A Review of the Nigerian Energy Industry

Failed expectations in electricity supply in Q1

power-transmitting-station08 April 2014, Lagos – With the country just emerging from the successful handover of the assets of  the defunct PHCN to the private sector in November 2013, there were high hopes of immediate improvement in electricity generation at the beginning of 2014.

The high expectations were fueled on one hand by the failure of the government-owned PHCN to deliver power to Nigerians and on the hand, by the hope and anxiety generated during the14 years of painstaking efforts by the administrations of former President Olusegun Obasanjo and the current administration of President Goodluck Jonathan to transfer the power sector to private investors.

The journey actually started in 1999, when former President Obasanjo inaugurated the Electric Power Implementation Committee, which developed the National Electric Power Policy in 2001.

The enactment of the Electric Power Sector Reform (EPSR) Act of 2005; establishment of PHCN; repeal of the Act that established the National Electric Power Authority (NEPA) and the creation of 18 successor companies from the PHCN – six generation companies; one transmission company and 11 distribution companies were part of the initial stages of the reform.

The EPSR Act of 2005 also created the Nigerian Electricity Regulatory Commission (NERC) to regulate the entry and operations of the private sector in terms of the tariff and service delivery.

The implementation of the EPSR Act was briefly suspended by the late President Umaru Musa Yar’Adua, before President Jonathan, restarted the privatisation of the assets of the PHCN in December 2010, four months after he inaugurated the Power Roadmap in Lagos on August 27, 2010.

On March 30, 2012, the Bureau of Public Enterprises (BPE) issued the revised bidding documents to bidders, while the final comments were received on April 20.
The Federal Government, through the BPE handed over the assets of the assets of PHCN to the private investors on November 1, 2013.

With the successful handover of the assets to the private sector, there were high hopes that electricity supply would show unprecedented improvement, after several years of failed promises by NEPA and later PHCN but certain factors militated against this dream.

Low Water Levels

The cyclic drop in the levels of water at the hydro power stations during the period of February, March, April and part of May every year affected electricity generation during the first quarter of 2014.

The hydro power stations at Kainji, Shiroro and Jebba witness a drop in water levels, which is referred to as “low deep”, which is a cyclic natural phenomenon that occur during the first quarter of every year as a result of drought.

The situation has worsened in recent years by poor water management and lack of maintenance of the hydro stations, which on many occasions, has resulted in excessive leakage of water in the dams during this critical period of the year.

All the five units in the 760megawatt capacity Kainji Electricity Power Station generated about 330megawatts; while Jebba generated between 418megawatts at peak periods and 339megawatts at off-peak.

The 600megawatts capacity Shiroro Station generates between 409megawatts and 320megawatts.

But during the first quarter 2014, Shiroro was also shut down, resulting to a drop in power generation by over 300megawatts, thereby worsening the power supply situation.

Also as predicted by the Nigerian Meteorological Agency (NiMet), the drop in seasonal rainfall, especially in the north, forced the Transmission Company of Nigeria (TCN) power rationing.

The Managing Director of TCN, Mr. Mark Karst, Karst had told THISDAY that the decision became necessary in view of the constraints in power generation which had seen electricity contributions from the country’s hydro power plants dip with the shutdown of the Shiroro power plant in Niger State.

He explained that Shiroro had remained shut down due to low water level at its reservoirs, adding that the generation company now hopes to garner considerable amount of water into its reservoirs with the imminent rainfalls.

Shortage of Gas/Vandalism

The Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, had said the solution to the cyclical problems at the hydro stations was to increase gas supply to the gas-fired power stations to compensate for the expected fall in generation from the hydro stations.

“The answer to the cyclical hydro problem is to increase gas supply so that we can compensate the expected fall in hydro power generation to the national grid by enhanced supply from gas turbines,” he said.

Amadi said if there was enough gas to support the thermal stations, the generation from the thermal plants would compensate for the expected drop from the hydro stations.

With sufficient gas to support additional capacity at the thermal plants, there is no doubt that there will always be “spinning reserve” to take over when the water levels drop.

But instead of gas supply to increase and boost generation at the gas-fired power stations so as to compensate for the drop in generation at the hydro stations, the supply of gas to the generating stations during the period under review was grossly inadequate due to vandalism of pipelines.

Pipeline vandalism disrupted power supply during the first quarter, with the Nigerian National Petroleum Corporation (NNPC) claiming that about N800 million had been spent on the repair of the pipelines.

Over 30 percent or 480million standard cubic feet per day ( MMsf/d) of the installed gas supply capacity was out during the period due mainly to vandalism.

The lost gas was equivalent to the gas requirement to generate about 1,600 megawatts of electricity.

The pipelines involved were the Escravos-Warri stretch of the Escravos Lagos Pipeline (ELPS) which accounted for (190 mmcf/d) and the Trans-Forcados crude pipeline (230 mmcf/d).

