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Gencos are choking – Mainstream MD, Engr Audu

By Emma Ujah, Abuja Bureau Chief

The nation’s power sector privatisation, is in jeopardy, with a looming major power crisis as investors have threatened to shut power generation plants over unpaid invoices. The Managing Director (MD) of Mainstream Energy Solutions Limited , Engr. Lamu Audu, told journalists after a facility visit to Jebba and Kainji Hydro Power Plants that his company was being owed N44 billion for energy produced and consumed. 

GenCos , he added, were being frustrated by the rejection of power being generated by Distribution Companies (Discos), leading to a loss of between 20-25 per cent of total outputs.  He warned that the federal government must act urgently, or face a national blackout.

Excerpts:

What difference has your company made since 2013 when you took over Jebba and Kainji Hydro Power plants?

Kainji Power Plant was commissioned in 1968 and it may interest you to note that up till the time we took over in November 2013 no unit in Kainji power plant had been overhauled. What we mean by overhaul is that basically, after a commissioning of a unit, the unit, with or without defect, should be shut down between 5 and 10 years to do a statutory overhaul. That is a basic thing to be done, laid down by the manufacturers.

Engr Lamu Audu
Engr Lamu Audu

For over 40 years, that was never done here and that was at the point at which we took over the power plant. The situation was the same at Jebba.  Jebba started commercial operations in 1983 and no unit was taken out for statutory overhaul until the concession  arrangement. That was the state we met the plants.

When we took over, Kainji was literally zero. No unit was running, out of the 760mw installed capacity. As at today, we have recovered, 440mw. Three units are running while one is undergoing some maintenance which is the 100mw unit, unit 12. To answer your question, we have recovered 440mw from Kainji. At Jebba, we took over with five units.  They were on the grid, yes, but considering the fact that they had gone through so many defects the out put was very low.  However, due to the ingenuity of the engineers on sight, they managed them over the years.

One Unit was taken out completely in 2009 and it is still down. Procurement process for the rehabilitation of that unit is on-going. It got burnt down completely out of some issues we had with the grid transmission.  We have been able to ensure the availability and reliability of the other units. For example, unit 2G 4 was completely overhauled and commissioned last year. Up till when it was taken out, it was the least reliable because it had issues with the generators.  So we took it out and overhauled it to be able to predict its character. We have improved reliability and availability of Jebba.

Are you saying that since the plants were installed,they were never overhauled?

No turn around maintenance at all. I repeat that in Kainji, there was no single unit that underwent overhaul.

That means that no power was generated from here at all?

Yes.  When we took over, no power was being generated from Kainji.  In fact, the day we came here, this place was even running on a generator.  We were in fact importing power from the grid to make sure that the station was not flooded, because we had to run our auxiliaries, all the pumps, just to ensure that we evacuate the water.

We know that due to the issues of vandalism of gas pipelines, at a point the nation had to depend on electricity generated from only hydro power plants.

What has been the inputs of Jebba and Kainji?

Let me give you an overview of how important, hydro power operation is to a grid and the importance of having energy mix and energy security for a nation. The nation did not plan very well by investing more in thermal plants than hydro despite the fact that we have the potential to develop huge hydro power generation in Nigeria. To the extent that what you see is that we have only three hydro power plants which are Kainji, Jebba and Shiroro, delivering power to the grid.

At the point which we had this serious issue of gas pipeline vandalism and non-availability, the grid was sustained by particularly Kainji and Jebba power plants because during that period, Shiroro had issues of water. Fortunately for Nigeria, we had water, so we were generating at a point above 45 per cent on the grid, just from these two power plants.

So the importance of these power plants to the national grid cannot be over emphasised because by their nature, for instance, hydro power  plants are the cheapest  of electricity you can get compared to gas. So long as God Almighty gives us water, we have the fuel to run. The operational cost is much less. The only huge financial part is the initial cost, which is the capital cost implication. It is the cheapest and the cleanest energy source. It is also the most reliable source of energy.

