In line with the government’s plan to nip the power failure problems, last year the National Integrated Power Project (NIPP) began privatising the industry and has continued to hand over the country’s power generating assets to the private sector.
“We as a firm have an energy package that advises on deals across the world, so we understand what banks are looking for and I think some of the issues that international banks are going to face with this round of privatisation, are things like the bankability of these deals,” Raj Kulasingam, Senior Counsellor at Dentons told CNBC Africa.
After a review of the bids recently, the government expects to generate 4.3 billion US dollars via seven power generating companies. Nonetheless, funding remains a key issue for the NIPP process and many suggest that international banks may offer valuable help.
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“Are they structured well enough to allow the international banks in? My feeling is that, I don’t think they are talking to some of the banks that we talk to. I think they are much further along the road compared to where the Nigerian power sector was before but they are not there yet,” he said.
Kulasingam believes that there are key changes that need to be made for the country to get the funding it needs from international banks.
“The key change that international banks are really worrying about, is at the end of the day, the person buying the electricity is the National Bulk Electricity Trading Company, (NBET).”
The NBET was incorporated in 2010 to engage in the purchase and resale of electrical power and ancillary services from independent power producers and from the successor generation companies. However, according to Kulasingam, the company was capitalised at only about 500 million to one billion US dollars.
“These assets are between four and five billion US dollars, so what happens if Embedded Generation cannot pay, who’s going to step in and actually make the payment, so lenders or international banks worry about what happens if you can’t pay,” he explained.
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“Usually what happens, is either a federal government guarantee or some sort of credit guarantee is put in place to back the company that is providing the obligation to pay but we are not quite there yet in Nigeria,” he added.