THE Federal Government, from current happenings in the National Integrated Power Plants (NIPP) where 10 gas-fired stations are up for sale, seems to be on course with the implementation of the 2010 Power Sector Reform.
In the official circle, there is a growing belief that President Goodluck Jonathan administration is getting it right, and with the necessary political will, may achieve the 2014 target of providing stable electricity in most Nigerian cities for at least 18 hours per day.
Those who think in this way cite the successful unbundling of the Power Holding Company of Nigeria (PHCN) and its sustenance of power generation at close to 5,000megawatts(mw) for several months, compared to what they described as near zero level generation before the administration of former President Olusegun Obasanjo initiated the NIPP to build 10 thermal power stations.
Now that the power plants are being completed in less than a decade, the government has thought it wise to leave the projects in the hands of private investors, who have become better business managers across the globe than government, for better management to realize the goal of the investments.
All the lead actors in the power sector reform, including President Jonathan, Vice President Namadi Sambo, Power Minister, Prof. Chinedu Nebo, and the Managing Director and Chief Executive Officer of the Niger Delta Power Holding Development Company (NDPHC), which built the power plants, Mr. James Olotu, are optimistic that Nigerians will smile at the end of the day.
In both Nigeria and overseas, Sambo, who doubles as the chairman of NDPHC, Nebo and Olotu chronicle the government’s achievements in the power sector and defend the decision to privatise the plants.
Consequently, the government has mandated the Bureau of Public Enterprises (BPE) and the NDPHC to handle the sale of the plants.
The trio of Sambo, Nebo and Olotu have said the sale of the power plants is in line with the Federal Government’s plan under its Transformation Agenda to allow the private sector drive the economy. And because the power sector plays a crucial role in the economy and the government has failed in the past to run the industry efficiently, it is better to place the 10 power plants in private hands to enable them inject more funds into the facilities and expand them for stable power supply across the country before and not later than 2014. It is also the thinking of the government that divestment from the power plants could prevent the usual Nigerian factor from catching up with the projects and even destroy them, as experienced in similar projects and other parastatals.
As these projections and plans continue, it is evident that most Nigerians are not carried away by official promises and reassurances that all will be well, that the government will deliver on its promises. They are particularly worried by avoidable blunders and failures the government made during similar exercises in the past.
Such concerned Nigerians often say that even the ones that were sold by the Obasanjo administration are comatose while the ones in operation can’t even break even. What they want is adequate and stable power supply, the cost notwithstanding. Having failed to fulfil such promises in 2010, 2011, 2012 and now shifting the goal-post again from 2013 to 2014 in the midst of the game, the citizens can only be hopeful that one day, the pendulum will swing in their favour.
But the government is forging ahead with the exercise having received 110 bids from prospective investors for the 10 power plants at the expiration of the deadline of Friday July 19, 2013 for the submission of bids.
The NIPP initiative was conceived in 2004 to boost capacity to generate more electricity. The power generation projects are accompanied with supporting transmission, distribution and gas transport infrastructure.
Eight of the NIPP plants were initially designed as open-cycle gas turbine (OCGT) power plants while the remaining two were designed as combined-cycle gas turbine (CCGT) power plants. Seven of the OCGT plants have the capacity to be expanded to combined cycle gas turbine configuration.
The NDPHC, which coordinated the construction of the plants, came into being in 2006 as a “legal vehicle to contract for, hold, manage and operate the assets developed and built under the NIPP using international best practices.”
It has a managing director and two executive directors, who are responsible for engineering and technical services, and finance and administration in that order. The board has representatives from the shareholders in the three tiers of government, including six state governors, four ministers, and three executive directors, including the managing director.
Other organisations playing prominent roles in the current efforts to privatise the power plants include the Federal Ministry of Power, Nigerian Electricity Regulatory Commission (NERC), Nigerian Bulk Electricity Trading Plc, BPE, Transmission Company of Nigeria (TCN) and the Gas Aggregation Company of Nigeria Limited. Others are Nigeria Gas Company Limited, gas suppliers, Nigerian National Petroleum Corporation (NNPC), the major international oil companies operating in the country and the CPCS Transcom International Limited, the transaction adviser.
The inclusion of these organisations in the privatisation of the power plants is seen as a demonstration of the government’s commitment to the exercise, and a further indication that it is not a run off the mill initiative which can be hijacked or abused by any individual or entity.
The 10 thermal plants have a combined capacity in excess of 5,453 megawatts (mw) at ISO conditions and 4,774 mw (net). To ease the privatisation process, the plants have been placed under incorporated companies.
