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N100 BILLION POWER PROJECT STALLED AT NIGERIA TECH CITY | November 2015


 
Prof. Nnaji

Professor Barth Nnaji, former Minister of Power turned power sector entrepreneur, tastes the non-salutary pill government agencies oftentimes dole to private sector players in his Aba Power Project venture. In his response to Business Eye enquiry on the fate of his project, he says Nigeria which needs more than 40,000MW must respect agreements to break into light from its dark trap.

About the group?
Geometric Power Limited, GP, is a power project developer, investor, builder and operator of power systems. GP is the holding company for Geometric Power Group which runs power projects in electricity generation and distribution. It also build gas transportation infrastructure for delivery of natural gas to its power plants and maintains the group’s portfolio of electricity assets.

Aba Integrated Power Plant, AIPP or Aba IPP is the Aba integrated power project developed by Geometric Power as a model electricity company for the Aba ring-fence. The Aba IPP includes a power generation plant, gas pipeline, and the electricity distribution business which comprises of the Aba and Ariaria business units in Abia State. These units cover nine out of the 17 local government areas of Abia State, including Aba metropolis. It has a 141MW power plant with embedded generation and a distribution license for the ring-fence. It is a model which ensures absolute reliability of electricity supply within the ring-fence and does not require the normal sovereign guarantee which the Federal Government will have to provide for the major power plants.

Aba Power Limited Electric, APLE, is the distribution licensee for the Aba IPP. The business model of Aba IPP is to use the Aba ring-fence to distribute the electricity from the power plant without having to rely on the national grid. In order to reinforce the Aba ring-fence network infrastructure, the distribution company, Aba Power and its operator, APL Electric, APLE, have built 105 kilometres of overhead lines at 33KV level. They have also built 40km of overhead lines at 11kV level. They have built and fully equipped four new sub stations of 2x15MVA each in addition to the power plant substation of 3x60MVA. These come with three new control buildings equipped for the existing three leased sub stations, while the existing sub-station facilities have been refurbished, substantially before the takeover of Enugu DisCo by Interstate Electric.

Geometric Power Aba Limited, GPAL, is the generation licensee that has completed a 141MW power plant in its first phase that is dedicated to serve the Aba ring-fence. To ensure reliable gas supply to the power plant, the company has also built a dedicated 27km gas pipeline to Osisioma.

Project status?
All the companies are operational. There is the power plant, gas infrastructure, sub stations, overhead lines and other assets of the Aba IPP. The remaining work is to interconnect the Aba IPP substations with the existing Power Holding Company of Nigeria, PHCN, substations in the Aba ring-fence. This has been interrupted with the handover of the entire Enugu electricity distribution network, including the Aba ring-fence to the Enugu Distribution Company in November 2013. When the interconnection is done, the Aba IPP can commission its facilities and deliver electricity directly to customers within the ring-fence as enshrined in the lease agreement with the Federal Government of Nigeria.

Projected customers?
The Aba ring-fence has over 200,000 connected customers including industrial, commercial, residential and rural consumers, serving a population of almost two million people. Our six-month study of the market with 250 technical enumerators showed that Aba at peak load will need 156MW of electricity. Our existing power plant is sufficient to ensure reliable electricity supply to the Aba ring-fence in the first year, we plan to quadruple the plant’s capacity in the near future.

Are you running a GENCO, a DISCO or both?
GPAL is licensed by Nigerian Electricity Regulatory Commission, NERC, to run as a GenCo while APLE is also licensed by NERC to run as a DisCo.

Lessons from Renatech International Limited Abuja experiment?
Geometric Power built the Abuja Emergency Power Plant with Renatech as a partner. The project was a 22MW power plant, guaranteeing the delivery of 15MW reliably at any time. It supplied electricity to the Central Area of Abuja successfully until the end of the contract. The real impact of that project on the Aba IPP is that we were able to prove out the concept of delivering reliable electricity within a ring-fence if the power plant is embedded. Our driving force is the desire of the sponsors to contribute towards the economic growth and development of our beloved country, Nigeria, by providing one of the most basic requirements for industrial development which is reliable supply of electricity.

How can Nigeria generate needed 40,000MW?
The 40,000MW estimate is less than what Nigeria will need as an emerging economy with population of more than 170 million people. However, Nigeria needs to strengthen its support of private sector that will be capable of going to attract international investors, it must respect agreements that it enters into, it should muster the will to apply its policies transparently and provide encouraging incentives to investors.

 

How far from mark with PHCN unbundled and GENCOs licensed?
We are on our way…

GENCOs challenge to generate adequate electricity
One of the main obstacles is availability of fuel for the GenCos. The second challenge is the non-credit worthiness of the DisCos. The third challenge is power evacuation constraints in some areas. These three need to be addressed. One way to address the power evacuation constraint is the cluster/ring-fence approach that we have used in Aba to domicile power locally rather than using the national grid.

