Lecture by Professor Bart Nnaji, CON,NNOM,FAS,
Honourable Minister of Power, to Participants In Executive Intelligence Management Course 5 at The Institute for Security Studies, Abuja, on Monday, June 11, 2012.
It is my pleasure to be in the midst of the top echelon of the nation’s intelligence and security community to discuss with you the state of Nigeria’s electric power sector, especially the new direction in which it is headed under the President Goodluck Jonathan Administration. An efficient power sector is central to national security, national survival and national prosperity, just as an efficient intelligence and security system is a desideratum. Modern society runs on electricity, and electricity development itself cannot take place in an environment which is not safe and secure. Yet, both the power sector and the security environment in Nigeria are going through challenging times.
I would like, at this juncture, to publicly commend the intelligence and security community in Nigeria for its heroic service to the nation. The men and women in various intelligence and security apparati stand in harm’s way every minute of the day so as to provide a conducive environment for 167 million Nigerians to live and work in peace and harmony. Theirs is the ultimate national sacrifice. As has been observed over the ages, there is no love greater than the fact that a man should lay down his life for the benefit of his people. Still, the immensely sacrificial role of our security men and women is scarcely recognized by the larger society. The few lapses in their performance of duties are those which daily catch media headlines, with the impression sometimes created that they are not quite competent. Yet, when junior officers in the Nigeria Police Force went on a strike in the early 2000s, the first and only time in our national history, no bank in Nigeria opened for business for even a second! Not even banks in rural communities where the crime rate is very low opened for a moment.
The Federal Ministry of Power appreciates the effectiveness and efficiency of the men and women who, every second of the day, protect our lives and our assets and ensure there is peace and order in society. Towards the end of 2010, the President and Commander-in- Chief of the Armed Forces of the Federal Republic of Nigeria, Dr Goodluck Jonathan, GCFR, directed soldiers to join the police to guard all electricity installations across our vast country. Some citizens who did not appreciate the wisdom and foresight in the President’s directive took exception to it. But today the whole world knows who was right and who was wrong. Suffice it to say that to this day all power facilities in the country have bravely been protected by our intelligence and security agents, despite the considerable security challenges in the nation. Theses gallant officers rose to the occasion when some dare-devil elements tried some months ago in Yobe State to attack our power facilities. And when the undesirable elements pursued the soldiers to a hospital where they were receiving medical treatment, the soldiers once again gave a good account of themselves.
Nigerian intelligence and security operatives will be among the most efficient in the world if provided with the necessary facilities. Nigerian military officers are always in high demand for peacekeeping operations, having excelled in such places as the Congo in the 1960s, in Lebanon in the early 1980s, in Liberia in the 1990s, in Sierra Leone in the 1990s, etc. The Nigerian police have also excelled in international operations right from independence in 1960. They have excelled in the Balkans, in Namibia where in the 1980s they were voted the best (under the command of Mr Ezidimma Ifejika) out of the police forces from 50 countries around the world, and in Haiti where some four years ago the United Nations performed a special ceremony in New York to honour the exceptional performance of our police officers. If our security agents perform outstandingly in international assignments but do not display the same quality at home, it follows logically that the problem is not in the nature of these men and women. The problem has to do with the local system. It has to be changed. But this is a matter for another day.
THE POWER SECTOR REFORM
The reform of the environment which we advocate for the intelligence and security agencies in Nigeria for optimum efficiency has since started in the electric power sector. True, the reform preceded the Jonathan presidency because the extant Electric Power Sector Reform Act was enacted by the National Assembly in 2005. Yet, the reform has become synonymous with President Jonathan because he has pursued it with far greater commitment than any other person. The Road Map for Power Sector Reform, which he launched on August 26, 2010, in Lagos to the applause of the Nigerian people and the international community, remains to this day the most comprehensive document on electricity development in Nigeria. Complete with timelines and costs over a considerable period, the interpretation of the Electric Power Sector Reform Act, as enunciated in the Road Map, makes the document truly a tour de force.
Some of the highlights of the Electric Power Sector (EPSR) Act of 2005 are the closure of the state-owned power utility named National Electric Power Authority (NEPA), its replacement with the Power Holding Company of Nigeria (PHCN) (though as a transitional company that would exist for only 18 months), the creation of 18 companies out of the state-owned power monopoly, the liberalization of the power sector and the consequent privatization of the 18 PHCN successor companies. There are other highlights like the creation of the Nigerian Electricity Regulatory Act (NERC) and the Rural Electrification Agency (REA).
