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Nigerian government looks to Japan’s private sector for energy solutions

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By Dreux Richard

Approximately 300 Japanese policymakers and businessmen gathered on Thursday in Shinagawa, where they joined their Nigerian counterparts at a forum highlighting investment opportunities in Nigeria’s energy sector.

Nigeria, whose economy is often described as Africa’s most robust, is also home to one of the most thinly-spread energy grids in the world. Analyses vary, but conservative estimates often rate Nigeria’s energy generation and delivery capabilities at 15% of ideal levels or lower; widespread, persistent blackouts are common in both urban and rural areas.

What Nigeria lacks in energy infrastructure, however, it makes up for in potential customers clamoring for electricity (at both the consumer and industrial levels). Ranking Nigerian policymakers, including newly-appointed Minister of Power Chinedu Nebo, hope that private Japanese investment in Nigeria’s energy sector – lured by an untapped customer base and the promise of government support – could kickstart an industry-wide boom akin to the rapid growth that has occurred in the Nigerian telecom market.

Nigerian leaders pointed to a longstanding relationship with Marubeni Corp, one of Japan’s largest general trading companies, as precedent for further Japanese investment. Over the course of 35 years, Marubeni has constructed several generating stations in Nigeria, including Egbin Thermal Station, the nation’s largest power plant. Concurrent with a continuing privatization regime, Nigerian authorities recently authorized the sale of a 70% stake in Egbin to the Korea Electric Power Co (KEPCO). Depending on grid conditions, Egbin often finds itself providing a quarter or more of Nigeria’s total power supply.

Many potential investors, however, worry about possible obstacles posed by poor governance in Nigeria. To that end, Nigerian politicians and business leaders hope that the appointment of Nebo – and his appearance at Thursday’s forum – will ameliorate investors’ perceptions. Nebo established a reputation as a fierce proponent of good governance during his tenure as the University of Nigeria’s vice chancellor, during which time he executed a substantive reform agenda.

Yet Nebo replaces another university professor with a similar reputation for ethical governance who has departed amidst rumors that his disciplinarian approach alienated him from President Goodluck Jonathan. Nebo has nonetheless used his confirmation hearings to paint a bull’s-eye on cronyism. On Thursday he confirmed that industry-wide cultural change is a priority. “The principals of good governance are global and time-tested,” he said, adding that he views his appointment as an opportunity to institute “global best practices” in the Ministry of Power.

Nebo denied the assertion that the Fukushima disaster and concomitant nuclear shutdown have diminished the likelihood that Japanese corporations will invest in the Nigerian energy sector. Several Japanese attendees nonetheless disagreed with Minister Nebo. “As long as our trade gap persists on the basis of energy, we’ll be competing with the Nigerias of the world for liquefied natural gas and so forth, in which case it’s clearly not in our best interest to help them develop additional capacity to burn those resources,” said one Japanese executive who spoke on the condition of anonymity because he had not been authorized to comment. “The Japanese energy market is very inward-looking right now, even by its own historical standards.”

But Nigeria’s untapped customer base and the possibility of government-backed development opportunities will likely prove too attractive for some corporations to pass up. Masa Sugano, director of Africa trade policy for the Ministry of Economy, Trade and Industry (METI) pointed out that a number of Japanese companies are well-positioned to take on relatively low-risk energy projects in Africa, particularly in the area of energy transmission, where the Nigerian grid often loses up to one third of its electricity, and where Japanese corporations have long been global leaders.

Sugano also pointed out that a number of large, stable industrial concerns in Nigeria use enough electricity that Japanese corporations could reap easy profit by building proprietary generating capacity for individual Nigerian companies. Such an approach would amount to a ‘middle way’ toward building trust in Nigerian governance while also providing badly needed megawatts.

It also remains to be seen whether Nebo’s ministry can encourage an industrial climate hospitable to small and medium-sized Japanese energy concerns. Though Nebo and many of his colleagues insisted that small-scale investors are critical to the development model they’ve envisioned, Takashi Yoshida, a director general at the Japan Oil, Gas and Metals National Corporation, pointed out that Nigeria is among a handful of African nations whose startup costs were found to be prohibitive by his corporation’s research arm.

Nebo explained that it’s only a matter of time until the remaining barriers come down. “The industry is just waking up from sleep,” he said, referring to a prolonged period of relative government neglect of the energy sector. Unclear, however, is whether the process of deregulation that the government has now embraced will have the effect of encouraging small investors, or of rendering them non-competitive.

“No one here doubts that there’s good money to be made in Nigeria,” said the same Japanese executive. “But many of us aren’t so sure we know exactly who is equipped to make it.”

Read more stories by Dreux Richard. -- Why Haruki Murakami should not receive the Nobel Prize for Literature -- The only phase-out we can afford -- Nigerian group celebrates 10th anniversary with masquerade in Ikebukuro -- Foreigners join weekly protest against nuclear energy: who they are and why they went -- 100 years after nationalist icon Nogi Maresuke committed ritual suicide

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