Adesina: Sectoral Alignment, Proper Tariff Needed to Drive Power Sector

Adesina: Sectoral Alignment, Proper Tariff Needed to Drive Power Sector

Mr. Kola Adesina is an Executive Director at Sahara Group, a leading international energy and infrastructure conglomerate with operations in over 42 countries across Africa, Middle East, Europe and Asia. Sahara is a dynamic leader in various energy sub-sectors via its Power (Generation and Distribution assets), downstream, midstream and upstream businesses. Adesina is an entrepreneur with experience that cuts across various sectors. He is leading the vision of the Group aimed at bringing energy to life by deploying diversified power sources to light up lives, businesses and sustainable interventions in Nigeria and across Africa.

Adesina is passionate about empowering young people and takes great pride in mentoring youths to seek creative ways of galvanising their energies for sustained excellence and productivity. In this interview, he says the Petroleum Industry Act has established a progressive fiscal framework to encourage investors to invest their money for the purpose of optimising revenue flow accruing to government. He discloses that the Sahara Group is already moving to take advantage of the emerging opportunities in the sector in line with its commitment of bringing energy to life in Nigeria and beyond. Obinna Chima and Peter Uzoho provide the excerpts:

Last week the President signed the Petroleum Industry Bill into law after several years. As an investor in the Nigerian energy sector, what is your take on this historic development?

First and foremost, we are glad that after many years of working on and discussing the Petroleum Industry Bill (PIB), the document has now become a law we expect to be transformational. So, we are glad that the sector is set to move into a new gear of efficiency, transparency, fresh investment, better community engagement and sustainability. The objective of the Petroleum Industry Act (PIA), amongst many other things, is to ensure that the system becomes more commercially oriented, and profit driven. That is really what is driving the agenda of government and governance today as well as business. The aspiration of the PIA is equally to deregulate and liberalise the downstream sector, create efficient and effective regulatory agencies, and promote transparency and openness in the industry so that those of us that have huge aspirations could, indeed have clarity in terms of what we need to do, how we are going to invest our money, what kind of revenue we are looking at, what kind of tax policies will guide our investments, how is the industry is to function, what kind of environment are we going to be operating in, among others.

So, ultimately, this is just meant for the purpose of enhancing the exploration and exploitation of the petroleum resources for the benefit of all Nigerians. The PIA establishes a progressive fiscal framework which is going to encourage investors to invest their money for the purpose of optimising the revenue flow accruing to government. So, these essentially, are the pillars. So, we are hopeful, we are ready, Sahara is already moving to take advantage of the emerging opportunities in the sector in line with our commitment of bringing energy to life in Nigeria and beyond. As far as we are concerned, everything the government is doing in the sector is ultimately, for the benefit of the Nigerian people and we commend the government for taking this very strategic step towards deepening and further expanding the energy sector. Whatever will work for Nigeria will work for us at Sahara. So, we are glad that the PIA has come to stay, and we are ready to create more value across the energy sector value chain through our various operations in the upstream, midstream, downstream, and power sectors to make Nigeria become economically viable and strong.

No, do you think the unbundling of the power sector seven years ago was the right decision taken by government, considering the development in the sector afterwards?

I will tell you unequivocally that it was a fantastic decision. Everything we are doing as individuals and as a nation is reflective of our visions, objectives and decisions we are taking. We need to highlight the state of the sector at the time the decision was taken to be able to appreciate the importance of the decision to unbundle and implement privatization in the power sector. We were doing approximately about 2500MW in this country and the epileptic nature of power was horrible; there was no clarity. There was no commercial orientation, there was zero profitability, there was no incentive whatsoever for fresh investments. Of course, we came in and thankfully, I can say the difference is clear. For instance, Egbin Power Plant, one of the assets we acquired was doing about 400MW. Today, Egbin is doing almost 1,000MW, with capacity to even generate at our installed capacity of 1,320MW if not for gas constraints and ongoing repairs and overhauls.