ESPR(2005) ACT IMPLEMENTATION
It is a pity that sweeping and ambitious as ESPR(2005) Act is, its implementation has not been the best. For instance, the PHCN ought to have stopped to exist as a legal entity since 2007 (that is, 18months after the Power Reform Act came into existence), yet it still exists. The operation of the REA was suspended in 2009 following reports of the discovery of a 5.2 billion naira fraud allegedly involving top officers of the agency, the Ministry of Power and National Assembly members. The suspension was wrong because the REA is a creation of the law which, far from being amended or overturned, has remained in existence as it was enacted. The NERC leadership was also suspended in the wake of a purported uncovering of a fraud. The leadership compromising the chairman, vice chairman and commissioners was thus replaced with a sole administrator. The office of sole administrator was unknown to the law establishing NERC. The consequence of this executive action was that investor confidence in the legal and regulatory framework of the Nigerian power sector became threatened at many points. Investment in the sector dried up quickly. This is not surprising. Capital is a coward. It goes to the safest of places. That is why anytime the political stability of any place is threatened existing investors look for the nearest exit door and prospective investors thank their stars they have not fully parted with their funds.
COMPLYING WITH THE LAW
In recognition of the centrality of full compliance with the law, especially with the ESPR Act of 2005, in order to restore the confidence of investors and the general public in the power sector reform, President Jonathan decided from day one to make his administration adhere strictly to all relevant laws. The Rural Electrification Agency has been brought back fully. It now has a Managing Director, and not a sole administrator whom most people considered to be a more or less an undertaker. The REA has a reasonable vote in this year’s budget. Still, the funds available are still a far cry from its requirements. There are about 2,000 communities in Nigeria without electricity. This is not acceptable to the Jonathan Administration which regards electricity as a fundamental right of the Nigerian people. By the time the REA operations were suspended in 2009, there were some 1,970 ongoing electricity projects in various rural communities in the country. What is more, contractors handling REA projects are currently owed N3.2billion. Some of the contractors borrowed huge amounts from banks at high interest rates, with some having already lost the properties they used as collateral. Some of the contractors have unfortunately died, heartbroken, poor and still indebted.
As part of the commitment to the rule of law, President Jonathan has long reconstituted the leadership of the Nigerian Electricity Regulatory Commission. The leadership structure is now consistent with provisions of the ESPR Act. The result of all this is renewed confidence in the power sector at home and abroad.
SOME AFFIRMATIVE INDICATORS
At no time in our national history has the power sector in Nigeria excited the investor community as it has done since 2010 when President Jonathan resumed the implementation of the EPSR Act and followed it up with the launch of the Road Map for Power Sector Reform. He has done other things to demonstrate an unflinching commitment to the success of this sector. For example, he has long revived the Niger Delta Power Holding Company (NDPHC), which is the intervention agency implementing the ambitious National Integrated Power Project (NIPP). The NIPP will add about 4,700MW to the national grid. It is, among other things, adding 4,000 kilometers of transmission lines to the national electricity asset base. The NIPP was in limbo for about three years preceding President Jonathan’s assumption of office. Under this dispensation, however, things are taking a new shape. Working in collaboration with the Senate, this Administration has been able to identify and recover hundreds of power equipment containers belonging to either the NIPP or the PHCN which were abandoned at the seaports for years or auctioned or declared missing. On Thursday, June 7, 2012, I went to one of the terminals in Ikorodu, Lagos State, to inspect some of the containers.
Given the Jonathan Administration’s devotion to Nigeria’s electricity development, it is not surprising that the international community, which has for several years adopted a largely negative attitude towards Nigeria, has demonstrated an unparalleled interest in the power sector. When the Bureau of Public Enterprises (BPE) called in 2010 for of Expressions of Interest (EoIs) in the privatization of PHCN assets, an unbelievable 331 EoIs were received. The EoIs came from reputable companies across the world. 135 of the EoIs have now been shortlisted by the National Council on Privatisation to bid for the assets next month. The bids will be processed and evaluated shortly after, and the results announced in good time. The entire privatization will be conducted in the finest tradition of transparency and in line with the best international practice. The privatization process must be concluded this year. As you know very well, the president has warned that in no circumstance will anybody be allowed to tamper with the process, nor can the date be shifted by even a second. I would like to state here for record purposes that the privatization timetable was shifted from March–May to July—October, this year, at the behest of prospective bidders.
It is also important to remark here that one of the 18 PHCN successor companies will not be privatized. The Transmission Company of Nigeria (TCN) will remain government-owned but managed by a firm with a robust record in this field. Manitoba Hydro international of Canada will from next month sign the management contract for the TCN. This is a major development in the reform of Nigeria’s power sector.
The World Bank has long keyed into the reform. It is providing Partial Risk Guarantee (PRG) to the Bulk Electricity Trader, a new firm established and its board appointed within the original timetable of the Road Map for Power Sector Reform. The PRG is to provide comfort and confidence to power producing companies. It assures them that any quantum of power they produce will be paid for. This firm assurance has become necessary because none of the 11 electricity distribution companies is right now creditworthy. Once they become creditworthy, the Bulk Trader will cease to exist because the distribution companies will now be dealing directly with power producers.