An explosion was said to have rocked the ELPS and NNPC’s investigation revealed that a dynamite was used on four ruptured points on June 25, 2013.
Engineers from the Nigerian Gas Company (NGC), a subsidiary of the NNPC carried out repair works, but as repairs progressed, more points of rupture emerged.
Though the lines have been repaired, electricity generation which hit an all-time high of over 4,700mw in 2012, averaged between 3,500 and 2,500megawatts at the first quarter of 2014.

Non-Implementation of TEM
A major setback in Nigeria’s electricity market during the first quarter of 2014 was the non-declaration of the Transitional Electricity Market (TEM), which was slated for March 1, 2014.

This setback largely followed the persistent inadequate gas supply to the various power generating plants nationwide.

When declared, TEM will make it mandatory for the NGC, a subsidiary of the NNPC, to be sanctioned in the event of failure to deliver on its gas supply commitments to the power producers, in line with the Gas Supply Agreement (GSA) signed in 2013.

With TEM also, any power generating station that fails to deliver on its electricity supply commitment to the national grid in accordance with the Power Purchase Agreements (PPAs) signed with the Nigerian Bulk Electricity Trading (NBET) Plc, otherwise called the Bulk Trader, will also be sanctioned.

Actionable agreements, which have since been signed but awaiting implementation, pending the declaration of TEM, include Transmission Use of Service Agreements (TUOS); Grid Connection Agreements; Ancillary Services Agreement; Power Purchase Agreements (PPAs); Gas Supply Aggregation Agreements (GSAAs) and Gas Transportation Agreement (GTAs).

The GSA obligates the gas supplier to provide the agreed minimum amount and quality of gas to the power producers.

The agreement also obligates the power producers to pay for gas supplied and provides for penalties for non-delivery of the required gas and non-payment for the gas delivered.

It was gathered that of all the agreements that are awaiting implementation, the GSA posed the greatest threat to the declaration of TEM because of the persistent interruption in gas supply to the power producers.

Up till now, all the gas-fired power stations are operating below half of their available capacity because of the inadequacy in gas supply.
The shortage has been blamed on the sabotage of the Escravos-Warri-Lagos Gas Pipeline network by vandals, saboteurs and suspected aggrieved inhabitants of Ogidigben, Ajadiabo, Escravos, Gbaramatu and Ugborodo communities in Warri South West Local Government Area of Delta State.

Chevron Nigeria Limited, for instance, has not been able to pipe 350 million standard cubic feet of gas per day additional commitment because of the vandalism of the Escravos pipeline network.

If TEM were to be declared in the face of chronic gas shortages to the power sector, NGC would pay huge penalties for failure to meet its gas supply obligations to the power producers.

Under TEM that was supposed to have taken off on March 1, the PPAs signed by NBET and the power producers obligate the producers to deliver agreed electricity capacity and energy to the national grid.

The agreements also obligate NBET to pay for the capacity and the energy delivered while penalties exist for non-delivery by the power producers and non-payment by NBET.

However, notwithstanding the challenges experienced in power generation during the first quarter of 2014, the Nigerian Electricity Regulatory Commission (NERC) said it was anticipating increased generation and distribution of electricity to about 7,000mw within the year.

NERC expected the increment from the coming on stream of power projects executed under the National Integrated Power Projects (NIPPs).

But NERC’s 7,000mw projection by the end of this year will remain a pipe dream unless there is a boost in gas supply to raise generation beyond the current average of 3,500mw, a level, which it attained since 2007.

Indeed, Nigerians eargerly monitored the progress of the sale of the assets with the hope that the transfer of the power assets to the private sector would immediately translate to improvement in supply but i twas a forlon hope because of the fundamental problems in the sector.

The National Council on Privatisation (NCP) approved nine prequalified bidders for the GENCOs on August 14, 2012 while 31 prequalified bidders were approved by NCP for  the DISCOs on September 18, 2012.

The financial bid opening ceremony was held on September 25, 2012 for the Gencos and October 16, 2012 for the Discos NCP on October 29, 2012 approved the five preferred bidders for Genco & 10 preferred bidders for Disco.

The emergence of preferred bidders triggered the process of negotiations of the share sale agreement, according to the Director General of BPE, Mr. Benjamin Dikki.

The privatisation agency held negotiations with bidders in January 2013, while the transaction and industry documents signed with all parties on February 21, 2013
The signed document automatically required bidders to pay 25per cent of the acquisition cost by March 21, 2013 and the balance of 75per cent by August 21, 2013.

The assets were handed over to the successful bidders on November 1, 2013, after labour liabilities of 38, 615 workers were paid.

The BPE has also concluded the evaluation of proposals for Kaduna Disco and Afam Genco, with Northwest Power Consortium and Taleveras Group emerging as preferred bidders respectively.


– Ejiofor Alike, This Day

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