That’s the benefit of privatisation. Some of the advantages we have brought to the table are because of the privatisation. With regards to Ikeja Electric, the quantum of energy we used to receive, and supply has increased geometrically. We are presently doing between 600 and 750MW of power and we are ready to push more to our customers. Our plan is to go as high as 1500MW, and even more. Now, we didn’t have any cluster that would tell you that they were getting almost 24/7 electricity before we came on board. Today, we have Magodo and Ikeja GRA. Today, when you look at the range of supply and the quality of power they are receiving, the number of hours they are receiving the energy, that’s an apparent and remarkable endorsement for privatisation of electricity in Nigeria. In terms of customer experience in terms of the speed to remedy faults, we have improved this significantly. The number of substations, feeders, transformers, and meters have gone up geometrically. So, essentially, it was a good decision. Now, where the problem is, is the fact that there was misalignment in the value chain. Over time, there was this mindset that privatisation was a silver bullet that would cure all the challenges in the power sector. But that is not the case. There are quite several conditionalities that were meant to be fulfilled by government that were not fulfilled. This affected the pace of development we would have seen in the power sector.

When we bought the power plant, our desire was to double the capacity as quickly as we took over. But, again, the reality on ground, in terms of the revenue profile, the tariff that we are receiving, the regularity of payments we are receiving, all these became an albatross that affected the expansion we desired to do. But be that as it may, when you go to Egbin Power Plant today, you will most certainly see the impact of the huge investment we have made both in terms people, infrastructure, environment and machinery. In terms of people, we now have a collection of some of the most uniquely talented, knowledgeable, and dedicated power sector professionals in Africa, running the largest thermal plant in sub-Saharan Africa excellently well. Our investment in training, learning and development is huge, while we are equally leading the way in terms of promoting environmental sustainability – deploying electric buggies and scooters, planting trees, decarbonizing the environment and managing our operations in line with global standards. We continue to empower lives and businesses in our host communities through sustainable interventions in health, education, and capacity building.

In terms of the power plant itself, like I said, the generation level was 400MW before we took over. Today, we are doing 1400MW when you add our generation from First Independent Power Limited which we equally co-own with the Rivers State Government. In fact, so much investment has gone into the power sector from the private sector in terms of what we are doing and investment by other operators. And by the way, remember, when the privatisation took place, how much did government receive from those of us that bought the assets? $3.4 billion. If $3.4 billion was received by a system like ours, I can assure you anywhere in the world, that’s a very huge figure. And customer experience, which is number one to us, more than any other thing, has increased geometrically. So, we are now more directly connected with our customers than was the case before we took over the assets.

You said there are many conditions government is yet to meet. What are these conditions and are there efforts by the government to meet any of them?

Well, one of them and the most important one is cost-reflective tariff. We have always said that the right price represents the incentive for investment anywhere in the world. We cannot make an investment based on a price that is not right. The price must be able to meet up with the cost of production. So, if the cost of ensuring stable electricity is higher than the price electricity is sold, of course, we all know the consequence and the implication of that kind of scenario. The right price is not there. But of course, as Sahara, as Ikeja Electric, as Egbin Power, as FIPL, we are change agents. We are not going to just wait to get to El-Dorado before we invest. We are increasingly creating clusters of excellence to demonstrate possibilities that can be brought to life in the power sector. We continue to take on what most people term impossible, because for us in Sahara, there is nothing called impossible.

It simply doesn’t exist. We are going to continue to push the frontiers of knowledge, technology, and service excellence to the highest possible limit. That’s exactly what we did by serving Magodo. In Magodo, we were able to put together a framework that guarantees stable, regular supply of power for up to 23 hours every day, except there is a system collapse. There was a need for us address the challenge of tariff. What did we do? We are charging approximately the right tariff in those locations and based on this, we are able to put the right infrastructure and investment together to be able to ensure that power is readily available in those locations. Thankfully, the government saw the idea and bought into it.

That is why you now have what we call the service-based tariff. Now, what the service-based tariff is doing is primarily for the purpose of charging based on affordability. Now, that’s okay. Stability of supply, accessibility of supply is now predicated on those who can afford to pay the right price. So, having the right tariff in place is a challenge we’ve had to contend with, and it is ongoing. In terms of tariffing, the government needs to take a decision as to what it really intends to do. If we want to industrialise as a nation, government needs to look at how much industrial consumers and commercial consumers can pay as against the aspiration of ensuring that there is stable supply of power. This will enhance the drive towards industrialisation to address systemic inefficiencies and expand infrastructure development to drive the growth that government desires to see, either in Gross Domestic Product (GDP) or associated areas are made possible. But the point remains that the tariff must be right. The tariff is not right yet but the government is working with us, and quite closely I must say, to deliver a robust power sector.

