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A Practical Solution To Nigeria’s Power Problem

February 1, 2011

One thing that one cannot take away from our politicians is their insatiable penchant for grandiose solutions to problems and this is clearly evident in the power sector. After spending over $10b in the last 10 years to fix this problem, the outcome was actually a net loss in the amount of power generated!

One thing that one cannot take away from our politicians is their insatiable penchant for grandiose solutions to problems and this is clearly evident in the power sector. After spending over $10b in the last 10 years to fix this problem, the outcome was actually a net loss in the amount of power generated!

One would think that the so-called technocrats in government would have learnt one or two lessons from the failures of the past. However, it is quite obvious that no lessons have been learned. I say this because President Jonathan’s plan for the sector is a continuation of the strategy that has failed twice already since 1999.

The number one lesson that has not been learned is that the solution has to be bottom-up rather than top-down. The top-down approach to solving the power problem has failed. Rather than dictate policy from Abuja. States and Local Government should be allowed to make policies regarding power generation, distribution and marketing locally. In essence, Power should be removed from the Exclusive list and moved to the Concurrent list. The half-hearted IPP approach has failed and throwing money at it is like throwing good money at a bad idea. 

The second lesson that has not been learned is the misplaced fixation on natural gas as the fuel of choice for power generation projects in Nigeria. Yes, we have an abundance of cheap natural gas, but the question is do we have the delivery mechanism to get the gas to the power plants? The answer is a big no. There is no gas pipeline infrastructure in place to support this obvious fixation on natural gas. The Nigerian government has taken part in JV investments that only built our ability to deliver LNG to other countries, while completely ignoring the local needs.

This fixation on natural gas has actually led to the failure of some of the IPPs. The one I can speak about is the JV between Entec Utilities and the Oyo State Government, which would have seen Entec generating 250MW (In ten clusters of 25MW each) from a plant located inside the Oluyole Industrial Estate, for use by factories located within the industrial estate. This project has essentially failed because the issues related to the plan for supplying natural gas to the plant could not be resolved between Entec and its financial partner. One of the issues was how will Entec pay for the connecting gas pipeline (which is quite expensive) that will supply natural gas to the plants. Another was whether Entec has the proper right of way permit to lay the connecting gas pipeline. The project could not even generate 1KvA, not to talk of generating 250MW.

The third lesson that has not been learned is in the area of private investment in power generation. I have continued to ask myself why it is impossible for a multi-national such as GE, for instance, to raise financing through GE Capital to build a GE power plant in Nigeria. What I learnt is that one; there is a restriction on how much power a private entity can generate off-grid. I believe the limit is 500kva. Anything above that will have to go into the national grid and gets distributed based on quota. Secondly, the fact that any or all private investment in power generation as to be within the heavily politicized Integrated Power Projects (IPP) program is another sour point. No wonder no one is investing in the power sector except the Federal Government.

Another area where we get it wrong is not accepting the realization that some of the IOCs, especially Shell, which has through the years developed their gas gathering, processing and delivery capabilities are already on their way out of Nigeria. The only thing the Shell MD did not reveal to the Americans from the Wikileaks document is the fact that they (Shell) are leaving Nigeria. On January 10, 2011, BusinessDay reported that Shell just put a chunk of its assets in Nigeria up for sale. This is the reason why they are not so enthusiastic about signing gas purchase agreements with the GENCOs. If the Minister needs anyone to tell him this fact, then the money spent on sending him to school may have just been wasted. If you don’t believe me, all you need to do is look around. Shell has been actively selling off or moving its assets in Nigeria, there has also been a steady retrenchment of Shell staff lately. There are number of reasons why the IOCs are motivated to leave Nigeria. The first is that it is overwhelmingly expensive now to drill in Nigeria – from the fact that IOCs now have to go far ashore to drill, coupled with the new anti-gas flaring law coming into effect in 2011. To me this Power Minister is either covering up for some people or plain incompetent.

The lack of direction was also identified by the Lagos State Governor, who recently called on the Federal Government to provide Nigerians with a roadmap for the power sector. He said the National Assembly has passed the law on power reform, but all that remains is for the National Executive Council, headed by the President, to let Nigerians know what this roadmap looks like. So, I ask the question. If we don’t have a plan that all stakeholders know of, what is guiding the activities of the Minister of Power and his Ministry, as well as those of the Presidential Adviser on Power?

