HIGH IMPACT PROJECTS FOR 2020

Nigeria 2020 | GAS & POWER | VIP INTERVIEW

TBY talks to Habeeb Alebiosu, Co-Founder & CEO of Viathan Engineering, on launching the company, cleaner energy, and a positive outlook for 2020.

What was the main driver behind founding Viathan?

We started Viathan to implement solutions to solve the power challenges in Nigeria. The Lagos State Government was spending a significant amount of resources to fuel and maintain diesel generators to power street lights, government buildings and other public facilities. We understood the problem and proposed to solve it by generating electricity in a more reliable, cleaner and efficient manner. We undertook market research and feasibility studies to dimension the scope of the power deficit in Lagos and the rest of Nigeria. We presented our ideas to the Lagos State Electricity Board (“LSEB”) which reviewed our proposal and developed a project concept document which was presented to the Public Private Partnership Office. The process included a presentation to the State Executive Council and a Committee chaired by the PPP Office. Within 15-months of the State signing off on the power purchase agreement, we commissioned Viathan's PIPP LVI Genco. The Project was a success as we met our initial objectives of providing reliable power for the Lagos State Governments facilities. We provide power for over 160km of public lighting in Lagos alone, the Lekki-Epe Expressway toll booths, Lekki-Ikoyi link bridge tolls, Alexander Water Works, Hakeem Dickson Water Works and several health facilities to name a few. We continue to grow our business by developing and acquiring additional power plants. Viathan, through its subsidiary companies currently owns, and/or operates a combined installed capacity of approximately 52MW and 150km of distribution assets across six power plants in Lagos and Ogun State combined.

Can you tell us more about your business model?

Viathan focuses on localising existing business models to suit prevailing market conditions. While undertaking our feasibility study for Viathan we carried out an extensive study of the Nigerian Electricity Supply Industry (“NESI”) with a clear objective of identifying and eliminating the inhibitors. In Nigeria today, more than half of the installed generation capacity is stranded. Of the capacity that is generated, a significant proportion—25%-30% of the power—is lost. We designed a viable distributed generation model to effectively deliver power to end users. This simply means the design, build, operations and maintenance of power assets where needed and close to off-take points and power evacuation apparatus that serve consumers. Our business model complements the DisCos. We are currently partnering with some of them to improve power delivery to strategic economic clusters.

Why would DisCos want to partner with Viathan?

The goal of the DisCos is to sell more power to improve its power reliability and increase its bottom line. Certain constraints and bottlenecks restrain the DisCos from achieving this goal. DisCos who form strategic partnerships can reduce these constraints. Partnership with DisCos would allow us to scale quickly, and increase power supply. It is unfair to blame all the problems on DisCos, as a sizeable proportion of these issues is due to the dissonance in the entire value chain, thus the industry needs policy consistency. For instance, today, different players buy gas at different prices for rendering the same service and beyond this also lies the issue of cost reflective tariffs. Gas contracts are typically take or pay, whereas the consumer now understands the need for competitiveness and for getting power when they need it. This take-or-pay models are fast evolving to a hybrid, which blends the latter with take and pay models. There needs to be better optimized investments in infrastructure along that value chain. Transmission is improving; however, more coordination and cooperation is required between transmission companies and the DisCos, and between DisCos and providers like us.

Viathan was the pioneer in Nigeria in utilizing infrastructure bonds to finance power projects. What made Viathan choose this funding method?

Viathan issued a N10 billion, ten (10) year 16% coupon, corporate infrastructure bond in Nigeria in 2018. This was the first tranche of a N50 Billion bond programme financed by Nigerian Pension Fund Administrators and guaranteed by Infrastructure Credit Company Limited (“InfraCredit”). This Bond was the first of its kind in Nigeria and has benefited Viathan by imbuing strong governance structures, access to capital, increased market share and lower cost of capital. Bond financing is cheaper and affords us a longer tenor. We are a great candidate for infrastructure bonds, as we have assets that are already generating cash flow. Moreover, the Bond structure was flexible enough to allow us to scale up.

Do infrastructure bonds reduce risks for the project Sponsor?

Anything that reduces pricing reduces default risk. The proceeds of the Bond went into refinancing current obligations, which were in the 23-24% range, whereas these bonds were issued at 16%. The process of obtaining the Bond imposed a high level of governance structures on the business which better positioned us for sustainable growth. It is known globally that there is strong correlation between governance and profitability. Given that multiple stakeholders are beneficiaries of the Bond it gives some semblance of protection from political exigencies. Beyond the reduced pricing which reduces the default risk, the 10-year Bond enables us to match funding source with similar tenored PPAs which ensures that debt obligations will be met.

What is your take on how Nigeria will progress to take advantage of its gas resources and move toward cleaner energy?

Gas is the fuel of the future in Africa. Its advantages over competing fuels are clear. Gas is one of Africa's most abundant energy resources, it is cheaper and more environmentally friendly than diesel. At Viathan we believe gas could form the basis for the sustainable industrialisation of Africa. In line with this belief, we have committed and will continue to commit substantial resources to developing the gas market for the industrialisation of Nigeria. Our subsidiary company, Gasco Marine Limited built a 144,000SCM/Day capacity compressed natural gas (“CNG”) plant which provides gas to industrial customers in the power and manufacturing sectors. We are investing in developing the Natural Gas Vehicles (“NGV”) market to implement transport solutions which utilizes natural gas as the fuel of choice. Viathan's effort in accelerating the adoption of gas in commerce and industry will help displace diesel which in turn will reduce carbon emissions and result in savings to bus operators. This will go a long way in supporting Nigeria in meeting its commitment under the Paris Climate Agreement.

What is your outlook for 2020?

In 2020 we will be embarking on a number of high impact projects. We will be expanding our geographical reach to the northern, central and south-southern areas of Nigeria. We will deepen our partnership with the DisCos to foster collaboration in solving the power challenges. We will take giant strides in 2020 toward our 2023 goal of selling 200MW in this market. We will also be diversifying our energy mix by piloting Africa's first floating solar PV-farm. We expect 2020 to be a pivotal period in the story of Viathan.