A Review of the Nigerian Energy Industry

‘Insufficient gas, not investors, causes irregular electricity supply’

DG-BPE, Benjamin-Dikki24 August 2014, Abuja – Benjamin Ezra Dikki, the Director General Bureau of Public Enterprises (BPE), spoke to journalists on the challenges faced by power investors as well as the proposed sale of NITEL.

Despite the privatisation of the Power Holding Company of Nigeria (PHCN), the power sector has not fared better. Could you explain what the impediments are and what you are doing to address them?

IT is very important to understand the issues so that we wouldn’t be passing blames to the wrong quarters. The problem of power supply is not the fault of the private investors who took over the distribution and generation companies. The major problem is the supply of gas to power the plants. If you recall sometime back, vandals blew up pipelines supplying gas for power generation and for other uses. It took NNPC a couple of months and millions of dollars to fix those holes and restore gas supply. I understand they are almost finalising that.

The basic problem has been lack of investment in gas infrastructure in the past. President Goodluck Jonathan administration inherited very little infrastructure for distribution of gas to the areas of need, that is why we have all those gas flaring, polluting houses and farmlands, making it difficult for people to exist in their natural habitats. When Jonathan’s administration came they introduced measures to stop gas flaring. There was simply no contractual obligation on the part of the oil producers in those days to pipe these gases for use, now we have to take the fire fighting approach to it.

The president has directed that $300 million from the euro bond should be channeled to the development of gas infrastructure and there are other initiatives that are being taken by NNPC and the Ministry of Petroleum to ensure that gas supply is bridged in the interim and then for long term measures, to ensure sustainable gas supply.

Furthermore, the president has directed that the Nigeria Liquidified Natural Gas that is sold on the stock market should be channeled for domestic use. This is not an issue you’ll wake up and expect magic to happen; you have to procure equipment, make some investment, you also have to install and so on. Those things are in the process of being done, but before that is done I believe NNPC would conclude the fixing of the blown pipelines and we are going to see the improvement in power supply.

Let me point out very clearly that the distribution companies are not to blame, the generation companies generates electricity and supply to the DISCOs, the generating companies don’t have gas to generate, so once the GENCOs don’t have gas to generate and power to give the DISCOs, then the DISCOs wont have anything to distribute, because currently, none of them generates power, it is the duty of the GENCOs, so the issue is not for people to get angry with the DISCOs, who don’t have the power and are just trying to manage what the system generates, what is allocated to them and make sure they rationalise.

I want people to understand that the DISCOs are not to blame; it is the power they get that they distribute. The GENCOs too have constraint of lack of gas supply and I want to also inform you that some of the NIPP plants that have been concluded cannot be tried because there is no gas supply. That is the major challenge. If today we have sufficient gas to power 6000mw, Nigerians would see the fundamental difference between when these companies were not privatised and now.

Government is still pampering and indulging the privatised companies, why is it so?

Currently, we are producing between 3,000 and 3,500mw a day. The threshold used as a benchmark for privatisation was 4,500. Nigeria has the capacity for about 11,000mw, 6,000 PHCN and 5,000 NIPP; if we have gas supply you’ll see the difference. Also, the water level for the hydropower plants has also dropped, so we are not having as much power generated from Kainji, Shiroro and Jebba, as it would be if the water level has been higher.

Basically, the major problem is that of power being available to put on national grid. The distribution companies have done a lot of investments, Eko DISCO has invested $145m and they are already deploying it to improve the network, to change transformers and so on. If today Eko gets 1,200mw that they require, they’ll have 24 hours power supply uninterrupted. If you do your calculation, that $145m is about N23.2b that is the budget of the Federal Ministry of Power for 2014. They have improved their infrastructure, it is only when you have power that you’ll know the difference, we don’t have power and nobody is pampering these DISCOs and GENCOs. On the generating side, GENCO companies have also improved the capacity to generate; Ughelli has moved from over 160 to over 300mw a day, Shiroro has done some rehabilitation, also Kainji. The difference between then and now is that we have 11 distribution companies, 11 managements, 11 investors, who are closer to the people, unlike then when we had one company planted at the centre.

When this issue of gas is addressed, Nigerians would see the fundamental difference, we just want to make it clear that that is the constrain, otherwise, the amount of money these people have put in the network is more than what Nigerian government can put together for years. Let’s also remember that the problem is also a cost to the businessmen. The higher the amount of power that is put into the grid, the lower their unit cost of operation. The cost of operation at 3,500mw is higher than if you have 4,500mw, the businessmen are angling for power because it would reduce their cost of business, if its 11,000mw, labour cost would go down by unit because you have one mega watts compared to number of manpower.

So if the power drops today they cannot sack their staff, they’ll still have to pay them. Let us understand also that if all the variables were in the hands of private sector, we would have seen the difference, assuming that gas company was also well taken care of. Let me explain further, for the electricity sector we have the Nigeria Electricity Regulatory Commission (NERC), regulating and providing quality direction. They came up with a multi-tariff order that was scientifically determined taking into account all the variables that are involved in the production, distribution of power. Without a cost reflective tariff, nobody would have come to invest in our power sector. So anybody investing in power can plan his business model and develop a profit making strategy to his business.

