An emergency intervention scheme conceived 15 years ago to tackle the nation’s electricity woes has yet to deliver the goods as the power plants built with billions of taxpayers’ money continue to underperform, ’FEMI ASU writes.
Irked by the poor electricity generation in the country, the government of President Olusegun Obasanjo began the process of reforming the nation’s power sector. This brought about the articulation of the National Electric Power Policy of 2001 resulting in the Electric Power Sector Reform Act of 2005.
The ESPRA provided the legal basis for large-scale reform of the power sector, and the government established the Nigerian Electricity Regulatory Commission and unbundled the National Electric Power Authority, which was renamed Power Holding Company of Nigeria.
But 19 years after the return to civilian government, power supply in the country remains abysmally low despite the addition of eight government-funded power plants to the national grid under the National Integrated Power Project.
The NIPP was conceived in 2004 as a government-funded initiative to stabilise the nation’s electricity supply system while the private sector-led structure of the EPSRA took effect.
The government planned to build 10 gas-fired power plants with a combined design capacity of over 5,000 megawatts in a bid to ramp up the nation’s installed power generation capacity, which stood at around 5,800MW in 1999 – the year the country emerged from many years of military rule and transitioned to democracy.
In 2005, the Federal Government incorporated the Niger Delta Power Holding Company Limited to serve as the legal vehicle to contract for, hold, manage and operate the assets developed and built under the NIPP, using private sector best practices.
The plants include the Alaoji power plant, Abia State, which has a design capacity of 1,076MW; Ihovbor, Edo State (507.6MW); Calabar, Cross River State (634MW); and Egbema, Imo State (380.7MW).
Others are Gbarain, Bayelsa State (254MW); Geregu II, Kogi State (506.1MW); Sapele II, Delta State (508MW); Olorunsogo II, Ogun State (754MW); Omotosho II, Ondo State (512.8MW); and Omoku II, Rivers State (264.7MW).
“This is an emergency intervention scheme to tackle the deficit and expand power sector infrastructure in the country. The company’s key mandate was to develop 10 power plants with a designed ISO capacity of 5,067MW,” the NDPHC said in a recent document.
The company said it had so far completed about 4,015MW of the designed capacity, representing about 80 per cent of the mandate.
It said eight of the plants in the NIPP portfolio, along with associated gas transmission metering/receiving infrastructure projects to support commercial operation, had been connected to the national grid, contributing over 22,000,000 kilowatts-hour of energy daily subject to gas availability
The remaining two plants – Egbema and Omoku II, are at advanced stages of completion, according to the NDPHC.
The Managing Director/Chief Executive Officer, NDPHC, Mr Chiedu Ugbo, said at the 24th monthly power sector meeting on February 12, 2018 that the Egbema Power Plant in Imo State would be completed by the end of 2018.
The contractor, Rockson Engineering, which also built Alaoji and Gbarain, was taken over by the Asset Management Corporation of Nigeria” due to its inability to repay its indebtedness to the corporation.
NDPHC said in May that the receivership/manager appointed by AMCON had taken over and was fully engaging with the company to complete not the two plants and all outstanding works at plants and transmission levels.
Huge generation capacity in abeyance
The eight NIPP power plants on the national grid have been generating far less than their installed capacities over the years.
The plants have a combined capacity of 4752.4MW but many of their units are out due largely to gas constraints, according to the NPHDC, which manages them on behalf of the government.
Total generation from the eight plants stood at 282.5MW as of 6.00am on October 28, data obtained from the Nigeria Electricity System Operator showed. Five of the plants, namely Geregu, Sapele, Alaoji, Olorunsogo and Gbarain, did not generate any megawatts of electricity at that time.
Geregu’s GT21 and 23 units were said to be out due to gas constraint while GT22 was down for maintenance.
Sapele’s GT1 and 2 were out due to gas constraint; GT3 tripped during start-up and GT4 was shut down due to high vibration alarm.
GT1 unit in Alaoji power station was out due to gas constraint; GT2 and 4 shut down due to low load demand by the distribution companies, and GT3 out due to lack of spare parts.