The interaction today is stronger and better. We now have a clear understanding of the challenges, and we equally now seem to have unanimity of opinion and voice around what needs to be done. So, what needs to be done now is for us to find a way of addressing the tariff issue in a manner that is strategic. And part of what government has done, which I believe is quite commendable, is the reduction in gas price. It’s equally a factor government took into consideration for the purpose of tariff of electricity, seeing that between 45 and 60 per cent of cost of generation for thermal power plant is gas. So, if that cost has gone down, of course, it goes straight back to the consumer. So, ultimately, over time, the tariff will ultimately be friendly enough for the consumer with the added advantage of economies of scale. This will make power more affordable and with affordability, the system continues to improve and then, there is accessibility, which is one of the critical components of the vision of the government for the power sector.

What is the latest on the ongoing negotiation between the government, labour unions and power firms on the tariff issue?

It’s an ongoing conversation. But that conversation must be predicated on the objective that government wants to achieve. Now, I, as an individual, my own view will be: you want to industrialise, you want to expand your manufacturing sector, you want people to buy your commodity, you want to become export-oriented, you want your commodities to be bought by consumers across Africa and beyond Africa, invariably, pricing of your feedstock/commodity is important, and the critical component of that price is the cost of electricity. So, if government has taken a position that truly, we want to industrialise, we want to do all these big things that are required to address systemic inefficiencies, unemployment, eradicate poverty, make resources readily more available, motivate and incentivise the citizens to do more, then, it means government needs to address the question of pricing. You either let law of demand and supply govern the pricing of electricity or you intervene . Like I said earlier, your objective must drive your decision. The responsibility in the triangle and architecture of payment of electricity is, either it’s the customer, the government, or the service provider. Of course, it shouldn’t be the burden of the power companies who are in business not only to add value but to equally make profit, so that we can improve and expand capacity.

All we clamour for as investors are, law and order, enabling environment, positive and clear regulations, policy alignment that promotes investments and pricing regime that captures costs with reasonable profits. We want to actively support manufacturers and commerce in a way that will create and promote employment, expand infrastructure and customer experience. At Sahara we are poised to work with all our customer categories to ensure they achieve their goals and improve their quality of lives and livelihoods. That’s our priority. Personally, I would desire to see the industrialisation of my country Nigeria. I desire to see that education is top priority and for this to happen, electricity must be number one. For power to be steadily available, I see only collaborative efforts amongst the key stakeholders driving the positive change we seek to see. The Government and the stakeholders are having this all-important conversation and we believe that ultimately the right decision will be taken in the best interest of Nigeria.

How are the generation companies participating in the federal government’s power deal with Siemens?

The Siemens arrangement is more pro-transmission and distribution. But lately, they have come to realise that there is a need for coherence in the value chain for them to be able to get to the level they desire to achieve. If there is a projection to ramp up generation to about 10,000, 15,000, 25000MW in so short a time, there must be harmony and handshake across the value chain in the sector so that all stakeholders can speak with one voice and act in harmony. But from the generation perspective, for us as Sahara, we are in conversation with Siemens with regards to how they can come in to enhance our assets and in some of the other areas we are looking at from expansion perspective. We have had conversations with them and the conversation is still ongoing, but the key thing is this, fundamental issues of tariff, sectoral alignment, alongside, regulatory/policy clarity. Then, with proper tariff, with the right environment, with the right incentive, I believe that we should be on course.

In July, you told some lawmakers that visited your facility that NBET was owing your company about N388 billion. Do you have any assurance that this money will be paid?

Yes, most definitely, 100 per cent. They would pay. One of the things the government has done is taking the position that will ensure the issues in the sector are addressed robustly. So, payment structure has gotten better, but we still have some disruptions. As I speak to you know there is a letter that is going to the president from generation companies seeking for payments. Because the plants we are running and managing today need consistent maintenance and overhauls for them to work optimally. Most of the things we use by way of generation are all import-oriented, they are dollar-denominated. It’s not something we can source locally.