We don’t have the same thing in the oil and gas sector. Today, the department of petroleum resources has its regulatory power, ministry of petroleum has regulatory power, PPPRA has regulatory power, NNPC has regulatory power, although terms of refinery licences have been procured, we haven’t seen anybody building refineries because the business horizon is not clear to them. It is now in the national interest for the National Assembly to quickly pass the Petroleum Industry Bill (PIB), in its current version.

We have done it in the telecommunication sector, no single party should play two roles, an operator should not be involved in policy formulation, and policy formulator should not be involved in operation. Once we are able to achieve that for the petroleum industry bill, then the challenges we are having for gas, would be taken care of on the long-term, because the regulator would now sit down and put all the variables that would determine the economic cost reflective price of mining, drilling, producing gas and piping it to the last user.

Post-privatisation of companies, would you say there are now improvements?

I just gave you the examples of Eko and Ikeja DISCOs I visited when we went on post privatisation visit. After handing over on November 1, we allowed them to take stock, if you go to Ikeja today, they have a call center where you lodge complaints, the call centre is like entering the premises of a bank. Then they have another call centre where people call on phone, send e-mails and all that to make complain, they have a computer screen which tells you how many people have called to complain, how many complaints have been resolved and so on.

Immediately you call and you complain about the faults in your power supply the person there would transfer it to the technical department, which takes care of repair. The technical department also monitors from the point of information to the point of resolving the problem, immediately you lodge the problem, he calls the control centre and says the problem has been resolved, the control centre would then call the customer that the problem has resolved.

When we were NEPA or PHCN who cares about that? People come to complain for you to restore power to them and NEPA and PHCN would take their time, but today Ikeja has increased its installation to about 23,000 more houses. They go out trying to meet customers’ needs, expand the clients’ base so that they can improve their efficiency and improve profitability. The same goes for Eko too, which has also improved its rehabilitation and installation with $145m used for the purchase of transformer and installation and so on. Let me also tell you why they have to do so, they receive power at a cost unlike before.

Could that have necessitated the escalating cost of electricity?

I am not aware that NERC has increased the price because of DISCOs’ demand. Like I mention earlier, NERC has a scientific model for determination of tariff, they look at the capital cost of bringing in the equipment, they look at the cost of installation, they look at the whole spectrum of costs, including the cost of financing because the model recognises that you cannot raise billion from your pocket, you can only borrow. So cost of financing is also factored in and scientifically a price is determined and the mechanism is such that price is reviewed every six months, not upward, and find out whether the ingredients that lead to the determination of the price are invalid and sustainable for that level of tariff or that they should review it either upward or downward.

Every review has a potential of price increase or decrease, so there is no arbitrary determination of price, no DISCO can determine the price on its own, that is the role of NERC.

There was an appeal from your office for investors to establish transformer-manufacturing companies to boost power supply, what has been the response?

We were just appealing to investors that there is opportunity. In some of the international travels I have undertaken, we have drawn opportunity for business in electricity meters, transformers, cables, smart card for meters and other components that are necessary for maintenance of power infrastructure. We’ve tried to show investors that Nigeria is investors’ destination.

With all these distribution companies, there is no single transformer manufacturing company in Nigeria, we have one or two-meter producing companies, but they are not producing enough to meet demands. Nigeria requires millions of meters and that is billions of dollars. We are also sensitising investors that this is a financial opportunity for you, you can finance the purchase of transformers and lend it to distribution companies who’ll pay you over a certain period of time. So we don’t restrict it to only transformers, we are sensitising investors to the huge opportunities that exist for investment in Nigeria.

Looking at enterprises that have been privatised, give us update on how the enterprises are faring, have they succeeded or failed?

I would have suggested that you go round, do your research and give us your own assessment. By our own survey we discovered that 66 per cent of the privatised firms are doing well and the balance of 34 per cent are not doing so well, while a few have even closed down. For example, the automobile industry, after privatisation, previous government did not put in place adequate automobile policy for Nigeria. A situation whereby it is cheaper for you to import a wholly built car because of the tariff regime that is cheaper than to bring parts and assemble them. This issue, which would have helped to create jobs and add value to the economy, was not addressed. So it was not economical for any of our assembly plants to produce locally. Nigeria must have a policy to determine whether it wants to produce vehicles locally or import. That is what the transformation agenda of the present administration is trying to address.

We must put policies in place that make it economically viable for you to assemble a car in Nigeria and those measures are being put in place. That is why recently a Nissan four-wheel drive car was rolled out in the country and weeks back PAN also did same. If the tariff measures were not good, they won’t come. Previously, those industries failed because government did not put the right policies in place.
*Gbenga Akinfenwa – The Guardian

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