PALAVER TREE COMMENTARY: Hard Road To Solving Power Problem

Babatunde Fashola at ministerial screening on Wednesday, October 14, 2015

By Emeka Anuforo (The Guardian, Nigeria)

The new Minister of Power, Works and Housing, Mr. Babatunde Fashola perhaps looked more determined than ever last Tuesday when he was speaking to the press about his 2016 agenda for power, housing, and road infrastructure.

The two-term former governor of Lagos, whom many Lagosians consider as ‘action governor’ came to the meeting with some conviction that the electricity problem can be demystified and solved after all.  So he came up with a plan for power that rests on key components: Strengthen the regulatory agency, National Electricity Regulatory Commission (NERC), hold the GenCos and DisCos to their contracts with citizens, and make gas available and expand the Transmission Network. There is one more. MDAs at all levels as well as corporate and private individuals must be prepared to pay their electricity bills, said Mr. Fashola.   With this road plan, the minister is optimistic that power will improve. But has the minister appreciated the frustration experienced by his predecessors well enough to answer the key question: How soon will Nigerian start to enjoy electricity, at least, to a reasonable extent?

Well the former Permanent Secretary, Ministry of Power, Ambassador Godknows Igali, attempted the question in an interview recently.

He said the Federal Government would need an estimated 12,000MW of electricity to achieve steady power supply.

At the moment, Nigeria is reported to be generating approximately 4,600MW at peak hours and approximately 3,900MW at off-peak hours.

As the situation stands today, it remains uncertain if Fashola-led ministry will generate that much before his tenure lapses.

And there is no need searching for the reason why this may not happen in the next few years. The reason sticks out prominently: There is no gas in sufficient supply.

Speaking recently at a National Assembly inquiry into the power sector, NERC Chairman, Dr. Sam Amadi, reiterated the gas challenge, attributing the low generation of electricity largely to problems associated with gas supply.

According to him, the huge investments put into the National Integrated Power Project (NIPP) by the three tiers of government, and the power plants so far built under the scheme are largely idle because of inadequate gas supply.

The question of gas supply and the attendant problems also were the major subject discussion at a forum of the National Association of Petroleum Explorationists (NAPE) in July.
At that forum, the NERC boss identified corruption, incoherence in gas-to-power policy, low commerciality in gas supply to power, poor gas to power infrastructure, incompetence in project management and lack of prudent public sector investment as part of the biggest challenges of the sector.

“The lack of gas supply necessary to fire available generating plants is the main reason we don’t have at least 5,500MW of daily generation.”

The problem of gas supply, he said, has manifested in two main forms: vandalism of gas pipelines and poor project management of gas facilities.

According to NNPC, there were 3,700 cases of pipeline Vandalization in 2014.

“Due to incessant repairs of the pipelines, there is now an issue of technical integrity of these pipelines, further constraining supply of gas to power plants,” said Amadi
He also highlighted how the country lacks adequate capacity to process gas and facilities to transport gas to power plants.

“This inadequacy is itself a result of the structured disconnection between power generation and gas business. Gas policy and regulatory framework until recently were not consciously focused on power generation. So, the gas market did not process enough gas for the power sector. Much of the gas produced goes to the export market and other domestic industrial users,” he added.

Former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Ransome Owan is in agreement with his successor.

Speaking at Powering Africa Nigeria Summit held recently in Abuja, Owan lamented what he described as the lack of concrete gas supply agreements for the power stations.
He said:  “Even with over US$5billion invested in the NIPPs, they are down as gas is not there to power them. The projects cannot come to a financial close because there is not enough gas for the plants.

“The Nigerian Bulk Electricity Trading Plc (NBET) cannot sign their Power Purchase Agreements (PPAs) unless they answer these two things: do you have gas and can you evacuate power? The seller, which is the government, cannot answer the questions.”
He charged the federal government to live up to its responsibility in gas supply to the power sector.

“To have a sustainable gas sector, the risk should not be with the IOCs, the gas transporters or the power companies. It is the federal government of Nigeria because it has the army and the joint taskforce to protect the infrastructure,” said the former NERC chief who also made a case for a single gas regulator.

“To gasify our economy, we would need to have a sector regulator to set a foundation, the rules, and regulation for the market. This was done in the power sector.

Also speaking, President of the Nigerian Gas Association and CEO of Oando Gas and Power, Mobolaji Osunsanya alleged that the NIPP was defective from inception.  “The NIPPs were designed to fail,” he said.

It is difficult to disagree with Osunsanya because it makes little sense to builds power plants so huge the way federal government did without being sure of gas supply.

Former Minister of Power, Prof. Chinedu Nebo attributes the failure of gas supply to those he described as saboteurs who stood in the way of government’s full plans for the sector.
In an interview he granted The Guardian in May, he urged the new government to wield the big stick on those who disrupt gas to power efforts including the pipeline vandals but observed that a lot more would have been achieved if gas producers were sincere with the commitments they made to the power sector.

“Commitments were made to give us gas, but we haven’t seen gas. It is just as simple as that. It is very painful. I blame a lot on vandalism. But I also blame the oil firms and gas producers for what I consider to be hypocrisy. They have been hypocritical with this whole issue of making sure that we have gas and bringing us out of the darkness and so on.”

He also accused the gas producers of exporting most of the nation’s gas and diverting the remaining available quantity for the domestic market to the industries, instead of the power sector where it is greatly needed.

His words: “The greatest undoing of the administration, and my greatest regret, is that we lost the war against vandalism and we lost the war against inadequate gas supply.

“These turbines are ready to go. Some of them were operating at 30 percent capacity. I think I feel so sad about this, because if we had gas going to these turbines, every Nigerian would have been hailing President Jonathan today. But unfortunately, there was no gas. When gas was produced, even more, you find a preference by the oil companies to give gas to the industries instead of to power generation. It is still happening today, whereas the profile for gas to power continues decreasing, the profile of gas to industries increased. Something is wrong.

“This new government should take a cue and make sure that the petroleum sector does what it ought to do to make sure that there is enough gas going to the power plants. It is very critical. If the new administration does not do that, Nigerians are going to keep suffering in darkness.”

He expected that the new administration to fight vandalism and bring the vandals to their knees. If we don’t do that, we are still going to have a problem. Every two weeks the pipelines are blown up and it takes two weeks to fix them is not good for the sector. Within 24-48 hours of fixing them, they are blown up in other places to the point where the integrity of the pipeline is now in question, and a lot of major works has to be done.

“I think that it is scandalous that we produce over 5 billion scfs of gas every day and we sell 4 billion scfs and return only1 billion scfs for local use.  The one for local use is preferentially given to industries and not to power, starving the power sector of the needed gas to industrialize this country and I think that is a shame.”

He called for action on the Petroleum Industry Bill (PIB), noting that it would liberalize the market, and make it easier for more gas to be available.

Apart from the challenge of inadequate gas supply, there is a general consensus in the sector that the Nigeria Electricity Supply Industry (NESI) is starving for capital and cash flow – all of which originates from customers who are said to be ill-informed, frustrated by poor reliability, poor power quality (low voltage, voltage fluctuations), frequency and duration of power outages, estimated bills and lack of meters.

Investors say tariffs have not been cost-reflective for decades and has persisted post-privatization. The need for a cost reflective tariff, a bedrock requirement of the Power Performance Agreements has remained elusive for many investors who have eagerly looked forward to it.

There are also calls for the outright privatization of the TCN.

The Managing Director of the Transmission Company of Nigeria (TCN), Mr. Mark Karst, says the firm needs about US$1 billion yearly to wheel 20,000MW of electricity by the year 2020.