As Organised Labour squares up to the President Muhammadu Buhari Administration on sundry issues in the power sector, especially over the recent increase in electricity tariffs, OSIGBESAN SULTAN LUQMAN writes that the country has achieved a lot in the last 10 years since the conception of the National Integrated Power Projects (NIPP) and its implementation by the Niger Delta Power Holding Company (NDPHC), stressing the urgent need for the Buhari Administration to execute Phase II of the NIPP, which covers the construction of 11 hydro dams in Northern Nigeria to add and diversify the country’s power generation, transmission and distribution capacities, in order to stem the looming faceoff between government and Organised Labour over electricity-related matters
If pointless self-criticism in the face of empirical, incontrovertible statistics were an Olympics sport, Nigeria would be assured of the gold medal in the upcoming Rio 2016 Olympics in Brazil come next June.
As it were, however, criticism for criticism sake is not yet a sport anywhere in the world, hence Nigerians cannot compete for medals in what appears to have become our national pastime today in the country. This vicious, critical self-denunciation that many today pass off as constructive criticism in public discourse would have been no cause for concern if not for the fact that as a nation, we seem to have made it our default mode of contribution or participation in public debates on government policies or achievements, thereby doing incalculable damage to the nation-building process at all three tiers of government.
It seems that this critical collective pessimism lies at the heart of the current ongoing debates – albeit triggered by the recent increase in tariffs and efforts by the Minister of Power, Works and Housing, Mr. Babatunde Fashola (SAN), to explain the tariff increment – surrounding the state of the Nigerian Power Sector vis-à-vis the clear progress made in the sector since 2005 when the National Integrated Power Projects (NIPP) was conceived and since then being implemented jointly by the federal, state and local governments through the corporate vehicle of the Niger Delta Power Holding Company (NDPHC), a government agency owned by the three tiers of government but which operates strictly on the private sector business model. The NDPHC Equity Structure is as follows: Federal Government 47%; 36 States, 35%; 774 Local Governments, 18%.
Power Sector: Recalling Recent History
A recourse to recent national facts of history of the power sector is appropriate here to rejig our collective memory as a nation and serve as a reminder of where we are coming from as a country, our achievements – if any – thus far and the envisaged future of this critical sector without which no nation can hope to make any appreciable progress in the 21st Century.
The NIPP was initiated in response to the deplorable state of power infrastructure and the inappropriate framework for private sector investment in the Nigerian electricity industry pre-2005. The scope of the NIPP covers the entire value chain in the power sector, namely generation, transmission and distribution, including building from the scratch a national gas infrastructure to power 10 gas-fired power plants across the country.
The Niger Delta Power Holding Company (NDPHC) was incorporated in 2005 as the Special Project Vehicle (SPV) for the NIPP. The Nigerian National Petroleum Corporation (NNPC), the Nigeria Gas Company (NGC) and the defunct Power Holding Company of Nigeria (PHCN), among others ere an integral part of the NIPP project development.
The NDPHC is domiciled in the Presidency and its budget is drawn by a high-power Board whose chairman is the Vice President of the Federal Republic of Nigeria and has as statutory members of the Board six state governors and four federal ministers.
The NIPP has been funded via the Excess Crude Savings Accounts and its capital funding sum till date is $8.46 billion. Disbursement of fund to the NDPHC funds is ratified by the Federal Government and the Houses of Assembly of the 36 states of the Federation.
Pre-Existing Power Infrastructure Before NIPP/NDPHC
Before 2005 and the advent of the NIPP/NDPHC, Nigeria had transmission capacity of 4,495 Kilometre (km) on its 330Kv lines. The country’s transformer capacity on the 132/33Kv band was 5,700MVA and on the 330/132Kv Transformer Capacity, Nigeria had 5,300MVA.
In terms of distribution projects before the NIPP/NDPHC came on stream, Nigeria, for instance, had 33/11KV sub-stations of 8,148MVA and 33KV and 11/0.41KV substation with 32,000MVA capacity.
And before the NIPP/NDPHC, Nigeria could barely generate 2,000MW of electricity. The country neither had any gas-fired power station nor even the gas infrastructure to generated electricity.
NIPP: Africa’s Largest Infrastructure Intervention?
However, with the formulation of the NIPP and its implementation by the NDPHC over a mere 10-year period, Nigeria’s transmission capacity on its 330Kv lines increased to 6,932Km or 46 %.
In the same period, the NDPHC increased the country’s transformer capacity on the 132/33Kv band to 11,118MVA or by 42% and today Nigeria’s transformer capacity on the 330/132Kv band is 11,590MVA, an increment of 93%.
