A Review of the Nigerian Energy Industry

Power sector is broke, says ex-minister

Power transmission towers30 April 2014, Abuja – A former Minister of Power and high-ranking officer of the defunct Power Holding Company of Nigeria (PHCN), Bello Suleiman, has

States based power supply company, Enron, in 1998.

Suleiman who is a delegate to the National Conference and a member of the Committee on Energy told THISDAY in an interview in Abuja that as a result of the financial burden incurred in servicing the Enron power deal, PHCN became totally broke.
However, the present minister of power, Prof. Chinedu Nebo, has said the power sector is not broke.

The minister who spoke through his Special Assistant on Media, Kande Daniel, attributed the  current revenue situation to both technical and commercial losses, which he assured Nigerians that the ministry is making effort to reduce.

“The power sector is not broke.  The entire system has a lot of losses (both technical and commercial) which government is working hard to reduce. In some Discos, it is as high as 40 percent, meaning that for every N1 of energy, the distribution company is able to collect about 60 kobo. The causes of the losses include ageing and obsolete infrastructure, lack of metering and energy theft,” the Minister added.

Nebo said the federal government had taken into consideration the ability and capacity to reduce losses as a major criterion for the preferred bidders who eventually won and took over the distribution companies. To the minister, the new distribution firms are to commence the implementation of their respective business plans which include metering and replacement of obsolete equipment.

“The distribution companies are presently revalidating the loss profiles in their respective distribution companies, and this should be factored in the review of the Multi Year Tariff Order (MYTO). The power sector is expected to be fully liquid when TEM is declared. More and more investors are coming into the sector, indicating confidence in the system and the economy,” he said.

On the present generation capability, the minister said the power plants were capable of doing 6,730Megawatts (as at yesterday) while distribution capacity was put at about 7,000MW.

But Suleiman who also made a presentation to the Energy committee at the conference, went further to state that the reason most of the reforms in the power sector failed to produce significant result was because they did not address the financial inadequacies facing the sector.
Speaking on the failure of the country to attract private investors to buy into the independent power project (IPP)  initiative over the years, Suleiman said the first major venture into private investor deal on IPP with Enron was messed up by the signing of a lop-sided contract which stifled the power sector.

He said: “The Enron power project was about the first of the IPP which came into being in the sector. The problem is that the contract signed with Enron was the most one-sided contract I have ever seen.

“Enron, at the best of times, will only provide 10 percent of the power generation but for more than a decade now, nearly 30 percent of the revenue obtained from the power sector is being paid to Enron.

“Under the contract, Enron was to provide 200 MW and even if they do not provide 1MW they will still be entitled to payments. Nigerian government is also expected to supply gas to Enron free. This agreement has really ruined the finances of the power sector.”
Suleiman explained that although many members of  the PHCN management objected to the contract with the US firm  on the grounds that it was going to destroy the power sector, government, nevertheless, went ahead to concretise the deal.

According to him, the government saw the problem going into such contract but because it was signed as an international deal between the US and Nigeria, dumping it was not quite easy.

“The contract was signed in 1998 and they deployed in 1999, about a year after.  Since then, they have been getting payment from the PHCN. The contract with Enron was signed when late Bola Ige was the Minster of Power,” he said.

On the exact amount involved in the alleged contract ripe-off, Suleiman said: “I cannot say exactly the amount but the Enron contract gulps about N3 billion every month and we are talking about nearly ten years.

“The result of the faulty contract is what is playing out now as the sector has become largely unattractive to investors who are afraid of not recouping their investment.

“It was not only the minister; quite a number of actors then did not agree with our objection.  They had alleged that we were opposed to Enron because we did not want anybody to come into the power sector, sometimes I was even dubbed arrogant, being a Prince from Sokoto Emirate.
“In fact because of the Enron  contract, PHCN has not been able to sign any IPP. Although arrangement was with the international oil companies as part of the agreement to lift crude oil, it also tries to set up power plants, like Agip, Shell and Chevron.

“They remain the only private driven investment in the power sector. Other small contributions came from some state governments as part of their political agenda. But in reality, I have not seen any sort of outside investor coming to Nigeria because the power sector itself is broke, it had not been able to pay and I can recall a number of times that even PHCN itself could not pay Enron  and government has to look elsewhere for money to pay.

“Even now, I think the sector owes Shell, Agip and Chevron some money. So the power sector is financially bankrupt,” he said.
With regard to the none availability of pre-paid metres, he said there were certain policies which he met on ground when he became the deputy vice- chairman of PHCN which involved disagreements over contracts signed with three companies to supply pre-paid meters.
The former minister said there was another female contractor who also claimed to have a contract to supply close to two million meters and that she is insisting she should be allowed to complete her contract before anyone else.

When asked to assess the current policy intervention by the federal government under its power sector roadmap, Suleiman said it was yet to fully address the actual problems in the power sector.

“It is a rash sort of policy to say that the power sector has been privatised but in reality the actual problems that exist in the sector have not been solved, and that is why power supply generally has not improved. As at today I was told that the generation was hovering around 1,700 MW. This was the same figure that I met when I became the minister in 1998.

“What I can tell you is that the current roadmap is targeted towards privatisation and we should ask ourselves, what is there to be privatised? Can we privatise plants of 2,500 MW? To me, that is not the roadmap that should take Nigeria to the 20,000 MW we are aspiring.  Before you can rely on something and say this is the way, you must see that it works.

“If for the last 15 years, the emphasis that the private sector must drive the power sector has not yielded the kind of result we are looking for. It is either that the right policies that will attract the private sector are not there or the policy itself is wrong.

“As I said earlier, before the privatisation began, the sector was bankrupt. So for a sector that cannot pay its bills, the first thing to do is to ensure that it is structured properly so that it could pay its bills and then investors from the private sector will come in,” Suleiman added.


– This Day

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