September 11, 2014
Our Nigerian Power Trip
Melissa T. Cook, CFA
African Investment Strategy
Managing Director
+1 845 363 4622
cook@afrsun.com
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SUMMARY OF 58-PAGE REPORT: CONTACT US TO SUBSCRIBE
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An August Trip to Nigeria: Fruitful Meetings. We visited Lagos and
Abuja last month—and met with companies and regulators at every
stage of Nigeria’s power sector. Our mission: to find out what progress they are making in moving the sector past the precarious operational and financial state they found at privatization.
Companies in This Report:
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Conclusion: Sector Problems Being Tackled, One by One. Many believe Nigeria’s privatized power sector has encountered nothing but
trouble. We believe the biggest challenges--namely, insufficient gas
and the delay in entering the new regulatory framework, leading to
lack of system liquidity—are being solved. Strong, well-financed, and
innovative companies are incentivized to deliver more gas. And regulators are close to taking the next step.
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Blackstone Group
Carlyle Group
Copperbelt Energy
Dangote Cement/Industries
GE
Geometric Power
IBM
Korea Electric Power Company
KFC/YUM! Brands
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Manitoba Hydro International
Oando Gas & Power
Olam
Royal Dutch Shell
Sahara Power Group
Sanyo Foods
SAP
Seplat
Seven Energy
Siemens
Transcorp
Transmission Company of Nigeria
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UBA
Zenith Bank
Success in the Power Sector Is Transformational. Rather than being
hyped, we believe the impact of power reform on Nigeria is actually
understated. Industries with access to power can hire people and
make things, but that’s not news. It is increasingly apparent to us
that Nigerians are in the midst of a major shift in attitude. People
have a new approach to change: It happened in power, it happened
in agriculture, so it can happen anywhere. With 170 million people in
what is already Africa’s largest economy, momentum in Nigeria could
become a powerful force for investors.
We Can Save You Time and Money. Even if you don’t invest or do
business yet in Africa, the continent’s growth matters to your business. Demand is soaring, competition is already intense, and
longstanding barriers to business are being dismantled. Our research can make your job easier. We’ve been to Africa over 30 times
since 2007, hosting over 1,200 meetings and building a robust network. We package our knowledge into highly readable, well-organized and detailed research reports. Contact us to subscribe, to discuss an advisory arrangement, or to discuss other services.
IRC Headquarters: 420 Lexington Avenue, Suite 300, New York, NY 10170
Member FINRA and SIPC. Additional information on all of our market commentary is available on request
See last page for analyst certification and important disclosures
Our Nigerian Power Trip
TABLE OF CONTENTS
PORTFOLIO MANAGER’S SUMMARY
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AFRICAN SUNRISE PARTNERS CAN SAVE YOU TIME AND MONEY
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ABOUT AFRICAN SUNRISE PARTNERS AND ITS MANAGING DIRECTOR
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ASP PUBLICATION LIBRARY
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ASP HEATMAP: WHERE CAN COMPANIES MAKE MONEY?
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BACKGROUND: POWER PRIVATIZATION COMPLETE, NOW IN OPERATION
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Quick Refresher on How Nigeria Got Here and Where We Think It Is Going
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THE REGULATORS: ENABLING COMMERCIAL VIABILITY IN POWER
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Ministry of Power: Build a Sustainable, Competitive Energy Mix
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NERC: Pushing for TEM Before the One-Year Anniversary of Privatization
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Bulk Electricity Trader: Unlock the Market—and It Will Fund Itself
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CBN: STABLE NAIRA, PROACTIVELY WORKING FOR FINANCIAL VIABILITY
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Putting Some Short-Term Flexibility into Bank Definitions
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Sweeping Away Legacy Debts
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GAS SUPPLY: FINDING, MOVING, AND MONETIZING THE MOLECULES
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Why Is Nigeria’s Gas Sector So Underdeveloped—and Why Is This Changing?
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The Gas Shortfalls Are Obvious: How Did This Happen?
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Nigerian Companies Making a Difference in the Sector
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Capital Markets, M&A, and Investment Activity Rising
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Oando: Nigerian Powerhouse
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POWER GENERATION: SPINNING ALONG
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Power Output Rising: Central Gencos, IPPs, Embedded Power, and More
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Transcorp: Rapid Productivity Improvements
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Egbin Power: Just Give Us the Gas
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Embedded Power: Juice Fed Straight Into the Distribution System
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Geometric Power: Integrated Power and Distribution
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TRANSMISSION: STILL THE WEAKEST LINK, BUT GETTING STRONGER
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MHI Reorganizing, Restructuring, and Revitalizing TCN
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DISTRIBUTION: WHERE THE CASH ENTERS THE SYSTEM
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First, Some Questions on the Currency Outlook
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The Key Questions: How Much Power Coming In? And Cash Collected?
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Copperbelt Energy: Upgrading Abuja Disco’s Performance
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BANKS ARE DEEPLY INVOLVED IN THE POWER STORY
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COMPANIES IN THE MIX
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Dangote: Activity Across Many Industries
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GE: Engagement on Multiple Levels
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KFC: Market Is There, Waiting for Spending To Rise
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Olam: Nigerian Rice Initiatives Taking Root
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RISKS WORTH KEEPING AN EYE ON
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APPENDIX: COUNTRY-SPECIFIC DATA & COMPANIES OPERATING IN SUB-SAHARAN AFRICA
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Our Nigerian Power Trip
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ABOUT AFRICAN SUNRISE PARTNERS AND ITS MANAGING DIRECTOR
Experience, context,
and insight
African Sunrise Partners LLC
ASP is an investment strategy firm dedicated to bringing private-sector capital to
Africa. Our clients include institutional investors, corporate executives, lawyers, and
consulting firms. Melissa T. Cook, CFA is the Founder and Managing Director of ASP.
