Minister of finance Kemi Adeosun, says the power purchase agreements reached with project developers in the power sector is still valid and not cancelled, as rumored.
In a statement released on Friday, Adeosun said Nigerian Bulk Electricity Trading (NBET) Plc is saddled with the responsibility of negotiating the agreements while the ministry, through the Debt Management Office, estimates the size of the obligation it can accommodate in relation to the power sector.
The PPAs, which was signed with a number of investors allow NBET buy generated power from generating companies and get it to the consumers through the distributing companies
“The ministry is required to evaluate the country’s repayment capacity for current and contingent debt obligations as part of its debt sustainability analysis (DSA), which is a key requirement for sound public debt management practice,” the statement read.
“These liabilities have wider implications for the country’s debt and overall fiscal position in the medium to long-term.”
According to the statement, the federal government has had to provide guarantees for the recent PPAs signed in the industry.
“Guarantees by themselves do not constitute a risk. However, where guarantees are expected to be the primary means of ensuring ongoing contractual payments, they constitute a huge risk to the fiscal sustainability of the federal government,” it read.
“Besides, a sovereign default has the consequent effect of increasing Nigeria’s credit risk and cost of borrowing in the international capital markets (ICM).
“It would be recalled that the federal government had recently and successfully raised Eurobonds of US$5.5 billion in the ICM at favourable yields.
“These proceeds are being invested in the much-needed infrastructure (road, rail, power, etc). A default would, therefore, have a detrimental effect on the development of the country.”
Adeosun said the federal government will bear foreign exchange risks and make termination payments in dollars.
The Nigerian Bulk Electricity Trading Plc is also required to work within a liability exposure limit of $10 billion.