‘Government needs to liberalise, allow GenCos sell power directly to off-takers’

Lamu Audu is Managing Director of Mainstream Energy, a Federal Government concessionaire mandated to recover the electricity capacity in Kainji and Jebba dams. In this interview with KINGSLEY JEREMIAH, Audu discusses the issues affecting growth of electricity sector as well as options available to unlock the bottlenecks.

Why is the electricity market unable to sustain itself?
What we have in place today is a single-buyer market. Only the Nigerian Bulk Electricity Trading Company buys power. So, you have no option. If NBET is not buying the power, you will have stranded power. When they buy, the money is not remitted. The eligible customer policy provided a leeway and I will say the eligible customer policy is good and must be sustained. As it is now, the best thing is to allow generating companies to sell power to any off-taker whether it is the DisCos or eligible customers. People should be able to sign Power Purchase Agreement (PPA) directly. Using a third party will not take us out of the quagmire as quickly as it is expected. So, the single buyer market, I think we should be out of that by now because NBET was put in place as an interim arrangement to allow the market to evolve. If the DisCos are serious, and they want to remain in business, they should come to us and buy power. I wish we can sit down and renegotiate the PPA with all the necessary clauses. This is the way to go if Nigeria wants to address the electricity crisis.

The contract for capacity recovery of 1G9 and expansion of units 1G3 and 1G4 have been signed for the Kainji Hydro power plant. How does this speak to the progress of your earlier concession agreement with the Federal Government?
When we took over the Kainji and Jebba hydro power plants, our agreement with the Federal Government was to recover the installed capacity of 1338MW. At takeover, the two facilities had just over 400 megawatts. Kainji, which is a 760 megawatts capacity plant, had zero megawatts. What we did was to strategise immediately.

We focused on Kainji because at Jebba, out of the six units, only one was out, so, we sustained availability at Jebba while recovering Kainji. Right now, we have a total installed capacity of 1002 megawatts from the two plants.

Since the commencement of operations, we have recovered a total 542MW from both Kainji and Jebba hydro power plants. Following the recent completion of the recovery of Kainji Unit 1G7, which will add 80MW to the national grid, bringing our total available capacity to 1002MW and counting; with a total investment of approximately $62 million made in our capacity recovery to date. This is in addition to the $68 million to be spent on ongoing projects at Jebba Hydropower Plant for the overhaul of Unit 2G5 and recovery of Unit 2G6, which will put an additional 192.8MW to the grid.

With the execution of the contract for the recovery of Kainji Unit 1G9 and installation of Units 1G3 & 1G4, the company will also invest over $108 million, bringing total combined investments of approximately $240 million committed to our capacity recovery and expansion programme to date. The company will also commence the process for the rehabilitations of Kainji Units 1G10 and 1G8 (160MW), with a view to completing the recovery of all the Units by the end of 2026.

The installation of Kainji 1G3 and 1G4, each generating 110MW by 2025, will serve the West African Power Pool (“WAPP”) regional electricity market, which was established with Nigeria, and the Kainji plant as a focal point.

The rest of the world is going in the direction of renewable energy like hydro. Do you think we have maximised the hydro resources in the country?
For energy security, a nation has to have a reasonable energy mix. You don’t rely solely on renewables. You don’t also rely solely on hydrocarbons. I am an advocate of renewable energy, especially hydropower because it is clean. Apart from the initial investment, the operating cost is reasonably low. So, fortunately for us, as a nation, we have a lot of hydro potential yet untapped. It is untapped because the sector has not been opened up for private investment till now. I think we have reached a point where if we are to increase our hydro contribution which is currently less than about 30 per cent, we need to invest more in developing the hydro resources. Globally, the encouragement is to move away from fossil fuel to renewables for obvious reasons. It will catch up with us in Africa as we are industrialising. We should focus a lot more on renewables, whether it is hydro or solar. The current challenge in the hydro segment is that as of today, there is no clear-cut government policy guiding investment by the private sector in the hydro business.

What level of generation can we get from existing hydro resources?
As of today, the only running hydro plants in Nigeria can be counted – in Kainji, we have about 1000MW, Shiroro has about 600MW. We have a level of capacity at Kashimbila (40MW), which has not been concessioned. There is another 40MW at Dadinkowa. We have just about 1700MW installed capacity. As a company, we are looking at acquiring more concessions of about 700MW. That is in the process. We want to also start developing greenfield projects. It is important to have a strong national framework for the hydro segment. What we have today is just operating guidelines on how you operate dams, but a clear-cut guideline and policy on how private investors can invest and own hydro facilities is not there.

All that the government needs to do is create the enabling environment, create the right policies, and people definitely – considering the demand of power in Nigeria, will be willing to put their money. Getting people to invest is not a big deal in the power sector – the demand is there. Although we have market issues, like evacuation, invoice payment, all those things, we believe these are common in an evolving market like ours.

You mentioned earlier that the issue of finance – attracting investments won’t be a challenge in the sector, but right now the sector is held down by the financial crisis. What other things need to change for the sector to move forward?
I’ve just said we need to liberalise markets to unlock the liquidity issue that we have. At Mainstream alone, we have over N100 billion receivables from the market. Imagine what that would be across the market. Government needs to liberalise and allow us to sell power directly because the few eligible customers we have pay on time and pay 100 per cent. That’s how the market should be. The PPAs are backed by bank guarantee but we have paused the bank guarantee, otherwise, if you don’t pay me, I will move to the bank. If we free the market, the liquidity crisis will disappear.

This is the reason why I told you that finance is not really an issue. I’m talking from experience. Some of the capacity recovery we are doing is through loans. If people don’t believe in us or the sector, they won’t give us any facilities. We, however, believe that what is happening today will not remain forever. If a DisCo has to come to me to buy power, we will sign that agreement based on if he either agrees on my terms or he drops out of business.

Another issue is that we were expected to pay a concession fee to the government. Unfortunately, despite the fact that our income is in Naira, the concession fee is paid in Dollar and that’s a big challenge to us. Just imagine the difference between the naira and the dollar. We are to pay $50 million yearly, converting that into naira today and you will know that is a big challenge to us. We would want the government to look at the payment of this concession fee to be varied, not fixed. We are expected to pay a fixed concession fee, whether you generate or not, you have to pay. That is not fair. It should be variable based on our income, based on our energy. The concession fee should be based on energy generated. That is another big issue.

Do you see any opportunity in the export market for GenCos to earn foreign exchange for the stranded electricity?
Fortunately for us, we have around us the West African power pool of which Nigeria is a member. Also, our company is a member as well. WAPP is a big opportunity for the Nigerian generating companies because from the beginning, the idea was such that the flow of energy would be from Nigeria to other parts of West Africa because we have more capacity to regenerate the lowest and cheapest electricity in the region. We’ve not positioned ourselves very well. But the opportunity is there for us to take over the regional market. That means that we can earn some revenue in foreign exchange which is a very good opportunity. We are presently supplying power to the Niger republic that has been there since the inception of Kainji. The international market, especially WAPP, is a big opportunity for Nigerian companies to earn foreign exchange. In fact, the additional two units we are bringing onboard outside the concession agreement of the government is targeting the West African market.