TCN’s shortfall, insufficient capital investment threaten power supply —Joy Ogaji

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Joy Ogaji is the Executive Secretary of Association of Power Generation Companies, APGC. In a chat with Ediri Ejoh, she highlights some of the challenges currently confronting the sector and proffers possible solutions, excerpts.
Joy Ogaji
Joy Ogaji
It’s been three years since the Power Sector was privatized, is there any success story to justify the exercise My response to this question will take an informative form. First, what was the state of the Power Sector Prior to privatisation? before power sector reform; Vertically integrated government-owned monopoly entities in the power value chain, growing inefficiencies and leakages, annual capital drain from the federal budget, uncoordinated investments in generation, transmission and distribution, huge and widening gaps between demand and supply and massive industry flight. Joy Ogaji Secondly, why privatisation? The privatization programme was to allow government to transfer public assets in the power sector to private hands, for efficiency and cost-effectiveness. Through privatization of these assets, the expectation was that fresh capital would be injected by private investors, to bring new value into the assets, to increase the country’s privately-held capital base of the power sector. Privatisation was not meant to portend waving a magic wand but progressive. At inception, the GENCOs were contractually obligated to ramp up electricity generation capacity by about 5,000 megawatts (MW) over a five -year period. Today, the Bureau for Public Enterprises (BPE) confirms most of the GENCOs have exceeded their contractual obligations. For Instance, Transcorp Power Limited, at takeover date, had generation capacity of 160MW, but currently they have about 530MW. Similarly, at takeover in November 2013, Egbin had average generation of below 300MW due to the dismal operational state of its six units. At its lowest point, only two of the six units were partially operational. Egbin is currently generating an average of 1,100MW with gas availability. With the completion of the remaining Unit Overhauls next year, Egbin will be operating at a minimum of 92 percent of its capacity. On the other hand the Hydros, North South Power the concessionaire for Shiroro at takeover had 450mw with some of the units not operating optimally. Upon takeover, overhaul has been successfully carried out on the units and Shiroro now generates 600mw which was the installed capacity. Mainstream Energy Solutions Limited has increased the combined generating capacity of Kainji and Jebba Power Plants from 582MW as at takeover to 922MW. Overhaul has been successfully carried out on one of the generating units at Jebba Plant. Capacity recovery process on other unavailable units continues which will enable the plants recover to full installed capacity. These are just a few of the successes. We cited two thermal and two hydro plants for purposes of brevity. What are the successes of the privatisation process The goal of the privatization as enunciated above, was to provide optimal and reliable electricity at economic cost to the society. There are many facts that have built up to the reality of the journey so far to be successful. Synergy of efforts and mission outlook now clearly stands stronger than pre-reform period. Economic and the general interests of the companies are now more assured and strengthened. Awareness of our business and participation in the economy of the country is now created. About the GENCOs to which you are the arrow head in the electricity value chain, what can you tell us are the milestones We know that milestones in ventures are journeys so far, progress, how well, projects, how successful. By the definition of milestone, the facts below will convince the public and all concerned that the journey so far has been good and promising, but has not reached the ultimate end. Privatisation was not meant to portend waving a magic wand but progressive. The goal of the Federal Government’s power sector reform is to improve efficiency, encourage private sector participation and strengthen the power sector as Nigeria’s engine for development. There have been historical challenges to the growth of the sector including prolonged government presence at commanding heights, consistent under-investment since the early 1980’s and poor management of the country’s gas resources. As outlined above, the GENCOs have exceeded their expectation. Handover (Government owned)/take over (privatized entities) was a success. Transitional process was a success. That is, the first period of six months to gradually disengage Power Holding Companies of Nigeria, PHCN, Staff and Management unto the privatized and unbundled staff and management was successful Efforts to vigorously pursue more reliable, more sustained stable electricity have been far higher and more gainful. Pointer to this is, generally speaking, the high level of electricity been recorded in the reform era than in the past. Are all