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6000 MW: ‘What determines actual generation is gas’ – Babalola

FOR a man saddled with the arduous task of superintending the beleaguered Nigerian power sector, Dr. Lanre Babalola, Nigeria’s Minister of Power always wears a gentle unperturbed mien.


In this exclusive interview with Hector Igbikiowubo, Editor of Sweet crude, conducted barely nine days to the dawn of December 2009, the target for 6000 Megawatts (MW) electricity generation, he ties improvements in power generation, transmission and distribution to improvements in gas supply, noting that current power generation capacity was 5300 MW and will reach the 6000 MW target by December 2009.
Excerpts:

The government had set a December target for generation of 6000MW of electricity. What is the current power generation level and how much electricity do you envisage being generated by December 2009?
Right now the situation has improved, we are at about 3500 Megawatts (MW) and that is due to improvement in gas supply. These machines were there all along and we have been able to use more of them as the gas becomes available. Towards the 6000 MW target, PHCN is repairing some of the generating plants units in Afam, Sapele, and Ughelli. In terms of machines available to highlight some of the issues in gas supply, we have about 5300 MW of capacity available. With those units being repaired and one of the IPPs being finished, we should be able to have the 6000 MW.

In terms of actual generation for the year, I think two things actually determine generation; first of all, the entire load: the total demand at any given day is constrained by the connection. When we talk about demand we are not saying that demand is that low, but due to the constraint of inadequate connection (only about half of Nigerians are connected), so two things at any point in time will determine what you generate, number one is the demand that I just explained and the other one is gas supply.

*  Dr. Babalola
* Dr. Babalola

Gas supply has actually improved as we have seen over the past several months that it is a pure constraint in power production in Nigeria . We expect that production will vary from base load which is when demand is low especially at night. Anything from about 4000 MW during the day, that is why we want to ensure that we have at least 6000 MW to be able to cope with the demand when it is needed.

What are we expecting actual power generation to be by December 2009?
What determines actual generation is gas. It’s just like your car, what determines the distance it covers is the amount of fuel in it. If you have a full tank you can cover more mileage. What we have seen so far is that if gas supply improves, and we expect more to be available before the end of the year  with the Niger Delta issue then, most of the gas supply pipeline was badly affected and one of the major plants, that is the one operated by Chevron was out for a long time but they are fixing that now and that alone accounts for about 2000 mmscf per day or 800 MW of electricity generation per day.

Which of the Chevron plants are you talking about?
I am talking about the Escravos gas plant. As soon as this plant is back up, we will see generation shoot up by about 1000 MW and if you observe, you will find that we have some slack in Egbin, we have slack in Geregu. We are not using all the machines there because we do not have enough gas. On transmission, the system is working very hard to make sure that all the power produced is routed.

Right now the system is robust; distribution transformers are procured daily and put in place to ensure that the power when produced can be evacuated. My minister of state and I actually visit sights of ongoing work from time to time at various sights and we are quite happy with the progress of the work. We have installed a number of 150 MVA transformers which is equivalent to about 100 MW and a lot of 60 MVA transformers as well.

Overall, work is progressing quite well and downstream in distribution there is a lot of investment and installation of distribution transformers. You may recall that about three weeks ago, almost a month a go now with improvement in gas supply, there has been marked improvement in power supply both from the generation, transmission and distribution.

What is the state of the Nigeria Independent Power Projects (NIPP) and can we expect any of the plants come on stream to contribute power to the national grid by December?
No, no, no, no! None of the NIPPs is expected to come on stream by December. The earliest we can get any of the NIPPs come on stream is by the end of first quarter of next year, probably the beginning of second quarter of next year. I think the first plant to come on stream if I am not mistaken will be Sapele.

Basically, it is a phased completion programme so you find that before this time next year, we will have additional megawatts added to the national grid.

Even though the purported probe of the NIPP by the House of Reps Power Committee turned out to be less than altruistic, it threw up pertinent revelations such as contract abandonment by some contractors. How is that situation being handled?

Interestingly, I think the probe itself is what actually led to abandonment of contracts. The truth is that is that when the probe started the whole programme had to contend with the challenges surrounding the funding of the project by the federal government. You will recall that some of the governors when they came on board in 2007 openly said that they weren’t happy with the arrangement. It basically took the intervention of President Yar’Adua to appeal to and get the support of all the state governors. Because of that issue the NIPPs lost a total of almost two years in its implementation.

When the probe now started, the work had more or less come to a standstill because the funds were not available. It wasn’t until February-March that the shareholders actually agreed to fund the programme. In a way the programme was abandoned as there was a break in transmission caused by the protracted discussions on how to continue funding between the states and the federal government.

Where exactly are we regarding ongoing work at these NIPP projects sites?
If you go to Alaoji, Sapele, Olorunshogo formally known as Papalanto you actually find that the work is progressing and we are confident that by the beginning of next year, by first quarter next year or thereabout, some of those plants would be coming on stream. Transmission ordinarily is a bit more protracted in construction because of the time we lost.

This is a programme that ordinarily will take several years but because of our own urgency in Nigeria we have taken on a huge cost all at once because we want to address it. I don’t know of any other country that have taken on addressing their power supply problem in the way and manner we have with the NIPP in as short a period as possible and you have to bear in mind some of our own challenges in terms of logistics  we don’t have the access roads, the issue of project management capacity in terms of our people are major challenges. We recognise all of this and we are working to make sure that we succeed with all programme.

The expectation was that given your background in the Bureau of Public Enterprises (BPE), you would have championed pursuit of the privatisation of PHCN to a logical conclusion as a means of releasing the entrepreneurial ingenuity of the private sector in the Nigerian power sector. But this has not been the case. Why?
In fact I came into the power sector through the BPE in 2001 and at that time we actually believed that we could do the reform programme within three years  that, is restructure the industry and then privatise it. At that time we believed the argument for reform made good sense and I said so unequivocally.