The gas-fired plants include the Alaoji Power Plant incorporated under Alaoji Generation Company Limited in Aba, Abia State. The station has four gas turbines, two steam turbines with total capacity of 1,131 (ISO) and 961 mw (net); the Benin Generation Company Limited, Edo State is the operating firm for Ihovbor Power Plant, which has four gas turbines of 507.6 mw (ISO) and 451 mw (net), built to accommodate future conversion to combined cycle gas turbine (CCGT) configuration; the Calabar Generation Company Limited, Cross River State is the parent company for Calabar Power Plant with five gas turbines of 634.5mw (ISO0 and 562mw (net). It is an open cycle gas plant built to accommodate conversion to combined cycle gas turbine configuration in the future.
There are also Egbema Generation Company Limited, Owerri, Imo State which will manage the Egbema Power Plant, which has three gas turbines with 380.7mw (ISO) and 338mw (net) capacity and built to accommodate three additional gas turbines and future conversion to combined cycle gas turbine configuration; the Gbarain Generation Company Limited located in Yenagoa, Bayelsa State is the operating company of Gbrain Power Plant, which has two gas turbines of 253.8mw (ISO) and 225mw (net), an open cycle gas turbine plant built to accommodate future conversion to combined cycle gas turbine configuration; the Geregu Generation Company Limited, Ajaokuta, Kogi State will handle the Geregu II Power Plant, which has three gas turbines with 506.mw (ISO) and 434mw (net) capacity, an open cycle gas turbine plant, built to accommodate future conversion to combined cycle gas turbine configuration, and the Ogorode Generation Company Limited, Sapele, Delta State, which will manage Sapele II Power Plant of four gas turbines of 507.6mw (ISO) and 451mw (net). It is a fully operational open cycle gas turbine power plant.
Others are Olorunsogo Generation Company Limited, Olorunsogo, Ogun State, which will manage the Olorunsogo Power Plant of four gas turbines and 754mw (ISO0 and 676mw (net) capacity; Omoku Generation Company Limited, near Port Harcourt, Rivers State is the operating firm of Omoku II Power Plant, which has two gas turbines of 264.7mw (ISO0 and 225 mw (net), built to accommodate two additional gas turbines and future conversion to combined gas turbine plant, and Omotosho Generation Company Limited, Okitipupa in Ondo State, set up to operate the Omotosho II Power Plant, which has four gas turbines of 512.8mw and 451mw (net). The station is built to accommodate future conversion to combined cycle gas turbine configuration.
Since the Nigerian economy is rated as the largest in Africa, its power sector is still seen as an unexploited sector, considering the country’s huge population, industrial base coupled with a strong financial industry and a viable commercial sector.
At the road shows the BPE and NDPHC held recently in Lagos, London, New York (United States) and Hong Kong, they urged investors to capitalise on the growth opportunities in the Nigerian electricity market where demand far outstrips current supply, and take advantage of the potential for strong economic growth to establish a strong presence in West Africa, using Nigeria as a platform for acquiring further assets in the region.
The NDPHC said such investors will also acquire assets in premium condition, relieving them pressure from construction and commissioning costs, noting that because all the power generation assets are newly constructed, they offer the best fuel efficiency and lowest operating costs.
Olotu said investors in the power plants would get value for their money because they can be further developed, “as all, but one, of the open cycle gas turbine power plants have the potential for expansion and growth.” He further said that such investors will be partnering with the federal and all the 36 state governments which have shown a strong commitment to the power sector reform, including taking several measures to support the creditworthiness of investments.
The Federal Government said the investors will also benefit from a Multi-Year Tariff Order (MYTO), designed to be a cost-reflective tariff that accounts for operating cost and capital recovery as well as efficient operations based on best new entrant capabilities and technology. The investors will also benefit from Power Purchase Agreements (PPAs), with the Bulk Electricity Trading Plc, a federal agency, which will act as the bulk buyer of electricity in the early stages of market liberalisation. The investors, the government adds, will also benefit from a 10-year term Gas Supply and Aggregation Agreements (GSAAs) with Nigerian oil producers.
The government’s search for local and foreign investors for the power plants started with road shows in Lagos, London, Hong Kong and New York where the BPE, and the NDPHC as well as other stakeholders in the power sector reform, presented what the entire privatisation exercise entails.
Before the close of the bidding session, over 200 investors had indicated interest in the power plants while 110 met the deadline, a move many public affairs analysts deemed as good for Nigeria and a confirmation of the investors’ confidence in the economy.
Prof. Nebo explained at the Lagos road show that the plan to sell the power plants conforms to President Jonathan administration’s goal of ensuring effective and qualitative power supply in the country. “We are ready to give maximum support to private investors in ensuring that the power investor thrives in the country,” Nebo said, adding that “government, in its attempt to break the monopoly of electricity in the country and emancipate the sector, has initiated the power sector reform. The president has been committed to the power sector reform. This is to ensure that power supply is effective and he believes strongly that power sector would drive the economy in better hands through the private sector.’’
Olotu disclosed that the NDPHC board recommended the sale of the plants to President Jonathan, which he has approved.
