A Review of the Nigerian Energy Industry

‘Power sector reforms will create back-ups in the system’

Mr. Rumundaka Wonodi01 September 2013, Abuja – The Nigerian Bulk Electricity Trading Plc, NBET, otherwise known as the ‘Bulk Trader’ is a Federal Government – owned public liability company set up in fulfilment of the Electric Power Sector Reform Act 2005, to engage in the purchase and resale of electricity and ancillary services from independent power producers and the successor generation companies of Power Holding Company of Nigeria, PHCN. In a recent interview with Ndubuisi Francis, its Managing Director/CEO, Mr. Rumundaka Wonodi, fielded questions on the power sector reform, among others.

In our last interview, you hinted that a stabilisation fund was being mulled for the sector. What is the situation report on that?

You know the way the market works; it’s not quite that people come up with ideas and immediately you get to implement them. The way tariffs are put in place by the Nigeria Electricity Regulatory Commission (NERC) requires a long consultation process, and at the time I spoke with you, the MYTO 11 tariff was already out, and therefore a methodology had to be amended or adjusted to accommodate that, to some extent or a provision needs to be made within the market. What might have delayed that is that there are a few missing structures within the market that are getting to be put in place, that would allow this happen.

One, you need to have the new owners coming—who will run these distribution companies or generation companies in the long run so that they can also provide a view on how things work. Second, you need to have the market operator in place. When I say market operator, I mean the Manitoba component of that market operator being in place so that when you begin to put these funds together, everyone who will benefit or contribute to it will be on the table. That, I believe, is one of the things that has delayed the setting up of a stabilisation fund or discussions around it.

But it is very well known that there is need to have a stabilisation fund that will take care of little quakes in the market.

Some analysts have projected that about 40 per cent of Foreign Direct Investment (FDI) in Nigeria would go to the power sector. Do you think that is a valid projection?

I don’t have a global view of the Nigerian economy. I don’t know how much is invested in oil and gas, how much is invested in agriculture, manufacturing, IT. You know the economy is vast, so, I will not contend with the analysts. But what I can tell you is that we expect significant investment in power, coming through privatisation, either in acquisitions or in further revamping, refurbishment of the networks or the powering of the Gencos; also, of course, in greenfield and other new initiatives. So, we expect significant FDIs into the power sector. But whether it is 40, 80 or 100 per cent of the economy, I am not in a position to tell you that.

Some months back, the drop in power supply was attributed to the shortage of gas. However, you had a review of the industry agreements, which has gas supply as one of the major highlights. How would you react to this position?

There are two ways to look at the issue of gas. The power failure was not one of those unscheduled or forced failures. It was a scheduled maintenance that came into being because Otorogu or one of the processing facilities in the Niger Delta needed to be shut down and have maintenance work carried out on it. I think that the Presidential Task Force on Power actually did put out a notice but it was not very widely circulated. So, I guess not everyone in the Press picked it up to notify the populace.

This is the challenge that the system faces. We do not have redundancies within the system—so, once you take out one facility, there is no other facility, there is no back-up. The whole idea of this whole reform is to drive investment to a point where you have back-up. In generation you will have what we call a ‘reserve margin’, which means that at any point that one plant goes off, you have a back-up system that can fill up the gap. We are so short of everything—gas infrastructure, gas molecules.

Transmission, distribution network capacity is that if there is one small shift, it affects the system significantly. And of course, yes, the gas supply agreements that were part of the Industry agreement, when it is binding, will also make sure that gas flows, but at the same time (even within every gas supply agreement), there are times of scheduled maintenance where facilities will go off. What you try to do is to align the time when the gas facility is being maintained to correspond with the time when the generation being taken off grid for its own maintenance. So, what you do for the system is to make sure that not all generation plants can go on their scheduled maintenance at the same time; not all the gas processing facilities can go at the same time. You manage and have a system planning around it so that at any point in time, there is a significant mitigation of that risk.

The Bulk Trader is the strong link between the Discos and Gencos. How effectively have you been playing your role so far?

I can tell you that of all the documents that were signed at the industry agreement for the IPPs or for a generation company—they signed a collection agreement, they signed a gas supply agreement, they signed a gas transportation agreement, and they will sign a PPA (Power Purchas

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