Professor Bartholomew Nnaji, Chairman Presidential Committee on Power at the Security and Exchange Commission session on Power in Abuja recently updated the SEC on the power reform process.
A professor of mechanical and industrial engineering, and founder of the first indigenous owned power generating company in Nigeria, Geometric Power Ltd, says the problem of Power Holding Company of Nigerian (PHCN) is not money but with the structure. Vanguard’s Favour Nnabugwu, captured the proceedings. Excerpts:
What in your opinion is the problem with PHCN?
The problem with PHCN is not so much about money but the structure of how it actually uses or applies the money. That has been the problem, but some people say it is a human problem; to a large extent, l agree with them because you would find out that people are perpetually coming from all sides to induce success while some proffer solutions on the way forward.
We have made plans in the country but the executions of these plans have been the problem. With the kind of population we have, if you compare us with some other African countries, you will agree with me that we are far behind in comparative terms. In terms of power; South Africa, Egypt and even our small brother, Ghana, are all doing better than us.
You the ask: What is there problem with Nigeria? Why is it that we had electricity in the 80s and we don’t have it anymore?
Is the problem also related to investment in the power sector?
It is partly that there were very little investment in power for many years during the military era and also it has to do with human management of the power sector. People who managed the power sector were not talking about PHCN.
I am talking about people in government who are responsible for ensuring the provision of power in this country just like any other country. Developed or serious countries plan for their electricity year-in to year-out.
And on yearly basis, they are be able to analyse the amount of power needed and also project for the years ahead and are able to march projections with economic growth because the more growth a country has, the more electricity a country needs.
Some have also linked the problem to the cost of operating power?
40 percent of the Nigerian population is without electricity and that is very bad. We have very high cost of operating electricity in this country. More than 80 percent of what PHCN gets up until last month goes into salary, operations and welfare.
By the agreement negotiated with labour, the salary will increase but we may come to a point where we may not be able to pay salary from the revenue collected by PHCN.
It will not be able to pay for invoices for purchases and other procurements; they will not be able to get the new transformers and so on. And that is not a good business model.
The peg of any business is that you pay for the bills of your invoices before salary. It is a very serious concern for us; hence, we are trying to set the stage for why privatization is critical before we begin to transfer management and operation to private sector so that businesses can be operated properly.
Our expectation is that power would reach about 13,000 MW by 2013 to 2014 far away from the over 4,000 MW it is now. You have to match the entire value chain in the production of electricity with what we expect to see in 2013 and 2014.
This means that transmission must be capable of wielding that amount of power and distribution must be able to distribute that kind of power. That is what we are doing now that is quite different from what used to be done.
What used to be done is that government decides if they want to build a power plant and they will simply go and begin to build power plant without consideration as to where the gas will come from. The business was vertically integrated and that resulted in unbundling into 18 successor companies.
Our estimate is that if you look at generation alone, that you need to grow power according to Vision 2020. The cost will be at least N3.5billion per year for generation alone and when you include transmission and distribution, it could reach N10billion per year and government does not have that kind of money so we have to get the money somewhere else.
The new drive of government is to restructure the industry, disaggregate the industry into functional autonomous components of generation, transmission and distribution for market development, and this means cost effective tariff.
A regulatory commission has been put in place so that it will be able to develop cost effective tariff and have a strong regulation.
President Goodluck Jonathan priority on power
The new Power Sector Reform Roadmap has been officially launched. The intention is to accelerate the pace of reform and improve on short-term delivery. We have two objectives: One is improvement short-term delivery.
And where would this short term come from? We have government power plants and we know that there is none of the plants that is operating at installed capacity.
There are some power plants that are operating at 20 percent. We would like to see recovery in those power plants as soon as possible before they are privatised.
This would increase power in the system. The second objective is the reform. We think the Electricity Sector Power Reform Act should set up a plan for the implementation to accelerate the reform.
We hoped to achieve this by setting up the Presidential Action on Power to remove red tape and cut-throat bureaucracy in decision making, and achieve policy consistency.
Presidential Action on Power is chaired by President Jonathan himself and that has solved a whole lot of problems for us because all the key actors are there and we don’t have to re-educate them on the progress. For example, the Minister of Finance is there, the Minister of Petroleum is also there with the Accountant-General and the Minister of National Planning.
When an issue comes up, we discuss the issues and come to a decision and whoever is responsible to effect the decision goes to implement. The Taskforce also has all the key stakeholders from the level of Permanent Secretaries, the NNPC Group Managing Director and the Director-General of the BPE. Decisions are taken very quickly.
What has the Taskforce done so far?
We reconstituted the commission National Electricity Regulatory Commission. We cannot really operate a sector without a strong and effective regulator. For us, the regulatory commission for electricity will have to be strong and independent.
Based on their work, we can get cost effective tariff that will attract investors to invest in the sector. We put tariff on gas to 2013, and for many years, we had the problem of convincing oil companies to provide gas for power plants, but a lot has already been done and the appropriate tariff gotten.
When we started on gas, it was at 10 cent per unit but now it is a Dollar per unit. This is fair enough. Next on the line is the Nigerian Electricity Liability Company, which is in place to ensure that the unbundled assets of PHCN would be appropriately managed.
How will the bulk trader operate?
The bulk trader that would buy the bulk of power to significantly improve power in Nigeria is established, licensed and made functional. We hope that this would be so within the next one month.
The bulk trader will buy power from existing power companies of government that will be privatised or concessioned and they will sell power via Power Purchase Agreements, through the bulk trader who will then vet the power to distribution companies.
The NIPP companies will also be able to sell power through the bulk trader to companies. Our expectation is that the NIPP companies will quickly privatise or buy its concession upon completion. The existing IPPs and new IPPs will also sell power similarly.
The whole objective of having the bulk trader is that during the period when the distribution companies have been privatised and getting healthy to become credible offtakers of power, then we will be able to say that there is an entity that is credible, that provides guarantee for new companies that want to build power plants.
By the time distribution gets healthy and become credible offtakers of power, we will no longer have any use for the bulk trader. The bulk trader will go away and power can be sold through bilateral agreements between a distribution company and a generation company.
That is where telecommunication companies have reached now. We will have a waiting buyer and waiting seller. A lot of ideas will come when the power sector goes to the private sector, which will, hopefully, happen in a short while.
What about funding for power?
There is some funding arrangements, which the Central Bank of Nigeria Governor talked about from the Pension fund. How that is structured is something that is yet to be developed.
What about alternative power like wind and solar?
We plan to generate power with coal very soon. Government is working at that. It is not actually true that the cost of solid wind power is cheaper. It is a lot more expensive.
The government is working on ensuring that we have power via wind, from solar and biomass, but they cost more. So, there has to be a way of using them as energy mix and stabilizers.
Some of the powers that you think will be available are quite unreliable. We cannot get reliable electricity from wind and solar, hence we must still have power from other sources.