Opportunities in the Nigerian Power Sector

Opportunities in the Nigerian Power Sector TONY O. ELUMELU (MFR)GMD/CEO UNITED BANK FOR AFRICA PLC

Outline  • Brief Overview of Nigeria’s Power Sector • How Value is Created • Opportunities • Key Issues • UBA Experience • Our Expectations

Overview • NEPA established in 1972 as a state owned enterprise with absolute monopoly of the electricity market • Installed capacity of circa 6,000MW; • Hydro - 1,900MW; • Thermal - 4,000MW • However actual generation <3,100MW with resultant power outages costing the nation est.$1bn/p.a. losses • Had limited Transmission & distribution capacity • Current demand is estimated at 8,500MW against Generation < 3,100MW with possible suppressed demand of additional 5,000MW; Forecasts are that demand will reach 20,000MW by 2010

Overview..contd. • Electric Power Sector Reform Act (“EPSR”) enacted in 2005 to reform /liberalize the electricity sector • NEPA transformed into a public liability company ; Power Holding Company Company “PHCN” with 18 Business Units • 6 - Gencos; • 1 - Transco; • 11 - Discos • SPE to handle stranded assets/liabilities of defunct NEPA; • Established a regulatory body - NERC; • Rural Electrification plan amongst others • Currently we have an Unprecedented level of investment in the sector to achieve 10,000MW Generation capacity by 2007

Overview….Contd. • By Government • New Power Plants (Omotoso, Papalanto, Alaoji, Geregu, Mambilla) with combined capacity of 3,500MW circa • Launched National Integrated Power Plan “NIPP”; an integrated Generation (2,500MW); Transmission Distribution & Gas supply plan to fast track capacities • State Government led projects (Ibom; TransAmadi etc) • Converged Oil & Gas policy to drive Power Sector for e.g. development of IPPs tied to new oil blocs allocation; integrated gas pipeline network etc • Proposed 2007 Budget allocates N105bn to Power & $8.7bn for Special Projects in Power • All these Government intervention projects in Generation & Distribution will be privatized soon after completion

… • By Private Sector • Increasing Private sector led projects in Generation (AES, Geometric; Farm Electric; ENCON, Westcom etc) as well as Oil Majors (Shell, Agip et al) to add up to 4,000MW Generating Capacity • Captive Power Solutions coming on stream; WAPCO/Ewekoro; Ajaokuta etc & alternative power generation sources are also being explored; Solar • Reform in progress.. • EOIs sought by BPE on 3 Gencos (Ijora, Calabar, Oji); • Licensing of IPPs by NERC • Prepaid metering scheme launched for DISCOs Forecasts are that sustained investments of between $5bn/$7bn p.a. is required in Power generation & associated infrastructure to meet increasing demand if the economy grows at an annualized rate of 7-10%!

Outline • Brief Overview of Nigeria’s Power Sector • How Value is Created • Opportunities • Key Issues • UBA Experience • Our Expectations 

..typically value creation in the Power sector is based on the characteristics of each segment of the chain… • Physical infrastructure encompassing: • power lines • Sub stations • Electrical systems Gas Coal Nuclear Hydro Solar Characteristics Bulk Purchasers Captive Power Plants Last mile infrastructure House Hold Transmission Trading Distribution Generation Industrial Users Plant construction Input supplies Maintenance Load Management Line construction Systems Maintenance Arbitrage Metering, Billing & Collection Provision & Maintenance of Electrical Installations/stations Business Activities

…… in identifying the opportunities inherent in the sector it is Important to identify the life cycle of each segment which we believe are all at its infancy or expansionary phases.. Time Transmission Trading/Market Ops Distribution Generation Start up Mature/Resuscitate Expansion Decline Phase

Some of the topical Issues to be understood by FSIs or investors would include economic, business & industry risks such as… • Regulatory Framework & Empowerment; NERC • Privatization issues such as Timing; Strategy.. Concessioning or Sale • PHCN -> Unbundled Biz Units & SPE • Structure of Power sale/PPA; On Grid or Captive • Tariff Structure; Cost recovery plus; MYTO (multi year tariff order) • Investment Incentives (Duty; Tax Relief's/Holidays etc) • Capital importation & Exchange Control issues; CBN

and.. • Input/feedstock Arrangements; Gas, Fuel, Steam, Coal et al • Supply; pass through or inclusive • Quality • Price; now & future • Suitability of plant/systems being established; corrosion; climate; • Infrastructural Support; delivery of inputs & evacuation of power -> delivery to customers • Revenue Collection….RCM; Prepaid metering Vs MBM • Power Transmission Evacuation arrangements – systems/load integrity; losses • Other issues such as environmental; licensing; plant maintenance support services etc

Date Event 1949 French & British Bank Limited commences business in Nigeria 1961 Incorporation of UBA to take over the banking business of the French & British Bank 1970 IPO on NSE (1st such listing for a Nigerian bank) 1984 Establishment of New York Branch (remains the only Nigerian or indeed SSA Bank with such a presence) 1998 Establishment of GDR programme (1st for a Nigerian Bank as a means of facilitating international investor interest) 2005 2006 Completion of merger with Standard Trust Bank PLC (1st such transaction, between the No. 3 and No. 5 industry players, of its nature to be completed in the history of the Nigerian Banking Industry) Emergence as the number 1 bank in Nigeria The making of UBA

Financial Highlights…. • As at Sept. 30, 2006* Over $2bn in Foreign Currency Liabilities with our UBA NY and Correspondents *Audited & awaiting final regulatory approvals

Ratings……..investment grade by local & international agencies.

CIBD EnergyBank CorporateBank InvestmentBank AssetManagement GroupTreasury Origination We have a composite of related business areas in our Directorate streamlined to enhance our efficiencies…. Corporate & Investment Banking Directorate

our Energy Bank is positioned to take advantage of emerging business sectors such as Power ….. UBA Energy Bank Downstream Power Upstream Oil Trading Gas Oil Services

…..in UBA we are best positioned to exploit Nigeria’s Power opportunities as a natural partner because we have…. • Grown our Size to achieve an industry leading position with N1trn+ ($8bn) balance sheet footing and N757bn ($6bn+) in deposit liabilities (over $2bn in UBA, New York and correspondents) • A group wide structure & business philosophy to optimise & leverage upon (Investment Banking; Business Banking; Retail, Asset Management; Trustees & Insurance) • Developed skill & competencies in Nigeria’s Power Sector business aligned with the right corporate structure and a dedicated desk for Power UBAGlobal Markets

as well as • the largest branch network 460+ & technology platform to facilitate cash management solutions • Built strong alliances with FSIs/Multilateral/Developmental Institutions which we can leverage upon to undertake ticket transactions or projects • Strong corporate leadership that is conscious of Power Sector Development business • and track record in Power Sector Business in Nigeria (public … PHCN, DISCOs, or private IPPs - AES, Ibom Power etc

Our expectation …… is that current reform policies of the FGN will be sustained given the realisation of Power Sector development in Nigeria as THE platform of economic growth & sustainable development towards achieving the MDGs…. Nigeria is on the path to have a private sector led & vibrant Electricity Market with opportunities for all stakeholders; FSIs; Operators

Thank you • the Financial Solutions Powerhouse…

Opportunities in the Nigerian Power Sector