Olorunsogo’s GT1, 2 and 3 were shut down due to gas constraint, and GT4 out due to ignition failure and control relay failure alarm.
Unit GT2 in Gbarain power station was said to be out due to tripping of Owerri/Ahoada 132kV line.
In spite of the feat recorded by NDPHC/NIPP in an environment where there is anathema, the power throughput in Nigeria remains at about 12,000MW at generation level, 5,500MW at transmission level and about 5,000MW at distribution level, a situation that has restricted the improvement of service delivery at the last mile to consumers,” the NDPHC said.
The company said it had continued to operate the power plants in the interest of the Nigerian economy, despite undesirable security challenges and an accumulated debt owed it by the electricity market.
“NPHDC has over 3,000MW of generation capacity available for deployment if the grid permits and this represents the best opportunity for the rapid improvement of power supply to the teeming Nigerians,” it added.
The NPDHC, in an emailed response to questions sent by the Manager, Communication and Public Relations, Mr James Odey, told our correspondent that gas challenge and poor load off-take were the major reasons for the low level of generation from the eight operational power plants.
“Gas challenge currently affects all NIPP power plants in the western pipeline gas network, namely Olorunsogo, Omotosho, Sapele, Ihovbor and Geregu. On a daily basis, these plants require about 500 million standard cubic feet of gas at full capacity but we do not get more than 90mmscf,” it said.
The company said out of the 23 mechanically available units at the listed power stations, only a maximum of four units could be switched on to put power on the grid.
It said, “Even in the eastern network where we have enough gas for generation, we are still constrained because the Transmission Company of Nigeria can only dispatch what the distribution companies or off-takers are willing to take and distribute to their customers.
“Electricity cannot be stored; hence, you only generate what the Discos are willing to take, otherwise we begin to have issues with system frequency that is both damaging to our machines and the grid.”
Billions of taxpayers’ money spent
Over the years, successive governments have spent huge taxpayers’ money on power projects but not much had been achieved in terms of improvement in electricity supply to households and businesses.
Total electricity generation in the country stood at 3,899.4MW as of 6.00am on Monday, December 9, 2019, according to data from the NESO.
The system operator put Nigeria’s installed generation capacity at 12,910.40MW; available capacity at 7,652.60MW; transmission wheeling capacity at 8,100MW; and the peak generation ever attained at 5,375MW.
The NDPHC management had stated in 2013 that the NIPP was being funded from the Excess Crude Account, with about $8.4bn committed, adding that they would all be inaugurated by mid-2014.
In August 2005, the National Council of State and the National Assembly approved an initial funding of $2.5bn for the project from the ECA, which statutorily belongs to the federal, state and local governments, according to the company.
It said following the 2007 change in administration at the federal level and in many states, the funding arrangements for the NIPP were subjected to intensive legal, political and financial scrutiny, resulting in over two years’ interruption in funding for the projects.
The NPDHC said, “At the time of the suspension, $2.8bn was already invested in NIPP, including $1.78bn in funded letters of credits, which allowed some of the projects to continue despite the funding interruption. Contracted commitments totalled $7.385bn.
“Late in 2008, after a protracted and intensive debate on the way forward, the National Economic Council agreed to set aside an additional $5.375bn from the ECA as a Power Emergency Fund to complete the NIPP, subject to the approvals of all the state legislative houses.”
The Director General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, in a telephone interview with our correspondent, expressed worry over the current state of the power plants.
He said, “I think it is most unfortunate in the first place that we commit resources of this nation in such a manner. We invested in power plants when we know that gas is a major input and we know that there is no gas in that location. I think it is a major indictment on the administration that did that.
“When you are setting up any plant of that nature, the source of your key input is very critical; it should be a major determinant of where you locate the plant. It is over 10 years that the investments were made and those plants are still lying down there, and these are things over which we spent billions of dollars.”
President Muhammadu Buhari, at the signing of a power agreement with Germany-based Siemens in July this year, noted that there had been many attempts at solving the electricity problem in the country.
