ASSESSING PROGRESS OF NIGERIA’S POWER SECTOR REFORMS :
Nigeria, a West African country about 923,000 km2 in area with a population of about 200 million people is blessed with an abundance of hydrocarbon resources. The nation is the largest producer of crude oil in Africa and one of the largest exporters of LNG. Despite these advantages the nation is struggling with low and epileptic power supply. The nation has generates only 7GW of electricity — about 2 GW of which is unavailable due to transmission constraints…In contrast, the Republic of South Africa, the continents most developed country, produces about 50 GW of Energy largely from coal. In 2005, the president Olusegun Obasanjo boldly and decisively implemented a deregulation of the Power industry by unbundling NEPA the national power carrier into 17 different distribution, transmission and generation companies.
Notable Successes of the Power Sector Reform:
Transcorp Power:
In September 2012, during the privatization of Nigeria’s national power assets, Transcorp Plc won the bid for the Federal Government of Nigeria’s distressed power generating company, Ughelli Power Plc — operator of 900 MW Ughelli Power Plant. The $300 million investment was part of strategic investor Heirs Holdings’ commitment to USAID’s Power Africa initiative. In November 2015, Transcorp Ughelli Power Limited and Ughelli Power Plc merged, and Transcorp Power Limited was born. The merger harmonized the management and operations of Transcorp’s power business for greater efficiency.
Azura-Edo Independent Power Project:
The Azura-Edo IPP is a 461MW Open Cycle Gas Turbine power station, the first project initiated by Azura Power. It is Phase 1 of a 1,500MW IPP facility being developed near Benin City in Edo State, Nigeria and is located on a 100 hectare site, large enough to accommodate future expansion of the power plant. After over six years in development, financial close for Phase 1 was reached on 28 December 2015, construction started on 5 January 2016 and the plant started operating in May 2018, eight months ahead of schedule. Siemens and Julius Berger were the joint Engineering Procurement and Construction (EPC) contractors.
The 1350 MW Abuja Independent Power Project:
More recently, The Nigerian National Petroleum Corporation (NNPC) and the United States Trade and Development Agency (USTDA) recently concluded arrangement to sign a 1.16 million dollar grant as part funding for the NNPC-Abuja Independent Power Project (IPP). The grant will go towards the funding of a 1350 MW plant in Abuja. Details on the projects start date and timeline for execution are not available. This project will be an opportunity for the Nigerian Leadership to prove it is capable of managing, overseeing and executing complex projects under budget an on schedule.
Notable Failures of Power Sector Reforms:
Aba Independent Power Project:
The Geometric Power Aba IPP plant, the project was conceptualized in 2010 is yet to become fully operational. The project was beset with some contractual and legal challenges relating to its concession which was excised from the Enugu IPP. Some reprieve for the investors and community maybe near. In 2018, Shell Petroleum Development Company (SPDC) signed a Gas Supply Agreement to supply gas to Geometric’s Aba 140 MW power plant. The gas is obtained from nearby fields in Abia and Rivers States. Geometric power plans to expand the project and build a new 450 MW plant in the future. This project has the potential to enhance the competitiveness of the industrial and manufacturing clusters in the Aba area.
Rockson Engineering Company Projects
The Gbaran 252 MW Power Plant : This contract was issued in 2005 to Rockson Engineering. The project is incomplete and right now the EPC company is under receivership by AMCON.
The Alaoji 790 MW Power Plant : This contract was issued in 16 March 2006 to Rockson Engineering. The project is incomplete and the EPC company is under receivership by AMCON.
The Egbema 378.3 MW Power Plant: This contract was issued 29 March 2005 to Rockson Engineering. Similar to the other projects above, Egbema power plant is halted because Rockson Engineering the EPC contractor is under receivership.
Kaduna Power Plant: This contract was also awarded to Rockson Engineering. The project is also stalled.
Failure to resolve the existing issues and complete the project should concern all well meaning Nigerian’s regardless of ethnic nationality, religion or political affiliation. Media sources have stated that these power projects are at various stages of completion however, the Engineering Procurement and Construction company responsible for the projects is currently embroiled in a contractual tussle with the Government and the company sites a failure by the Niger Delta Power Holding Company, NDPHC, to fulfil its contractual obligations as the reason for the non-completion of the project. I am of the view that the Power and Energy Committee of the legislative arm of the government undertake a comprehensive investigation to determine the root cause of the failures. Nigerian Engineering Procurement and Construction Services Companies should be empowered and nurtured to grow technically, financially and managed effectively for flawless project execution and delivery. This will help build capacity within Nigeria’s nascent Engineering and Technology industry. The government should undertake a comprehensive audit of Rockson Engineering’s finances and operations. Any evidence of mismanagement of funds should be made known to the public. If the organization is under financial distress, the government could intervene due to the strategic nature of the industry and provide support to the organization by providing revolver credit lines, forbearance on interest accruing from prior loans and grants that would make it possible for the engineering company to complete the project within the shortest possible time.
