Resolving Nigeria’s power sector challenges

Nigeria looks to the World Bank for a 5.2 billion dollar facility to expand electricity generation. Dallas Peavy, Managing Director and CEO of Egbin Power joined CNBC Africa’s Esther Awoniyi to discuss ways to resolve the challenges in the country’s power sector.

Most times when we talk about power on CNBC Africa, it isn’t exactly positive. The themes always revolve around the challenges, what has been done and what more the private and public sectors can do to make this sector work? But let’s start with the privatisation. There are mixed views on whether or not the privatisation has failed. From where you’re sitting would you say that the privatisation process has indeed failed?
I think when you look at the results from private companies such as Egbin, it’s a combination of 70% private, and 30% public. We put the capital into this, not just the price we paid $780 million but we also put in $402 million and we’ve taken that 35 year old plant, from 200 megawatts and 1 unit available to all 6 units available and 1320 megawatts. That provides 9.5 million people with power that wasn’t available three and a half years ago.

But how are you dealing with all the debt. I know that’s a big issue. You’re being owed and then there are the gas challenges and on the end of the DISCOS there’s the issue of cost reflective tariffs being absent. All of that continues to affect the value chain. What is your perspective?
Egbin is currently at N116 billion. That’s about $331 million. We’re working hand in hand with the government, the CBN, the Ministry of Power, the Vice President’s office, everybody that we can because out of the N116 billion, 95% of that is owed from Egbin to someone. 65-70% is gas, the banks, and foreign energy providers for equipment.

The $5.2 billion dollars that the government is seeking from the government to expand electricity in the country, what are your thoughts, and what do you think the likely impact will be on the sector?
We don’t know yet because the news just came out. We don’t know the details, we think it’s certainly a step in the right direction because the government has stepped up to say, this is bigger than just the individual players, it’s a collective effort between the government, the world bank, the IFC ad the private sector saying, “How do we make this work together?”

In the government’s economic and recovery growth plan, for the power sector they plan to put cost effective tariffs in place. We know that it’s been a challenge. We tried to have one last year but it was overturned. Labour and consumers were happy but obviously DISCOs were not. It’s a tricky situation but

what is your perspective on it?
Well we think for everybody, a cost reflective tariff is fair because it has to cover the cost but on the other side of that the consumer deserves to get what they pay for. they deserve to get electricity. Not because they want it, but because they deserve it. The cost reflective tariff has to be in place so that you can recover the components of what your costs are. No one is guaranteed any return even with the cost reflective tariff but you still have to do your job as a GENCO, DISCO or government entity.

Is there a silver bullet?
There is never a silver bullet. If there was we would have looked for that a long time ago. I will tell you that we are looking together with the government, TCN, and their new MD. We have conducted one on one meetings with all parties so that we are all on the same level playing field, so that we’re all working together with the same purpose. It hasn’t happened like that in the past three and a half years.

Recently the power minister came out to say that the DISCOS had poor remittances. What do you think of this? Has this been the case?
I can’t speak on behalf of the DISCOS, what I can say is that every side, DISCOS, GENCOS, we have our own challenges. Having said that I know that we are working together with the DISCOS. We meet with the minister on a regular basis to talk about these issues, but also the solutions going forward. I know that they’ve proposed different solutions to the minister and he’s taken them under consideration. We have proposed different solutions from our side for them too.

Such as?
Such as just working together to figure out how we can help TCN deliver energy where it is needed, because whatever concerns us, concerns the DISCOS. If we can’t get the power to them… SO it’s not just the DISCOS. It’s working with both the TCN and the DISCOS to make it work together.So in that chain, what is the missing link between the TCN and everyone else? You say you want the TCN to work better so you can supply power to the DISCOS.

What missing links in this chain can be fixed?
I think we’re addressing those now with the Minister, the Vice-President, the President’s office, with TCN. We spend a lot of time on this. If you saw yesterday, they released a significant amount of money to improve their system. They have a new MD so the new culture and behaviour of TCN as a government body is changing. It’s much better now than it was in January. Going forward, the missing link is to continue to improve upon what we can without burdening the consumer too much.

When you look at the plan, when you look at the efforts that are being made so far, would you say that it’s not particularly a hopeless situation and it can be fixed, because we’re coming from a history of over 50 years as a country, and we’re yet to do 7000 megawatts at any given time?
You have to look at it as there is a path going forward. Currently there are 2500 megawatts of stranded capacity now. You get the gas to some of those plants like Egbin and then we have we have almost 1000 megawatts stranded today simply because we don’t have gas. We continue to work with the government, TCN, CBN to continue to fund the projects and perform the projects. Just because it’s TCN doesn’t mean that we don’t work together, we all have to work together in the value chain to make this work. It is not a short term thing. Nobody invested in the short term, we’re all in this for the long term. We have to stick to that and continue to communicate.

If we released the stranded 2000 MW added to what we’re doing right now, give or take 4000 MW, it’s 6000 MW, that’s still…
Yesterday we did 4000 MW, which is not good enough for the people. If you add the others we’re almost at 7,000MW. Currently we have new projects being developed around the country that will take us to 10,000MW.

Does that include the energy diversification plans?
It takes into consideration the solar projects and the other technologies that are being brought into Nigeria but you have to start with a good base mix and that is what you have with the gas generation and with the hydro situation. If you don’t have a stable base the new initiatives will be good in pockets but they won’t help the system stabilise.

Thinking about the investments we’re making, even if we get the $5.2 billion from the World Bank, should we be more aggressive about investment into the sector or should we be more concerned with fixing the fundamental problems? Or can we do both at the same time because 10,000 megawatts for a country with 180 million people is still small?
It’s too small, but it’s a step in the right direction. When you go from where we were three and a half years ago to where we are today, we have come a long way, because remember we had to restructure the whole market.

True.
I think we can do both. I think we can continue to look at investments going forward but we have to make sure that we address the problems.