passed to the parliament, approved and then money appropriated and spent. The previous regime of Obansanjo had spent about $8 billion on 11 power plant, the money was sourced directly from the excess crude funds and approvals was not gotten from the Parliament. Yar-Adua is right, the process of funding these power plants in the past was wrong, but considers this; a deputy Director of the CBN said that Nigeria needs no less than $50 billion as investment to generate up to 50,000 megawatts ( Nigerias projected energy need) in the next 5-10 years. So in effect the government cannot from her revenues fund these power plants, even if the parliament fast tracked these proposals from the President we don’t have $50 billion to spend on power. So our much vaulted “declaration of emergency on power” has come to a sharp halt, the magical 10,000 mw is a mirage, if Mikano Generators were a stock, I would go buy them. Just yesterday the Austrian builders of the power plants have taken the FGN to court regarding breach of contract in respect to financing.
The event was in Osisioma, God own state Abia, Geometric power company a private independent power company was just establishing the first private sector owned IPP in Nigeria. The $250 million plant will generate about 140 mw of electricity well above the requirement of Aba put at 110mw. It is expected this will boost industrialization in Aba, attract industries, provide 5,000 in jobs and make the state richer. This power project is financed exclusively by the private sector through a consortium of banks led by Diamond Bank. It is owned by a Nigerian.
The above point to the future direction of development in Nigeria, the state coffers cannot finance big projects through annual budgets. In principle, Nigeria, We are simply spending what we make from Oil which as any accountant will tell you is a poor use of wealth. By leveraging on your cash flow a country is able to invest in long tem projects. Remember that fela song in “overtake don overtake overtake”? Fela said there was a man, one man who wan buy fan, in summary the man saved to buy a fan at the end of the month, but the price kept on rising, in the end he could not buy the fan, why because he wanted to do it from his own savings or wealth. Had he been properly advised he might have taken the fan on asset finance, and then paid down the cost of the fan monthly.
Imagine if all the states in Nigeria had their own small IPP financed by the private sector and repayments guaranteed by the FGN, we would have solved our power needs. Instead we pursued a top down federal govt led initiate to build huge gas fired plants all over Nigeria with no thought to how to actually pay the contractors. It is commendable the efforts of the Lagos state governor to assemble such a rich team of experts to talk on how to finance a “new Lagos” through private sector led financing.
We must learn from other resource rich nations like Qatar which is financing projects by leveraging on their huge cash reserves (borrowing), this increase the rate of return of their funds. Or Dubai which creates reserve funds for investment in their country. The point here is not to encourage borrowing but that we should create a financial model where we can leverage on our huge foreign reserves to finance projects that will raise the profile of the ordinary man. The FGN also need to go back to the bond market to fund things like the power project and the housing needs of Nigerian with long term financing
Most importantly our laws and policies must make it easier for our financial institutions like Diamond to continue to fund such projects.
The President has spoken of reintroducing National Development plans back to Nigeria, this should be coordinated with the private sector, the government must plan together with the organized private sector, ask their views and opinions and ensure they limit themselves to policy and regulation, let the private sector continue to do what the do best which is meet demand with great service
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