Tag: fund

Taking domestic or foreign loans to build infrastructure for power, experts say, could resolve Nigeria’s energy crisis. Feedback on projects executed by the Niger Delta Power Holding Company (NDPHC) has shown that borrowing to build power infrastructure could be self-liquidating and profitable. The execution of Phase II of the National Integrated Power Projects (NIPP) and the diversification of power generation, transmission and distribution capacities, they say, could end Nigeria’s energy woes, COLLINS NWEZE writes.

Plans to boost power supplies to 10,000 megawatts (MW) or more have always excited stakeholders. But it would entail building power infrastructure that is not only expensive, but requires sophisticated technology.

The Africa Infrastructure Country Diagnostic (AICD) report estimates that Nigeria requires sustained spending of at least $14.2 billion yearly over the next decade to address the infrastructure challenge, key of which is power. But funding power would require borrowing from local and international markets, given that government revenues are not sufficient to solely fund the projects.

Still, the country has in the last 10 years of the inauguration of the National Integrated Power Projects (NIPP) and its implementation by the Niger Delta Power Holding Company (NDPHC) achieved some progress in power.

Stakeholders are calling on President Muhammadu Buhari‘s administration to execute Phase II of the NIPP, which covers the construction of 11 hydro dams in Northern Nigeria to add to and diversify the country’s power generation, transmission and distribution capacities. This will also stem the looming face-off between the government and organised labour over electricity-related matters.

Former Executive Director, Keystone Bank, Richard Obire, said borrowing from local or international markets by the power companies would be required to achieve the desired results. He explained that sophisticated technology is required to drive power as most of the equipment needed  are imported. “Borrowing abroad gives operators the opportunity to import equipment and other assets. They can also borrow locally to settle naira-based obligations,” he said.

Director-General, Debt Management Office (DMO) Dr. Abraham Nwankwo, said Nigeria’s low debt to Gross Domestic Product (GDP) ratio means the country can borrow more to fund budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.

The Director-General of West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo agreed with Dr. Nwankwo. He explained that with the declining government revenues from oil, budgetary allocations alone may not be enough to finance the infrastructure deficit in the country.

Prof. Ekpo admitted that the debt option is still the most viable at this time. He said Nigeria’s rebased $510 billion Gross Domestic Product (GDP) economy gives it more room to borrow more to bridge infrastructure gap.

 

Niger Delta Power Holding Company (NDPHC)

 Progress has been made in the power sector since 2005 when the NIPP was conceived and later implemented by the federal, state and local governments through the NDPHC, a government agency owned by the three tiers of government, but which operates strictly on the private sector business model.

The NDPHC’s equity structure shows that the Federal Government has 47 per cent; the 36 States, 35 per cent while the 774 Local Governments have 18 per cent. Also, the NIPP was initiated in response to the deplorable state of power infrastructure and the inappropriate framework for private sector investment in the Nigerian electricity industry pre-2005.

A report from NIPP said its scope covers the entire value chain in the power sector, namely generation, transmission and distribution, including building from the scratch a national gas infrastructure to power 10 gas-powered plants across the country.

The NDPHC was incorporated in 2005 as the Special Project Vehicle (SPV) for the NIPP. The Nigerian National Petroleum Corporation (NNPC), the Nigeria Gas Company (NGC) and the defunct Power Holding Company of Nigeria (PHCN), among others, are integral part of the NIPP project development.

The NIPP is being funded via the Excess Crude Savings Accounts (ECSA) and its  capital funding till date is $8.46 billion. The disbursement of the fund to the NDPHC is ratified by the Federal Government and the Houses of Assembly of the 36 states of the Federation.

The NDPHC, domiciled in the Presidency, is chaired by the Vice President; it has as members on its Board, six governors and four ministers.

Before the NIPP/NDPHC’s inauguration in 2005, Nigeria had transmission capacity of 4,495 Kilometre (km) on its 330 Kilovolt  (Kv) lines. The country’s transformer capacity on the 132/33Kv band was 5,700 (Mega-volt ampere) MVA. For distribution projects, Nigeria had 33/11KV sub-stations of 8,148 MVA and 33KV and 11/0.41KV substation with 32,000 MVA capacity.

“The country could barely generate 2,000 MW of electricity. There was neither gas-fired power station nor gas infrastructure to generate electricity. The NDPHC has built 10 gas-fired power stations, an average of one power station per year, with a combined installed capacity of 4,528.5 MW. These are Alaoji, Benin, Calabar, Egbema, Gbarain, Geregu II, Ogorode, Olorunsogo II, Omoku II and Omotosho II power plants, which get their natural gas from gas metering and regulating stations grouped into seven lots,” it said.

The NDPHC, whose Managing Director is Mr. James Abiodun Olotu, has also expanded the country’s power transmission capacity through 25 lots. They are: 5,590MVA of 330/132Kv transformer capacity; 3,313MVA of 132/33Kv transformer capacity; 2,194km of 330Kv lines; 809km of 132kv lines; 10 new 330Kv substations; seven new 132Kv substations and the expansion of 36 existing 330Kv and 132KV substations. In the third leg of the power chain–distribution the NDPHC under Olotu has executed 296 distribution projects in 43 lots spread over every state of the Federation.

