The State of the Nigerian Power Sector: Issues, Alternatives and Prospects
An address delivered at:
International Headquarters of
The Redeemed Evangelical Mission (TREM)
Anthony Oke, Gbagada Expressway, Lagos, on 21st September, 2014,
By
Professor Bart O. Nnaji, FAS, FAEng, CON, NNOM
(Former Minister of Power and Chairman/CEO of Geometric Power Limited)
PRAISE THE LORD!!!
When the presiding Bishop of The Redeemed Evangelical Mission (TREM) Dr. Mike Okonkwo asked me to speak here today I wondered if he understood that I am not a preacher and that as an Engineer, I do not have that colorful language which opens God’s ears widely when the preacher speak! But then, in his letter, he stated that the theme of the program is “The state of the Nigerian Power Sector: Issues, Alternatives, and Prospects”.
In Genesis Chapter 1 verse 3, God said “Let there be light”, and there was light. He then gave us power to bring on this light in various ways, and to produce the light as energy to perform multiplicity of tasks including operation of industries.
Nigeria has been in the business of organized power production since the early 1900s when the Tin Mines in Joes and Ijora Power Plant in Lagos came into being. Within this period, we have had Electricity Company of Nigeria (ECN), followed by NEPA, and then followed by PHCN. In all the years that we have had these companies, we have not produced power that is commensurate with our population growth and our industrial power demand. In fact during the military era, for almost 15 years, we did not add any power to the Nigerian grid, and we did not maintain the power installations we had. Unfortunately for us, we did not stop population growth. If anything, the darkness eliminated all other things we could have been doing except for population growth.
The arrival of the 4th republic resulted in an opportunity to totally reform the power sector to align us with other nations of the world. The Obasanjo-led Government therefore set about developing a Bill that ultimately passed as an Act of the Nigerian National Assembly as the Electricity Sector Reform Act (EPSRA) OF 2005. This Act transferred all of NEPA assets to a holding company that could be subsequently unbundled. The Holding company became Power Holding Company of Nigeria. PHCN was eventually unbundled into 6 Generation Companies (aka GenCos), 1 Transmission Ccompany (aka TCN). And 11 Distribution Companies (aka DisCos).
The reform itself did not go smoothly as envisaged in 2005. By the end of 2005, the Nigerian Electricity Regulatory Commission (NERC) was put in place. However, when the YarAdua Government came into existence in 2007, the NERC Commissioners were arrested; suspended and sole Administrator was appointed. The Government went further to tally suspend the power reform process and it remained so until Dr Goodluck Ebele Jonathan became Acting President in 2010. In March 2010, the then Acting President set up a Presidential Advisory Council of 26 people, chaired by Gen. T.Y. Danjuma, I was a member of that Council. The Council setup 6 committees to address specific national issues and to advise the Acting President. I was selected to chair the Power Committee of the Council.
The Power committee prepared a report that advised the President to restart the power reform and how to initiate the program. Three months later, the President appointed me as his Special Adviser on Power, and Chairman of the Presidential Task Force on Power. He also set up another committee, known as the Presidential Power Committee on Power, which he chaired personally. It was the first time ever in Nigeria that a President focused so much of his attention on the Power Sector, to the extent that he held meetings on Power every two weeks. The Task Force was the operational arm of this Presidential Action Committee. It was this Task Force that produced the Power Road Map which the President launched on August 26, 2010 here in Lagos.
You can see the speed with which we worked to set agenda of what to do for the sector, how to do it and when to get it done. It was with the same speed that we set about implementing the various features of the Power Reform Roadmap to the extent that the Bankers’ Committee, led by the Central Bank, which had made a presentation to the President about the numerous impediments to their investing in power in July of that year, invited me in December of 2010 at their annual retreat and gave me an award for having addressed most of the issues they had raised to the Government.
The Fundamental goal of the reform was to empower the private sector to become the driver of electricity generation, transmission and distribution in Nigeria. To achieve this, a number of things had to be done. One was to privatize the generation and distribution companies. This was because no distribution company in Nigeria was credit worthy enough to be able to buy electricity from a generation company and be trusted to be able to pay for the electricity it is purchasing. The only way therefore to achieve the credit worthiness for the Discos to be able to enter into Bilateral Agreements is by handing it over to private companies that can then raise the necessary fund to invest in the companies and remove the corruption that was endemic in the system.
However, privatization cannot happen unless those who are buying the power companies can clearly see how they would recover their investment. This is why Government had to adjust the tariff to become reflective of the investment costs for power projects. For example, it costs $1.3m or approximately N200m to build 1MW of electricity. Therefore, for 1000MW, you will need to invest $1.3 million or N214Billion. This is just in generation. The DisCo has to be able to guarantee that when it buys power from a power generating company that has invested such as amount, it should be able to pay for the electricity that it has taken. However, by the time of privation, the DisCos would still not be credit worthy and would require several years to become credit worthy and would require several years to become credit worthy enough to buy power. There was a need to have a “middle man” that could be trusted by the GenCos to buy the power and sell to the DisCos such that if a DisCo is unable to pay, the middle man will pay. That “middleman” has to be a government entity with government guarantee or a government backed guarantee instrument.
It is for this reason that we created the Nigerian Bulk Electricity Trading Plc. (NBET) as the buyer of power from the GenCos in the Country, and it carries with it World Bank partial risk guarantee (PRG) that is further backed by the Nigerian Government.
A number of other institutions were also set up to ensure sustainability of the Power Sector reform. These include the Nigerian Power Training Institute (NAPTIN), the Electricity Management Services (EMS), Nigerian Electricity Liability Management Company (NELMCO), etc. It would have been difficult to have a reform without institutions that would ensure sustainability. The Transmission Company TCN is currently being managed by a private company. However it requires focus in terms of expansion and investment.