He said: “The mandate was to build 10 power plants across the country with capacity to generate 5,000mw by the end of 2013 and divest from them. We are confident to tell you that this year will be a year of harvest in the power sector. All the power generating plants will be completed this year. In fact, six plants are ready for inauguration, while four others are about to be completed within the next few months.
“The process that we went through to ensure that we are where we are today is intrinsic. President Jonathan has approved the divestment plan and it will be concluded mid next year. Providing stable power supply has been a major priority of this administration and we all know that the power business is best managed by the private investors. We are divesting 80 per cent stake in each power plant as valued by our financial advisers/valuers. We will retain 20 per cent in order to assure potential investors of our confidence in the plants we are selling,” Olotu said.
At the Lagos road show, Governor Gabriel Suswan of Benue State, who chaired the occasion, said over 200 investors had expressed interest in the plants.
Under the current arrangement, 53 per cent of the plants is owned by state and local governments while the Federal Government owns 47 per cent.
Suswan, who is one of the governors on the NDPHC board said: “Over 200 entrepreneurs have expressed their interests. The road show is just to show the potential investors that we are serious. We are starting from Lagos, followed by London, United States and Hong Kong. We want to encourage the private sector in Nigeria and the banks that this is the way they should go.”
The chairman, Presidential Task Force on Power Reform, Mr. Dagogo Jack, said the road show is consistent with government’s policy to push the plants to the private sector, which can manage it better, adding that “government will create incentives for investors in the power sector.”
In view of the precarious security situation in the country, Delta State Governor, Dr. Emmanuel Uduaghan, who is also a member of the NDPC board, appealed to the investors, who will emerge as the preferred bidders to quickly liaise with the governors of the states where the plants are sited to develop a security master plan to enable them operate with ease.
The eagerness of investors was confirmed by Olotu when he told journalists that 30 foreign firms had shown interest in the power plants.
On how to sustain investors’ confidence in the transaction, Olotu said: “There will be absolute transparency. The government has demonstrated that in previous sales. The records have shown, the international community has acclaimed it, even the local community has also acclaimed that the process was absolutely transparent. “Now, this is going to be second level and the experiences that we have garnered when the first one was done will be brought to bear. The mistakes of that time, if there were any at all, will be corrected when we go forward. So, as far as this process is concerned, you take that to the bank that this is going to be transparent.”
Olotu hinted that the process woudl be completed in June next year when the money from the bidders would be received and all the agreements signed. According to him, the money raised from the bidding process will be ploughed back into the industry to boost capacity for transmission and hydro generation.
The Chairman, Senate Committee on Power, Steel and Metallurgy, Philip Taminu Aduda, said: “Privatisation is the best for our economy because a lot of investment and money are needed to be injected into the power sector and that is why successive governments have had problems in ensuring that it works and I will say so far, so good, the present administration has done its best in putting machinery in motion for the privatisation of the sector’.
The Chairman, House Committee on Power, Steel and Metallurgy, Patrick A. Ikhariale, said: “The power sector has been a major source of concern to all of us and the reason for this is that during the tenure of some administrations, particularly the military, there was neglect of basic infrastructure, especially in the power sector. What we have today is a problem that is all encompassing.”
And speaking at the London road show, Chairman, Senate Committee on Privatisation, Gbenga Obadara, assured the potential investors that the Nigerian government would provide security for their investments. “We are in the best position to market Nigeria’s products. We will provide security for your investment in Nigeria and we are giving enough assurance of opportunities to investors in the country.”
It is hoped that the government would keep all its promises to rekindle both local and foreign investors’ faith in the exercise.
It is also hoped that the government will keep to the schedules for the privatisation of the power plants. The first acid test of the government’s sincerity will be on August 8, 2013 when the names of prospective buyers of the power plants will be announced.
The BPE’s Director-General, Mr. Benjamin Dikki, who disclosed this at the just-concluded investment road show in Hong Kong, also maintained that the deadline for the submission of expressions of interest for the power plants remains July 19, 2013 and would not be extended.
His appeal to potential bidders to be aware of some of the observed lapses in the previous bid processes is timely and apt. He listed such lapses as “bids failing to substantially comply with the Requests for Proposal (RFP), failure to meet the threshold of required tangible net worth, failure to submit bid bonds, failure to submit audited accounts, and failure to submit bids on time,” among others.
Dikki and other stakeholders should note that Nigerians would this time not accept another mismanaged privatisation exercise. Even his so called BPE’s vast experience in the privatisation of assets in Nigeria covering 500 transactions in its 25-year history, means nothing to Nigerians because most of the sold firms went to wrong hands.
The government must not sell these power plants to cronies, political associates and hangers on in the corridors of power because the Jonathan administration will largely be judged by its success or failure in the power sector reform.
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