The challenge that we had was that the environment was not conducive to attract private sector investment as we would like. If investors want to invest their money they ask for certain things and that means that we too had to put in place certain things. We can look at the case of GSM and say that why can’t we replicate what happened in the telecommunications sector but the power sector is very different because it has a long gestation term, you need to get a lot of things right.

But in GSM if you don’t pay, you don’t use, in power you use first before you pay ordinarily. With the advent of prepaid metres that is slightly changing. But some of the fundamentals to attract private sector are not in place as much as we would like to see it. But as things progresses I want to believe that whether or not we like it we would have to restructure and position the sector in such a way that it becomes more efficient and able to attract private sector investment.

Without an efficient sector, you cannot attract anybody to come in and if the money is not there  people are not paying for power, if there are technical loses, non-technical loses, yard-line loses, I mean the loses incurred where consumers don’t pay  all of these things are those that will make the environment conducive for the private sector to invest in generation as well as distribution.

I think the place where we find ourselves right now which might give the impression that government is backing off from is that of licensing because you find that if you don’t improve services, you cannot convince anybody. You also aught to understand that there is no short term solution to the problem so government cannot sit back and expect that people would come and invest in the sector and even if they do come it actually takes a number of years for this type of investment to crystallize.

The Nigerian Electricity Regulatory Commission (NERC) where you once functioned effectively appears emasculated by the purported fraud uncovered there. Are you doing anything to inspire confidence in the operations of the commission once more?
First of all you know that the case is in court so I cannot comment too much on the issues surrounding NERC. It will suffice to state that the role of NERC is recognised in the scheme of things and that this is part of the reform programme and certainly I think this is the right direction to go. We did suffer a bit with what happened in NERC but it doesn’t mean that it’s going to be left where it is. NERC has a role to play in the sector and government is doing everything possible to ensure that that role of NERC is further strengthened.

The issue of gas pricing, electricity tariff and government bureaucracy in the issuance of licenses and permits, signing power purchase agreements, etc, continues to hamper private sector participation in the sector. How are you tackling these?
I am very glad you asked this question, it is a very good question for Nigeria, it is a very important question for the government, it is a very important question for the power sector because if you don’t get the pricing right, service will not be provided. We say that going forward, we are quite confident that with the new gas pricing policy, that was championed by the minister of petroleum and also by the NNPC that we should see investment coming into the sector for gas to be provided to the power sector. Now for us, with the new dispensation, if the investors sufficiently confident that the environment is conducive for investment, they would invest. Some of the things that needs to happen is that we create a robust environment such that people know that if they invest their money, they can recoup it.

Obviously, the price of gas is a major consideration in electricity pricing, but the pricing regime in place today is built in such a manner that if you look at, or contact the Nigerian Electricity Regulatory Commission (NERC), the pricing provides for commercial gas price, it is based on a model that has a number of assumptions and these assumptions are looked at and corrected. We are very confident that since we have appropriate gas pricing, we would have people investing and then we would also have a gas supply agreement, we also have a power purchase agreement as well. It is not just the gas supply.

Also the off take agreement for the power produced. We are working very hard on this at the moment and we are at the verge of concluding a major PPA and we believe that as we go forward into the New Year we would see some more of these agreements signed which would pave the way for liberalisation and the entrance of more people coming into the industry. Another we forward is the support being provided by the World Bank. I am very confident that by next year we would start seeing the future of the power sector in Nigeria well defined which would mean a more conducive environment for private sector investment in the power sector.

You didn’t address the issue of bureaucracy surrounding issuance of licenses. Can you please…
The issue of bureaucracy and otherwise to be quite frank with you I don’t know how to treat it. You find that the people talking about bureaucracy are people that don’t really know much about how to go about it, they are not familiar with the operations of the Nigerian Electricity Regulatory Commission.

The law is very clear on how long it should take to give a license  I think it is actually six months or so from date of application to issuance. I really don’t see much of an issue when it comes to licensing because in most other countries the norm is that they bid to get the licenses, it is not the norm to have unsolicited bids where people just say ‘I want a license’ because power is a very capital intensive industry, power requires a lot of planning. You cannot after all say you want to locate all the power plants in Lagos for instance.

Someone must regulate to ensure that you have spread. There are about 30 new licensees and I don’t believe that there are issues in this regard. What matters for things to happen is that all the requirements  any documents that a banker would ask for are things like the gas supply agreement first. The long and short of it is that I think the bureaucracy surrounding licensing is a bit overplayed. It is a very straight forward affair, your go to the NERC; you pick up a form fill it and submit it. It is not specific in the law that you must issue this license within a specific time.

2010 is barely one month away. What are Nigerians to expect regarding improved power generation, transmission and distribution?
I think Nigerian have a lot to look forward to in the New year, we have turned I a corner in relation to events inn the Niger Delta with the efforts of President Yar’Adua in tackling the problem there and you know the backlog of work that needed to be done are being cleared up which is improving gas supply which will translate into more power and the investments going into all the sub sectors including generation, transmission and distribution are such that next year will be a good year for Nigeria and I believe that also with the coming of the NIPPs that will further improve the reliability of power supply and distribution.

The volume will go up and so will the quality of power. And even beyond 2010, 2011 will see more of the NIPPs completed. I expect that one or two of the NIPPs would definitely have been completed. The future is very bright, I see no reason why we cannot be optimistic. I sense a lot of pessimism in some people but I have to be optimistic. All they need to do is just look around and talk to people in the sector and they will see that there is a lot to be cheerful about going into the New year.

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