NDPHC and Challenges of Nigeria’s Power Sector

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Michael Ademola
In August 2016, the Buhari administration confirmed a new board for the Niger Delta Power Holding Company (NDPHC) to lead it into a new phase of actualising the original vision of the National Integrated Power Project (NIPP) which was conceived as a fast-track intervention in Nigeria’s the electricity supply chain.

Planned in 2004 to build 10 new power Gencos to address the problem of erratic power supply, the NIPP was to be managed by the NDPHC. It has built enviable and world-class power stations, as well as huge transmission network to become the largest intervention in power infrastructure in Africa.

Its creation was originally meant to give out cumulative generation volume of 5055 megawatts (MW) of electricity. To transmit and distribute this energy to Nigerians, it has built 114 transmission lines and substations and 296 distribution injection substations. This is a major feat.
The country’s electricity supply would be stabilised with the construction and full operation of these gas fired power plants. Seven of the 10 are believed to be in operation and producing 25 per cent of Nigeria’s generation output.

Challenges
The 2010 Power Sector Roadmap had put December 2013, as the deadline for the completion of the NIPP projects to usher in a new lease of life for Nigerians via adequate power supply. The NIPP has actually gone far in its mandate but it has not reached its full goals.

Power generation deficit in Nigeria occasioned the establishment of the NIPP, with an opportunity to get it right by increasing and using gas. However, debilitating factors have led to inadequate gas supplies to the power generation plants. There are reports that in some cases there are limited gas turbines not completed in the power plants, thus limiting the amount of gas that can be actually supplied. There are also instances of stranded capacities owing to transmission problems. What was meant to be a fast-track project was at a time actually suspended.

Perhaps the most pressing factor stopping the full realisation of the original vision is the absence of strong private investors, the non-take-off of a privatisation process where capable and decent people who really know the power business are given the ease and legal backing to buy the NIPP generation plants and add value to them. Then there was the restiveness of host communities resulting in pipeline and infrastructural vandalism and theft.

NDPHC’s CEO, Chiedu Ugbo, had enumerated several factors militating against the smooth operation of the NIPP to also include huge debts owed it as unpaid cost of gas supplied. The company was forced to almost operate on subventions or as a charity organisation. Ugbo, also pointed to funding an an issue.
“In 2011, we invoiced N8.2 billion; in 2012, we invoiced N21.9 billion; 2013, N46.9 billion; 2014, N51.3 billion; 2015, N62.4 billion and 2016, N44.6 billion, and that is the total of N235.4 billion.

“Of these invoices, in 2011 we got 39 per cent, 2012 we got 26 per cent, 2013 we got 62 per cent; 2014 we got 72 per cent of the invoice, 2015 we got 62 and 38 per cents in 2016. When you compare this to our operational expenses, you will see that we are already in red.

“There is no month we have a gas bill less than 2.4 billion. The total we owe for gas now is about 42.207 billion,” Ugbo was quoted to have said recently.
The NIPP project once ran into stormy weather. In 2009 the project was stopped, leading to most of the contracts being cancelled and re-negotiated, and procurement process done all over again leading to massive loss of revenue and time. During this process, the country lost more than 18 months.

Another challenge is the tariff structure in Nigeria. Investors are concerned not just about making profit, but to be able to continue in business, covering their cost.
It has been stated that Nigeria has one of the most depressed tariff structures; its tariff rate for electricity is still one of the lowest in the whole world. The agitation of consumers to not paying more has been because they feel there is no sufficient quantity in supply, the number of hours they actually enjoy public power supply is low.

Considering the non-cost reflectivity of tariff, investors will be concerned because the right tariff is actually a function of quantity, that is, the higher the megawatts produced, the lower the tariff with tariff being total cost divided by the quantity.

When the asset valuation, the cost profile, the capital and operating cost, maintenance gives a certain amount, this will be divided by the megawatts. Therefore, the higher the megawatts the better. The expectation is for the full completion of the NIPP to inject additional megawatts to the national grid. This will change the energy scenario in Nigeria. Thus, completing the NIPP will lead to capacity increase and lowering of tariff.

Some other challenges that the NIPP has had to grapple with include security and community issues; right-of-way challenges for distribution equipment and transmission lines; port clearing coordination hitches and contractor performance-related problems.
Even though the three tiers of government own the NIPP, equipment imported for the power projects are often delayed or seized at the ports by the Nigeria Customs Service (NCS) because of non-payment of import tariffs thereby stalling the execution of some power projects. Sadly, some of the equipment at the ports were at one time auctioned by the port authorities after demurrage charges had accrued on them. It took the intervention of an alarmed Senate to recover some of the equipment sold off under questionable circumstance.

