Canada based, Reservoir Capital Corporation (Reservoir) has announced its completion of a Heads of Agreement with Kainji Power Holding Limited (KPHL) respecting a share exchange transaction that will result in Reservoir owning a 60 per cent stake in KPHL and KPHL beneficiaries holding jointly 76.7 per cent of Reservoir.
“This announcement represents an important first step in Reservoir’s move to focus on producing hydropower investment opportunities in frontier regions,” Lewis Reford, CEO of Reservoir said on the company official website.
Reservoir’s acquisition of this equity stake in KPHL will give it a toehold 1.3 per cent economic interest in Mainstream Energy Solutions Limited (MESL). The proposed transaction is an “Arm’s Length Transaction” and not a “Related Party Transaction” under the Exchange’s policies.
Reford added, “We will begin with a toehold ownership stake in a proven company whose dividends should provide us with essential working capital to conduct our ambitious expansion strategy.”
KPHL holds a 2.1 per cent interest in MESL, Nigeria’s leading producing hydropower company and KPHL’s sole investment. The company owns and operates Kainji and Jebba power plants which have a nominal capacity of 1.3 gigawatts (GW) and current aggregate operating capacity of 922 megawatts (MW).
The two facilities are the largest hydropower plants in Nigeria and are also operating under a long term concession agreement. The dams’ proven hydrology allows balanced power production all year long in a demand environment that is critically short of dependable power.
“This agreement will lead to increase in more investments and skills which will translate to greater output,” said Abayomi Fawehinmi, an energy analyst at a Lagos-based consulting firm.
“It’s also has potentials for new employment and training opportunities. However the uncertainties surrounding the 2019 elections may affect people’s decision to do such partnership, but there is hope,” Fawehinmi said from the commercial capital, Lagos.
As part of the proposed transaction, KPHL beneficiaries will be issued 158.1 million Reservoir common shares at a deemed price of C$ 0.06 per share, resulting in only one new shareholder exceeding a 20 per cent ownership threshold.
Reservoir may be granted an option that, if exercised, will increase its ownership of KPHL to 100 per cent and its economic interest in MESL to 2.1 per cent. If granted, the option will be exercisable on or before December 31, 2018 by the issuance of a further 105.4 million shares.
Both Reservoir and KPHL will be subject to a break fee of $ 100,000 if either fails to deliver its shares by March 9, 2018.
On closing of the initial transaction, KPHL beneficiaries will have the right to name two of Reservoir’s six Board members. It is expected that one of the directors (who will also hold more than 20percent of Reservoir’s post-closing outstanding shares) will be Vincent Gueneau.
“This alternative funding and investment model in the power sector will influence the decisions of other power plant owners when sourcing for funds or planning to divest part of their investment in an effort to mitigate risk,” said Emmanuel Afiamia, energy economist, Afimia consulting services.
Reacting to the benefit of the plan, Afiamia added “Nigeria is beginning to see increase in funds most especially in private equity and foreign direct investment FDI. Also, we should expect improved efficiency of the plant which will lead to increase in power generation and supply.”
The proposed transaction remains subjected to the approval of the Toronto Stock Exchange (TSX) Venture and by Reservoir’s shareholders. Also shares issued by Reservoir will be subject to restrictions on transfer under Canadian securities law and TSX Venture Exchange policy expiring four months following closing.
It would be recalled that the nation’s power sector has been said to be in jeopardy, with a looming major power crisis as investors have threatened to shut power generation plants over unpaid invoices.
Earlier in December , the Managing Director of Mainstream Energy Solutions Limited (MESL), Lamu Audu, told journalists after a facility visit to Jebba and Kainji Hydro Power Plants that his company was being owed N44 billion for energy produced and consumed.
Audu also said GenCos in the country were being frustrated by Distribution Companies (Discos) rejection of power being generated, leading to a loss of between 20-25 per cent of total outputs. He warned that the federal government must act urgently, or face an imminent national blackout.
MESL is a privately-owned company contributing about 20 per cent of Nigeria’s grid power output. In 2017, the company generated 5,503,180 MWH.
“This arrangement guarantees more partnership in 2018 and beyond; because major international firms are beginning to see our positive macroeconomics index which includes: strong political will, expansion of transmission capacity to 7,000 Megawatts, improvement in the ease of doing business in Nigeria, and relatively stable business environment,” Afiamia concluded.