So, the less the time we give to maintaining them, the more likely the machine will break down. It’s important that due attention is paid with regards to payment of power generators’ bills. Our invoices are outstanding, and they are huge, and that’s not just for us as Egbin. If you put a cumulative figure together, we would be talking of about a lot of money. But the Office of the Vice President, Governor of CBN, the Minister of Finance Mare doing incredibly well in resolving the payment issues Our regulator, Ministry of Power, NERC and BPE are agencies driving the changes we are seeing as they are actively and positively providing options and solutions to remedy the challenges the sector is having. Kudos to them for the things they are doing so far, but we need more. Until our customers can boost of enjoying 24/7 electricity as it exists in developed countries, we will keep pushing aggressively. Our customer comes first

Gas constraint has been a major problem in the power sector. How has it impacted on your operations and what is the way out of this challenge?

For us, yes, gas is number one because without gas, the entire value chain will collapse because part of what most people don’t know is that, when you look at the load factor for the hydros, it’s just approximately between 20 and 30 per cent at best, which invariably means that 30 per cent of the time is only when they operate. Seventy per cent of the time, they don’t operate optimally. So, largely, Nigeria is still depending on thermal power plants to be able to get electricity available and the thermal plants are relying heavily on gas for them to work optimally. If gas and the essential infrastructure are made readily actively available, that is the only time we can have stable electricity.

Without that, we will continue with this epileptic arrangement that we are currently running. I would say, at Egbin, we have a fantastic relationship with Chevron and NPDC, they have been doing very well. Egbin’s improvement in supply is largely because we are getting more gas than we used to. So, it has affected our generation portfolio positively. But when you go to FIPL, our generation asset in Rivers State, we are still struggling to get gas, most especially from one of our power plants where Agip gives us gas. So, we are still constrained by quite a number of things. But we are trying our best to see if they would be resolved. So, gas is still a challenge. My take again is, government needs to come in, bring all the gas suppliers and all the generation companies together and sit down with them to find a way to resolve the gas challenge. We need to fix gas infrastructure issues and make gas available to thermal plants for power to be generated.

We observed that Egbin and the Nigerian National Petroleum Corporation (NNPC) have been meeting and engaging of recent. Where are those engagements leading to?

Ultimately the plan is to achieve the perfect customer experience across all our operations. So, we continue to engage several stakeholders who are able to influence or enhance what we need to give our customers that one-of-a-kind experience. We need to ensure we have everything our assets need to produce uninterrupted electricity. Gas is a critical requirement for success in Egbin, so it means we must purse all available channels of collaboration to ensure gas is readily available to power our ambitious plans in Egbin. The essence of the meeting with NNPC is to ensure that we forge a new partnership and collaboration arrangement to guarantee stable supply of gas to our power plants today and create a platform for expansion of generation to power our economy. Big power, big economy

There is this belief that the Discos have not made enough investment in the sector. What is your take on that as an investor in Ikeja Disco? Also, how far has IE gone in metering its customers?

Whenever I get to hear this kind of question, I only use facts to answer them. The very first fact which we need to mention is the fact that there is a huge difference between Ikeja Electricity Distribution Company in 2013 and the brand it has become now as Ikeja Electric. We had to transform the business units and undertakings. We had to infuse a new spirit of service excellence through investment, learning and development. We had to replace and overhaul critical infrastructure on our network to pave the way for reliability and expansion. We have changed the perception of the company by repositioning Ikeja Electric as a technology driven, nimble and smart power distribution company. We deployed a robust culture and change management strategy to drive reorientation and empower our people to imbibe the culture of excellence against all odds. Our investment in the asset since we took over in 2013 has been immense. The aspiration for us in IE is to give 24/7 electricity.

It’s a mandate that is self-imposed and a mandate that must be delivered. You made mention of the metering infrastructure in the system. If you go and check in the system, part of what you will probably be told is the fact that Ikeja Electric was the first distribution company that invested in advanced metering infrastructure, which is what you call Smart meters. With smart meters, we felt introducing technology will discover energy theft, confirm consumption, and decrease human interaction with the attendant room for corruption and host of untoward behaviour. We were the first to embark on customer enumeration, asset mapping and technical audit, all in a bid to ensure that we get our facts right and take strategic decisions which has positioned to provide excellent customer experience. Ikeja Electric has deployed multiple physical and online channels to enhance seamless customer experience and prompt technical interventions. We have obtained quite several international certifications that reinforce our commitment to quality assurance, safety and sustainability.

