Mr. Bolaji Osunsanya is the Managing Director of Oando Gas and Power Limited. In this interview with EMEKA UGWUANYI, he speaks on issues in Nigeria’s energy sector, what the company is doing, its short to long term programmes in and outside Nigeria to make gas available to commercial and industrial concerns, among others. He says the central problem of the power sector is lack of cash.
The industry has witnessed low oil price in the last two years, how has this affected Nigeria’s oil and gas industry, and Oando Gas & Power in particular?
Oando Gas and Power is on the gas side, so the declining oil price has affected it, even though not directly. It has affected it with a lag because as the associated gas is not coming, gas is invariably also not coming. So, we have had supply dislocations but not so much about price. Prices have not moved much because we are running a pricing regime that does not directly relate to the oil prices. It was a bit more cost-reflective regime to make all the members of the whole value chain move. We have moved gas locally from at least 75 cents in the early days to as high as $3 per 1000 scf. So, we had a stable regime in that regard. The only challenge we had was the dislocation that came about from the low gas prices and the restiveness that we saw.
The power sector and industrial concerns don’t have access to gas supply despite the domestic gas supply obligation oil firms undertook, what is the way out?
Two things are involved. If the application is for power, the first thing to be done is to create liquidity in the power space because there is no need bringing out gas if it will be consumed by somebody who the supplier cannot collect his money or who cannot pay on time. My advice is that more work needs to be done in the power reform space before we start looking at gas. We have proven that at the right price of between $2.50 and $3 per 1000 scf, gas will be available for willing power plants. There is a dislocation when you are looking for prices that are not cost-reflective. So, there is no plant that says to us that they will pay $3 or $4 that we will not wheel gas to. That is the truth; it is the illiquidity of the power sector that we need to make the focus first. If we will ask for efficiencies, an increase in tariff to reflect the alternative cost of fuels, I think that’s what we need to do. There is no need to be dancing around the issue. Today at N32 per kilowatt/hour (kwh), it is clear that the whole thing cannot hold, so we must take some tariff adjustments in the short term, encourage everybody to bring in gas to power, into the space and equilibrium will set in thereafter. Fix the power sector and gas will follow suit.
Gas is the fuel of the future, how will Nigeria tap into it in view of its huge gas reserves in alignment with global expectations?
When they say gas is the fuel of the future, it is certainly not the only fuel but it is the most prominent, efficient and most cost-effective fuel. This is probably what they say, and they think it would be a big part of the energy mix globally. By that they mean that about 40 per cent of your energy will come from gas and Nigeria being one that sits atop a lot of reserves, it is the expectation that we would be the first in that queue and the first to take advantage of that manifest. But the point to make is that gas as a resource must be explored, exploited, cleaned, transferred before it gets to the market. It is a chain and all that chain must be provided for. The ultimate is yields for the gas, whether it is for power or industries. Today, industry works because we have been able to sell gas to them at $7 and it is more than enough to incentivise everybody in the team. That is why we have not had any issues in the industrial segment but if you think that power in Nigeria is 70 per cent of that consumption, that is where the work is and we have to fix power to operate like an industry and gas will flow and will be paid for. And everybody will have it and we will be able to use it to achieve what we see in gas being the future, the propeller of industries, propeller of energy, and utilisation of choice. That’s where we need to go.
When you say fix power first, what do you mean?
Today, that value chain is illiquid; today, there is no assurance that the electricity distribution company (DisCo) will pay the electricity generation company (GenCo) and the GenCo will pay the gas supplier. There is no assurance. NBET pays six per cent of its invoices that will not go anywhere, you can almost predict that to fall down flat soon. I even wonder how the GenCos do it. They borrowed money to buy those plants. By now, they should be defaulting in those loans because 26 per cent of your collections cannot pay your loans, it cannot even service the interests. It is illiquid, it is not sustainable, therefore, we must fix it. A school of thought said, go back to the populace to pay more, let them go back to fix the inefficiencies that exist but is not a very strong argument. The stronger argument for me is let us pay the super profits first, pay the right tariff and let the market finally get an equilibrium and it will come down. I always give the GSM analogy as an example. When the mobile telephone first came, I struggled to pay over N100,000 but it was difficult but now they even give you SIM cards free. Let the tariff find its level and come down by itself. We are already paying the price by using petrol to generate power. It is the most expensive way to generate power even if it’s “I pass my neighbour” that you are using. So, if we take a tariff increase, force efficiency through, then we will be charting our way to stable power supply.
How far has Oando Gas and Power (OGP) gone with the attainment of its short to long term plans and strategies?