GENCOs at the optimal performance three years down the lane? To answer your question, I must state a few facts for better understanding. The maintenance culture which existed before takeover was inclined towards a process of carrying out maintenance after breakdowns rather than scheduled preventive maintenance. This unfortunately proved to be a costly alternative. Operational costs were as a result, very high for the generation plants upon take over given the age of the plants. The existing generation assets are largely old thereby requiring high operating and maintenance costs to keep them running. The strain on these assets is compounded by the fact that there has been limited new capacity added in recent years before take over. The existing transmission network is also inadequate, fragile and not reliable. Modernization of existing plants is necessary but will require significant capital investment. Some of the GENCOs have taken heavy loans to overhaul their plants (Egbin, Ughelli, Geregu 1, Shiroro, Mainstream just to mention but a few.) In response to your question notwithstanding the daring challenges, yes, progressively GENCOs have been focused, gradually climbing up. They have been in positive pursuit of set goals. It is a continuum, not an end to the set objectives. We achieve and stabilize then move on. No one who aims to get to the top ever rests on its achievements but keeps moving on and on. We have, as confirmed by BPE, exceeded our business plans requirements and have expansion plans for the future, but as you are very much aware, liquidity to fund these plans are a major challenge to our businesses. What are the major technical challenges confronting your members and how do you think they can be tackled effectively? Well, the English Dictionary defines challenge as a situation of being faced with something that needs great mental or physical effort in order to be done successfully and therefore tests a person’s ability. The GENCOs have been under so much challenges since take over. These challenges are: Payment of outstanding receivables and steady payment process going forward; Non-activation of the Industry Agreements (PPA, GAS, etc); Liquidity issues (Irregular disbursement of NEMSF CBN Intervention Fund); Foreign Exchange Incursions/ Exposure; Non-Payment of Value Added Tax (VAT) even-though GENCOs pay VAT for gas purchased; Lack of transparency and visibility of market collections which has led to NBET (Nigerian Bulk Electricity Trading Plc) paying about 20% of total amount invoiced by GENCOs; Gas constraints due to vandalism and other associated issues; Grid Instability and Transmission Evacuation Problems; GENCOs limited Involvement in Adopting Cost-Reflective MYTO Tariff. Operationally, many machines were down, which we inherited. Spares were not available. On how to tackle these issues, government should give a special concession to the GENCOs in sourcing for Foreign Exchange; Full payment of CBN-NEMSF, NBET and all owing market participants to pay immediately all monies owed the GENCOs; A Forex stabilisation fund created to avoid tariff hikes; Electricity market should be run as a contract based market with penalties enforced. There will be more incentive to put turbines on ancillary services if the rates are more comparable to market tariff numbers. Currently, we have a maximum return of N2,250/MW/h for spinning reserve services as opposed to N15,183/MW/h when same energy is placed on the grid. The generation companies have written to the various stakeholders in the value chain on how to resolve our liquidity issues. We have also called for a dialogue with them on the way forward, we are yet to hear from them on the way forward. On the challenges of the GenCos outlined above, issues highlighted are on the top burner. This does not portend that others are not equally important, but for purposes of drawing up the scale of preference, the highlighted challenges on the list above are on the top burner and we believe that solution to those will enable us progress in our business. GENCOs are said to generate only about 5% of the total energy need of the country? How do you react to that? The rule of thumb for an industrial nation is about 1MW for every thousand of the population. This puts Nigeria’s energy needs in about 180,000MW range given its population of about 180 million. The Federal Government has a target of 40,000MW by the year 2020. It is not about projecting the megawatts. We should also put other building blocks which go with generating the megawatts such as a firm, independent and knowledgeable regulator, a default proof payment plan, firm guarantees and incentives for investors. In summary, government providing an enabling environment and avoiding interference, focusing on policies and giving direction. More often than not, the GenCos have sufficient generated power available, without the capacity to transmit and distribute to the final consumers, all the effort is wasted. That is the scenario; that is the basic dilemma the industry faces.


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