Currently, even the frequency management by the National Control Center in Oshogbo, often direct us to reduce generation because we run a grid system.

The generators here in Kainji are designed to regulate the frequency of the grid. We also have a black-start capability whereby if the system goes bad completely, not every generator can go to a dead- grid but these generators can start from zero to bring up the grid after which other power plants can come in. This is how strategic Kainji is, not only to the nation but to the West African region. You may know also that we supply energy to Niger Republic.

What are your greatest challenges?

The challenges are enormous.   The greatest challenge is the commercial issue. This is seriously militating against our ability to continue to recover capacity and in fact to sustain what we even have today. We have serious liquidity issues in the Nigerian electricity market, to the extent that our invoices are not settled as at when due and completely. The percentage payment of invoices is between 19 to 25%. When we issue our invoice, only 19 to 25% of that invoice is paid.

 Leaving you  with 75% deficit?

As we speak now, we have outstanding receivable of 44 billion naira between this two power plants since we took over. We generated and it has been consumed. When we took over, part of the concession agreement with the government was that we should recover the capacity and bring the power plants to their nameplate capacities of 760MW and 574MW at Kainji and Jebba, respectively.

You can now imagine the challenge we have trying to meet up with that agreement when the other party is not living up to the spirit of that agreement.

We are not getting our invoices paid and so we can’t have funds and with the situation, one cannot attract external funding because nobody will want to lend you money in such a situation. Another challenge is that we have serious foreign exchange issues. Sometimes, when our invoices are paid and we have the naira, 99% of the operational inputs into the plants are external -that is they are from offshore.

That means we need forex to be able to buy spare parts, pay for services which we need offshore. What we expected from government was that we should be given a priority, considering the priority given to power by the government, we expect that priority should be given to us in obtaining forex. I am sure that you just cannot imagine us going to the open market to get foreign exchange. We buy the dollar from the open market. This is one serious challenge facing our ability to recover and operate properly.

FG shifted positions since we took over

The government actually shifted position since we took over. When we took over at the beginning, instead of implementing the Power Purchasing Agreement (PPA), there was an interim market rule that was put in place, putting aside the PPA. All those issues came in, therefore, limiting our ability to actually meet up with the requirements in the concession agreement. In order words, we cannot as we speak today, meet up with the requirements in the agreement. We cannot recover the nameplate capacity of these plants with the present situation.

This we have to tell you.  From when we took over, you have been able to see what we can do. We thought the government will live up to its responsibilities in the market, but this is the situation we have found ourselves. There is no way we can continue as it is. With 19-25% of payments, we hardly can meet up with salaries payments. If nothing is urgently done to solve this liquidity issue, we may have no choice than to do the unthinkable.  We may have to shut down.

When you talk about the government giving you a concession on forex, we thought that has been taken care of by CBN in the Power Stabilisation Fund.  Did you not benefit from that fund?

We need to understand that the fund, as long as generating companies are concerned, was supposed to be a settlement for our invoices, for energy sold and consumed.  It wasn’t a facility.  It wasn’t a loan.  It was part of the outstanding invoices from 2013 that accumulated which the government now felt that they needed to come in to cushion the effects of the cash flow situation in the market. That was what that fund was to us. It was our money. Ordinarily, if the invoices are being paid fully, that issue would not have arisen at all.  But on the Discos’ side, what they did was to give them loan because, the invoice payment is supposed to come from the discos end to pay us. So what the government did was to give the Discos loan to pay us.

Discos are bleeding over forex

On the forex, so far, we haven’t benefitted from any concessionary arrangement in terms of forex. Today we have a demand of close to $22 million with CBN.  $11 million request has been there for close to 4 months, yet we have not received one dollar. The request were made through GTB, our bankers and we have not got any forex through that channel.

Don’t also forget the fact that we also have acquisition loans that are in dollars which we took from banks. You can imagine the impact on us because we earn naira but we pay the facility in dollars and we have to source that dollar in the open market.

