‘Nigeria’s electricity distribution below installed capacity due to broken value chain’
What is the motivating factor for Century Power’s involvement in generating power and how can the power sector work without the hiccups it has been witnessing?
Since its inception, Century Power realised that for it to achieve its goal of helping to develop the country, we need to get involved in not just generation of power but also several other parts of the value chain in the power industry.
Our focus is on gas-fired power plants. There are many others we could talk about—nuclear, coal-fired, and hydroelectricity. We can talk about renewables like wind and solar but I am going to focus only on gas-fired today because Nigeria has the world’s ninth largest proven reserves of natural gas.
The value chain for a gas-fired plant starts with gas production. If we produce gas, it is transported through the pipelines that we have today. And then you get on to generating the electricity. You’ve got to transmit the electricity over the transmission lines currently owned by the Transmission Company of Nigeria (TCN).
TCN then transmits the power to the respective distribution companies that eventually deliver the power to our homes. You have seen that energy flows from gas producers all the way to the electricity distributor and then the money flows from the distribution backward.
The entire value chain must work for the energy industry to work. Natural gas is one of the cleanest fossil fuels that you can use to produce electricity and other countries use this to develop themselves. We have it in abundance but we are not using it. This has to change and that is why I said it is by getting involved in several aspects of the value chain.
As the CEO of Century Power, we know we have to get involved in the transmission; so we are upgrading the transmission line from Century power to the closer substation. We have an agreement with the government to do this upgrade. We are also now involved in developing a gas pipeline that would transport gas and we are going back even further to work with a company that will produce the gas to make sure that they produce the gas in the quantity needed and then the timeline that is needed.
When is your firm going to deliver on its ambition to develop a 1500MW of electricity in Okija, Anambra and will it meet its deadline?
Our current schedule shows that the project will be coming online by the second/third quarter of 2022 if other conditions are met by next year. There are several critical documents that the government needs to approve and you know things have changed in the government. You know the will seems to still be there. Several of the people in the regulatory bodies are different.
Several people have changed and any time there is a change, you need to bring the new people up to speed and justify why things have to be done in a certain way. This is what causes a lot of delays.
However, what we ask is that the learnings that were achieved by people in office should not be lost whenever there is a change in the office. And if the learnings are lost which we have seen happen several times, it is almost like we are restarting again.
So, we are pushing for the government to not lose some of the learnings that they have gained and don’t get me wrong, some of the people, some of the regulators are very intelligent people. Some of them are very capable; they have very smart lawyers, engineers, and economists. You know when you talk to them and see they understand the industry, some know what needs to be done.
For them to do the job, there are certain things that the government needs to put in place, certain things that the Minister of Finance has to agree to, certain agreements that the Minister of Justice has to approve among others.
For us to get the financial close by the first part of next year which was shown on our schedule, some of these documents need to be signed in a timely fashion. And the government has to be in support. Otherwise, we can’t achieve this and what happens is that people continue to suffer.
The installed capacity in Nigeria today is more than the distribution capacity. What is the problem?
The reason we are not distributing as much as the installed capacity is because the value chain is broken. We have over 12 gigawatts of installed capacity.
However, some of those pipelines are so old that the installed capacity is not really there. Then you have plants that were built by the government but do you have gas coming to them. How do you run a plant without gas? You have plants that were built by the government that has gas but don’t have enough transmission infrastructure to evacuate the power. If you can’t evacuate the power, that is part of the problem.
The distribution networks were sold to private investors. You know these investors put in their money to buy these networks from the government however at the time that they were sold, the government gave numbers that they thought were the Aggregated Technical Commercial and Collection Losses (ATCCL).
So, imagine this; someone buys a distribution network and they tell you that the ATCC losses are 80 percent. What that means is that from all the power coming into your plant, you can collect money for 80 percent of the power that you get but in reality, it is different.
How can you pay your loans when there are many things like metering still unsolved? A lot of the networks are not properly metered, a lot of the networks have lines and transformers that are so old. You also have a lot of networks where people are stealing power from them.
If you are collecting money for only 30 percent of the power you are given, how can you pay for the part that you are supplying? At the end of each month, the regulators expect you to remit a certain amount of money that you cannot give because you’re not collecting.
Hence, you cannot pay the generating company that supplied power to the grid for you to take the power. Now because you cannot pay them, the generating companies also cannot pay the transmission companies.
It is a vicious cycle of failure. Everything is broken. This is a real problem. What needs to happen in this case and you find that starting to happen in some of the networks, is that Disco owners are trying to play catch up in metering.
