Hydroelectric power plant in Nigeria

Project profile
August 17, 2015

Our clients

Copperbelt Energy Corporation plc is a listed Zambian company, and is a major African developer and operator of power assets and infrastructure.  

Lenux Energy Investments Limited is a Nigerian energy investment company.

Project location

The Shiroro hydroelectric power plant is located at the Shiroro reservoir on the River Kaduna in Niger State, Nigeria.

Project description

With a population of approximately 170 million, Nigeria is the most populous country in Africa. However, Nigeria currently only has installed capacity of approximately 8.6GW, of which only about 4.1GW is operational. Trends from developed nations indicate that approximately 1GW of generating capacity is required for every one million inhabitants. Electricity demand in Nigeria therefore far outstrips supply.  

In 2005, the Nigerian government passed the Electric Power Sector Reform Act 2005 (EPSRA) with a view to encouraging private sector investment in the generation and distribution sub-sectors of the Nigerian power sector. The EPSRA established the Power Holding Company of Nigeria, which held Nigeria’s power sector assets through dedicated “successor companies” which in turn held specific generation or distribution assets. The privatisation process was then implemented through a competitive tender process in relation to eleven distribution companies (Discos) and six generation companies (Gencos).

Transmission assets were retained by the government, the management of which has been contracted to Manitoba Hydro (Canada).  

In 2012, the Bureau of Public Enterprise (BPE), which has coordinated the privatisation process, received 330 expressions of interest in the privatisation tender rounds, of which 207 bidders were pre-selected. Through the subsequent bidding process, five preferred bidders for the Gencos and ten preferred bidders for the Discos were selected by the BPE, including North South Power Limited, (the concessionaire) which was the successful bidder for the concession in respect of the Shiroro hydroelectric power station.  

Under the concession agreement between the BPE, the concessionaire and Shiroro Hydro Electric Plc which was signed on 21 February 2013, the Concessionaire receives the right to operate the plant for 30 years. In addition to assuming responsibility for operating the power station, the concessionaire must rehabilitate the plant so that it is capable of achieving specified generation capacity targets within the first five years of the concession.  

Our clients, through a joint venture entity, have acquired a 40 per cent interest in the concessionaire. They are also anticipated to provide operations and maintenance services to the concessionaire during the concession term.  

The structure of the transaction is shown on the following simplified diagram:

 

Scope of work

We act as international legal counsel to our client and advise on all legal issues with respect to the project, including:  

  • the drafting and negotiation of the equity investment documents through which the joint venture acquired its 40 per cent interest in the Concessionaire 
  • due diligence review of all project documents
  • preparing the operation and maintenance arrangements for the project
  • advising on debt financing for the project

Implementing the project requires the assistance of Nigerian counsel on a range of matters, including local regulations on the electricity industry and corporate due diligence in relation to the concessionaire. Our role as international counsel requires us to assume the lead counsel for the project, acting as a central point of contact for the client and coordinating the legal review and advice with Nigerian local counsel.  

Key highlights

The privatisation of Nigeria’s power sector is a major step in modernising Nigeria’s power sector, where demand currently vastly outstrips supply, and will help Nigeria to realise its very considerable economic potential.  

The privatisation transactions represent a substantial development in the sophistication and complexity of Nigeria’s power sector regulatory environment.  

With a GDP growth rate that is already at 7 per cent, the potential impact that a reliable power supply would have on Nigeria’s economy could be tremendous.  

The scale and complexity of the process is unprecedented in sub-Saharan Africa, and the privatisation has the potential to take Nigeria from a hydrocarbon-based economy to a manufacturing economy capable of satisfying 170 million Nigerian consumers as well as those in the wider region.