Nigeria’s power sector: Huge investment, little result

In the past 16 years, the Federal Government tried unsuccessfully to make the power sector play its role as the driver of industrialisation. Despite the huge funds pumped into the sector, power generation has not gone beyond 4,500 megawatts. EMEKA UGWUANYI and JOHN OFIKHENUA examine the situation

With over N5 trillion estimated to have been spent on the power sector between 1999 and now, businesses should no longer see public electricity source as alternative rather than the real deal.

The Power Holding Company of Nigeria (PHCN), its successor companies – the generation, transmission and distribution companies received a chunk of the over N5 trillion.  Funds were also expended on the National Integrated Power Project (NIPP), which is supervised by a special purpose vehicle, the Niger Delta Power Holding Company (NDPHC) Limited. The NDPHC was created to fast-track the attainment of stable power supply in the country when past efforts failed.

Unfortunately, the corruption the government wanted to avoid caught up with the NIPP programme. The programme was conceived in 2004 and the NDPHC was created in 2005. In 2007, $16 billion was allocated to the NIPP and used up within four years. The project was engulfed in controversy and litigation because of the alleged unexplained utilisation of the fund. The immediate past administration suspended the NIPP programme dismissing it as huge fraud and drainpipe but after two years, the suspension was lifted and the government continued with the project.

Power Holding Company

of Nigeria

Upon return to democracy in 1999, Nigeria’s power sector was fully public-owned and run through the National Electric Power Authority (NEPA). Its funding was mostly from budgetary allocation. Power supply was then below 2,000 megawatts (mw) because of neglect and lack of investment by the past military governments.

Between 1999 and 2000,  crude oil sold for about $9 per barrel so there was paucity of fund to finance power projects. This informed the search for fund for power supply, according to ex-President Olusegun Obasanjo. He said in the bid to provide power for the country, the government resorted to the development of the NIPPs. The ex-President expressed concern that after leaving office, his successor could not continue with the project.

“When we started having money, we started the NIPP. When we said the money we had should be invested in power, my successor didn’t understand; he stopped it,” he said.

He lamented that after he handed over power to the late former President Umaru Yar’Adua, no significant achievement was recorded in the power sector till he died, adding that the situation  deteriorated when Jonathan took over in May, 2010.

After his exit from office, the National Assembly initiated a probe into the $16billion, which the Obasanjo-led administration allegedly spent on power sector.

The Director-General, Bureau of Public Enterprises (BPE), Mr. Benjamin Dikki, explained that the government sold the 17 companies unbundled from PHCN for over $2.6billion. Dikki also said the Federal Government spent N373.17 billion on payment of workers’ entitlements.

Apart from the Transmission Company of Nigeria (TCN), the Federal Government privatised the successor generation and distribution companies in November 2013, making funding the responsibility of the private investors.

The Federal Government also secured funds for the power sector from different international development organisations and companies to tackle the challenges in the generation, transmission and distribution value chain.

For instance, the development of some projects, such as the Zungeru hydro electric power plant with installed capacity 700Mw was funded by such funds. The Federal Government, according to the former Minister of State for Power, Hajiya Zainab Kuchi, in 2012 spent N162,990,364,379.30 to implement the project.

Seventy-five per cent of the funding is from the Exim Bank of China. The counterpart funding of $309 million was from the Ministry of Power. The project was being implemented by a Chinese consortium, CNEEC-Sino Hydro.

Besides budgetary allocations, there were interventions from different development organisations. For instance, the Permanent Secretary, Federal Ministry of Power, Ambassador, Godknows Igali, explained that the European Union, JICA and GIZ bankrolled some projects.

In November 2014, the former Minister of Power Prof Chinedu Nebo confirmed that there were several supports from bilateral partners in form of loans, such as $700million from the World Bank, $200million from JICA , $370million from  African Development Bank (AfDB), $500million from EXIM China and $1billion from Turkey Projects.

In the transmission segment, the AfDB also released a loan of $100 million to the Transmission Company of Nigeria (TCN). Last year, it was estimated that the TCN required about $3.7billion to increase power transmission capacity, make the network more stable and reliable, and improve efficiency of electric power transfer by reducing transmission technical losses. However, while there was no budget for the PHCN in 2013, N5.2billion was distributed to generation and distribution companies as well as to TCN. The money was part of the N13billion intervention fund for critical projects implementation, which was for upgrades and major repairs to bridge the gap created by the zero budget for the companies.

National Integrated Power

Project (NIPP)

The original plan was that NDPHC would also build hydropower dams in the North in the second phase of the NIPP. But currently, there are 10 midsized power plants built under the NIPP programme and they are all gas powered. Apart from increasing the power supply, the plants were meant to take substantial quantity of natural gas as part of government’s efforts to utilise the abundant gas resources and reduce flared gas.

As at May this year, about $11.1 billion had been committed to the project, The Nation learnt. Of the $11.1 billion, $7.1 billion went into the building of the 10 generation plants, $0.5 billion into gas assets, transmission assets got $2 billion, and distribution assets received $1.5 billion.