He said, “Previous governments have explored state-funded solutions through the ill-prepared National Integrated Power Projects. They also explored the installation of large emergency power projects. There was also the partial privatisation of the power generation and distribution sectors.
“These various interventions to solving the electricity problem have yielded an imbalance between the amount of power generated and the amount available for consumers. Despite over 13,000MW of power generation capacity, only an average of 4,000MW reliably reaches consumers.”
Gas shortage amid plenty reserves
Nigeria is home to the largest natural gas reserves in Africa and the ninth largest in the world but it has continued to suffer supply shortage over the years.
According to the Nigerian National Petroleum Corporation, the country has around 202 trillion cubic feet of proven gas reserves plus about 600 Tcf unproven gas reserves.
Out of the total gas supply of 2.83 trillion standard cubic feet last year, only 430.2 billion scf was commercialised for the domestic market while 1.23 trillion scf was exported, according to the NNPC.
“Nigeria’s average daily gas production is about 8.4 billion standard cubic feet per day. Only 18 per cent (1.5 billion scfpd) of the production is consumed in the domestic market; 43 per cent is exported as Liquefied Natural Gas, 32 per cent is re-injected for enhanced oil recovery and other operational uses like fuel gas while seven per cent of total gas production is currently being flared,” the Chief Operating Officer, Upstream, NNPC, Mr Bello Rabiu, said recently.
The Chairman, Oil Producers Trade Section, Paul McGrath, said recently that to realise the full benefits of gas as a catalyst for economic growth and diversification, several challenges across the entire gas value chain needed to be resolved.
According to him, the challenges include inadequate infrastructure along the value chain; regulated low prices, legacy debt related to gas and power supply and the challenging business environment.
“The commercial and financial structures of the gas-to-power commercial value chain remain weak with growing arrears and uncertainty in the payment system which disincentivises gas investors,” he said at a forum in Lagos.
He said of the 162 trillion cubic feet reported gas reserves in the country, about 75 per cent would require the building of new infrastructure to deliver the gas resources to the domestic market.
The OPTS boss said, “The current regulated gas price of $2.50 for one million British thermal units falls short of the price required to attract investment for these new gas developments.
“The gas sector should transit into a liberalised market based on the ‘willing buyer, willing seller’ principle and ensure the existence of a competitive fiscal regime to support upstream gas development.”
According to McGrath, Nigeria lacks sufficient pipelines to deliver gas from the fields where it is produced to the current and potential off-takers (e.g., power plants, manufacturers, etc.).
He said, “In addition, the transmission and distribution systems lack the capacity to deliver the generated electricity to businesses and other consumers. Building infrastructure requires a sustained joint effort of the stakeholders led by the government.”
An energy expert and a former board member of the Nigerian National Petroleum Corporation, Alhaji Abdullahi Bukar, said, “The tragedy is that the private companies that are supplying gas to the power stations are not being paid in accordance with the contracts signed.
“People have made heavy investments and there is no income to service those investments or to actually run the system profitably. The most important thing is that the people who deliver gas should be paid in accordance with the contracts so there will be full gas supply to all these power stations. And when people see that it is working, they will invest in building more gas plants.”
He described Seven Energy, an indigenous oil and gas firm that was recently acquired by London-based Savannah Petroleum Plc, as one of the companies that fell victim to the liquidity problem in the power sector.
Prior to the start of the deal, Seven Energy had said its liquidity was severely affected by a range of external factors, including a significant backlog of unpaid invoices relating to the supply of gas to federal and state-owned power stations.
Bukar said, “I think Nigeria has more than 10,000MW of power that is installed or about to be commissioned but that is idle because nobody is willing to supply gas. We need power more than any other thing in this country but unless we address a commercially viable system for delivering fuel to the power stations, it won’t work.”
“We need to adjust the tariff we pay for electricity; it is unrealistically low. It should not be political. There is gas in Nigeria, and there are people willing to develop the gas to feed all those power stations but we must put in place a commercial system that will allow them to get the money they have invested.”