The NIPP/NDPHC have also have huge impact on Nigeria’s distribution infrastructure in the period under review. Today Nigeria 33/11KV sub-stations of 11,649MVA, up by 43% and 33KV and 11/0.41KV substation with 84,170MVA capacity, a mammoth 163% increment.
Under the NIPP and in only 10 years, the NDPHC has built 10 gas-fired power stations, an average of one power station per year, with a combined installed capacity of 4,528.5MW. These are Alaoji, Benin, Calabar, Egbema, Gbarain, Geregu II, Ogorode, Olorunsogo II, Omoku II and Omotosho II power plants.
The NIPP/NDPHC have also built for Nigeria gas pipelines, gas metering and regulating stations grouped into 7 lots for the delivery of natural gas to these power plants.
Within 10 years, the NDPHC, which is headed by a Managing Director, Mr. James Abiodun Olotu, has also expanded the country’s power transmission capacity through 25 lots as follows: 5,590MVA of 330/132Kv transformer capacity; 3,313MVA of 132/33Kv transformer capacity; 2,194km of 330Kv lines; 809km of 132kv lines; 10 new 330Kv substations; 7 new 132Kv substations; and expansion of 36 existing 330Kv and 132KV substations.
In the third leg of the power chain – distribution – the NDPHC under Olotu has executed 296 distribution projects in 43 lots spread over every state of the Federation, which has given the country 3,540MVA injection substation capacity; 2,600Km of 11Kv lines for HVDS; 25,900 CSP distribution transformers and 1,700km of 33Kv lines.
The NIPP/NDPHC has also delivered on the provision and integration of grid-wide telecommunication and Tele-protection infrastructure.
Eight of the 10 power plants are fully completed with installed capacity of 3,696 MW and the last two – Egbema and Omoku, 563MW – are on course for completion and commissioning by the fourth quarter of this year.
Today, the NDPHC-built power plants contribute an average of 900MW to the national grid, with about 820MW idle for reasons of evacuation capacity but always available for immediate deployment.
NIPP: Divestment And Reinvestment Plan
Because of the country’s harrowing experience of inefficiency under the government-owned National Electricity Power Authority (NEPA, now defunct), initiators of the NIPP thought it wise to include a divestment plan in the power sector reform framework.
However, rather than pulling out completely and leaving the Nigerian People at the mercy of private sector operations in this critical sector, the three tiers of government have only divested 80% of their equity in one leg of the tripod only – the NIPP Generation Assets – to private investors.
To also make room for private sector participation and efficiency in the power distribution sector, the three tiers of government have sold their distribution assets to private distribution companies (DISCOs), which $1.5 billion historical cost is recoverable from the DISCOs over a period of 10 years.
The three tiers of government still have intact their transmission assets (historical cost $2 billion as at December 2015) and gas assets (historical cost $500 million as at December 2015), which equities they would divest to the private sector in the future to make more profits from their initial joint $8.46 billion investment in NIPP Phase I.
What these translate to is that under NIPP Phase I, the three tiers of government have invested $8.46 billion to expand Nigeria’s generation, transmission and distribution capacities as well as build a gas infrastructure to power 10 new gas-fired power plants from the scratch, all under 10 years! In the process, the NDPHC has recouped $7.1 billion $8.46 billion investment out of only selling 80% of government shares in generation only. The proceeds from this divestment in the generation assets – $7.1 billion – is to be reinvested in NIPP Phase II.
Since the total assets of the NIPP currently stand at $11 billion, it therefore means that the NDPHC has turned in at least $2.5 billion in profit and assets for the country in 10 years. Only the oil sector matches this level of return on investment for government in the period under review.
NIPP Phase II
Selling off government’s 80% equity in the NIPP generation assets only has ploughed back $7.1 billion – out of the country’s $8.46 billion investment in NIPP Phase I – into the joint coffers of the federal, state and local government. Rather than squander the $7.1 billion on other government projects in other sectors, the three tiers of government agreed under the power sector reforms programme to reinvest these huge sum in expanding the country’s power infrastructure under NIPP Phase II.
The second phase of the NIPP aims to change the country’s power infrastructure in other locations not fully captured under the first phase of the NIPP, especially in the northern region.
Candidate projects under NIPP Phase II are as follows:
• 43 critical transmission projects to resolve transmission bottlenecks;
• 51 transmission projects to improve wheeling capacity to 12,000MW;
• 31 other transmission projects as foundation for increase of capacity to 16,000MW plus communication and national control centre, etc;
• Large hydropower – Mambilla, Gurara, Itisi with total capacity to generate 3,450MW;
• Small hydropower at 10 sites in the north to generate 83.25MW;
Already, the NDPHC has received proposals from the State Grid of China, AK-AY and other interested foreign investors for partnership and financing of the NIPP Phase II projects.
