JAMES OLOTU: By the Time I Left Office, NIPPs Were Almost a Done Deal

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Mr. James Olotu was the pioneer Managing Director of Niger Delta Power Holding Company (NDPHC), a firm incorporated by the government of former President Olusegun Obasanjo to own and implement the National Integrated Power Projects. Olotu had worked in the defunct National Electric Power Authority (NEPA), from where he was seconded to the NIPPs in May 2006 as head internal audits, when the NIPPs was established as a taskforce to improve power supply in the country. He was deeply involved in the setting up of the NDPHC and in the initiation and construction of the ancillary electricity generation, transmission, and distribution projects. He left the NDPHC in 2016 with an estimated asset value of $11.5 billion. In this interview with Chineme Okafor, Olotu speaks on the economic impact of the NIPPs and his time at the helm of the company. Excerpts

You’ve been out of office for about a year now, 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 needed to interact with, the volume of stakeholders that you had 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 my 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 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. They won a contract to do the 44 kilometres rail project in Kaduna, which is about $700 million and I joined because I like to be part of challenges to show that Nigerians can do such projects.

They also have about four power projects to do, three of them are coal-fired plants and the last one is gas-fired. They equally have special economic zones to develop in Kaduna and Katsina, and I thought these were very challenging opportunities to build up another big company overtime. 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.

What new things would Innovest bring into Nigeria’s power sector?
Innovest is not just about Nigeria’s power sector, even though power is one its fundamentals. It is about power and defining solutions, using the most modern solutions for deploying power solutions to Nigeria within a short time and they may be solar, wind, biomass or ethanol. We have a lot of these resources to produce some high quantum of power and some of these will be off-grid because our grid is not stable and we will concentrate more on non-fossil fuel power solutions, even though we know that we are not ripe enough as a nation to depend on these solutions. If you look at the world today and global warming, the thinking and technology are about saving cost of production and those countries that do not have crude oil and gas are running away from buying oil because of its costs.

Does Innovest have the huge capital base that such innovative solutions usually require?
Innovest doesn’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. Innovest does not have the money and so does the state, but Innovest will ensure that the best of hands are involved because we can get the real investors with the best form of commitment to invest in this kind of project and get a sovereign guarantee to go on this project.

The NIPPs stopped at a point, and then restarted. What happened?
I wasn’t the one that started the NIPPs; it was a baby of the three tiers of government with Chief Obasanjo as the leader. The Minister of Power then, Liyel Imoke, was operationally the technical support and NIPP was a group of people that were gathered together with different skillsets 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. 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. My WIFI communication system was discovered by me one day when I went to AYA to take fuel. I noticed that my phone was receiving an open connection under a tree and it became my office. I was now using it to communicate with the team. NIPP was a very diverse programme and at a time, we had about 1,700 different projects taking place at the same time across the power sector value chain.

Then the National Assembly and a committee of the Revenue Mobilisation, Allocation, and Fiscal Commission were the ones that raised the issues about the way NIPP was formed and that they were using the Excess Crude Account to fund it. Those issues were serious enough for it to stop. 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 Houses of Assembly 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. We solved that problem by expanding it to include the value chain, and so we involved all the sectors.

When the NIPP was stalled, the other staff from the various ministries and agencies, including PHCN, returned. I made sure I did not lose touch with them. Everything I said worked and by the time government came back to the NIPP, my people were already on board, it was just a question of inviting them and asking that their leadership release them. We moved to PHCN, to Guardian House, and to Nile Street and then to the Central Business Area where it is now. We overcame by tenacity and love for the country.

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 were not well informed.

If you stalled 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 the works sector. If a contractor is asked to build a 100-kilometre 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.

At what stages of the various projects did you leave NDPHC, and what were some of the challenges that remained unresolved?
The entire investment of NDPHC was $8.4 billion. The investment we had in generation, out of that $8.4 billion, was $4.4 billion. The investment we had in transmission network infrastructure development was about $2 billion. Investment in distribution infrastructure was about $1.5 billion. Then the investment we had in gas was about $750 million. The rest was for administration, taking care of compensation, salaries and rents.

Now, that is very important thing to clear because most of the time you hear commentators say they spent $8.4 billion and recovered only $5.7 billion. The projects were not all finished at the same time and what happened was that we had 10 power plants in various locations and of different sizes. The transmission, distribution lines were over 10,000 kilometres of different sizes that included 330kV, 132kV double circuit, 33kV and 11kV. The substations were more than 5,000MVA when completed. The gas stations were for the 10 power plants.
By the time I left, generally the projects were like 85 per cent completed. Among the power stations, six 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.

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.

What was the Challenge?
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 scepticism, which they had about the Nigerian company calling for the multi-billion naira projects. One of the contractors, who had about five projects, which were the biggest projects, was the same contractor that was keeping the last three projects that had 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 was so much rain, during heavy rainfall periods, projects were not fast, especially when it had to do with the foundations.

You also attempted to privatise the plants, how did that idea come up?
We took the 10 power plants to the open market because the idea was that we wanted to privatise them. The reason for wanting to privatise them was not because Nigerians were 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 plants’ 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. 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.

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 want, it will be $7.1 billion, and that is for only generation. Therefore we invested $4.4 billion and got $7.1 billion.

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, which 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. That was 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?
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, 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. 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 process so that you are sure and they went. First, they started having complaints that transmission could not take all the power, that gas was not enough to fire all the power, that distribution will not take the power because distribution was looking at sending the power only to areas where they could get their money back quickly.

Because of these problems, power plants often have very few of their units working. Don’t you think this makes the whole business unprofitable?
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. Even those who bided at that time now found that they didn’t have enough money because they now have to buy the dollar, which was $170 when they bided, at N307. Today, for the first three power plants, we are looking at solving those problems. 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 had no gas supply, and that they were politically influenced. What is your reaction to this?
NIPP had a combination of experts from different organisations relevant to execute the project. Now for petroleum, because the technology chosen for NIPP was gas, 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, the GMD, Petroleum, is there. The Attorney General of the Federation is there, because you are going to be doing a lot of contracts so we needed the experts in legal business there. The Minister of Finance, because you are going to raise the money, the Minister of Power was there because it is power, even though it is not under his ministry. It was originally under his ministry.

But later on, we found out that bureaucracy and all those kind of things were delimiting the ability of NIPP so they removed it and put it in the Presidency, which was better.

The technical committee was made up of 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 people don’t say, yes to a project location, it will not be located. And we had 53 sites for generation. Out of these 53 sites, the committee chose six, in fact seven at that time. So, for the generation, they were seven projects originally intended. That was why NIPP was initially called “seven medium size power plants in the Niger Delta”.

It was, therefore, not true that NIPP went ahead, located and started building power plants without consulting the people on that. It is not possible. It didn’t happen that way. We were all together as one happy family but when things go wrong there is the tendency for people to start blaming each other but it is not true.

They knew where their gas was, we didn’t know, we don’t know where the gas is. I am not an expert in gas and my generation engineers didn’t know where the gas was. However, you may find gas in a particular location and the land available there is marshy. It will cost us three times to build a power plant in that marshy area because the power plant goes down deep into the ground.