 

 

 

 

GPL challenges in its “ring-fenced” network
Aba Power Limited entered into a binding agreement with the Federal Government of Nigeria in 2005. This concessioned the Aba ring-fence to Aba Power Limited, in the agreement Aba Power has two rights:
First, to lease the Aba ring-fence electricity distribution facilities for 20 years from the time of the injection of power into the ring-fence.
Second, the right of first refusal to purchase the ring-fence electricity distribution assets should federal government start privatization.

However, when the Bureau of Public Enterprises, BPE, started the privatization of power assets, it did not offer the Aba ring-fence to Aba Power as enshrined in the agreement, despite numerous formal reminders by Aba Power. BPE further went ahead to sell the Enugu DisCo to Interstate Electric without carving out Aba ring-fence, although it did inform all bidders of Enugu DisCo of the presence of the agreement between Aba Power, the Federal Government and other entities such as the Transmission Company of Nigeria, TCN, Enugu Disco and GP.

The full implication of this situation is that Federal Government of Nigeria, FGN failed to uphold an agreement it entered into, and upon which Aba Power and GP made its huge investment in the Aba Integrated Power project. This does not bode well for other investors since what has happened to GP and Aba Power can happen to other investors if the federal government which is supposed to protect all investors is not standing up with integrity. Work on the Aba IPP has been stalled since 2013 with its inherent negative impact on its finances and the ability of the company to deliver reliable electricity that is much needed in the Aba ring-fence.

How lucrative are electricity generation and distribution businesses in Nigeria?
Electricity business is not intended to make a whooping annual profit because it serves the public. There is an allowed return on investment by the regulatory commission NERC, which all licensees rely upon. If the value chain of electricity production and delivery in Nigeria is strengthened such that each is credit worthy, the business can be as profitable as in other climes. It is basically a “slow and steady wins the race” type of investment.

How government can make things happen?
The federal government must continue to make and maintain policies that ensure steady growth of the sector. It should also ensure that the regulator is fair and transparent. In addition, it should continue to invest in areas where government has responsibility such as the transmission infrastructure, production of the gas molecules and gas transportation infrastructure to power plants across the nation.

How much fund has the GP Group sunk into its operations?
GP Group is developing a number of power projects in Nigeria, one of which is the Aba IPP which has consumed more than US$500million, N98.3billion.

How much would Nigeria spend for uninterrupted power supplies and how can Nigeria access the funds?
Nigeria needs tens of billions of US Dollars. These funds are not available in Nigeria. Therefore Nigerian power investors need to partner with international investors, but this requires that the Nigerian government is sensitive to the needs of the investors. If the federal government sees respecting agreements as gifts to the investors, then it will be impossible to attract the right investors. Once the government enters into an agreement, it must respect that agreement fully.

Strategies to tackle the myriad of problems facing the industry
Your questions here require writing a book and cannot be fully addressed here. However it is critical to root out the issues of corruption in decision making. It has a crippling effect on investors who want to follow international best practices and are not able to make friends with “powers that be” in the country.

As an operator, are you adequately empowered to manage these problems?
No

Future of the private sector electricity power industry
I see the future as quite bright, if government will do the correct thing.

Competitive advantages of GP’s foreign partnerships?
We are a transparent company of integrity, operating with international best practices in Nigeria. Our partners recognize that we are a serious international power company in Nigeria that does not cut corners. That is the competitive advantage that we have.

Would you say the 20-year license GPL got is adequate and appropriate to sustain its infrastructure network?
This is why the agreement has the two rights stated. Based on the right of first refusal to purchase, Aba Power should have been offered the ring-fence as enshrined in the agreement to ensure that the lease agreement for 20 years is not the end of the distribution operation by Aba Power.

Differences between “regulated” and “unregulated” customers?
NERC determines the tariff of “regulated” customers while “unregulated” customers sign bilateral agreements with the power supplier.

Competitive advantage of GP over the 15 power unbundled facilities?
The advantage GP Group has is that it has already invested in new facilities that are robust. The unbundled companies still have to invest an enormous amount of money to upgrade capacity in the case of GenCos, and to become credit-worthy in the case of DisCos.

Is Nigeria’s power policy, as it is, adequate and sufficient?
I was a player in the sector before I became the Minister of Power and this experience was very valuable in executing my subsequent role as Honorable Minister of Power.

The power sector roadmap is comprehensive to get Nigeria to where it needs to be. Some aspects of the roadmap can further be detailed as we go along. But, we have an internationally accepted blue print to get Nigeria to power sufficiency and sustainability. We should note that it is the practicalisation of the Electric Power Sector Reform Act, EPSRA, 2005. I therefore feel fulfilled that I led the effort that produced the roadmap and set out its implementation.
 


 

 

       
       
       
 

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