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Opportunities in the Nigerian Power Sector

TONY O. ELUMELU (MFR)TONY O. ELUMELU (MFR)GMD/CEOGMD/CEO

UNITED BANK FOR AFRICA PLCUNITED BANK FOR AFRICA PLC

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

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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

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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

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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

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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%!

… • 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

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

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..typically value creation in the Power sector is based on the characteristics of each segment of the chain…

Generation Transmission DistributionTrading

Physical infrastructure encompassing:

•power lines

•Sub stations

•Electrical systems

Gas

Coal

Nuclear

Hydro

Solar

Bulk Purchasers

Captive Power Plants

Last mile infrastructure

Ch

ara

cte

risti

cs

Bu

sin

ess

Acti

vit

ies Plant

construction

Input supplies

Maintenance

Load Management

Line construction

Systems Maintenance

Arbitrage Metering, Billing & Collection

Provision & Maintenance of Electrical Installations/stations

House

Hold

Industrial

Users

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

www.ubagroup.comPhase

…… 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

Start up Expansion

Mature/Resuscitate Decline

Generation

Transmission

Distribution

Trading/Market Ops

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

www.ubagroup.com

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

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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

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

www.ubagroup.com

The making of UBADate Event

1949 French & British Bank Limited commencesbusiness in Nigeria

1961 Incorporation of UBA to take over the banking businessof the French & British Bank

1970 IPO on NSE (1st such listing for a Nigerian bank)

1984 Establishment of New York Branch (remainsthe only Nigerian or indeed SSA Bank with such

a presence)

1998 Establishment of GDR programme (1stfor a Nigerian Bank as a means of facilitatinginternational 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

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Financial Highlights….

As at Sept. 30, 2006*

PBT Over N15.0bn

Deposit Base Over N757bn

Total Footing Over N1 trillion

Shareholders’ Funds

Over N60bn

*Audited & awaiting final regulatory approvals

Over $2bn in Foreign Currency Liabilities with our UBA NY and Over $2bn in Foreign Currency Liabilities with our UBA NY and

CorrespondentsCorrespondents

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Rating Agency Rating Remark• FITCH Jan, 2006

- Long Term A+ Investment Grade- Short Term F1

• GCR Feb, 2006

- Long Term AA+Highest Credit Quality. The risks factors are negligible slightly just above government bonds…

-Short Term A1+ Highest certainty of timely payment

• AGUSTO & Co AA+

Dec 2005

A financial institution of very good financial condition and strong capacity to meet its obligations as & when due…

Ratings…

…..investment grade by local & international agencies.

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Corporate & Investment Banking Directorate

CIBD

EnergyBank

CorporateBank

GroupTreasury

InvestmentBank

AssetManagement

Origination

We have a composite of related business areas in our Directorate streamlined to enhance our efficiencies….

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our Energy Bank is positioned to take

advantage of emerging business sectors

such as Power …..

Downstream

PowerPower Upstream

UBAEnergy Bank

Oil Trading Gas Oil Services

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…..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

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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

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Outline

Brief Overview of Nigeria’s Power Sector

How Value is Created

Opportunities

Key Issues

UBA Experience

Our Expectations

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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

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Thank you

the Financial Solutions Powerhouse…