The Discos
An average distribution company in Nigeria today needs huge funds to invest, especially to bridge the metering gap. The investors will have to make that investment, calculating their profit and find a way to put that in the eventual tariff. In our fixed tariff per every kilowatt of electricity, investors would have to do their arithmetic and see what they can get as revenue. Discos rate of revenue collection has been found to be less than 30 per cent effective but the present state of things still benefits them because when people are not metered, things are done by the process of elimination, either to underestimate or overestimate. Most times it is overestimation in Nigeria. Officials can then collude to rip off the consumers.

The Discos also need to invest more in distribution infrastructure to alleviate the sufferings endured by customers due to failed equipment. Equipment overload and aged infrastructure are common causes of such failures. Value for money is an important consideration by the customer as regards the quality of power supplied. Customers are clamouring for cost reflectivity in services.
Studies have also shown that the average Nigerian spends a sizable portion of his or her income on electricity bills only, yet most of these customers enjoy less than eight hours of supply availability daily. This value for money mismatch is worrisome and can be a potential seed for deviant customer behaviour.

State governments’ rural electrification schemes have not been largely successful to complement the work of federal agencies. In some instances, it became a veritable money laundering scam.

Option of Selling to Eligible Customers
NERC had issued the Eligible Customer Regulations effective from October 2017. This declaration had the direct effect of enthroning competition in the market, allow third party access to transmission and distribution networks with a view to serving the underserved as well as allowing generating companies to operate their assets on a more efficient and flatter profile.

Following the issuance of the regulation, NDPHC has been actively involved in seeking willing and able parties, which would serve as off-takers. Eligible customer focus would be initially for those off-takers on transmission voltages of 330kV and 132kV and those with direct connection via 33kV lines to transmission injection substations. It was however, necessary to note that NDPHC currently has eight generating assets spread across various parts of the country and with its ownership structure it would take considerable time to contract power with eligible customers.

The Future
Under phase one of the NDPHC, 10 Gencos close to source of gas were built. Under phase two, it would further strengthen Nigeria’s transmission infrastructure, build hydropower plants, and move into the utilization of alternative sources of power generation including renewables.

Since the return to constitutional rule in Nigeria in 1999, the federal government has invested heavily into the power sector to meet Nigeria’s huge energy demand and the NDPHC has been part of a special arrangement to fast-track the attainment of stable power supply. It has contributed over 22,000,000 megawatt hour (MWH) of energy daily to the national grid. It has also provided the System Operator with critical services.

The NDPHC has already grown Nigeria’s power generating capacity by about 60 per cent within the 12 years of its existence, contributing over 35 per cent of the current installed capacity. It has expanded the nation’s transmission capacity at the 330kV level by over 90 per cent of its installed capacity within the same period. Contributions in the distribution value chain in terms of numbers of 33/11/.415KV substations exceed 160 per cent since inception.

There is the paramount need for continued accelerated growth of the power sector through a one-stop shop vehicle for government intervention in the light of current challenges in the sector. Consequently, there must be provision of opportunities for foreign investment in the sector at the bilateral and multilateral levels. There must be a continued use of the capacity and experience collected under a single roof for fast track project execution.

The NDPHC should take the path of diversification of the energy mix to reflect a more balance approach in terms of national development through solar energy projects for the north and more thermal, modularised generation technologies for the southern zones of the country, taking advantage of the peculiar challenges in each of the regions.
NDPHC, in the light of current sector challenges highlighted by market liquidity issues and widening infrastructural deficit at the distribution end has strengthened its engagements with foreign investors, multilateral agencies and companies with the aim of closing the gap.

The coming of the NIPP was a good plan to confront Nigeria’s huge energy crisis, and to bring it to a better end, a transparent privatization process for credible international investors will push the NIPP across the finishing line.
NDPHC’s generation, transmission and distribution projects have prevented the total collapse of electricity supply in Nigeria.

Furthermore, to fast track the attainment of stable electricity for Nigerians, the federal government should seriously consider waving duties on equipment for power projects. It needs to seriously educate contractors on their patriotic duty to deliver and on time. There is need for a special para-military unit to ruthlessly tackle the activities of vandals, and address the kidnap of the employees of the contractors.

Host communities also need to be educated on the recurring problem of right-of-way for electricity installation routes. The NDPHC had paid heavily to divert the transmission line to the Ihovnbor station in Edo State because of the presence of shrines created overnight on the new route by community members. These attitudes were best addressed with steady enlightenment.

We must not disregard the truth that some Nigerians have made a living for decades from national dysfunction, and will continue to engage in such illicit acts, however, to get them out of the way, they need now to be handled carefully to minimise collateral damage.
Nigeria is Africa’s most populated country and it is also the foundation of the West African economy. The coming of the NDPHC has helped Nigeria avoid a collapse of its electricity system – imagine a Nigeria today without the NIPPs! If the NDPHC is allowed to function as it should, supported more to do its work, it is very likely it will help address most of Nigeria’s power outages.
Ademola, an energy systems analyst writes from Abuja.