Enugu State Government is about to revive the hitherto abandoned coal mining as it has perfected plans to resume coal mining to power its new 660 MW coal fired power plant.
The power scheme is to help drive the planned $30bn GDP growth target of the state.
Analysts say to execute this type of very important infrastructure/energy project will typically require a huge capital outlay of at least $1 billion / N1.4trillion …
The cost can get up to $2.5billion/N3.5trillion depending on level/type of power generating technology deployed
According to Nnaemeka Obiaraeri, “the Engro Pakistan (a major fertilizer/petrochemical company), we engaged as Technical Partners , when we acquired NAFCON Onne from the Obasanjo Government in 2005/2006, did 660 MW Coalthar Power Project in Pakistan at a cost of $995 million./N1.395trillion.
“Averagely, it takes 3 to 5 years to construct a 660 MW coal-fired power plant… from the groundbreaking phase to full commercial operation.
He added that “When including the initial pre-construction phases—such as feasibility studies, environmental impact assessments, and financing—the entire project cycle generally spans 5 to 7 years.
On Enugu State’s electricity requirements, Obiaraeri said “To completely cover Enugu State with reliable, 24/7 power for homes and industrialization, the state requires approximately 300 to 700 megawatts (MW).
“For context, the state currently only receives about 70 MW from the national grid, which causes severe deficits…
According to him, this huge deficit provides more than enough justification for the 660MW power scheme.
Talking about financing the scheme, Obiaraeri stressed that “They can finance and execute it through a robust PPP joint ownership structure, and securing a bulk offtaker/distribution of the generated power at N120 per kw/hr , which is lower than the NERC risk bottom price of N124 per kw/h pricing.
The suggested joint ownership PPP framework of 40% to the Enugu State Government SPV and 60% to Private investors’ arrangement, is well-suited to Nigeria’s power sector, enabling the state to leverage private capital and expertise while retaining significant ownership.
ANALYSIS ON THE VIABILITY
Profitability: With a Projected Gross Operating Profit: ₦589.7 billion (Revenue) – ₦135 billion (Fuel) = ₦454.7 billion, this power project is potentially very viable and profitable.
This profitability is derived/ based on general and scientific assumptions derived from similar projects in other climes (the engro Pakistanis), and the project being executed under the suggested execution frameworks above.
WHAT ARE THE ASSUMPTIONS?
- The project SPV Secures coal fuel supply at $45 per ton [2million tons of coal required annually].
- Project to cost $1.5bn/N2.1trillion under an EPC arrangement
- Secure a Bulk Electricity Buyer at N120 per kw/h
- Financing Arrangement/Contribution: Enugu State: USD$600m/N840billion; Private Investors: USD$900m/N1.26trillion
The above proposed financing requirement, arrangement and strategy, makes long-term, low-cost financing critical.
The project can draw from sources including development finance institutions (e.g., World Bank (AfDB), commercial banks, and potentially federal government intervention funds.
OTHER RISK MITIGANTS AND CRITICAL SUCCESS FACTORS AND RECOMMENDATIONS:
1.The projects viability/ profitability is highly sensitive to the landed cost of coal. The state must secure enough coal sites and the $45/ton price, including all handling and transport costs.
- Secure Financing: The Enugu State Government and their private sector partners, must arrange and finalise project financing structure to lock in favorable interest rates and manage the currency risk (dollar-denominated debt vs. naira revenue)
- Regulatory Framework: They must ensure the PPP agreement is robust, legally sound, and provides the necessary guarantees to protect the private investment, as highlighted by the Electricity Act 2023.
In summary and informed conclusion, the project’s fundamental economics are very attractive.
The primary challenge, and key to its success, will be navigating the financial structuring and managing the associated risks.
No doubt, the development intelligence of able Governor Peter Mba, His Excellency should be encouraged and supported to execute this project
*Ala Igbo must be great..
We are READY, ABLE AND WILLING TO PROVIDE OUR UNCOMMON FINANCIAL ENGINEERING AND CREATIVE PROJECTS STRUCTURING SKILLS TO SUPPORT THE ENUGU STATE GOVERNMENT
*OBIARAERI, Nnaemeka Onyeka