The NIPP/NDPHC has also delivered on the provision and integration of grid-wide telecommunication and Tele-protection infrastructure. Eight of the 10 power plants are fully completed with installed capacity of 3,696 MW and the last two – Egbema and Omoku, 563MW – are on course for completion and inauguration by the fourth quarter of this year.

 

Divestment and reinvestment plan

 As a result of the country’s harrowing experience of inefficiency under the government-owned National Electricity Power Authority (NEPA, now defunct), initiators of the NIPP thought it wise to include a divestment plan in the power sector reform framework.

However, rather than pulling out completely and leaving Nigerians at the mercy of private sector operations in this critical sector, the three tiers of government have divested 80 per cent of their equity in one leg of the tripod, the NIPP Generation Assets,  to private investors.

The three tiers of government have sold their assets to distribution companies (DISCOs), with $1.5 billion historical cost recoverable from them in 10 years.  The three tiers of government still have transmission assets worth $2 billion as at December 2015 and gas assets with historical cost of $500 million. These investments would, in the future, be divested to the private sector to enable them recoup $8.46 billion initial commitment in NIPP Phase I.

The NDPHC has recouped $7.1 billion by selling 80 per cent of government shares in generation only, the proceeds of which will be reinvested in NIPP Phase II.  With the total assets of the NIPP standing at $11 billion, the NDPHC has turned in at least $2.5 billion in profit and assets for the country in 10 years.

For the Minister of Works, Power and Housing, Babatunde Fashola, the DISCOS need to treat their customers with courtesy. The minister, who spoke at a meeting with power sector players at the Ugwuaji Transmission Station in Enugu, demanded that the power companies should find a way of carrying their customers along. “If you are not getting enough power from the transmission companies, you must tell your customers so. Take the issue of review of tariff for instance, it was arrived at after consultations. Why don’t you step out and explain the issues to your customers? All of us must explain to our different customers where we operate,” he said.

 

NIPP Phase II

 The three tiers of government have agreed under the power sector reforms programme to reinvest the recouped $7.1 billion in expanding the country’s power infrastructure under NIPP Phase II, which will take power infrastructure to other regions, especially the northern region not captured in the first phase.

The project will involve construction of 43 critical transmission projects to resolve transmission bottlenecks; 51 transmission projects to improve wheeling capacity to 12,000 MW; 31 other transmission projects as foundation for increase of capacity to 16,000 MW plus communication and national control centre, among others. The State Grid of China, AK-AY and other interested foreign investors have shown interest in financing and partnering to fund the NIPP Phase II projects.

The Presidency, the Senate, state and local governments, the Ministry of Power, the NDPHC and the Bureau for Public Enterprises (BPE) are all part of the NIPP success story.

An expert in the power sector, Michael Abiodun, urged the NIPP to sustain the momentum despite the change of personnel at the federal level, the states, the ministry of power and the BPE.

He urged the government and other stakeholders to close ranks to solve challenges facing the sector, such as inadequate gas for full commercial operations; partial payment of energy invoices, leading to the NDPHC alone being owed over N77 billion as at the end of last November; litigations in respect of bids for Alaoji, Gbarain and Omoku power plants; NNPC/NGC plans to divert gas on the western axis and the 240mmscf to Omotosho and Geregu.

Abiodun said there are also investors’ concern in the sector bordering on credit enhancement for NBET; total divestment of NDPHC equity; review of bid to reflect delays in acquisition; the impact of regulatory risks and naira devaluation among others.

“There are also policy inconsistencies, which have been the bane of the NESI for far too long; GenCos and the industry in general, are concerned about the capacity for transmission and distribution, whereas the investment opportunity presented on the platform of the NDPHC are good options for resolving these infrastructure deficit; and the monthly revenue gap of N20 billion needs to be closed irreversibly as a matter of urgency since efficiency and revenues drive the power industry; increasing acts of vandalism on NIPP/NDPHC facilities, especially bombing of gas pipelines and other power infrastructure in the Niger Delta,” he said.

 

The way forward

The NIPP plans to inaugurate the Gbarain, Egbema and Omoku power plants;  complete all distribution projects captured in the NIPP programme; complete prioritised transmission lines and substations, improve the evacuation capacity and grid stability; and close transaction for the divestment of 80 per cent equity in Omotosho and Geregu generation companies.

Abiodun urged stakeholders to look up to the Ministry of Power for policy guidance and leadership in the sector. He also call for a “one-stop point of contact” for investors in the power sector because many investors, according to him, are frustrated by the complexity of the industry. There is also the need for support of the Senate, improved fiscal incentives and ensure that the sector is streamlined and made more accessible.

Taking loans, domestic or foreign, to build the country’s power infrastructure, according to experts, is the way to go as the NDPHC has demonstrated that borrowing to build power infrastructure is self-liquidating and profitable for the country in both the long and short terms.