Chief Executive Officer (Power), Honeywell Group, Chris Bale, spoke with Chika Amanze-Nwachuku on the company’s investment in the Nigerian Power Sector and its interest in the power discos. Excerpts:
Can we meet you?
My name is Chris Bale. I have spent most of my career in the power sector. I was with the Central Electricity Generating Board in the United Kingdom and during the privatisation I joined one of the successor companies, PowerGen, which later acquired East Midlands Electricity Distribution. I have also held senior executive responsibilities with Scottish Power. I have wide experience of large power systems which have demanding operations.
When I was at PowerGen, I was responsible for the operations of East Midlands Electricity Distribution which has 2.7 million customers. When I was at Scottish Power; I had day to day responsibility for 6000 megawatts of power generation from coal-fired to gas-fired plants and renewable energy. I later founded and ran an independent power project development company, so I am very familiar with the complexities of taking new projects from initiation, through development, financing and then into construction and operation.
All of these experiences are relevant to what Honeywell is doing today and is planning to do in the future. I joined Honeywell to lead its power activities including power plant development and participation in the disco privatisation. Honeywell has been active in the sector through its subsidiary Pivot Engineering Company Ltd since 1988 when it started executing contracts for power infrastructure development in Nigeria. My arrival is an indication of the group’s ambition and commitment to creating a successful new Nigerian power company.
Can you give us a background on Honeywell Group and its investment in the power sector and why it is interested in power distribution?
Honeywell started in 1972 and has been involved in supporting power infrastructure development for many years. In 2006, it started work on its first independent power project and obtained a license to generate power, through its Hudson Power Subsidiary. The Hudson project is being developed in two phases: the first phase will generate 150 megawatts and we will create an additional 350 megawatts in the second phase. The project site is located in Akute-Esorun, Ogun State, which is a border town near Lagos. When you look at the Group’s experience in networks and power transmission and distribution infrastructure, it seems logical to us to be involved in the discos as well, where obviously there is a big need because people need power, and a great opportunity to improve customer service. The whole industry needs the discos to work effectively and we believe we have access to the capital and management to make a very positive difference. That is why we are bidding for the discos through Honeywell Energy Resources International Limited (HERIL).
Can you shed more light on those power projects you are talking about in Bayelsa and Ogun state?
We can certainly tell you about the Hudson project in Ogun State. The site is licensed for 150mw of generation, which we plan to take ultimately to 500mw in its second phase. The project in Bayelsa State is at an early stage and so it’s premature to talk about it now. The Honeywell Group is looking at the full value chain from generation to distribution. Strategically we are also targeting the South-west of the country in support of our disco acquisition plans. This is where 40-45 per cent of the energy demand in Nigeria is, so we will focus really to meet the current demands and future aspirations of Nigerians.
At what stage specifically is the Akute power project?
It is licensed, we’ve acquired our project site, and we’ve got our permits. We have reviewed the environmental impact and right now, what we are doing is going through the next stage of development, which is contracting for gas supply. We are in discussion with Gas Aggregator Company of Nigeria (GACN) and we’ve got a GPO (Gas Purchase Order). We are discussing with the Transmission Company of Nigeria for a transmission line to evacuate the power that will be produced by the project. We are also in discussions with the Nigeria Bulk Electricity Trader because anybody that has a power plant needs to have a buyer. We have already cleared the due diligence stage and we will shortly commence formal discussions. It is important to note that our plan is to have that project built and producing power before the end of 2014.
Do you have the technical skills to do what you think you want to do in Nigeria?
We have the skills that we need at this stage we are building the right technical skills for the future. We have already developed relationships with strategic partners who will bring complementary skills where we need them. For example, we are partnering with a company called Tetratech to undertake the disco bid. Tetratech is an American company that has experience working in African markets, such as Uganda and Kenya and in other developing markets in Eastern Europe such as Georgia. In the longer term we will expand our Nigerian staffing and invest in building greater skills. I see this as one of the most important parts of our future plans; Nigeria has the need to greatly increase its capacity in the management, maintenance and operation of the power system and we intend to play an important part in this.
What will you consider as Honeywell’s selling points for the disco bids?
There are a number of reasons why we see ourselves as a good buyer for a disco. The Honeywell Group has the ability to raise the required capital and it also has a proven track record of investing in management skills and competencies. We have invested in the recruitment of senior people to lead on planning and preparing for being the owners of a disco. Honeywell has experience and track record of working in the Nigerian power sector through Pivot and of course we are a Nigerian company. This means that we understand the Nigerian situation, we understand the Nigerian market and we understand the pressing need Nigerians have for power. We see this move as a business opportunity, but we also see it as part of Honeywell’s long standing commitment to investing in infrastructure development in Nigeria.