NIPP/NDPHC: Current Issues And Challenges
The clear achievements recorded under the NIPP by the NDPHC were attained in spite of the infamous “Nigerian Factor” which raised its ugly head all the way and continues to assail the process 10 years on. However, the NIPP gains are also testaments to the often maligned “can do” spirit of Nigerians, including those driving the NIPP process, especially at the Presidency, the Senate, state and local governments, the Ministry of Power, the NDPHC and the Bureau for Public Enterprises (BPE).
This momentum must be sustained despite the change of personnel at the federal level, many states and in the ministry of power and the BPE.
Currently, the NIPP/NDPHC grapple with a number of challenges, which all three tiers of government and other stakeholders should close ranks to solve in order to move the power sector forward for the betterment of the country.
These challenges include inadequate gas for full commercial operations; inability to execute long-term GSAs and PPAs; partial payment of energy invoices, leading to the NDPHC alone being owed over N77 billion as at the end of November 2015; litigation in respect of bids for Alaoji, Gbarain and Omoku power plants; and NNPC/NGC plans to divert gas on the western axis and 240mmscf to Omotosho and Geregu.
There are also investors’ concern in the sector bordering on credit enhancement for NBET; put call option agreement with party acceptable to lenders; 100% divestment of NDPHC equity (rfp is for 80%); misalignment between term of PPA and GSA; possible review of bid to reflect delays in acquisition; and impact of regulatory risks and naira devaluation.
Others are policy inconsistency, which has been the bane of the NESI for far too long; GenCos and the industry in general are concerned about capacity for transmission and distribution, whereas the investment opportunity presented on the platform of the NDPHC are good options for resolving these infrastructure deficit; and the monthly revenue gap of N20 billion needs to be closed irreversibly as a matter of urgency since efficiency and revenues drive the power industry; increasing acts of vandalism on NIPP/NDPHC facilities, especially bombing of gas pipelines and other power infrastructure in the Niger Delta.
NIPP/NDPHC: The Way Forward
Despite the current rancor in the sector between government and Organised Labour and other stakeholders over tarriffs, the NDPHC is looking ahead and plans to accomplish a number of projects under the NIPP. These include:
• the commissioning of Gbarain, Egbema and Omoku power plants;
• contracting of O and M services for completed power plants;
• completion of all distribution projects captured under the original scope of the NIPP;
• completion of prioritised transmission lines and substations, thus improving evacuation capacity and grid stability;
• Closing transaction for the divestment of 80% equity in Omotosho and Geregu generation companies;
• review and preparation of Project Documents – designs, bankable project documents, etc) for candidate projects under NIPP Phase II.
To achieve these and more, stakeholders in the power sector look up to the Ministry of Power under the able and tested leadership of the Minister, Mr. Babatunde Fashola (SAN) for policy guidance and leadership in the sector. They suggest that the Ministry engage all state governments with a view to collaborating on the acquisition of the right of way and wayleave compensation for the NIPP.
They also want the Ministry of Power to create a “one-stop point of contact” for investors in the power sector because many investors are currently feeling frustrated by the complexity of the industry.
Concerned citizens and industry players also want the National Assembly, especially the Senate, to deploy their legislative powers in moving the power sector forward. Ranking Senators like Chairman, Senate Committee on Power, Distinguished Senator James Manager, Distinguished Senator Danjuma Goje (who is a former minister of Power) and Distinguished Senator Phillip Aduda who, as experienced lawmakers, have been part of the NIPP/NDPHC success stories thus far, should bring their wealth of experience to bear on power-related issues at the Senate, and especially enlighten Freshmen Senators on the complexities of this critical sector and the need to drive it by legislations, industry engagements and others interventions strictly based on international best practices only.
Industry watchers are also of the view that fiscal incentives for the power sector should be streamlined and made more easily accessible.
And as some dispute the plans by the Federal Government to borrow in order to finance the 2016 budget, stakeholders in the power sector are unanimous in asserting that taking loans – domestic or foreign – to build the country’s power infrastructure is the way to go, as the NDPHC has demonstrated that borrowing to build power infrastructure is self-liquidating and profitable for the country in both the long and short terms.
It is a legacy the President Muhammadu Buhari and the Minister of Power, Babatunde Fashola would be remembered for by a grateful citizenry and future generations of Nigerians.
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