Labour, government on familiar page over electricity tariff raise
Against the background of the face –off between the organised labour and the Federal Government over the recent increase in electricity tariffs, EMMANUEL BADEJO reviews the sector reports with a view to reminding the Buhari-led government of the need to diversify the country’s power generation, transmission and distribution capacities.
Nigerian organised labour is up in arm against the Federal Government.
The struggle, this time, is not because of dollar scarcity, naira devaluation, economic hardship, but due to the recent increase in electricity tariffs and efforts by the Minister of Power, Works and Housing, Mr. Babatunde Fashola (SAN), to justify the tariff increment.
Recall that the National Integrated Power Projects (NIPP), jointly implemented by the three-tier government through the corporate vehicle of the Niger Delta Power Holding Company (NDPHC), 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 establishment operates strictly on the private sector business model.
The NDPHC Equity Structure is as follows: Federal Government 47 percent; the 36 States 35%; 774 Local Governments, 18 percent.
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.
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 are an integral part of the NIPP project development.
The NDPHC is domiciled in the Presidency and its budget is drawn by a high-powered 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. The Federal Government and the Houses of Assembly of the 36 states of the federation ratify the disbursement of fund to the NDPHC funds.
Before 2005 and the advent of the NIPP/NDPHC, Nigeria had a 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.
However, with the establishment 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 percent.
In the same period, the NDPHC increased the country’s transformer capacity on the 132/33Kv band to 11,118MVA or by 42percent and today Nigeria’s transformer capacity on the 330/132Kv band is 11,590MVA, an increment of 93 percent.
The NIPP/NDPHC has also had a huge impact on Nigeria’s distribution infrastructure in the period under review. Today Nigeria 33/11KV sub-stations of 11,649MVA, up by 43 percent and 33KV and 11/0.41KV substation with 84,170MVA capacity, a mammoth 163 percent 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, headed by a Managing Director, Mr. James Abiodun Olotu, has also expanded the country’s power transmission capacity through 25 lots including 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.
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.
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, the three tiers of government have only divested 80 percent 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 the 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 expanding 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 percent 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.
Selling off government’s 80 percent 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 this 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.
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.
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 this 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.
Despite the current rancor in the sector between government and Organised Labour and other stakeholders over tariffs, 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; and completion of all distribution projects captured under the original scope of the NIPP among others; 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; and 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 for policy guidance and leadership in the sector. They suggest that the Ministry should engage all state governments with a view to collaborating on the acquisition of the right of way and way leave 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 to douse their frustration.
Concerned citizens and industry players also want the National Assembly, especially the Senate, to deploy their legislative powers in moving the power sector forward.
Industry watchers are 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.
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