During the concession agreement, BPE insisted they wanted dollar and we paid $337 million dollars for this plant upfront.  Most of the equipment we import, in the last five months, we have sat down to renegotiate invoices to Purchase Orders we had issued for more than seven times. We have issued Purchase Orders for people to import things for us, they will go and then come back about two months later to say, dollar has moved against me, so I am not able to make the purchase.  We have no option but to renegotiate and increase it.

Jebba plant was almost going down at some point because of the Heat Exchanger equipments. There was none. We had given the supplier money since last year to purchase it. Since last year, we have been on the issue of Heat Exchangers. We went through the banks, it didn’t work, because the exchange rate was too high.  Then the guy said pay me in naira, we agreed to pay.  After he went, he came back to say that it has moved against him, we still had to renegotiate and pay more tha  than seven times

What efforts are you making to address the invoice payment deficits?

In the Nigerian energy market, we have a single off-taker which is the Nigerian Bulk Electricity Trader. They are the ones to buy the energy from us and sell to the Discos and subsequently get the collection from discos and pay us. In the past, it was the market operator  who is under TCN but it is now basically NBET saddled with that responsibility legally.

TCN is the weak link in the energy market

Talking about transmission, our relationship with transmission company as at today is actually the wheeling of power to transmit the generated power from us to the Discos. Considering the fact that the decay I had explained earlier in the generation sector, its actually the same thing with transmission because they were all under the same organisation which was PHCN-managed by govt. Unfortunately, till date, TCN is still owned by government but they are the interface between us and the distribution companies.  That means they are the weak link.

If anything happens to them, it reflects on us and currently we have a very weak infrastructure, not well maintained and in fact, in September last year, we lost one unit here, that was as a result of malfunction equipment in the Switch Yard Transmission. They own the switch yard outside. There was a defect that caused an explosion which reflected on our unit and will cost us $ 20 million to bring back.

This is as bad as it is because of the weak nature of the transmission system.  Currently, statutorily, the frequency of our grid is supposed to be 50 hertz .  But most of the time, it is above 50 hertz.  What that means is that the capacity of our generators is suppressed because the generators see that the frequency is high, that means the energy there is not being utilised so they try to go down.

That is how they are designed, and if it goes beyond certain limit, they will shut down and take themselves out of the grid to save themselves from damage. Now what it means is that there is availability on the side of generators but the transmission system is not able to transmit the available energy. It is not being sent to the distribution end or, the other reason for the high frequency is that it is possible that the distribution companies are not utilising the energy being sent to them.

You know you cannot store electricity.  So as we generate, the generators will see that what they are sending is not being utilised so why should they send more, they try to go back. Nigerians may be complaining that there is no power but this is the real situation. What we have available is not being utilised as at today. To a lay man what that frequency means is that there is too much power in the grid which the transmission is not taking from us or the Discos have refused to take so our generators reduce power.

By the time I went there one of the units was reading 34mw instead of 120mw -meanwhile Nigerians need the power. For me, in October, in Kainji alone we lost 464 million naira for energy that we can send to the grid but because the units are not doing that. There was a day we lost 18 million naira. These units are ready to send power but the frequency is too high, people are not taking it then it goes down.

In percentage terms, what is your generated  power that is lost?

On the average, we lose around 20 to 25 percent.

In Jebba it is worse because you have to shut down the machines because they have based load machines. In Jebba once it starts and the grid is too high, they are told to shut down for one, two or three hours and we lose the money and nobody pays for it.  You can then imagine our lack of appetite to invest in more capacity- when what you are currently generating is being rejected.

Another effect on us as generators is that it increases our maintenance cost because these machines, as they try to follow the frequency and try to manage the frequency, they go up and down and swing. Sometimes you shut them down and start up again at the beck of NCC. There is nothing that damages equipment like start and stop.  It is with serious wear and tear.

Talking about transmission, because of the exposure and risk we are exposed to, in fact to the extent that we have three lines radiating out of kainji into the grid. One to Birnin Kebbi and up to Niamey in Niger Republic, the other two goes to Jebba bulk station and radiates to the north and the south towards Oshogbo. Now of the two major lines that are gotten from here, only one is available, right now taking out light from Kainji to other parts of Nigeria.

