Umeh: FG Must Encourage Competition in Power Sector

Chukwueloka Umeh

Chukwueloka Umeh

The Chief Executive Officer, Century Power Generation, Chukwueloka Umeh, in this interview with Jonathan Eze, advises the country against supporting nuclear plants. He also speaks on other issues in the power sector. Excerpts:

Do you think the unbundling of the power sector was a mistake by the government as Nigerians are yet to reap the benefits?

The government did a very good job in unbundling the industry. However, these licensees will profit from the government deregulating the market even more. Think about it. You already own the assets. All you need to do is optimise your asset. Invest money to optimise your market to your assets. And with that investment, you will be able to make more money at the end of the day. Even though competition is coming, you’ll still be able to make money and I said to private companies today they’re currently issued. Currently, there’s no competition. We are all partners right now because we’re seeing that Nigeria needs 20 gigawatts. Nigeria doesn’t need to integrate.

You probably need about 60 gigawatts. I mean South Africa has a fraction of the population that Nigeria has, but South Africa currently produces about 50,000 megawatts of power and is still not enough. Nigeria has a population of 180 million at least and every month we produce less than 4,000 megawatts of power. So as far as I’m concerned there’s no competition. We’re not competitors. Where we should all be partners. There’s a lot to go around and year in year out we will be struggling to meet the demand. But the problem is that you don’t really seem to see the demand because every Nigerian that can afford it has a generator on their own.

So you don’t really know what the real demand in Nigeria is. When MTN came to Nigeria they thought that 500,000 lines were too much but now it is still struggling to meet the demand just like every other cellphone company. When private GENCOS and private Discos start working properly, they will struggle for many years to come to meet the demand and this is real. This is not speculating, this is real. A lot of us today generate our own power and pay a much higher tariff than what we can get from the grid system.

Banks are careful to support the industry due to risks. What do you think should be done to make banks invest in the sector?
So there used to be a lot more excitement in the industry from the banks and the private investors. There’s still a level of excitement because they know it’s a matter of time for us to get it right. Again we’ve been talking about the potential of Nigeria. We must move from potential to reality. Private citizens, private companies are starting to understand that this industry can actually work. So they are asking for the industry to work. Government is under increasing pressure to allow the industry work, so the banks know that this will happen. And so they’re gearing up to make sure it does happen. And when it happens that they have a piece of the pie, so they’re not rushing to give money to you, but they’re saying, ‘let’s see the government do what it needs to do and then we’ll give you money to make sure that we don’t lose money gambling.’ Nobody wants to lose money, so we’re waiting for the government to do some of the things it needs to do to make the industry work.

Is Nigeria ripe for nuclear power?
I don’t think Nigeria should be looking at nuclear energy at this point. You know we should focus on what we have an abundance of, which is natural gas. It’s clean, it’s efficient. We should focus on natural gas where it is doing some hydro plants. Keep doing what you’re doing in hydro. There a lot of people that are trying to do renewables. There is a place for a small quantity or small amount of renewables in the country. They should do that. Nobody should talk about nuclear right now because for nuclear plants, you have to do them carefully. And the potential problems that you can have from nuclear plants is not something that Nigeria can handle at this point.

We’re not set up to handle that. You saw what has happened in Japan. You know when they had the nuclear disaster inflicted. There was a big problem. We can’t afford that in Nigeria and we’re currently not set up to do that. So we should stay very far away from nuclear power as a country. Gas is easily done. It’s much more easily done. Companies are flaring gas today. We should capture the flares, right. And we should drill associated gas wells and produce a lot of gas. That’s what should be our focus today not nuclear. We’re many years away from nuclear.

The installed capacity in Nigeria today is more than what is being distributed, which has remained a challenge. How do you think this can be addressed?
The reason we are not distributing as much as the installed capacity is because the value chain is broken. So when we have over 12 gigawatts of installed capacity. That just means the capacity of all the power plants that currently exist in the country. However, some of those pipelines are so old that install capacity is not really there. Then you have plants that were built by the government but do you have gas coming to them? How do you run a plant without gas? You have plants that were built by the government that has gas, but don’t have enough transmission infrastructure to evacuate the power.

You can’t evacuate the power that’s part of the problem. And then you have distribution networks that were sold to private investors. You know these investors put in their money to buy these networks from the government however at the time that they were sold, the government gave numbers that they thought was the Aggregated Technical Commercial and Collection Losses (ATCCL). Look, generating companies need to be able to charge a tariff that allows them to generate power by gas and the government should not be telling private companies this was what they should charge and then competition should be what drives the price down, drives tariffs down.

Let the Gencos compete amongst themselves, likewise the Discos. Market forces will drive down prices, just like it happened with the deregulation of the telecoms sector. So the government simply needs to create an enabling environment and then step out of the way to let private companies compete for business. They believe that they’re helping the masses by fixing prices. In reality they are not. So, the people lose, but if the Disco charges you 14 kilowatts per hour for example and they provide you power 24 hours a day, seven days a week, you will be happier and healthier paying that money. It will give you stable power. Yes, that is what will provide stable power in this country.