It is my pleasure to share the developments of our brand, and share our ongoing projects and our long term plans as a company. It is on record that Oando Gas and Power has been a foremost developer of gas infrastructure in Nigeria. We have to our name over 260 kilometres of pipeline built over the last 15 years. No other company comes close to that record and we have plans to even do more. We are certainly the pioneer developer of gas infrastructure, and not just gas infrastructure but gas solutions across Nigeria. We pride ourselves as portfolio developers. By portfolio developers, we move into assets, and exit from assets. About this time two years ago, we were talking about our captive power plants. I’m pleased to say we have agreed to divest from those power plants and will be moving the investments to much bigger footprints in the power space as we also expand our gas infrastructure plane. Today we have our footprints, largely Gaslink, which continues to grow. We only recently completed Greater Lagos IV, so now we have the pipeline from Ijora all the way to Bonny Camp. What that means is that we have crossed the Eko Bridge, the Cowrie Creek water channel, and we have our flange just in front of Bonny Camp. It means now that we can go over and beyond the 175 customer that we sell gas to, and can now continue to sell to people on the Marina. There are many stations in Marina that will be hoping to improve their energy source. Now that we have the pipeline solidly there, we will able to do that for them.
We have continued to grow our business in Port Harcourt with the Trans Amadi grid. We are expanding that now with a 9km addition that will take us to the port area. Our primary target there will be the BUA sugar refinery, which will be a big consumer of gas. But more importantly, we are trying to expand the Rivers State grid not just to Trans Amadi but to the entire emergent industrial clusters in Rivers State. It will see us go to Chioba, Obagua and all the developing parts of Port Harcourt. The idea is that the grid in Port Harcourt will be akin to the grid in Lagos and it will be our intention to continue to do this in all the emergent cities in Nigeria. We want to establish ourselves as the foremost last man distributor of gas. It will be our vision and aspiration to take gas to all crannies of Nigeria. Two years ago I also talked about our experiments in virtual pipeline space. We have just completed the building of our compressed natural gas facility in Ilasamaja. The plant is fully operational and currently all the capacities have been sold and we are working hard on the logistics to truck this gas to the consumers. We currently dispatch well in excess of 16 trucks daily from that facility and they get as far as Ife and we cover Ilesha, Ibadan, and big customers who have industrial concerns that are far from the pipeline grid. It is our intention to take that even further but so far we have sold the capacity of the gas network services at Ilasamaja and will be looking at other virtual pipeline projects going forward.
OGP, it was learnt, had a deal with Helios, can you talk on the transaction?
We only recently brought in Helios – private equity fund – into our company. They hold majority shareholding in Oando Gas and Power today. Helios investment partners own 49 per cent of Oando Gas and Power. Two per cent is owned by a nominee of Helios and the remaining 49 percent is held by Oando Plc. In terms of touch and feel, it continues to be an Oando company but is largely invested by Helios. Helios is a big African based infrastructure fund. It has in the last few years raised over $3billion worldwide. They have a big retinue of partners that they constantly invest in their fund and we have been able to make a deal with them to sell part of Oando Gas and Power for $115 million. With that amount, Helios is the biggest shareholder in Oando Gas and Power. They have invested in us but we retained management, therefore, I will continue to be the CEO, the whole team is still intact as you knew it. Nothing has changed on the management side but certainly things have changed on the investor side. The good thing about Helios is that they are in two good worlds. We carry the benefits of our legacy ‘Oando’ and we then complement that with a very deep pocketed fund. It creates new growth areas for us. All the constraints in the infrastructure space that we suffered because the Group was looking at many other things, I think have been solved. Today, we are able to look at those projects knowing fully well that we have the backing of somebody who has a deep pocket in infrastructure fund not just for the fund but for the fact that they are focused on infrastructure and they have a very long term pricing. We are today getting capital that fits with the mix of what we are supposed to do in the gas infrastructure space. We are pleased at this, and at the right time we will be making the right announcements. Helios was also an investor in the downstream business with Oando. Oando is used to Helios being co-partners. They were investors in marketing with Vitol. It was Vitol and Helios investing in the downstream but in this case, it is Helios alone investing in Oando Gas and Power.
Things have been growing but of late, particularly, in the last one year, we suffered some supply security challenges. It is related to the challenges that we have had as a nation with people blowing up gas infrastructure and pipelines. It has taken a toll on our supplies and it has also aggravated the need for us to look at alternative supply sources. We will continue to do that going forward. We are working with other third parties to see if we can sign willing buyer willing seller gas supply contracts. We are also looking at other alternative ways of bringing gas other than the pipeline. So, our mini LNG project and our FSRU (floating storage re-gasification unit) project would help us at least create alternatives and help in bringing gas to Lagos and other parts where we do business. So, there is a big part of our medium term plan that will be aimed at developing the virtual pipeline project. We have already announced that we are starting a mini LNG project in Ajaokuta but we are doing that in conjunction with the Nigerian Gas Company. It will be a 20 million standard cubic feet per a day (scf/d) gas plant and we expect by the end of the year, that development will be complete. We are currently working with our partners to do the front end engineering work. We hope to start construction in the next quarter. We will also be working on an FSRU project and for that we working with Helios and a German gas company but we will be looking at LNG boats into parts of Lagos, not just Lagos but West Africa to bring LNG into markets. That will help us diversify our concentration on gas only coming from the Niger Delta. We will continue to keep alive our gas processing aspiration. We have opportunities now not so much the way it was conceived when we talked about the central franchise area, but in specific cases where we will be doing gas processing for specific clients. We are looking at not less than 300mscfd gas processing facility somewhere in the south central.