Currently the main Achilles heel for rapid expansion of power and availability is gas supply and transmission infrastructure. In terms of gas supply, we are constrained by inadequacy in gas itself, as well as the gas pipeline. It takes several years to develop a gas field and be able to process and provide gas for use. Similarly it takes many years to plan, design and build major gas pipelines. In all these, Nigeria must make haw while the sun shines because now non availability of gas largely limits availability of power.
With regard to transmission, I will use road network analogy to illustrate power transmission infrastructure. The more cars you have on the road, the more lanes you need on the road and the wider the road network should be in order for road users to go from one place to the other easily. Where ever you have narrower road network, then you will have long queues and less movement of vehicles. Right now, you can look at Nigeria’s power transmission network as being equivalent to a two-lane road. There is only so much traffic such road can carry, and the road sometimes just terminates at a number of places and you will have to turn back.
An ideal situation is where all roads are interconnected, thereby forming network of loops so that if a particular road is blocked, and you can get to your destination through alternative routes. This is the difficult situation we are still encountering in the Nigerian electricity network today. We had planned to significantly expand the Nigerian Electricity network by creating a 765kV Super Grid that is looped around the country. This is equivalent to creating a super highway road network in the Country with say 3 to 4 lanes on each side. Such a road will be tolled so you will have to pay a toll to get on it and enjoy the freedom of movement as well as getting to your destination faster. The current network is limited to 330kV, and is still not looped thereby making transmission limited. There is a need to have a lot of focus by the Government in this particular area.
As of now, all the PHCN companies are privatized, and even the National integrated Power Projects (NIPP) is in the process of being privatized. It has now become possible for private companies to begin to construct power plants, and many power projects are therefore under construction in Nigeria.
ALTERNATIVES:
One may ask, what alternatives are there for power generation and delivery? The alternative to National grid power is “off-grid” power, and this can come in different forms. One is the type of power that can be developed and delivered in remote locations where power is not available. Such power is called “distributed” power. It can be delivered using a variety of fuel sources including small hydros, solar, wind, etc. The independent local grid can even be managed by the community. Payment for tariff is the same as in the National grid power, except that subsidy may be provided by the government to subsidize the initial cost of investment which may be quite high in comparison to the national grid power.
Another alternative is a ring-fence which means taking a particular area, which is then ring-fenced and disconnected from the national grid for the purpose of providing reliable and sustainable electricity within that ring-fence. Such power alternative normally covers a larger territory than in the case of distributed power. An example of that is the project which our company, Geometric Power has undertaken in Aba metropolis. The ring-fence covers 9 of Abia State’s 17 local Government Areas. It covers 9 of Abia State’s 17 local Government Areas. It covers the area which has the highest density of populations. It also covers that area which is a major commercial center of the old Eastern Region of Nigeria, as well as neighboring rural area. The Aba project has required taking over of the PHCN electricity distribution network and building up to 140km of new overhead lines, building 4 new sub stations and refurbishing of the existing 3 PHCN substations, plus the power plant substation. We have also built 141MW Power Plant in the first phase to reliably supply power to off-takers within the ring-fence.
We have even built a 27km gas pipeline to ensure that gas is delivered unhindered to our Plant from Shell gas processing station. The unique steel tubular poles employed in the design of the power lines clearly make a statement. For example, the bigger poles, pillars of the network, are designed to withstand all but the most extreme of the forces of nature. They are sunk to a depth of meters, requiring 120 bags of cement of raise the concrete support for the base of the pole. At the top of the overhead lines, we have fiber optic cables intended for data transportation and data gathering at various poles within the network. This will also help in detecting leakages at various points in the network. The 33KV line design with its associated steel tubular poles constitutes the first of its kind in Nigeria.
Today, the Aba IPP is the single largest investment in the SE. The total investment is over $500m or more than N80 Billion. This project served as the guinea pig for the Federal Government Power reform program. It is the lessons learnt from the project that guided my performance as Federal Minister of Power for Nigeria, and it is for that reason that the Power Roadmap which we developed was praised by the international community and gave confidence to investors across the world to invest in the privatization as well as the new power projects that are under development now. The Aba project will serve as a model that will illustrate that there is no place where it is written on the forehead of Nigerians that “thou shall not have reliable electricity”.
This critical infrastructure will provide the tools with which our people will apply their ingenuity to create numerous industries that will diversify the economy. It can help turn the informal sector into formal sector in the region. The Shoe producers who make inconsistent quality of Shoes and stamp them “made in Italy” instead of “made in Nigeria” will now produce consistently made shoes no matter the number that the whole world will be proud to wear their shoes, they will be proud to stamp “Made in Nigeria” on them. The garment makers who produce inconsistent quality of fabrics and clothes can be converted into manufacturers of seamlessly sown clothes to be worn in America, Europe, Asia and Africa. These are some of what the Aba IPP will deliver within the next one year.
PROSPECTS:
What are the prospects for future power investment in Nigeria?
The future of power in Nigeria is quite bright if we continue to implement what we planned in the power roadmap. We should do everything to avoid resorting to our old ways of corruption. This means that if we are not doing the corruption through contracts and rent seeking as in the olden days, we resort to allowing those who purchased the power assets made pledges to the government and people of Nigeria, and therefore should be held responsible on their pledges. The Nigerian Power sector is gradually unleashing enormous business opportunities. For instance, there are opportunities to invest in power meters, manufacturing of transforms, switch gears, various components of power, or even provide services in accounting, legal, financial advises that used to be all held within Government, I now marvel at the number of people who have become quite knowledgeable about power because the system has become involved in power production and distribution. The future of electricity is therefore quite bright, only if we rigorously follow the path that we set for ourselves. This way we will be able to meet the injunction of the Almighty God, “Let there be light”.
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