The First Independent Power is a company owned by Sahara Energy. The organization is a vertically integrated energy company with a long history of activities in the upstream, midstream and downstream areas of the Nigerian energy value chain. It owns a majority interest in 4 Gas Generating Power Plants in Rivers State. Recent, announcements indicate that interests are now the subject of contention.
In 2002, the Federal Government created the Nigerian Integrated Power Project a tripartite arrangement between Federal, State and Local Government Agencies to improve the Power Situation in the Country. Funds were provided from state and federal statutory allocations and channelled to the NIPP in order to fund several projects. The Trans Amadi Gas Turbine Project was inaugurated. The turbine cost N4.2 billion Naira and had a capacity of 136 MW. The gas supplied was from Shell Petroleum Development Company. The N 50 billion Omoku power plant consists of 6 25 MW GE gas turbines was inaugurated in 2006. However, the goal of full electrification of the state has not been achieved. The Eleme Power plant project increased the capacity of the gas turbines from 20MW to 75 MW by replacing the GE LM2500 turbine with three 25MW Nuovo Pignone gas turbines.
In 2012, the Rivers State Government under the leadership of Governor Rotimi Amaechi approved the sale of the state owned generating companies at Omoku, Trans Amadi and Eleme with a total generation capacity of 541 MW to First Independent Power company. The approved purchase price of the state owned power generating firms based on the following simple valuation of $800,000 per MW of power and thus the sale was valued at 432 million usd. First Independent Power Generating Company bought a 70 percent stake in the power companies for $302.96 million.
The current governor of Rivers State has alleged that the sale of the Power Generation Turbines lacked transparency and is thus reviewing the sale. In 2019, Governor Nyesom Wike announced a reversal of the sale of the Power Generation companies. This will likely lead to a long drawn out legal battle which may last years. The Citizens (residents and businesses) of Rivers State are likely to be the biggest losers in this process. It also sets a bad signal to private investors interested in the large scale projects within the State.
Availability of Gas from Gas Sales Agreements:
The nation is developing a National Gas Master Plan which will provide policy and incentives to develop Nigeria’s gas industry to spur industrial development in the nation. Gas from upstream energy companies is supplied to power plants in Nigeria based on contracted Gas Sales Agreements. The gas sales price is about $2.50 — $3.00 / MCF which is higher than global spot prices. This provides an incentive for gas suppliers to develop gas resources and supply to the Thermal Generation Companies. Nigeria is rich in gas resources, however, there is a lack of gas pipelines from gas producing assets to the markets. The midstream industry in Nigeria is currently under-developed. Other challenges include market rates and pipeline vandalization of natural gas and crude pipelines which leave the Power companies vulnerable to supply disruptions.
Power Purchase Agreements with NBET:
The Nigerian Bulk Electricity Trading (NBET) Plc is the manager and administrator of the Electric pool in the Nigerian Electricity Supply Industry (NESI). The Nigerian Electricity Regulatory Commission (NERC) has determined that the price of electricity to be paid to generators in the Nigerian Electricity Supply Industry (NESI) will be at the level required by an efficient new entrant to cover its life cycle costs (including its short run fuel and operating costs and its long run return on capital invested). Wholesale contract prices offer the prospect of some certainty about cash flows during the transition towards a competitive market in setting wholesale price, the method to be used is the Long Run Marginal Cost (LRMC) method. This involves calculating the full life cycle cost of the lowest-efficient-cost new entrant generator, considering current costs of plant and equipment, return on capital, operation and maintenance, fuel costs, etc.
There are multiple options for applying the Long Run Marginal Costs. In practice the Long Run Marginal Costs are applied in two ways:
1. Benchmark costing: Creates a proxy for the market price which an efficient generator is expected to operate below.
2. Individual long run marginal cost for each generator: This sets prices for each generator according to its plant and site specific costs
For the successor Generating Companies (GenCos) i.e. Generating Companies that were privatised, the classic LRMC applies as set out in the 2008 MYTO, in which the long-run marginal cost of an Open Cycle Gas Turbine (OCGT) plant will be calculated by the Commission. Each new entrant IPP that requires a tariff beyond the MYTO benchmark must apply to the Commission for approval and an individual (site-specific) LRMC model will be utilised. In such case, the IPP will open its plans, accounts, and financial model to scrutiny by NERC, which will then apply prudence and relevance tests to determine whether such plant- and site-specific costs should be allowed in the tariff.
Charting A Way Forward:
Twenty years after the return of democratic rule in Nigeria, the nation is yet to resolve some structural and systemic issues. Major infrastructural capital projects embarked upon by different governments have been beset by various challenges ranging from a lack of transparency during the contract bidding and award processes to a failure during project execution. At the turn of the next decade, we have to conclude that the Nigerian leadership has failed in her responsibility of providing infrastructural development to her Citizens. As the trustees of Nigerians’ public funds, the government, the National Assembly and governors are accountable to the public for the management of public funds. The expenditure of public funds requires the highest degree of public trust. It is the constitutional duty of every public official to protect and preserve the public interest in public spending.