The big part of all of this is to create an appropriate financing strategy. Gas infrastructure is not something we can do organically when we are just reserving our profits. It will be too slow and will not take the land grab advantage. It is now clear we have to partner with people that have capital to have our programme going. That is what we have done by bringing Helios into the programme and Helios will take us to the other partners. So, we will be embarking on road shows to raise a significant capital at least a billion dollars in the first instance to get into this programme as we go along. It continues to be our aspiration that we will expand our last man infrastructure looking at those regional markets, and I told you we wanted to do reticulation in Benin, Togo and Ghana. It is time now and I think the opportunity is ripe. Their economies are opening and their affordability for gas and interconnected infrastructure is ready. The alternative energy sources are more expensive. I think the time now is ripe to go into those markets. In the next few weeks, I think we will be making a significant announcement of the gas supply contract into one of the regions. We are pushing that actively, we have created a team within our business development platform to face that region squarely.
In the very short term, I think it is important for us to increase the volume of gas that passes through our system. We intend to raise it to 70mscfd coming from as low as 47mscfd in 2016. So we are looking for 25 per cent growth in the coming year. We will complete the two projects we have on hand in the Greater Lagos IV that I mentioned, that will be up for commissioning any time soon and the Central Horizon in Port Harcourt, the expansion of the first 9km will be commissioned by the Governor by the middle of next month. We will take final investment decision on the construction of the Ajaokuta 20 mscf/d mini LNG facility and construction will commence in that quarter and there is a good chance that by first quarter of 2018, that plant should be operational.
In doing all these, did you take cognisance of the security situation and where should the gas come from?
The gas will come from multiple sources. There is a possibility that it will come from the Nigeria Liquefied Natural Gas Limited (NLNG). But there is also a further possibility that it will be imported. The price benchmarks are the same, so there is no obvious advantage buying it from Bonny or from buying it internationally. We have diversified sources. There are spot cargoes floating everywhere just like NLNG also has spot cargoes floating. They have multiple sources for bringing gas. As you know, every gas trader is a potential supplier. Vitol, Trafigura and Geogas, they all have gas at any point in time and because the price is the basis, price is almost exactly the same, so where you get it doesn’t matter much. It is a commodity but there is also a preference to look at NLNG more from the logistics and the quickness of the turnaround. Like I said it is a commodity and we can go anywhere. About security, it is similar and almost equivalent to maritime security and today I think there are vessels that come in with little or no issues. I think there will be no significant issue importing LNG to any part of Nigeria. Since this is our business we will pay some special attention to ensuring that the vessels have safe entries into the ports and to their destinations.
On the virtual pipeline, do you have the right infrastructure to ensure its workability because you need good roads, among others, to make it work?
Virtual pipeline is an alternative way of carrying the same gas other than through the pipeline. So, it is not a big one as such and the options will include rail, road and even barges. All you are doing is transforming the same gas to a state either compressed or liquefied and try to use alternative transportation means to move them to the market. It is similar to what we are already doing. Currently, we compress gas in Ilasamaja, we wheel or transport it by road to as far as Nigerian Breweries in Ibadan. It is a 120km-130 km turnaround and we go there four to five times a day because of the utilisation. So, it is what we are accustomed to. There are challenges and logistics problems in transporting not from safety perspective but just to share logistics and the roads and I think that is where the strength of Oando being behind us comes into play. Oando will dispatch easily 800 to 1000 trucks at the peak of things every day. So, we have significant experience in logistics to deploy the technology and we have transport companies that partner with us. These are transport companies that have 200 to 300 trucks in their fleet. They know all the nuances of this business. We will ask them to also help us move gas.
I noticed that your West African reach stopped at where we have West African Gas Pipeline facility. Do you intend to key into the facility and did you consider the re-gasification facility in those areas as you are dealing with virtual pipelines. What is also the cost of the mini-LNG project?