What it means is that if anything goes wrong with that available line then Kainji is out. So the nation will have a deficit of 440mw. The danger is that as long as these lines are being managed by TCN, and they are in between 2 privatised sub-sectors, with  government managing it, through the normal bureaucracy, it poses a big threat to us. We really wish that TCN is privatised so that the efficiency with which the private sector operates will be injected. That is the best for the sector.

After what happened last year, we realised that many more equipments can go out of operations at the switch yard both in kainji and Jebba. We had to sit down with TCN to see what it is that we can do looking at the fact that whatever happens there, we are at the receiving end. So we suggested that if we can agree on a certain format to enable us invest and repair the equipments, then they pay us through whichever means at a later stage. This is the only way we can get the equipments repaired and maintained. That is the process we are currently engaging with TCN.

NBET was supposed to pay you for any power generated whether used or not. Was that not the agreement?

Now that is what we are saying that there is lack of payment for capacity. If only they pay us for capacity, then definitely we will have the appetite to recover more and generate more but that is not the situation now. Only when one generates they use the power that they pay you for, but now these powers are not utilised. There is no need to put in more money.

The Government is looking at generating 6000mw before the end of the year. How can we achieve that?

If we put together all the available capacity of all the generating plants in Nigeria, we may get up to  6000mw target.

Another challenge is that there are some power plants that are there because they cannot run due to lack of gas while some have the gas but cannot transmit into the grid because of this transmission problem.  So the possibility of meeting 6000mw by the end of the year might not be realistic. There are so many issues at getting that availability on the grid.  It is not just getting the generators in place.

The government just needs to come up with so many things. Honestly, Nigerians cannot pay for the economic cost of electricity and that is a fact. So one of the things we suggest is that they should come up with some kind of subsidy, after all, the government subsidises so many things. For now they should come up with a policy to subsidise certain segments of the consumers so that the power sector will attract investors otherwise, the way things are now, I hardly think that people will put in more money when they see what is happening now.

Another suggestion is for the government to really liberalise the market to allow for bilateral agreement, where people can buy and sell electricity as they wish and demand on the basis of willing seller: willing buyer. Right now, we have a single off-taker and we are at their mercy.  It is what they collect that they give us whether we like it or not.  But I can tell you that there are many segments of this economy that are willing to pay for energy.

We can enter into power purchase agreement with such consumers.  And everybody will be happy. That will open up the sector and we can invest more.

Another important issue is that the government should pay its bills because that is why the discos are crying. There are many government agencies that haven’t paid their bills such as the police and military, MDAs. These are part of the things killing the discos and that is why they are not bothered about taking power because the more power they take, the more they lose. For them, it is purely commercial and that is why the frequency keeps going high. People are suffering and we too who generate the power are suffering. We invested money into the power generation but the money is not coming out.

In August, we had an invoice of 5.4 billion naira but they only gave us about 900 million. If nothing is done, we have no option than to close shop.  Our directors are tired of spending money in fact they have taken a decision never to bring money to run this business again. Government that said they would give us Partial Risk Guarantee (PRG) didn’t give us. There is no way we can continue to invest when what we have been generating is not been utilised.

How would you respond to Alh. Aliko Dangote’s the call for the power privatization reversal?

People calling for the reversal of the privatisation are not well informed of the dynamics in the sector or else they will not be making such comments. If they know the consequences of what is likely to happen if the government decides to reverse the decision, they wouldn’t make the call. The government has collected the money up front.

Companies of your size is expected by the society to affect their host communities.   How are you giving back to the society?

We have provided lights and water for the host community. We have been able to link them to the grid. We also invested N235 million to have a sub-station to supply electricity to the people. CSR is an obligation to us. We dedicate 1% of our gross revenue to CSR. We have spent close to N700m on CSR. We have a foundation and it will focus on key areas like education, health, community empowerment.

 


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