Royal Dutch Shell, in its latest Nigeria Briefing Notes, said unlocking Nigeria’s natural gas potential would require partnerships between the Nigerian government and oil and gas companies “that have the ability to innovate, capacity to deliver major projects, and willingness to take on long-term commitments.”
According to the oil major, there are several challenges that need to be overcome in order to successfully develop growth projects for the domestic gas market, one of which “is to clear the backlog of deliveries of both power and gas to customers that have not been paid for.”
“Without the payment of outstanding gas and power invoice arrears, and securitisation of current and future revenues, operators are reluctant to commit additional investments to grow domestic gas supply,” it added.
The President, NGA, Mrs Audrey Joe-Ezigbo, told our correspondent the gas shortage affecting the NIPP plants was not unconnected with the liquidity issue in the power sector.
She said, “We are talking of significant amounts of money that are being owed for gas supply. If you speak with the generation companies, their invoices are not being fully paid.
“I believe that until there is a more concerted effort for the government to meet its own commitments to gas suppliers, we are going to see the situation worsen.
Joe-Ezigbo said the ability of the gas producers to increase supply to the power sector was being constrained by liquidity problem, infrastructure deficit, and contractual challenges, among others.
The LCCI DG, Yusuf, is of the view that the government should allow the private sector to drive gas business.
He said, “The gas issue is a business issue, a purely commercial issue. So, for as long as you have government in the equation, it will be difficult to resolve it. But if government is out of it and we have private sector driving the process, there will be better commercial communication between those buying the gas and those selling it.
“So it will be purely a commercial relationship, and that is what I think is sustainable. The only challenge is the social and development angle to the issue of power because we should not look at it only as a business. We should look at the developmental impact that affordable power offers. I think there has to be some balance because if you situate it purely within the commercial space, it will be difficult for some segments of the economy or segments of the citizenry to be able to have power supply.”
In October, the NDPHC MD paid a courtesy visit to the Minister of State for Petroleum Resources, Chief Timipre Sylva, and sought his support to ensure adequate gas supply to the company’s power plants.
Chevron Nigeria Limited, announced on October 9 that it had signed a Gas Sale and Aggregation Agreement with Olorunsogo Generation Company Limited, NDPHC and Gas Aggregation Company Nigeria Limited.
The oil major said it would supply “on an interruptible (reasonable endeavours) basis” a daily contract quantity of 0-63,000MMbtu/d of natural gas to Olorunsogo Generation Company Limited.
The NDPHC told our correspondent that projects were ongoing to secure and process gas from Shell for use at Omotosho power plant and other NIPP plants on the Escravos-Lagos Pipeline System.
Delayed divestment of majority stake
The 10 plants are jointly owned by the three tiers of government, with the Federal Government having 47 per cent equity stake and the local and state governments sharing the remaining 53 per cent.
In 2013, the NDPHC disclosed plans by the government to divest 80 per cent equity in the power plants. The sale was expected to generate about $6bn for the government.
That year, the NDPHC organised a series of road shows in Lagos, London, New York and Hong Kong to generate interest in the power plants.
According to the timelines unveiled in June 2013, the handover of the plants to private investors was scheduled for June 2014. But the privatisation was stalled by lack of adequate gas supply, according to the Bureau of Public Enterprises.
The NDPHC said on its website that the revenue that would be derived from the sale of the 80 per cent equity would be ploughed back into the joint coffers of the federal, state and local governments and reinvested in the 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. The phase II project is chiefly hydro power plants,” it added.
The company said in a document seen by our correspondent that in line with government economic blueprint, reviews and new strategy were adopted for the completion of the privatisation of power stations “which occupy a front burner of government policy”.
“And to that effect, three power stations in Cross River, Kogi and Ondo states respectively are being concluded as a first phase of this strategy. This process was pursued with great vigour in 2017 with the target of completing the privatisation of the remaining plants bearing in mind that preferred bidders for these plants have already emerged for 80 per cent share sales,” it added