Olotu: How We Got States, LGs Support for NIPPs

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Mr. James Olotu, was the pioneer head of Niger Delta Power Holding Ltd, which built, operates and maintains the 10 National Integrated Power Plants. He spoke to Chineme Okafor on how the NIPPs were saved from falling apart. Excerpts:

You’ve been out of office for about a year now sir, what have you been doing?

I left office suddenly, and one thing that happened to me when I left office was that I had time for myself. While in office, the volume of work that my office entailed, the kind of people that office need to interact with, the volume of stakeholders that you have to manage to achieve the results that we achieved were such that family was not one of the greatest commitments and secondly one didn’t have time for oneself.

So, the first thing I did was to enjoy sleep which I never had enough, I ate regularly, and I wanted to make sure I stayed at home with my family for a long time. But you know as a very active mind, after a few months of doing that, I became restless and joined an organisation called Skipper Seil, which is a group of companies based in India and Dubai, and involved in power business in Nigeria as well.

But, somehow I left and recently decided to set up a new outfit with some of the best brains in Nigeria’s power sector and very soon we will have Innovest Nigeria Solution Limited come up to provide solutions to Nigeria’s issues. It is going to be a limited liability company and I will be its chairman. We will blaze the trail when it comes up it will begin to provide solutions to problems.

What will be the competence of Innovest in Nigeria’s power sector?

Innovest is not just about Nigeria’s power sector even though power is one its fundamentals, but it is about power and defining solutions to using the most modern solutions for deploying power solutions to Nigeria within a short time and they may be solar, wind, biomass and ethanol.

What is going to be the capital base of Innovest for it to take up such innovative market?
Innovest don’t necessarily need a lot of financial capital base but we need the brain. For instance a state government has invited us to be part of the work they are doing in power, airline, pharmaceutical, tire manufacturing, deep seaport and fertiliser.

The NIPPs which you were part of from inception stopped at a point, and then restarted, what happened and how did you get this through?

I wasn’t the one that started the NIPP, it was a baby of the three tiers of government with Chief Obasanjo as the lead. The minister of power then, Liyel Imoke, was operationally the technical support and NIPP was a bunch of people that were gathered together with different skillset to become like a taskforce and it was when I got in there that the idea of turning it into a company came to the fore and the reason was that NIPP could not award a contract as a taskforce and you are dealing with billions of dollars of projects and there was no way you can sign a contract when you are not a company.

So, the first thing I did was to make sure we were registered as a company, and then to take an inventory of what had happened before I came in and there was no office and my car was actually my office.
NIPP was a very diverse programme and at a time we had about 1700 different projects taking place at the same time across the power sector value chain.
Then the National Assembly and a committee of the Fiscal Revenue Mobilisation Commission were the ones who raised the issues about the way NIPP was formed and that they were using the Excess Crude Account (ECA) to fund it. Those issues were serious enough for it to stop so we looked at the issues they raised and found that many of them were valid issues.

We met with the leadership on it to mobilise the state and local governments to join the federal government in the project as their money was involved and it was done. All the state governments raised bills at their House of Assemblies and the federal government also raised a bill to the National Assembly which was passed and they became law. From these, everybody came on board and they now decided to give more money. Originally, the NIPP was six power plants and about 30 transmission projects before it was expanded. We now realised that if we built these power plants, how will electricity get to our houses if we don’t build distribution and gas infrastructures. So, we solved that problem by expanding it to include the value chain, and so we involved all the sectors.

But financial commitments had been made before it was stalled?

Before the projects were stalled, they had already spent $2.8 billion and those who were trying to stop it did not understand. The contracts that were signed at that time were more than $6 billion but we had already put in $2.8 billion. As at the time they were investigating what had been spent in the power sector then, and everyone was talking about $16 billion, the actual money spent was $3 billion in the entire sector. The Accountant General of the Federation said it did not release any money, the CBN said it did not release any such money but the press was not well informed.

If you stall the project at that time, it meant the $2.8 billion spent as collateralised advanced payment guarantees, international and performance bonds will have been lost and those contractors could go to court and whatever was their perceived expectation of profit if the projects were finally completed, you will pay them. So, we decided that we should also challenge that area, we met with a lot of people and educated them until we finally convinced them that they were not wrong but that they were not well informed.
The power sector is a special kind of sector unlike in the works sector. If a contractor is asked to build a 100 kilometres road and he does 50 kilometres you will see it, but you won’t see anything in power until it is completed. You can only see machines that are not doing anything until the last bolt is tightened.

What was the status of the projects when you left the NDPHC?

By the time I left, generally the projects were like 85 per cent completed. Amongst the power stations, six of them were completed and were already delivering power to the grid. One was half completed, which is a hybrid power plant – the Alaoji power plant, where we commissioned the first phase, which is the single circuit. The second which is the steam turbine was not completed. So, that is why we say it was half completed.

So, these are the projects we handed over and by the time I was leaving, the transmission projects were like 90 per cent completed. We added more distribution projects and they were about 350 before I left, we had about 165 of them before. And by the time I was leaving the distribution projects were about 85 per cent completed. The generation projects were like 80 per cent completed in general terms, because six and half of the generation projects were completed, while the remaining three and half were about 80, 70, and 50 per cent completed.