It is a measure of the international investor confidence in our reform that General Electric, the world’s largest electricity company, has signed a Memorandum of Understanding (MoU) with the Nigerian Ministry of Power to assist produce 10,000Megawatts within a decade. What is more, GE will take 10 to 15% equity in new plants. This is remarkable because even though GE has for decades sold turbines to Nigeria, it has never invested a kobo in the local economy. The icing on the cake is that GE will start to produce its turbines in Nigeria, the first time it will ever do so in West Africa. Siemens of Germany does not want to be left out. It has, therefore, decided to participate in the building of plants to generate 10,000MW in Nigeria. It will, in addition, lead a concerted effort to study how the traditional and alternative sources of power can be integrated in a seamless manner. Siemens will also build a service station in Nigeria, the first time it will have such a facility in the West African sub region.
The United States EXIM Bank signed, in the last quarter of last year, an MoU to provide 1.5billion dollar facility to firms operating in the Nigerian power sector using American products and services. The total amount of credit made available to Sub Sahara the previous year was $1.4b with $200m going to Nigeria. In other words, it is significant that a whopping $1.5b is now coming to the Nigerian power sector alone.
At this juncture, I would like to repeat the obvious: none of these firms is Santa Clause or Father Christmas. Each is rather run by hard-nosed businessmen and women. They are enthusiastic about the Nigerian power sector simply because they recognize that this is where the action is right now. Nigeria is a huge market. The telecoms companies are doing very well in it. Considering that power is a much bigger sector than telecoms, far-sighted businesses taking an advance position in respect of the ongoing power reform will benefit enormously from it. Prudent investors go beyond scary newspaper headlines to make key business decisions. Companies like Vodafone of the United Kingdom, which got swayed by stereotypes about Nigeria when it was invited to invest in the country’s GSM market following the liberalization of the telecoms sector in 2000, still regret their costly action.
CAPACITY EXPANSION
When President Jonathan assumed office in May, 2010, the quantum of power generated in Nigeria was about 2,800MW. The figure spiked by 1,000MW within one year. The increase was mostly through recoveries from existing plant capacities. By January, 2012, we were generating a record 4,400MW. The transmission infrastructure, which could not wheel 3,800MW in August of 2010 when the country generated 3,800MW for the first time, was able to wheel 4,400MW this time. This development meant a massive improvement in the transmission facilities. Of course, this kind of incremental improvement is not what a nation like ours needs, as we must leapfrog. It is, therefore, delightful that the president has approved the building of a Super Grid of 765kv, more than a double of the capacity of existing transmission lines which are either 132kv or 320kv.
The highest quantum of power which we have ever generated in Nigeria’s history is 4,400MW—and it was produced in January, this year. This quantum of power is far from satisfactory. Ours is a nation of 167m. South Africa, a nation of 47m, generates 40,000MW. Yet, South Africa has been suffering load shedding since 2008 because of insufficient power availability. In other words, if we produce 40,00MW by 2020, which is our national goal so as to become one of the 20 largest economies in the world, we should not rest on our laurels.
It is regrettable that by December, 2011, we could technically produce 5,500MW, that is, we exceeded our target by 500MW. Yet, only a little over 4,000MW was actually generated because of gas constraints. Seventy per cent of Nigeria’s power is generated from thermal stations while the remaining 30% is from hydro stations. Huge constraints with both sources of power account for the decline in power availability since the first week of March, this year. The nation expects that with the 12-month emergency in the gas sector which the Ministry of Petroleum Resources recently declared, there will be a substantial improvement in gas supply to the power sector. Still, the volume of gas available to the power sector will not be enough at the end of this period because we should then be capable to technically generate 9,000MW.
As regards power generation from the hydro stations, it is unfortunate that we are experiencing this year the lowest water levels in 10 years in the dams at Shiroro, Kainji and Jeba where the nation’s three hydro stations are located. With low water levels, very little power electricity can be generated from them. The good news is that we are devising a method to ensure availability of sufficient water in the dams all year round, whether there is a near drought in Nigeria or in any part of the West African sub region from where we derive floods to run the hydro stations. As you may have known, the current water problem in the dams arose from the near drought last year in neighbouring West African countries from where we get what is called black flood. This flood gets to its peak every November while the white flood, which refers to flood derived from within the Nigerian territory, gets to its peak in July of every year.
Before the end of July, there will be a remarkable improvement in power supply across the nation. Apart from improved supply from the hydro stations, there will be more gas for the thermal plants in places like Olorunshogo in Ogun State. What is more, some of the units at the NIPP plant at Ihonvbo in Edo State will have been commissioned. A minimum of 1,000MW will be added to the national grid this year, bringing the quantum of power delivered to the grid to 5,500MW. Unlike in the past when there would be an improvement in power supply in one month only for it to dip the next month, the improvement this time will not be reversible. It can only get better, from month to month and from year to year.