The government needs to support them to enforce metering. If I sell power to you through your meter, you need to pay for that power.
Two years ago, the chairman of the Nigeria Electricity Regulation Commission (NERC) said that only about 30 percent of the households are metered.
Under this scenario, how can the Distribution Companies make money?
We need to find a way that the Discos can provide meters to every household and every business that needs power. They need to be allowed to raise the tariff so that they can start to cover their costs.
Right now, the government is enforcing a set tariff that does not make economic sense for the Discos. For them to optimally serve us, they need to be allowed to come up with their own tariffs which is what we call cost reflective tariff that will cover their costs.
Generating companies need to be able to charge a tariff that allows them to generate power by gas and the government should not be telling private companies this was what they should charge and then competition should be what drives the price and tariff down.
Let GENCOs compete amongst themselves, likewise DISCOS. Market forces will drive down the prices, just like it happened with the deregulation of the telecoms sector.
The government simply needs to create an enabling environment and then step out of the way to let private companies compete for business. They believe that they are helping the masses by fixing prices.
In reality, they are not. The government should not be the one telling us how much to sell our power because you know it would never be a question of capacity anymore.
But the ordinary man believes he will be paying more for energy not supplied, especially as many are yet to be metered. How do you justify a tariff increase?
The bigger problem is that ordinary masses do not understand these dynamics. That is why they continue to pressure the government for lower tariffs.
To address this issue, we can start by educating people through local leaders. This was done in the past. They should go to the Emirs, Obas, Imams, and the leaders in different communities before they raise the tariff. People will understand if they see how it benefits them in the long run.
People still believe that the unbundling of the power sector was a mistake by the government as there has been no improvement in the services rendered. How do you react to this?
The government did a very good job of unbundling this industry. However, these licensees will profit from the government deregulating the market even more. Think about it. You already own the assets.
All you need to do is optimize your asset. Invest money to optimize your market to your assets. With that investment, you will be able to make more money at the end of the day.
Currently, there is no competition. We are all partners right now because we are seeing that Nigeria needs 20 gigawatts.
Nigeria doesn’t need to integrate. You probably need about 60 gigawatts. I mean South Africa has a fraction of the population that Nigeria has but South Africa currently produces about 50 gigawatts of power and is still not enough.
Nigeria has a population of 180 million at least and every month we produce less than 4 gigawatts of power.
As far as I am concerned there is no competition. There is a lot to go around and every year, we will be struggling to meet the demand. But the problem is that you don’t really seem to see the demand because every Nigerian that can afford it has a generator on their own. This affects knowing the real demand in Nigeria.
When MTN came to Nigeria, they thought that 500,000 lines were too much but now the firm is still struggling to meet the demand just like every other cell phone company.
When private GENCOS and private Discos start working properly, they will struggle for many years to come to meet the demand and this is real. A lot of us today generate our own power and pay a much higher tariff than what we can get from the grid system.
There used to be excitement in the industry but not anymore as banks are careful to support the industry due to risks. Do you believe the power industry can regain the trust of banks?
There used to be a lot more excitement in the industry from the banks and private investors. There is still a level of excitement because they know it is a matter of time for us to get it right.
Again, we have been talking about the potential of Nigeria. We must move from potential to reality. Private citizens and companies are starting to understand that this industry can actually work. So, they are asking for the industry to work.
Government is getting under increasing pressure to allow the industry to work and the banks know that this will happen. They are gearing up to make sure it does happen. They are not rushing to give money to you but they are waiting to see the government do. Nobody wants to lose money essentially so we’re waiting for the government to do some of the things it needs to do to make the industry work.
Is Nigeria ripe for nuclear power?
I don’t think Nigeria should be looking at nuclear energy at this point. You know we should focus on what we have in abundance, which is natural gas. It is clean and efficient. We should focus on natural gas and keep doing what we are doing in hydro. There are a lot of people that are trying to do renewables. There is a place for a small quantity or a small number of renewables in the country. They should do that. Nobody should talk about nuclear right now because for nuclear plants, you have to do them carefully. And the potential problems that you can have from nuclear plants is not something that Nigeria can handle at this point. We are not set up to handle that. You saw what has happened in Japan. We can’t afford that in Nigeria. Companies are flaring gas today. We should capture the flares and drill associated gas wells and produce a lot of gas. That is what should be our focus today not nuclear. We are many years away from nuclear.