Market Report, "Nigeria Power Report Q2 2013", published

BMI View: Nigeria's power sell-off has put the country in the limelight, with emerging trends corroborating our market views. Confirmation that many of the preferred bidders have begun payment for the various facilities of the Power Holding Company of Nigeria shows that the privatisation process might finally see some tangible progress and suggests that Nigeria's flagging power sector could finally be on the verge of a long-awaited turnaround. However, reforming the Nigerian power sector is a mammoth task, with numerous risks

A number of developments in 2012, including some tangible progress in the privatisation process, have raised hopes that Nigeria's power sector might see some much-needed improvements. We see potential for the government to meet its target to grow Nigeria's power generation capacity to 10,000MW by Q413.

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However, significant hurdles remain, and we believe that issues, ranging from deep-rooted corruption and persistent insecurity to vested interests and fuel-related bottle necks, present pertinent downside risks.

Hence, although we forecast an annual average increase of 10.8% for power generation between 2013 and 2022, we highlight that risks remain largely to the downside and that only part of the projects in the pipeline have been included in our capacity forecasts.

In light of these developments and general considerations, the key trends in the Nigerian electricity market are:

* Given existing project pipeline, which features several projects coming on-line this year, gas is set to remain the country's primary fuel for power generation, with all new National Integrated Power Project (NIPP) projects using simple or combined gas-fired turbines. As such, we anticipate that gas will fuel 57.7TWh of electricity generation by 2022.
* As such, the risk of insufficient gas supply will remain a highly pertinent risk. Gas constraints have long been responsible for the limited power availability, and, we believe that the passage of the Petroleum Industry Bill (PIB) will play a cardinal role in shaping the sector's future. As highlighted by BMI's Oil & Gas analysts, the bill would bring about more regulatory certainty, which ought to incentivise investment. Yet, the rather unattractive fiscal terms in the current draft bill under review by the national assembly could limit private interest in maximising Nigeria's full gas potential.
* Although the government's attempt to strengthen the regulatory framework and send positive signals to investors has certainly played a role in attracting a number of international investors, risks relating to the business environment remain prominent. These include vested interests, corruption and labour issues, as well as significant levels of political risk.



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