We’ve done network optimisation projects that have facilitated the implementation of improved power supply, almost 24 hours in some of the areas under our network. We’ve equally done customer metering which you mentioned earlier. Our metering project has seen us metering about 49 per cent of customer metering and we are improving by the day. When the Federal Government in conjunction with CBN came up with the National Mass Metering Project, one million meters were to be deployed in the system, we were the first to meet and surpass the target the Presidency/CBN/Ministry of Finance gave us. Now, we have made good progress in terms of metering and leading the sector in this regard. So, we are aggressively metering. Most people assume that the distribution companies are clamouring for estimated billing because that’s where they make more money. Unfortunately, that’s not the case. It’s only a lazy distribution company that would want to continue with estimated billing. As a company that has high integrity quotient, we are keen on robust metering to promote transparency and match energy received, energy dispensed and revenue received. But again, we must consider the fact that metering involves huge investments which takes us back to the issue of ensuring right pricing of electricity as the backbone of driving investments that will guarantee uninterrupted power supply. This conversation of right pricing will always be critical to achieving Nigeria’s quest for a robust power sector. At Ikeja Electric, we have a unique and novel metering programme we will soon launch.

This involves features that will make it impossible for any consumer to bypass our meters and capture the energy being used in a manner that is verifiable, valid, dependable, and reflective of the reality of consumption. So, we are using investment in technology to do that and also a lot more work across the network to drive Ikeja Electric’s brand promise of bringing energy to life. Ikeja Electric was the first to introduce e-billing in Nigeria. We now do billing by text messages, providing regular updates via text messages and the social media, optimising our contact centre for the ultimate customer experience. Our aspiration of lighting up opportunities is not just in Nigeria. Our aspiration is to make a difference and add value in Africa and beyond. For us, the best part of the investment has been on our people. Ikeja Electric leads the sector in all parameters when it comes to human capital profile. The quality of our people stands out in the sector. We are concluding plans to again re-energize and incentivise our human capital so that they can be motivated to continue to make us a brand of repute, globally.

Under the current investors in the power sector, the Gencos and the Discos, is constant, 24/7 power supply realisable in Nigeria?

As Sahara, as Ikeja Electric, as Egbin, as FIPL, we are committed to working towards achieving 24/7electricity. We are not just being optimistic; it’s something we are already doing. Like I have mentioned earlier, we have clusters and locations that currently enjoying almost 24/7 electricity supply except for system failure. Sahara has a robust approach which we call the Connected Strategy which involves developing a relationship between us and our customers so that they don’t have episodic interactions with us. We want them to continuously have a relationship that is positive and beneficial to both parties.

We want to make sure that we meet the hierarchy of needs of our customers, which is residential, commercial, and industrial customers. We want to make power available for those who want electricity for the purpose of lighting up their homes, improving their quality of life, manufacturing, and sundry socio-economic pursuits. For those who will desire and aspire that every time, anytime, for whether industrial, commercial, or whatever use, electricity is readily and steadily available, we are going to continue to work towards helping them achieve their aspirations. After all, we are in the sector to bring energy to life. That is the only way we can survive. Innovation is important to us as an organisation. We have created our own new business model which is centred around our customers. And that’s why we are going to see the deployment of a hybridized model that includes grid, off-grid and renewable solutions. We are going to personalize and decentralise electricity to our customers, because as far as we are concerned, that 24/7 aspiration cannot just rely on the grid alone today. Invariably, we need to have alternative means which we can now bring together to ensure that our customers’ satisfaction is guaranteed through our service. And we can only do so if we have that 24/7 aspiration. Anything less than 24/7, count us out.

For us at Sahara, we will not be part of anything less than brilliant, anything less than the best. We are good, we are going to get better, and we will ensure that we continue to better our best. Nigeria gave birth to Sahara. Therefore, by the law of procreation, Sahara Group will create and nurture visions, initiatives and ideas that will energise our nation, continent, and youths to achieve their aspirations to become home-grown African brands and models of excellence in infrastructure, technology, and sustainable energy. We are committed to harnessing our natural resources and converting them to tangible global products. Sahara Group will continue to nurture innovation, creativity and entrepreneurship. Barriers can’t and won’t stop us from making Africa the hub of investment in people, technology and promoting sustainable agenda through promotion of clean energy and environmental sustainability. We have been doing this innovatively for the past 25 years and we are excited about what the future holds for Sahara Group in Africa and across the globe.

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