Our aspiration goes beyond the three terminal points of WAGP. I started with those countries and cities because those are the countries we are looking at reticulating pipelines on the back of WAGP but as we go into the FRSU and LNG programmes, we will reach out to Senegal, Gambia and everybody on the region provided they have gas need. So we are not limited to the terminal points of WAPG. The floating storage and regasification unit is exactly what you have in mind, we will float LNG there and there will be module that will re-gasify it and we put it into a truck and then put it into a pipeline, and that is the overall model. Today, already we have with the bulk call and terminal company in Tema, Ghana, the right to do this in Tema. So as I speak we are redesigning Tema to take a pipeline that will be fed by both WAPG and by an FSRU when we eventually get there. The strategy generally given our experience here is never going to a market with one source, we have a diversified source that at least gives you almost 100 per cent availability. We will cover more than those three countries and those four cities. In terms of programmes, I gave a broad growth and that we are trying to raise a billion dollars as a company. And just to give you a fling of the cost, a mini-LNG programme will cost you about $50 million for a 20mscfd project. FRSU on the other hand will cost you about $300 million to $500 million depending on what the logistics requirements are. For instance, you need to do break water as part of your berthing arrangement for the vessel but that is very expensive. But for a plug and play as we are thinking in Tema and a location in Lagos, it will be about $300 million for the project.
These OGP projects and strategies, what will be their impact on ensuring the nation’s energy security, and secondly don’t you think Helios investments in Oando are getting too much?
Let me answer the last one first. Helios has raised over $3 billion and has done deals all over Africa, so they have a diversified portfolio. Nigeria is a big part of that portfolio. In Nigeria they have done a lot of deals. About 43 to 44 per cent of that portfolio was invested in Nigeria. In Nigeria they have done telecoms, downstream, exploration and production and they have only recently done fast moving consumer products. They have a diversified portfolio and I don’t think they are taking more than they can chew. They have about $1.6 billion invested in Nigeria, $115 million in OGP and about $200 million in the downstream, I don’t think that is a big part of their portfolio, so it will be too early to talk about them being overinvested. Central to energy security is the fact we need an energy mix that is not concentrated. It cannot be all about thermal plants. We must have a good energy mix as a country, so that even if there are dislocations, the other fuels will be compensating and I think that’s what we are pushing. We push gas and there are people pushing coal, nuclear, solar and other renewable. The most important thing is we have diversified energy mix. The more diversified our energy mix the more secure we will be.
What informed your divestment from the captive or small power plants at a time the government seeks more investments in the power sector, does it mean that it is not viable to invest in the sector or are you having challenges?
We see the sector as viable but don’t forget that when we did the captive power, we were doing it as a demonstration project. Two years ago, the power sector for us at a time was not clear. It was good that we did our power investment with bilateral counterparts that we could do business with. We found that window with Lagos State and we did our quoting and I think we demonstrated with 13Mw and that was what was possible in the power space. It will continue to be with the private sector because even the divestment was still with the private sector. What we did is that we just divested that investment and our intention was to put it in power but on a bigger scale and I think in the last three years also the power reform is trying to play out well. There are still challenges but it is better than what was obtainable three years ago. For the embedded, I think we can do some sizeable power plants. You will see our announcements with the two distribution companies (DisCos) in Lagos. We are trying to do something that will be significant and bigger. Those power plants we sold, I think we had 23Mw in Iju but our next announcements will be 50Mw and more.
How will OGP raise the $1billion especially now banks are constrained and what do you intend to do with the $115million from divested interests in OGP?
The $115 million that was paid by Helios was paid to Oando Plc, the owners of OGP. It was a share transaction. Oando Plc sold shares to Helios and retained some in OGP, so the $115 million has nothing to do with the $1 billion and the new budget. That was a share deal between Oando Plc and Helios. They have their own plans and issues to solve with the $115 million. The $1 billion we are talking about is what we think will be the requirement for the projects we scoped and it is our own equity requirement in those projects. We will need more than a billion dollars but as you know, so far we have raised about $400 million as OGP in the projects that we have done. A lot of these we have raised as project financing. We put the deal together, we go the bank and they give us money to implement. The scheme will still be similar but because of the scale of what we want to do, we want to be able to at least raise a billion dollar as our own equity and leverage that to about $3-$4 billion. If we do a central processing facility (CPF) of 600mscfd that will require a lot of money, so we are just creating capital for ourselves now and to be equity in those bills as we go forward. We need to be able to reach international funds to partner with us on this project. That is more reason we partnered with Helios. The fact that Helios is there means that we will be open to most of the development finance institutions (DFIs). Don’t forget it is the same institutions that put money in the funds, I see will put money in Helios. These are the same people we will fall back on to put in our own $1 billion to do the project. But because we are also part of their system they would have taken us through the mechanisms to get into that money easily. So that is the strategic side to why we did the deal with a private equity fund to prepare ourselves for that capital risk. The $1 billion is a benchmark. There will be a number of bourses. A lot of it will not be local because we have exhausted what is local. We have taken all that we think that can be taken locally and now know the capital raise will have to be foreign. We are preparing our platform to start to go there. In May, we are going on road show with Helios to see those partners to raise money for the projects we want to do.