Now, what needs to be done? Against the backdrop of the recent announcement that the FG is freeing up N600b from the pension funds for the power sector, the following needs to be done; First, someone needs to talk to someone in Abuja to stop the current charade in Abuja that is called the Power Plan. The President needs to declare a state of emergency in the power sector. This Administration needs to live up to the promise made by the late President Yar Adua on the 13th of June 2008 during a state visit in Paris, to formally declare a state of emergency in the power sector within a month from the date of the announcement in Paris. President Jonathan, two and half years after this promise was made, it now time to deliver on that promise, if only in memory of your late predecessor. The next step is for the President to appoint a “Power Czar” who will lead the charge. This action will streamline the channel of reporting, as against the confusion we have right now, where we don’t know who is in charge between the Presidential Adviser on Power and the Minister of Power. This power czar will primarily report to four bodies, and will be ready to brief other interested bodies as required. The four bodies are the Federal Executive Council, National Council of State (including Governors’ Form), National Assembly (Senate and House of Reps), and the Nigerian Chamber of Commerce. This individual and his team will present quarterly progress reports to each of these bodies until the objectives of the plan are met.

Our Power Strategic Plan should be divided into an immediate or short term, medium and long-term objectives. The short term plan should focus on generating power using diesel powered power plants. Yes, I said it -DIESEL. There are diesel power plants that can generate up to 200MW of electricity that can be up and running either on land or on barges within 4 weeks of the equipment arriving on site. Technology has made it possible to network diesel generators into clusters. So, one can network ten 500 KVa generators to produce 5MW of electricity and either sell it directly to businesses or sell to existing power distribution companies. Infact, as I write, there is a 33MW diesel power station, complete with two 33,000 litre fuel storage tanks, located at the Lake Chad River Basin Authority and rotting away. The immediate past Minister of Agriculture, Abba Ruma, was asked on NTA why the station is not generating any power. His response was “There is no Diesel”. 

Some may say that it is too expensive to run diesel power plants, along with its attendant potential for pollution. But I ask the question. Would you rather pay more for a product that you can get right now or wait almost endlessly for the cheaper product to become available? I believe most rational individuals will take the former. Also, there is no way that power from the diesel power plants will be more expensive that what the average Nigerian currently spends on providing power for their household. These diesel power plants will enjoy economies of scale from buying diesel in bulk. I must however, warn that this process should be privatized and NERC should be strengthened to act as regulator. Additionally, this plan should be temporary, and operators of such plants should, prior to being granted operating licenses (limited to 5 years), agree in writing to move to using more environmentally friendly fuel such as natural gas, when the gas pipeline/delivery infrastructure is built 5-7 years down the line. One reason you want to have this clause is to provide demand guarantee for private investment in building the gas pipeline infrastructure.

An aspect of the medium term plan should focus on the use of LNG trucks as a means of delivering natural gas to the IPP projects that are not currently close to or not connected to the gas pipeline network. I still marvel at how corrupt and equally stupid, the IPP plan turned out to be. I will have to say that some of the individuals involved in determining the location of these IP project don’t have a place in a sane society. Because, I don’t understand how someone or a group of people will decide to locate a power plant so far away from it from its fuel source (gas and pipeline), because of political considerations, and then expect the power plant to produce any power. Did they think that they will be able to run the plants using their fart? At least fart is a form of gas.

We can salvage the existing the power plants from the project by using LNG trailers mounted on trucks to deliver natural gas to the power plants. Once these power plants come on stream, we will be getting close to meeting our short to medium term power needs, that is, if we don’t all of sudden realize that we don’t have the power transmission capacity to transport the power from production to end-users. One thing, government can do in this situation is to encourage companies to locate or relocate their factories close to the power plants. However, the government must be ready to provide the necessary incentives. Number one of which is to build roads that can be used to transport the goods produced to market. In essence, government has to make a choice between transporting power and transporting goods. If you ask me, I believe it makes better economic sense to build a road than to build a power line.

The long term plan should focus on utilizing PPP options to develop our gas pipeline network. 90% of Nigeria’s current gas pipelines are located along the Atlantic coast and there is a need to extend the pipeline infrastructure to the hinterlands. It is only when we do this that we can start talking about meeting the long term power needs in Nigeria.
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