Posted on: Sun, 20 Apr 2008
The entrance to the residential area of Agabara Estate. Agabara Shoreline plans on supplying
power to both the industrial and residential areas of the estate. Picture: Provided
Most serious investors and business people are well aware of the opportunities in Nigeria’s market of over 140 million people. Despite the many success stories, allegations of corruption, bureaucratic bottlenecks and cumbersome regulatory policies still make many investors hesitant to pump money into the Nigerian economy. Jaco Maritz looks at a company called Shoreline Energy International (SEI) that is building an exciting power project and finds out that Nigeria’s difficulties are not impossible to overcome.
"If you are building a professional world class business [in Africa], with world class solutions…and you couple on to that the determination and creativity to solve the hurdles of meeting your vision, you will succeed."
This is managing partner at Shoreline Capital, a co-investment company created by SEI and international investors, Toks Abimbola's view on how to approach business projects in Africa. He is very much involved with Agbara Shoreline's new independent power project (IPP) at the Agbara Estate in Lagos. Agbara Shoreline is a joint venture between SEI and Agbara Estates Limited. SEI is a portfolio of operating companies with over 3 000 employees. The company's head office is in Lagos but its operations run all over the continent.
The Agbara Estate is the largest privately owned industrial estate in West Africa and home to 27 large factories employing over 8 000 people. Companies operating from the estate include Unilever, SmithKline Beecham, Nestle, the Leventis Group and Coleman. It also houses 350 middle and high income families.
Nigeria's electricity supply problems make it very difficult, and expensive, for businesses to operate at full efficiency. Power cuts are a daily occurrence and businesses resort to generators to guarantee constant supply. For the manufacturing industries of Agbara Estate power is a chief input and of great importance.
"Principally the problem we face within the continent is the problem of power, and if we can solve it, the development of the continent will be accelerated," says Abimbola. "The tragic story of Africa is that there are so many different opportunities across so many types of fuels and configurations of power generation available. Africa is short on power but not short on the resources required to generate power.
"There are huge opportunities in Africa to jump the old technologies in power generation to renewable and more sustainable environmentally, positive sources."
The IPP concept in Agbara is to create a 100 MW merchant power station by using a gas turbine and gas generation solution. The principal target market is the industries located in and around estate. Agbara Shoreline has been licensed by the federal government to go ahead with the project and is looking to bring it onstream within the next nine months.
Even though Abimbola sees it as a 'no brainer' for a power company to build an IPP to supply power to a captive audience, he concedes that Agbara Shoreline faced many problems in getting the project off the ground.
"The biggest problems we faced were in dealing with the local Nigerian factor, in terms of managing the issues around regulation and individuals who were trying to make money on the back of this project.
"Getting the government to sign the regulation we required and obtaining our licenses issued on time were a problem. For power operators, such as us, that are looking for public-private-partnerships with the government, the regulatory regime is completely unclear."
Nigeria's electricity tariff regime can also be a hindrance for power operators to achieve proper returns on investment. "The tariff regime in Nigeria, and pretty much across Africa, has not been a great experience. In Nigeria the tariffs have been frozen since 2002. You can’t generate a good well funded, well structured project, unless you have a tariff that is commensurate with your investment.
"International investors often have a problem with channelling the requirements of getting a project done. When you are sitting in your offices in London or Paris it is very easy to see your way through a [business] model that works and makes money for projects in Nigeria or any other African country. The issue is essentially in meeting the local challenges."
These domestic problems can however be overcome by "companies who are dedicated to the solution, who are world-class in their approach to solving the problem and who are determined to get the job done."
Abimbola is positive about the changes starting to happen within government and other relevant bodies. "We are seeing in Nigeria that the government is beginning to make the right noises. Advisory services and various incentives are being put into place to meet the challenges and solving problems."
He feels that that Shoreline has learned a lot of lessons from this project which the company will be able to use in similar future endeavours in Nigeria.