Now the challenge is that all the contractors were not procured by us. They were procured before my team came in. So, we inherited people who ordinarily were not the best of contractors to handle the projects. The second challenge was that we had some contractors who got more projects, although they also bid for the projects. The reason was that most of the credible contractors didn’t bother to apply due to skepticism which they had about the Nigerian company calling for the multi-billion naira projects. You may know one of the contractors who had about five projects, which are the biggest projects, is the same contractor that is keeping the last three projects that have not been completed. Of course, you have violence in some areas.

Also in certain areas of the country, the rains were higher than what you get in other locations. So, in those areas where there is so much rain, during heavy rainfall periods, projects are not fast, especially when it has to do with the foundations.

You also attempted to privatise these plants, how did you come up with the idea?

We took the 10 power plants to the open market because the idea was that we wanted to privatise them. And, the reason for wanting to privatise them was not because Nigerians are incapable of running them. It was because we wanted the private sector to run them – NDPHC operates as a private firm, although the shareholding is by government. But we wanted to hand over the plants completely to the private sector for efficiency and effectiveness.

Secondly, we wanted the private sector to provide the money that we used for the plant construction and use this money for the second phase of the NIPP which was already approved during the last regime. And the second phase of the NIPP involved Mambila, Gurara and several other hydro power plants, which all together were about 15 in number. The idea also included investing in some solar architecture, so, we thought of moving into solar, hydro and coal, and the money we plan to use for these projects would have come from the sale of the 10 initial plants.

So, we then put 80 per cent of the shares of those 10 plants in the market, finished and at the end of the transaction, we were able to rake in $5.7 billion for 80 per cent shares in those 10 power plants, finished and unfinished. For the unfinished ones, we agreed that we will finish them before we collect the money from the bidders, they can give us some assurance by paying certain percentage so that when we finish we hand over to them.
Now, don’t forget we spent $4.4 billion for that and got $5.7 billion. Also, don’t forget that I said it was 80 per cent. So, really if it was 100 per cent, which is what the bidders wanted, it will be $7.1 billion, and that is for only generation. Therefore we invested $4.4 billion and got $7.1 billion.

And for the transmission projects we are supposed to hand over to the TCN, which will then boost their capacity from taking like 5,000MW to taking about 7,000MW when our infrastructure is added to theirs. And, we need to get our money from them, which actually is the money of the three tiers of government who are the investors and they want to see their money growing. For distribution and gas, they will sit with us and agree that they will pay back the money in 10 years, which is the value of the assets in 10 years.

For transmission, we will give it to them at the value but what was the value. We’ve seen the value for generation assets. For the value, we told them to take these assets at the contract prices that we awarded them, plus maybe 10 per cent administrative charges. For the gas projects, by the time we finished the valuation, which was actually done by an expert, the result was much higher.

We had to hold back our contract prices since they claimed that it was fraudulent. So, we told them to come and pay whatever the value from their valuation results were, and if the value is less than what we spent in building it, you can now say we padded. But if the value was more than what we spent in building it, then we are making a profit. So, that is what happened for gas, but people in distribution ran away. They now said they will prefer to take the assets at our contract prices. Transmission also came to tell us that they will take the assets at the contract prices.

So, what went wrong with the privatisation efforts?

You see when we were going into the projects, we went with everybody – the National Assembly, Ministry of Power, Ministry of Petroleum Resources, Nigerian Gas Company, PHCN, Nigerian Electricity Regulatory Commission, NBET, Market Operator, and everybody went with us. We are just the builders of the power plants.
The power plants on their own will not work so, we needed somebody from transmission to say yes, it will work because we have a line that will take this power. We needed somebody from gas to come and say yes that power plant has a gas, the gas that is required in the quantum that is required to fire it. Because what are the investors buying, they are not interested whether the power plants are brand new but that they have the ability to generate money for them over a period of time to recover their investments.

So, as soon as we finished the privatisation, the bidding, the due process and everything, we now told the bidders do a second round of due so that you are sure and they went. First, they started having complaints, that transmission cannot take all the power, that gas was not enough to fire all the power, that distribution will not take the power because distribution is looking at sending the power only to areas where they can get their money back quickly.

Because of these three problems, you may have a power plant that has five units or four units of and only one is working, how does that make it profitable for whoever is running it?
So, we said instead of selling 10 power plants let’s sell them in phases, in those places where we have solved the gas problem, we have solved the transmission project, we solved the technical problems, let’s sell them. Even those who bided at that time before now found that they didn’t have enough money because they now have to buy the dollar which was $170 when they bided had suddenly become N307.

So, both the foreign exchange issues, security problems, and the fact that the equation did not balance for gas availability, transmission availability, distribution availability and because any investor was not investing because he was seeing a fine shinning machine. So, today, for the first three power plants we are looking at solving those problems, then the foreign exchange problem is beyond NDPHC. Those are the issues, I told you that no investor, especially in this kind of huge investment would put his money down without ensuring that all these things are right.

Commentators have repeatedly said you built the power plants in areas that have no gas supplies, and that they were politically influenced, is this true?

NIPP was a combination of experts from different organisations relevant to execute the project. Now for petroleum, because the technology chosen for NIPP was gas, therefore the Group Managing Director of NNPC then was a member of the steering committee of the NIPP. You have the technical committee, you have the steering committee. The steering committee oversaw what the technical committee was doing.

In the steering committee you have the Minister of Finance, the Minister of Petroleum is there, and the GMD Petroleum is there. The Attorney General of the Federation is there. The technical committee was made up of people, these people nominated from their various offices to be there. For identification of the projects, the gas people were there. The transmission people were there. The generation people were there. If these three people don’t say yes to a project location it will not be located.