Nigeria Needs Over $50bn investment To Get 50,000MW – Ogunleye | Independent Newspapers Limited
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CEO Interview

Nigeria Needs Over $50bn investment To Get 50,000MW – Ogunleye

Posted: Apr 11, 2016 at 3:44 pm   /   by   /   comments (0)



Managing Director of PowerCap Ltd, Mr. Abiodun Ogunleye, in this interview with Sylvester Enoghase, speaks on issues in the nation’s troubled power sector, as well as the need to get back to the drawing board on the previous road map, the privatization act, the Electric Sector Policy Reform Act and sector policies documents.


Would you agree with the claim that Nigeria has the lowest electricity ratio per person in the world?

If not the lowest, we are definitely not the most expensive or near average at all. We are coming from a regime of subsidy and inefficiencies and we must, therefore, understand why we have that distortion and as availability and efficiency are improved upon, we would expect significant adjustment to assure sustainability. What would be worrisome is for NERC to approve tariff increases without significant assurance of increases in service quality and quantity.

Why does Nigeria concentrate on one source of power generation, which is gas, is it difficult for the country to have alternative sources?

The reason we have tended more towards gas-fired thermal generation plants include the following; the economics of the alternative power source feeds, scale application opportunities and possibilities, lack of knowledge on other possibilities, the need for professional project management capacity on such cutting edge technology and availability of required feeds which may have hindered their development.
However, we have more than one source as we currently have significant capacities in hydro and other renewable generating resources if aggregated properly. We can easily expand hydro capacities with deployment of significant number of small hydros on our rivers and streams to complement the other renewable resources, including coal fired plants and waste to energy projects can be brought in to significantly ramp up capacity. What is heartwarming is that MYTO already have provisions for the heavy initial set up cost associated with coal fired plants and I am sure appropriate adjustments would be made as other asset types come on stream for regulatory approval.
Banks are still reluctant to lend money to investors in the power sector in the midst of high interest rate.

What do you think is responsible for the development and what funding options would you recommend for the sector?

Banking institutions can only lend what they have and add on profits before on-lending to arrive at their interest rates.

Our money and capital market lack significant depth and knowledge about the fairly long-term dynamics of the power market. Both fiscal and monetary policies are also not designed to assure for sustainable market growth and expansionary economy.
We must, therefore, be careful not to expect too much from the local banking market where operators are largely trade finance and short-termist in the approach. The market is used to significant asset-secured transactions and may not be able to understand the dynamics of the largely new cash flow driving securitisation transactions the new investors are bringing on the table.

The sector is already significantly being funded from the international capital market and we need to ensure that the local banks develop appropriate capacity to be able to deal with the emerging low hanging fruits that would come up as the new owners implement their improvement plans and outsource a lot of functions to sector operators.

Bankers’ attitude would also improves as the following happens; emergence of credible counterparties, trade guarantees with the mechanism of the bulk buyer, market accountability, strict revenue tracking and elimination of non-technical losses. The sector is too strategic for them to neglect and we would soon see a change of attitude as virtually all the major banking institutions have dedicated teams focused on making projects happen within the sector.

Do you think the power sector needs intervention fund?

The government has graciously put an intervention fund in place for the sector. The fear operators have is what to do to ensure that the funds do not go the way of the airlines and other sectors before it that have significantly accessed such soft funding from government.
The requirement for such funding is to support the huge investment for sector projects and provide some confidence to other stakeholders of the political capital required for large projects in this clime

Almost three years after privatization of the power sector, Nigerians are yet to enjoy uninterrupted power supply. What’s the problem? Where do we go from here?

What we were confronted with before the privatization exercise, as a nation was a scenario where the most important driver of our growth and sustainability as a nation (electricity) could not be assured. From the sector reform document to the privatization project itself, certain assumptions were made and unfortunately most of those proved untenable. Such assumptions included; projections as per growth in the generation base, the nature of the privatization transaction and the expected risk appetite and quality of the new owners. At this stage it appears most of the fundamental assumptions of the privatization and sector policy documents are missed or out of place.

Also, remember that out of the three years, as a nation, a year plus was spend on our electoral processes, during which economic activities and uncertainty make pursuit of real sector transactions a no brainer.
The challenges are numerous and in addition to those listed earlier also include confusion in implementation plan/process, weak access to investible funds, inability to migrate to cost reflective tariff and weak support base for the privatization project across stakeholders. Today it also include lack of clarity regarding roles and responsibilities under new power sector leadership, weak sector liquidity, DISCOS susceptible to weak revenue streams challenges, lack of gas supply, lack of base load mechanism and incomplete implementation of the transitional electricity market.

