10yrs after initiation, 150MW Delta Sunrise Project ready for financial close – Ikomi

Proton Energy Limited recently secured a Gas Sale and Aggregation Agreement with the Nigerian National Petroleum Company Ltd, the Shell Petroleum Development Company of Nigeria Limited, TotalEnergies EP Nigeria Limited, the Nigerian Agip Oil Company Limited, and the Gas Aggregation Company Nigeria Limited for the supply of natural gas to the 150 MW power generation plant it is developing in Sapele, Delta State. Oti Ikomi, the company’s CEO, shares with BusinessDay’s Isaac Anyaogu what it took to achieve the feat.

Congratulations on securing a Gas Sale and Aggregation Agreement with NNPC and others. What was the experience of securing this agreement?

We executed the gas agreement in February of this year, but this is the culmination of over a six-year effort in a long and tedious process. GACN has a process like a funnel. So they have so many prospective off-takers that they can give gas to. The process is tedious and includes due diligence, extensive business reviews, and several engagements. We completed this during the tenure of the third MD of GACN, and they have a four year tenure.

To put this agreement in context, the last major organisation that signed an agreement of this nature was Dangote Fertilizer in 2022. So this is a very significant achievement for our company. and the event that we’re having on April 27 is to commemorate it and to let our partners, the industry, and the sector be aware of this important development on our road to financial close.

Give us an insight into the project.

Our project is a 150 MW power plant located in Sapele, Delta State. It is developed by Proton Energy and is named Proton Delta Sunrise. It speaks to the aspirations of the people of Delta State for all the positive benefits that can come from power.

It is an on-grid power plant, and the offtaker is NBET. Phase one is 150 MW, and the second phase will add an additional 350 MW. So a total of 500 megawatts, which, if you put it in context, is roughly 10 percent of the entire country’s roughly 5000 MW capacity.

This project has been in development for close to a decade. The company was set up in 2011, and after that, we started the process.

What kind of agreements do you have—anything similar to what Azura Power had?

We have the gas agreement, which we have signed because fuel supply is one of the most important aspects. It covers almost 40 percent of the cost of the project. We have executed our Engineering Procurement and Construction (EPC), we did an international tender that was published in the Economist of London, and we went through a process to choose our EPC, CMEC of China. They built the Omotosho and Olorunshogo plants, and they recently built the Maiduguri power plant that the President recently commissioned.

We went through a whole process and went through several iterations; our OEM is Siemens. We have been in partnership and working with Siemens for close to 10 years on various initiatives. So they are supplying us with two gas turbines—250 megawatt gas turbines and one steam turbine to make up the 150 megawatts, and that’s on the technical side.

We have African Infrastructure Investment Managers (AIIM) as our anchor financial flows equity investor, and we expect African Development Bank (AfDB) participation. We also have some commitments for Naira funding.

Coming to your question, we have a Power Purchase Agreement (PPA) with NBET. But it’s gone through several iterations, and now, on the third or fourth managing director of NBET, it is in the process of negotiation.

In the original Azura structure, you needed to mitigate two risks. One was liquidity risk, and the other was payment risk. So they came up with the Partial Risk Guarantee (PRG), which was done through the World Bank to help with the payment risk.

But now the market has evolved. We are working with our financial advisor and financial partners, and we believe that there are other structures that we can utilise that do not necessarily require a PRG. We are aware of the implications of a PRG for a sovereign like Nigeria.

Apart from the PRG, the Put Call Option Agreement (PCOA) is another viable option. This essentially says that if you build a plant, you can either sell it, put the call to the government, or they can call for it. This is not a very difficult agreement. So we believe this arrangement is required for Proton Energy and other similar plants to reach financial close.

What kind of policy support do you think the government can provide?

Some power projects can take up to 10 years to develop in Nigeria, so negotiations for projects required in 2033 ought to begin now.

The industry needs bankable international power purchase agreements. Given the current state of our power sector and the credit experience of developers, these agreements should be structured on a ‘take or pay’ basis and not ‘take and pay’.

The reason is that these are huge investments in excess of $200–300 million. A project like ours in excess of a quarter of a billion dollars requires assurance of a certain level of offtake.

I visited the Beni Suef Power Plant, built by EL SEWEDY along with Siemens, in Egypt. When Abdel Fattah al-Sisi came into power, he drafted a plan to add 20 to 30 gigawatts of power to Egypt’s capacity. He awarded the construction of 10 GW to Siemens and 10 GW to GE.

We need to improve the speed of our negotiations and deal with your counterparts with much more seriousness, much more partnership, and much more win-win.

The interesting thing about this is that I was there six years ago, and when I met the president of the company, I asked him, how long did it take you to build this plant? He said from concept to electrons on the grid, it took two years. In Nigeria, in two years, you would still be negotiating one clause in the agreement.

We need to improve the speed of our negotiations and deal with your counterparts with much more seriousness, much more partnership, and much more win-win.

The other aspect is that there has to be some kind of support, which will be similar to PCOA options. There are certain termination obligations when you have to terminate a project that has to be encapsulated in this agreement. And these are things that, if you have partners that want to work together, we spend one day on a weekend negotiating and concluding the deal.

The third point is to have a commercial structure that works. Sometimes the commercial structure of tariffs is at variance with the reality of the business. This is one area where the outgoing administration of President Buhari has actually done a good job. We are now at a stage where power tariffs are almost cost reflective on the retail end. This needs to be achieved at the wholesale end too, between the offtaker and the power developers.

It is also important that some kind of preferential support through the Central Bank be given to developers when accessing foreign exchange. We do not yet manufacture turbines in Nigeria. Yes, there are going to be elements of the project that are going to be in local currency, but there’s a huge chunk that is in foreign currency, and there has to be a clear line of sight to accessing forex.

Nigeria has been known as the “island of oil in a sea of gas.” Why is it a challenge to get gas to industries and plants?

While the gas is there, you have to invest in the midstream to take the gas from the subsurface and bring it into power projects like ours or power industries like fertilizer or other such industries.

Some of this investment will come from outside the country. But there’s a major challenge. The international finance community still has not given clear support for supporting fossil fuel and gas-related processes in countries like Nigeria. So we have to engage them to make sure we get the requisite international finance.

Since this project has been in development for about a decade, how have you been able to finance it?

We have had to rely on self-funding. I come from a banking background. I’ve been an executive in banking for quite a while. So personal savings were used to start the project, and then as we went along, we had interest from associates and friends, and then gradually we got private equity firms on board.

You get some of your technical partners, and everybody comes in the early stages with a lot of excitement and interest, thinking it will be a four- to five-year project, which suddenly becomes seven years, eight years, or 10 years.

So it’s an extremely challenging country to work in, but we are now at the point where, with our gas agreement and a power purchase agreement due to be finalised, we hope to reach financial close by the end of this year. So after reaching financial close, we will then be in a position to start construction.

Were local banks also involved in the project’s financing?

Yes, there are some local banks that funded part of the project, but most of the support came from international banks.

Some of our local banks have a low appetite for lending to the energy sector; do they now have confidence in the sector?

The local banks tend to be a bit reserved about lending for on-grid projects, but if you have an off grid initiative with a clear line of sight to cash, they are more willing. We also have a 5MW off-grid project in development, and they are supporting us.