‘Liberalising dams will address flooding, enhance Nigeria’s hydropower offering’

The Managing Director of Mainstream Energy, which oversees the operations of Jebba, Kainji and Zungeru Dams, Lamu Audu, in this exclusive interview with KINGSLEY JEREMIAH, speaks on the pressing issues within Nigeria’s power sector. From addressing the challenges of flooding and achieving sustainable hydropower development to navigating concerns surrounding tariff adjustments, liquidity and efficient management under the new administration, Audu also explores the implications of the recently enacted Electricity Act and the impact of foreign exchange crisis on the electricity industry.

We have a new government that is showing positive signs of being ready to listen. What will be your advice, particularly for the new Minister of Power?
If I were to offer advice to the current government and the Minister of Power on how to tackle the challenges in the power sector, I would emphasise that the primary issue plaguing Nigeria’s power sector is liquidity. This problem permeates all aspects of the industry, including generation, transmission and distribution.

Currently, none of these three components can operate independently without relying heavily on government support. Most of our energy is sold through the Bulk Trading Company, which sometimes fails to pay a significant portion of our invoices.

Given the financial constraints of the government, I recommend that the new administration considers the liberalisation of the power sector. While this transition may be painful, akin to the removal of subsidies, it is necessary to attract private investment and enable companies to charge tariffs that would allow them to recoup their investments.

Another critical aspect is the Transmission Company of Nigeria (TCN), which acts as the intermediary between generation and distribution. TCN’s efficiency and attitude must align more with those of the private sector to ensure smooth operations. Any disruptions in the TCN can have cascading effects on the entire system. Therefore, improving TCN’s performance should be a priority.

Furthermore, despite the new customer policy that allows larger consumers to purchase power directly from generating companies, TCN remains a critical link. Hence, addressing issues within TCN is vital.

In summary, my advice to the Minister of Power is to consider liberalising the power sector and encouraging private sector participation. It’s essential to address the management issues within TCN and ensure that the tremendous potential of its engineers is fully utilised. Private investment and effective management can propel these projects and ultimately improve Nigeria’s power sector.

You have been appointed for the second time to the board of the International Hydropower Association. What do you think it means for Nigeria, as well as other African countries?
Considering what I represent, I am now part of the global policy body focused on hydro power.

It’s a non-profit organisation established to advocate for the development and utilisation of hydro power resources worldwide. Its mission involves engaging with policymakers to influence government policies towards transitioning from fossil fuel power generation to renewable sources, especially hydro power.

In recent times, hydro power generation has significantly enhanced the viability of solar and wind energy. Solar and wind are variable energy sources, but when combined with hydro power, they become more stable and suitable for integration into the grid, with hydro power acting as a reliable “battery”.

Hydro power has become a critical factor in making variable energy sources more viable than ever before. The International Hydropower Association (IHA) serves as an advocacy body that creates policies and standards to accelerate the shift away from fossil fuels. We are all well aware of the climate change issue and the global move towards achieving net-zero emissions. To attain this goal, we must rely on and harness the hydro power resources that nature has provided, alongside other variable energy sources.

Today, hydro power must be sustainable, and IHA stands for the development and exploitation of sustainable hydro power.

For most of my active career, I’ve been involved in the hydro power sector, even before the privatisation of Nigeria’s power sector. Now, I lead the largest hydro power generation company in West Africa. Given my background, I believe that organisations like Mainstream and individuals like me, who have dedicated their lives to hydro power, should play a significant role in influencing policies at various levels and advocating for hydro power. Mainstream is a member of IHA, and I am also an individual member. To have a meaningful influence, it’s essential to be actively involved in policy advocacy to ensure favourable policies in Nigeria.

I currently represent not only Nigeria but the entire African continent as the only black African on the board of IHA. Despite Africa’s substantial hydro power potential, it hasn’t received much global attention in terms of hydro power development. However, my involvement has raised awareness of Africa’s potential in the hydro power sector.

Now, regarding the impact of climate change and the concept of achieving net-zero emissions, Africa has often experienced the adverse effects of climate change, including flooding. Dams, particularly for hydro power, are one solution proposed to address flooding. Can you explain how crucial this is for us and whether it can effectively mitigate flooding?

As I mentioned earlier, sustainable hydropower is highly relevant in our region. It encompasses all the benefits that hydro dams offer, with flood management being their primary function.

The other functions of dams, such as power generation, irrigation, water supply and navigation, are all consequential to the need to control flooding. Allowing water to flow downstream without control can lead to severe consequences. Dams provide a means to release water in a controlled and manageable way.

For us, especially considering the levels of poverty and the need for economic empowerment, it is crucial to invest in dam projects that can effectively manage floods, reduce environmental impacts on communities and provide opportunities for agriculture, fishing, irrigation, water supply and navigation. Dams play a pivotal role in regulating water levels along riverbeds and their presence is critical.

Empowerment is closely linked to the amount of power a society generates and consumes. Currently, one-third of people without access to electricity worldwide live in Africa, despite our abundant hydro power potential. Hydro power is not only clean but also sustainable and cost-effective.