We need to get back to the drawing board and take a thorough look at the previous road map, the privatization act, the Electric Sector Policy Reform Act and sector policies documents. With the lessons learned and new insights we can plan how we can move forward in a most progressive manner. What is certain at this stage is the need for all stakeholders and vested interest in the sector to let go of some of their profit expectations and allow the Nigerian people to win and the National interest to reign supreme in their considerations.

Investors complained that they under-estimated the enormity of the problem on the power assets they bought and say that’s why they couldn’t deliver promises of regular power supply to Nigerians. What is your take on this?

The initial transaction process contained safeguards that would have prevented the scenario you are painting, however, once bidders who crossed the technical bid stage agreed to pay up without the opportunity to verify the risk they are taking on, parties assumed a risk that only God could have help us to dimension and mitigate.

However, that would not be a good explanation and or excuse for non-performance or their inability to provide regular power supply. The facts are as follows; firstly, the inability of the sector to double the generation capacity base, weak investment in network infrastructure for both evacuation and distribution and gas supply challenges have worked together to continually make supply availability a challenge. The most surprising issue is their inability to make the embedded generation route work. As it stands they cannot sustain their businesses on the existing network availability projections, which have become most unreliable.

How do you see the recent hike in electricity tariff in view of the epileptic supply?

The tariff hike is part of the MYTO2 plans. Because of the metering challenges and the abuse of fixed charges, the new plan eliminated fixed charges, while increasing amount due from each type of users, it’s a challenge because the increases are coming at a time customers are experiencing decline in supply availability and in some cases quality of the supplies. You must also be mindful that the APC government got voted on the mantra of change, which is not aligning well with the expectations of the people, who assumed APC represent improvement or better environment in all spheres.

What is the capacity of the DISCOS to get Nigerians metered as demanded by some stakeholders?

The metering issues are also fairly complicated but unfortunately fundamental to the development of a credible power market, the first challenge is to be able to determine the metering requirement (that is getting to know the profile of customers per connection type and tariff class) and then be able to find metering facilities that can match such needs. Other issues that require attention are the type of meters and how recent is the technology that’s driving the meters.
While tendencies today is more towards intelligent meters, limiters and other solutions that would meet the cheap needs of the bottom of the pyramids must be considered instead of expensive gadget, that’s far more than their consumption expectation.
With the removal of fixed charges, the capacity of the DISCOs to dedicate cash flow to metering investments may have been further weakened, but with time there must be creative ways to meet the cash flow requirement and assure recovery within the ambit of regulations.

The nation’s power generation is still less than 5000MW, what do you think should be the real strength of our generation and the volume of investment needed to actualize it?

We are of the school that would target 1kw per person, which would put our requirements at far above 120,000MW as at date. Using a rule of thumb of US1 Million per MW you can say we would be requiring more than US$100 billion in new generation investments to make things happen.
A midpoint would be to work towards 50,000MW in the minimum and a US$50 billion investment.

Recently, there was an exchange between Lai Mohammed and labour unions over who is sabotaging electricity supply in Nigeria. In your own opinion, who do you think are responsible for sabotaging or development in the sector?

The fact is that we have all contributed in one way or the other to derail sustainable improvements in the power sector, from consumers shunting meters and engaging in illegal connections to labour leaders looking for how all manner of routes to sustain the entrenched vested interests in the sector, to government officials lacking in understanding of the real issues and allowing their emotions and political considerations to prevail.
The Nigerian nation cannot afford this blame game. We are better advised to look beyond our differences and see how best to make our nation win the war against darkness.

What is your take on the capital expenditure benchmark of N50billion set for power distribution companies yearly by NERC?

Well what is the component of that expectations, would it include additional generation and revenue cycle infrastructure, if yes, that would be great, otherwise let’s do a process review and ascertain real sector needs and not saddle the sector with unproductive investments further.

How feasible is government’s recent plan to add 1200megawatts of power to the national grid by 2025 through nuclear power projects?

Nuclear power type sources are largely dedicated as base load in power system planning. I would rather we work with capacities that far exceed what the federal government is looking at say a 10,000MW, we must remember that by the projected timeline our requirements would be in excess of 200,000MW and 10,000MW would represent a mere 5% of the projected requirements then.
My take would be more on how we can have the project on stream on a fast track basis and achieve same with 5 years.

What is your advice to government on how best to make the power sector work?

Let’s get back to the drawing board quickly, assimilate the lessons learned and move forward rapidly to ensure we all win sustainably. Some of the strategies that have worked on the scale of a state by way of embedded generation and zoning users may not work on the national scale. A more holistic outlook must be giving to generation first and that must include removing impediments to deployment of embedded assets and emergency power plants.
The mix of our generation assets needs to be examined more thoroughly to assure a balance tilting away from the Gas fuel types. Possible relocation of generation assets closer to fuel sources may also help in stabilizing supply and making collateral damage to sector assets most unattractive.