Honeywell Group has a track record of successfully building businesses that have redefined critical sectors of the Nigerian economy. We were part of the privatisation exercise in the telecoms sector and we are a major investor in one of the leading GSM providers. The Radisson Blu Anchorage Hotel in Lagos is another successful project of the Honeywell Group that has made a big contribution to the hospitality business. So there are a lot of skills Honeywell has that will be very relevant to the power industry in Nigeria. Our partnering Tetratech will also bring additional skills which will enable us to do the job of managing a distribution company.
The power sector is very capital intensive. Do you have the capability to raise the required funds to execute the project and what is the value of the investment we are looking at here?
If you look at the Honeywell Group you will see an organisation of substance. For instance, Honeywell Flour Mills, a member of the Honeywell Group, and its financial position is a matter of public record. There are additional businesses in the Honeywell Group which give you the sense that this is an established Nigerian company which has the financial capability to undertake new initiatives and new projects.
It is also worth pointing out that the Honeywell Group has a long standing involvement in the Nigerian power sector and therefore has good relationships and credibility with potential lenders and investors. We have also retained the services of an experienced, international financial advisor, Andrew Smith-Maxwell who brings considerable experience of financing large acquisitions and projects. So, we see this as an opportunity to deploy Honeywell’s resources and also bring in much needed investments for the power sector from inside and outside of Nigeria.
Our initial estimates suggest an investments plan of about $1 billion over a number of years. The power sector in Nigeria is going to need a lot of investment and we are a strong sponsor that other companies and investors will want to work with.
Given that the power sector is a highly technical area, how prepared is Honeywell in delivering, if successful with the bid process?
Clearly, we have plans that we have proposed in our bids but for reasons you will understand I can’t talk about the specifics. However, if we should be fortunate to become the preferred bidders and acquire one of the Discos then we will be very happy to describe our plans in more detail. We fully appreciate that the power sector is complex and highly technical, which is why we have teamed up with an internationally pre-eminent technical partner. Underpinning our whole thinking is that it should be possible to transform the discos into businesses that all stakeholders will feel really proud to be associated with. I know there’s a lot of work to do to get to that position but I believe that’s our overall goal. We are committed; we want to have the chance to show people in Nigeria what is really possible when the skills, management and capital are deployed effectively. We are really ready to do this.
What are the fundamental issues you have observed in the power sector?
What everybody can see in the Nigerian power sector is that there is a huge demand for power and there is not enough supply. There is also not enough revenue coming into the industry to pay for maintenance, investment and fuel because tariffs have been too low and people have not always paid as they should. For those of us who are working in the sector we have to act on all fronts to address these issues. So we have to get more investment into the sector; we have to work with regulators and the government, Transmission Company of Nigeria (TCN), and the gas suppliers to make sure that all of the links in the chain that you need to create a successful power sector are in place and are strong.
How do you intend to address the concerns of the electricity union workers who were initially opposed to government’s unbundling the PHCN, given that you will inherit them if your bid is successful?
I think you’ve highlighted what will be a very important area for all of the companies that are involved in acquiring the successor businesses from PHCN. I can’t talk specifically about our plans because obviously we are bound by confidentiality agreements. But what I can say is that we would see relationships with staff and trade unions as fundamentally important for the future success of the company.
Nobody is going to be able to achieve success without developing good working relationships with trade unions and staff. It’s quite understandable that people are edgy in the current circumstances. We are looking at a period of uncertainty and change and people always get concerned in these situations. All I can say is that we will work with people to help them through whatever changes might be necessary.
All of us who will be involved in creating a new future for the power industry in Nigeria, whether it’s management, unions or staff will need to play our parts with a positive attitude because that is what our customers will expect. I look at the future and I see an opportunity to build an industry which has better qualified, better paid, better trained and more highly motivated people. We intend to be part of a new industry that is going to deliver for Nigerians.
Does the current tariff justify your attempt to bid for the discos?
The answer to that will be yes. I am sure all the bidders will have, based their bidding on the MYTO structure. If we have to have a situation where increased generation comes as planned and customers pay for receiving power then the chain of payments within the industry will work effectively and we will have the start of a successful power sector.
The network in the power distribution system can be likened to a ‘cobweb’. How do you intend to address this? or do you intend to continue with this development?
I live in Lagos so I experience power delivery in Lagos. I would expect all the new investors in the distribution companies to put time, effort and money to streamlining and improving the line of networks so that the system will not look like cobwebs; rather they will be designed, engineered and well installed so that they last for decades. It is well known that the current state of the equipment is poor and we need to refurbish and replace large numbers of meters, transformers, lines and switchgears. That’s going to take a lot of investment. The purpose of privatisation is that it will be sufficiently attractive to investors that they will bring the investments to repair and restore the networks.