The NIPP plants were designed to deliver combined installed capacity of 5,453 megawatts (Mw). Eight of the 10 power plants are designed as Open Cycle Gas Turbine (OCGT) power plants and the other two as Combined Cycle Gas Turbine (CCGT) power plants. The CCGT power plants can generate power through gas and steam turbines but because of lack of time considering deadline planned for handover of the power plants to private sectors, the completion of the steam turbines might not be realistic and perhaps may be completed by the private sector owners.

For instance, the Alaoji power plant was designed as a CCGT project with a plant capacity of 1,131.4 mw. However, it was expected that by the handover date, only one of the steam turbines would have been installed. Therefore, the plant will be available for commercial operation as an 831.3 mw plant. As result of some of these hitches, the NDPHC projected a combined generation of 5153.1mw as against 5,453mw by the time the assets will be handed over to the new investors. However, the projections have been disrupted following some factors ranging from alleged lack of gas supply to the power plants to issues of inability of some of the preferred bidders to make initial payment for the assets they bought. The initial proposed period for the privatisation of the NIPP power plants was mid last year.

According to the NDPHC chief, if not for lack of gas, the Alaoji Generation Company located in Abia State, the biggest of the NIPP power plants would be generating about831.3mw as at mid 2014 while the Benin Generation Company in Ihovbor, Edo State, would have 507mw output. The Egbema Generation Company, Imo State, Gbarain Generation Company, Bayelsa State, Calabar Generation Company, Cross River and Geregu Generation Company in Kogi State would have generation capacities of 380.7mw, 253.8mw, 634.5mw and 506.1mw.

Also Ogorode Generation Company in Sapale, Delta State was expected to be generating 507.6mw, while Olorunsogo Generation Company in Ogun State would have 754mw output. Omoku Generation Company in Rivers State was expected to generate 264.7mw with Omotosho Generation Company in Ondo State supplying 512.8mw.

Olotu noted that seven of the eight OCGT power plants could be upgraded to CCGT configuration, adding that five of the power plants are either fully or partially operational. But these projections have been stalled by insufficient gas supply and defeat of the Jonathan government.

Other projects undertaken by the NDPHC include the 21.5 kilometre gas pipeline from Creek Town to Ikot Nyong power plant projects, 18km Ikot Nyong-Adiabo 330kV DC lines to evacuate power from Calabar power plant in Cross River State, 13km 132kv DC Adiabo-Calabar 132/33kV sub-station as well as reinforcement of the Calabar 132/33kV substation with a 60MVA 132/33kV Transformer and bays to accommodate new lines from Adiabo have all been completed.

Transmission and distribution works that were completed or upgraded by NDPHC include the Jos 330/132/33kV Substation, 286km 330kv DC Jos-Makurdi transmission line, new Makurdi 330/132/33kv substation, 222km 330kV DC transmission line from Geregu through Lokoja to Gwagwalada, a 2x150MVA 330/132/33kV transformer substation at Gwagwalada in the Federal Capital Territory (FCT) with a further 90km of both 330kV and 132kV lines to interface with Katampe and Apo 330/132/33kV substations, 2x300MVA 330/132/33kV transformer Substation at Oke-Aro in Lagos which is now the largest 330/132kV transformer substation in the grid and 150MVA 330/132/33kV substation at Asaba in Delta State among others.

In distribution, Olotu said 72 injection substations had been inaugurated, adding that 3,517 completely self-protected 25kVA and 50kVA customer transformers had been installed and 650MVA out of 3,750MVA of 33/11kV Injection substation already in service.

In the last quarter of 2013, seven of the 10 power plants were put up for sale. Government expects to realise $4.3 billion from the sale.

The seven plants marked for sale were those that had no legal issues associated with them while the sale of the remaining three plants would be delayed until litigations against their bids were resolved, the Joint Transaction Board said.

The Joint Transaction Board also confirmed the successful bidders for the seven plants and they include EMA Consortium as the preferred bidder for Benin Generation Company with a bid of $580 million, and the reserved bidder, Index Consortium with a price of $575 million. EMA Consortium was also the preferred bidder for Calabar Generation Company with a bid price of $625 million, as against Nebula Power Generation Consortium, the reserved bidder with an offer of $623.75 million.

Dozzy Integrated Power Limited was confirmed the preferred bidder for Egbema Generation Company with a bid of $415.7 million, while AITEO Consortium was named the reserved bidder with an offer of $392 million. Seoul Electric Power Limited was the preferred bidder for Geregu Generation Company with a bid of $690.2 million, while YellowStone Electric Limited emerged reserved bidder with $613.1 million.