She has 25+ years’ experience in the global equity business.
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CLSA/Crédit Agricole–Head of AsiaUSA Strategy: impact of China's rise on US
companies and portfolios. Lazard Asset Management: Head of Global Research.
Analyst: Prudential Securities; Barclays de Zoete Wedd; Drexel Burnham Lambert.
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A.B. degree in History, Dartmouth College; M.B.A. in Finance, the Stern School of
Business at New York University. CFA charterholder; FINRA Series 7, 16, 24, 63,
86, and 87 licenses.
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Our Nigerian Power Trip
ASP PUBLICATION LIBRARY
Depth and breadth
of coverage of key
Africa issues—based
on our trips, meetings, and discussions with authors
and specialists
Additional titles from
2011 available upon
request
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Our publications are written to have a long shelf life—and to provide value for nonAfrica experts as well as old Africa hands. All are available to paying subscribers
through www.afrsun.com.
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Flash Update: Africa Takes Center Stage in Washington, August 18, 2014
Insight: Kenya: Rising Risks, Rising Opportunities, July 28, 2014: Kenya, EAC Region
Insight: Travels & Notes: Power, Turkey, Nigeria, July 28, 2014: Conference notes
In-Depth: DR Congo: A New Day, June 9, 2014: DR Congo & the Republic of Congo
Insight: Nigerian Power: The Way Forward, April 17, 2014: Nigeria, power sector
Flash Update: Why Africa Matters for Multinationals, March 20, 2014
Insight: Bolts & Volts: Industrials in Africa, January 30, 2014: Nigeria, Kenya
Insight: Crops, Consumers, and Coins, January 29, 2014: Nigeria, agribusiness
Insight: East Africa: Forging Regional Links, November 6, 2013: Kenya, Rwanda
Insight: Nigeria: Powering Up, October 10, 2013: Nigeria’s energy sector, Ghana
Flash Update: Business & Government: Transforming Africa, September 16, 2013
Flash Update: Brazil Into Africa, September 9, 2013: Brazilian investments in Africa
Insight: NYFA: Putting Theory into Practice, September 9, 2013: Conference highlights
One-on-One: Mark Eckstein, World Wildlife Fund, August 14, 2013: Sustainability
Flash Update: China in Africa: Through Another Looking Glass, August 14, 2013
In-Depth: Ethiopia: It's Good To Be Early, July 29, 2013: Ethiopian opportunities
Insight: Kenya: Ready for Liftoff, May 17, 2013: Kenya, South Sudan, Uganda
Insight: Canada in Africa: Now or Never, April 15, 2013: Canada in Africa
One-on-One: Michael Komesaroff, Urandaline Investments, Spring 2013
Insight: China and Africa: Two-Way Street, March 8, 2013: China and Africa
In-Depth: Underpinning Nigeria’s Growth, January 14, 2013: Nigerian infrastructure
Flash Update: Words at Ex-Im Meeting: Urgency for Africa, January 8, 2013
Insight: Winning in West Africa, December 10, 2012: Nigeria, Ghana
Flash Update: Technology Leapfrog—Transforming Africa, November 26, 2012
Insight: Brother from Another Mother, October 22, 2012: Brazil in Africa
One-on-One: Su Kahumbu, Fall 2012: Founder, Green Dreams and iCow
One-on-One: Deepa Prahalad, Fall 2012: Author, Predictable Magic
Insight: First-Mover Advantage, August 6, 2012: Deep focus: South Sudan
Insight: Solutions and Opportunities, July 10, 2012: US-Africa infrastructure
One-on-One: Ricardo Hausmann, Summer 2012: Economic complexity
Flash Update: Go to Africa, Invest and Prosper, June 21, 2012
Insight: Cement, Copper, and Seeds, June 12, 2012: Kenya, Zambia, ECX
One-on-One: Eliza Griswold, Spring 2012: Author of The Tenth Parallel
Insight: From Brazil to Nigeria, May 9, 2012: Brazil in Africa, Nigeria, agriculture
Insight: Greenfield Growth, April 9, 2012: South Sudan, Tanzania, Kenya
One-on-One: Vijay Mahajan, February 2012: Author, Africa Rising
Insight: Seeds of Growth, February 7, 2012: Agribusiness, Nigeria, Kenya
One-on-One: Chris Trimble, January 2012: Co-Author, Reverse Innovation
One-on-One: George Ayittey, Winter 2011: Author, Defeating Dictators
Insight: Local Heroes, November 28, 2011: South Africa, Nigeria, Ghana
Insight: Walking the Walk, November 3, 2011: US companies, inflation
Insight: Eyes on the Prize, September 23, 2011: Kenya, Rwanda, energy
One-on-One: Deborah Braütigam, Fall 2011: Author, The Dragon’s Gift
Insight: Blocking and Tackling, July 25, 2011: Kenya, Nigeria
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African Sunrise Partners LLC
Our Nigerian Power Trip
ANALYST CERTIFICATION
The author certifies that this market commentary accurately states her personal views about
the securities mentioned, which are reflected in the substance of this publication. The author
further certifies that no part of her compensation was, is, or will be directly or indirectly related to the views contained in this publication. The author does not know or have reason to
know at the time of this publication of any material conflict of interest.
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African Sunrise Partners LLC.
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