When you let a company like Century power produce power and sell the power at a tariff, a cost reflective tariff that allows them to make their money back, which allows them to pay for the gas that they buy. Guess what? Century power will be able to run that plant 24 hours a day, seven days a week and oh, by the way, I should be allowed to sell that power to any DISCO. So whoever is paying I should be allowed to sell it to them at the price that I know that I will make my money back and if my price is too high then maybe a competitor with lower price.

Let it generate and sell to them, let us compete. That is only when you will get stable power in this country. The government should not be the one telling us how much to sell our power because you know it would never be a question of capacity anymore because guess what, by the time I find that I’m selling all and it’s five megahertz that I produce and the people asking for more, I will produce a thousand megawatts, when they need more I produce it. It’s business.

Why is CPG in business of generating power and how can the power sector work without the hiccups it has been witnessing?
Since its inception, Century Power realised that for it to achieve its goal of helping to develop the country, we need to get involved in not just generation of power but also several other parts of the value chain in the power industry. Our focus is on gas-fired power plants. There are many others we could talk about – nuclear, we could talk about coal-fired, and we can talk about hydroelectricity. We can talk about renewables like wind and solar but I’m going to focus only on gas-fired today because Nigeria has the world’s ninth largest proven reserves of natural gas.

So the value chain for this starts with gas production, if we produce gas then it goes to gas transportation through the pipelines that we have today. And then you get on to generating the electricity. You’ve got to transmit the electricity over the transmission lines currently owned by the Transmission Company of Nigeria (TCN). TCN then transmits the power to the respective distribution companies that eventually deliver the power to our homes. So you’ve seen that energy flows from gas producers all the way to the electricity distributor and then the money flows from this distribution backwards. They collect the money and then they pay the gas transporter and then they pay the gas producer.

The entire value chain must work for the energy industry to work. And Nigeria has been blessed. So again when you think of the family living by the river, the river, in this case, the water, in this case, is natural gas. Natural gas is one of the cleanest fossil fuels that you can use to produce electricity and other countries use this to develop themselves. We have it in abundance but we’re not using it. This has to change and that’s why I said it is by getting involved in several aspects of the value chain so as the CEO of Century power, we know we have to get involved in the transmission, so we’re upgrading the transmission line from Century power to the closer substation.

We have an agreement with the government to do this upgrade. We are also now involved in developing a gas pipeline that would transport gas to send to you and we are going back even further to work with a company that will produce the gas to make sure that they produce the gas in the quantity needed and then the timeline that is needed. So, as you can see I wear several hats and we’re very busy. But the whole idea is that this industry must work. You can move away from danger and go elsewhere but it’s the wrong thing to do. I lived in America for many years.

I worked for General Electric in the US for many years developing gas turbine engines both for airplanes and for power generation. The easy thing for me to do would have been to stay in America and keep enjoying the infrastructure and keep enjoying the dollars that I’m being paid. The hard thing to do was to come back here and help fix the problem and that’s why a lot of us are here.

When is Century power going to deliver on its ambition to develop a 1500MW of electricity in Okija, Anambra and will it meet its deadline?
Our current schedule shows that the project coming online by the second/third quarter of 2022. Now, that is assuming that we can get to financial close by the first quarter of 2020, and for us to get to financial close, there are several things that the government needs to do. There are several critical documents that they have to approve and you know things have changed in the government. You know the will seems to still be there. Several of the people in the regulatory bodies are different.

Several people have changed and any time there’s a change, you need to bring the new people up to speed and justify why things have to be done in a certain way. This is what causes a lot of delays. I mean the government has to do what they do. You know people have to change every now and then so that’s understandable. However, what we ask is that the learnings that were achieved by people in office should not be lost whenever there’s a change in the office. And if the learnings are lost which we’ve seen happen several times, it’s almost like we’re restarting again. So you have to restart over and over and over again and you have to keep paying your consultants to do the same thing over and over.

So we are pushing for the government not to lose some of the things they’ve gained. Don’t get me wrong, some of the people, some of the regulators are very intelligent people. Some of them are very capable, they’ve very smart lawyers, they’ve very some very smart engineers, some very smart economists. You know when you talk to them and see they understand the industry; some know what needs to be done. However, for them to do the job, there are certain things that the government needs to put in place, certain things the Minister of Finance has to agree to, certain agreements that the Minister of Justice has to approve and so on and so forth. So for us to get the financial close by the first part of next year which was shown on our schedule, some of these documents need to be signed in a timely fashion. And the government has to be in support. Otherwise, we can’t achieve this and what happens is the people continue to suffer because, at the end of the day, it is the people that the government wants to protect are the ones that still get to suffer at the end of the day.

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