Your brilliant ideas are nothing if they end on the pages of the newspaper. What truly needs to change from a country-centric perspective to a regional and continental outlook?
Three key elements are required: investment, the right governmental structure and the proper policies and regulations to attract investment. The challenge isn’t merely a lack of funds; there are willing investors worldwide as long as they are assured of returns on their investments. The crucial need is for the government to establish an enabling policy environment, often in collaboration with multinational organisations, to drive development.

This effort shouldn’t be limited to the national level alone; collaboration at the regional stage is equally important. Organisations like ECOWAS or the African Union (AU) should work together to formulate deliberate policies. If the AU and similar bodies can create far-reaching policies where resources are pooled together and common policies established, it would encourage investment and the cross-border implementation of these policies.

Regarding the issue of flooding, the Ladgo dam in Cameroon has been mentioned frequently. It was recently in the news that they released water, and Nigeria should have used its dam to mitigate the resulting flood. However, nothing has been done so far. The dam’s location is very close to the Cameroonian border, and to harness its full hydrological potential, the lake crosses over into Cameroon.

Nigeria and Cameroon need to collaborate to develop this potential. If the lake extends into Cameroon, they would also benefit. It’s about reaching an understanding where countries can work together to develop these resources for the benefit of their people. This push is necessary, and some of us are actively working towards it.

If the government lacks the means to build these dams, they should allow private companies to step in and develop the power sector and other related components. We are currently in discussions with the World Bank to establish a public-private partnership (PPP) model. Until now, dams in Nigeria and Africa have been solely constructed by the government. We are now proposing arrangements where private developers can fund the construction of these dams, freeing up government resources for other purposes.

We are working with the World Bank to create a model where the World Bank can provide facilities to the government for handling the social aspects such as irrigation, water supply and navigation, while we, as a power generating company, focus on the power generation site.

If we succeed in implementing this model, it can be replicated, and others can follow suit to develop and address issues like flooding and create opportunities for people. The government must put in place policies to attract investors and encourage them to invest.

Africa currently has a hydro power potential of 340 gigawatts, but only 11 per cent of it has been developed. This means that if we can fully exploit our hydro sources, we won’t need any other source of electricity generation, and it will bring various additional benefits.

Take Egypt as an example; they have minimal rainfall but rely on the Nile River, with many dams along its course up to the Mediterranean Sea. They have mastered water management along the river for their benefit.

How are the current foreign exchange crisis and the floating of the naira affecting your operations?
The change directly impacts our industry and has offshore implications. To effectively navigate this shift, we require access to foreign exchange (FX) for procurement, rehabilitation, and upgrades, especially for those of us managing older assets. We must recover capacity and make improvements, and this cannot be achieved without the necessary FX support. This becomes increasingly challenging because every time the naira devalues, we require more naira. Unfortunately, our income is in naira, which means we need more naira than before to execute tasks that were once manageable.

This FX issue is a significant concern, and it has the potential to discourage potential investors from entering the business. The unchanged tariff for power generation does not align with the devaluation of the currency, putting significant strain on our ability to carry out necessary tasks. It’s a challenging situation, and adjusting tariffs accordingly is crucial to alleviate this issue.

If the energy market were to be liberalised, allowing us to sell our energy at appropriate prices, it would significantly help. While the naira value fluctuates, there’s still a bit of ease in obtaining foreign currency. Investors could access the necessary FX from banks, whether it’s in dollars or euros, making it more manageable than before when it might have been unavailable.

The presence of a stable source of foreign currency would be advantageous for investors, even if the income generated remains in naira, as they can easily convert it back to dollars or euros through the bank, providing a potential solution to this challenging FX situation.

Is the increase in electric tariffs the major problem in the power sector?
It’s not a one-size-fits-all solution. At the distribution level, for instance, increasing tariffs alone may not suffice. What’s required from Distribution Companies (DisCos) goes beyond tariff adjustments. If they are to charge a cost-effective tariff, they should also invest in ensuring that their infrastructure meets customer expectations. Unfortunately, over the past decade, many DisCos have not aligned with this business model. Most of them have taken loans, and some are under management due to their inability to meet their financial responsibilities. If they had been investing wisely to reduce losses, they could have increased their revenue.

It’s worth noting that a significant number of Nigerian electricity users, even in rural areas, are willing to pay if they receive reliable service. Some off-grid solar systems in rural areas charge substantial fees, and people pay willingly. This is what’s expected of DisCos, but it appears that the current state of DisCos does not align with these expectations. Therefore, the tariff increase alone may not solve the problem. Instead, the focus should be on getting the right people to manage the business.

The Power Sector Act allows for a review 10 years after privatisation, which is coming up in the next two months. What do you think the government can achieve with this review? Should some companies lose their licences? What actions can be taken by the government if it decides to conduct this review?
The answer is straightforward. We have performance standards that all companies in the sector agreed to when they signed up. The regulator and the Office of the Vice President have been monitoring our activities over the years. They are well-positioned to advise the government on which companies should retain their licences based on whether they meet these standards and fulfill their expected obligations.

This review should be objective, not subjective, with clear criteria for assessment. If the companies have failed to perform and if there are reasons for their non-performance, the government can take appropriate action. In some cases, it may involve revoking licences and setting new conditions for obtaining them.