Ogorode Generation Company had Daniel Poer Consortium as the preferred bidder with a bid of $532.78 million, followed by ESOP Power Limited as reserve bidder with an offer of $510 million. Olorunsogo Generation Company had ENL Consortium Limited as preferred bidder with an offer of $751.24 million while the reserved bidder, Index Consortium, offered $730 million. Also Omotosho Electric Power emerged the preferred bidder for Omotosho Generation Company with a bid of $659.9 million, while the reserved bidder was ENL Consortium Limited with $645.15 million offer. The board chaired by the former Vice President, Namadi Sambo, approved the sale of the plants to the preferred bidders following a successful financial bids opening exercise conducted on March 7, 2014.

The sale of Alaoji Generation Company, Omoku Generation Company and Gbarain Generation Company was stepped down pending the resolution of the litigation instituted by Messrs Ethiope Energy Limited against their bids. Shayobe International emerged winner of Alaoji with an offer of $318.7 million and AITECO Consortium as the reserve bidder with $312.5 million offer.

KDI Energy Resources emerged preferred bidder for Gbarain Power with an offer of $340 million while the reserve bidder Azikel Power Limited offered $305.09 million.

Rural Electrification Agency

of Nigeria

The Rural Electrification Agency of Nigeria was established by Section 88 of the Electric Power Sector Reform Act 2005. On March 16, 2006, the board and management of the agency were inaugurated and mandated to by the Federal Government to pursue aggressive rural electrification. The board and management were directed to facilitate the provision of steady  and reliable power supply at economic rates for residential, commercial, industrial and social activities in the rural and peri-urban areas of the country.

But hardly had the agency taken off than it was enmeshed in corruption, and it was suspended before it was resurrected after few years. In 2009, the Federal Government through the Economic and Financial Crimes Commission (EFCC) initiated a 156-count corruption charge at a Federal Capital Territory High Court in Abuja, accusing the then Chairman of the House of Representatives Committee on Power, Ndudi Elumelu, the deputy Chairman, Jibo Mohammed, Senator Nicholas Yahaya Ugbane and seven senior management officials of the agency of corruptly appropriating rural electrification project funds of the agency. The EFCC accused the suspects of stealing over N5.2 billion and accused the committee of illegal contract award through which the funds were stolen.

The EFCC also accused the former speaker of the House, Dimeji Bankole, and some of his relations of benefitting to the tune of N900 million from the diverted rural electrification funds. They were never charged by the EFCC as the government scrapped the agency.

Annoyed by the misappropriation, Yar’Adua, on June 10, 2009, sent a bill to the National Assembly for amendment of the Electric Power Sector Reform Act (EPSRA) 2005 repealing the rural electrification agency. The bill was withdrawn after the death of Yar’Adua, and the agency reactivated in toward the end of 2011 by the former Minister of Power, Prof. Barth Nnaji.

Substantial amount of money had gone into the agency before and after its suspension. The former Minister of State for Power, Hajia Zainab Kuchi, had at the inauguration of the board of the agency said that as much as N16 billion was approved by government for the agency to undertake projects and continue work on the abandoned projects.

Nothing much has happened till date.

Impact of the huge investment

A budget analysis called statisense, carried out by an organisation called Slideshare, which covered nine years (2006-2014), showed that the power ministry’s budgetary allocation within the period was N872 billion. The analysis was undertaken to know if the budgets were able to meet the United Nations Development Programme (UNDP) recommendation, which stipulates that budgetary allocation should be structured 70 per cent for capital expenditure and 30 per cent for recurrent expenditure. Their research showed that the Power ministry had consistently allocated more funds to capital expenditure even surpassing the UNDP recommendation, but noted that Nigerians have not enjoyed commensurate benefit of these allocations.

“Therefore, it goes beyond budgeting to actually make the people enjoy the dividend of democracy,” the report said.

The report showed that the Ministry of power got N78 billion, N105 billion, N140 billion and N93 billion as budgetary allocations between 2006 and 2009 while the percentage recurrent and capital expenditures were 4.33 per cent and 95.67 per cent; 3.70 per cent and 96.30 per cent; 18.18 per cent and 81.82 per cent; and 5.31 per cent and 94.69 per cent r.

Also between 2010 and 2014, allocations were N157 billion, N86 billion, N73 billion, N77 billion and N63 billion respectively while the percentages of allocation to recurrent and capital expenditures were 2.28 per cent and 97.72 per cent; 9.45 per cent and 90.55 per cent; 4.25 per cent and 95.75 per cent; 5.43 per cent and 94.57 per cent; and 5.44 per cent and 94.56 per cent respectively. The report showed that the least percentage allocation to capital expenditure within the period was 81.82 per cent indicating 11.82 per cent above the UNDP recommendation. Why was there no improvement in power supply over those years?  A source said the lack of improvement in output was due to large scale corruption and sabotage.

Also the dramatic improvement being witnessed in the level of power supply in the last two months confirmed there has been high level sabotage. Output has risen from about 3,000Mw to 4662Mw. The Managing Director of the Transmission Company of Nigeria (TCN), Dr. Abubakar Rasheed Tambuwal, told The Nation that the company can comfortably wheel 4,662mw, adding that it has capacity to wheel to the national grid about 5300mw with assured system stability.

Will the dramatic improvement continue or will things slide? Time will tell.