It should be added here that this Administration takes the question of electric power mix seriously. We are starting a 1,000MW coal-fired plant in Enugu, another in Kogi and yet another in Gombe. Nigeria’s coal is among the best worldwide, as it contains very little sulphur. Coal is the most significant source of electric power in the United States and South Africa, among other places. We are also developing in conjunction with the Federal Ministry of Water Resources the development of small dams across the country with a viewing to getting off grid electricity. Many of you may have known that the Ministry of Power is developing big hydro stations in Zungeru, Gurara and Mambilla. As part of the effort to diversify our power mix, a 10MW wind farm is about to be commissioned in Katsina. We are conducting studies to develop solar energy on a substantial scale, all the more so given the declining cost of developing solar energy. Studies are also being conducted on the possible use of nuclear energy. We are doing so fully aware that Japan has just phased out nuclear plants in its territory. Germany, another highly developed country, has also just taken a step against its development of nuclear energy.
DEVELOPMENT OF HUMAN CAPITAL
In recognition that human beings are both the means and the end of development, the Jonathan Administration, right from inception, decided to make the improvement of the welfare and capacity of the workforce in the power sector a priority. The president in 2010 requested the National Assembly to approve a 57billion naira vote in the supplementary budget for the payment of monetized benefits to PHCN employees which were denied them since 2003 when the Government introduced the monetization of fringe benefits to public servants. Some 99% of PHCN employees have since been paid; those yet to be paid are those with incomplete records, and each will be paid the moment the full records are presented.
In June, 2011, the Government approved a 50% increase in the salary of the PHCN staff to incentivise them for greater productivity. To enable a smooth takeoff of the new salary, the Government made available to the PHCN a 9billion naira grant (not loan) for the payment of the 50% increase for the months of June, July and August, 2011. The Government also decided to convert some PHCN 11,000 casual workers to the permanent staff, with even retroactive effect! As you are listening to this lecture, many of such workers are receiving letters regularizing their appointments. To make PHCN employees part owners of the 17 PHCN successor companies to be privatized this year, the Government has long decided to reserve a certain percentage of shares of the companies for only PHCN workers.
Worried at the abandonment since 1989 of the famous structured PHCN training programme of its staff, the Government has resolved to take the National Power Training Institute of Nigeria (NAPTIN) to a proper pedestal. The forthcoming boom in the power sector will require a huge infusion of well trained human capital into the system. Ten brand new Government-owned power plants will soon be commissioned, in addition to new substations all over the country. Independent Power Projects are also being established. Where are the human resources to run these facilities? This is why NAPTIN is critical to the success of the impending revolution in the power sector. NAPTIN is about to commence the training of 500 young engineers for one year so that they can become authentic power professionals.
TARIFF REVIEW
The Electric Power Sector Reform (EPSR) Act of 2005 vests in the Nigerian Electricity Regulatory Commission the power to adopt any tariff methodology it deems appropriate for the nation. NERC adopted some seven years ago the Multi Year Tariff Order (MYTO) methodology. This means a major tariff review every five years. The law makes it mandatory for NERC to adopt a tariff which is fair and just to the Nigerian people as well as to investors. The periodic major review does not necessarily imply an increased payment by every consumer. For instance, in the second MYTO, which came into effect on June 1, 2012 (even though it ought to have started on January 1), the less privileged ones in society who consume 50kilowatts hour or less in a month now pay less. They now pay N4 per kilowatt hour, instead of N7. Meters are now to be given them free of charge. They are no longer required to pay either for meter maintenance charge or fixed charge. In this year’s budget, there is a provision of an almost N50b subsidy for low income earners. This subsidy must be differentiated from the petroleum subsidy because, among other differences, there is no cash involvement at all in electricity subsidy. All the Government has tried to do is to prevent the less privileged from paying heavily for electricity consumption which is an item of need, and not an item of want.
The middle class now pays a slight increase of 11%, and not 88% which has been reported in some media. But rich peopl and other high end consumers now pay a cost reflective tariff. Different studies have shown that Nigerian citizens and businesses are willing to pay a little higher if guaranteed regular and quality electricity. The cost of electricity self generation is prohibitive. Besides, self generation pollutes the environment and even wipes out whole families who inhale carbon monoxide in their sleep.
The new tariff should enable the PHCN to generate up to N22.5b monthly, the irreducible amount it needs to make in order to meet its obligations to primary suppliers like Shell, Agip, Ibom Power, the NIPP and the Nigerian Gas Company. Indebted to the tune of N400b, the PHCN has hitherto been paying the International Oil Companies (IOCs) only 50% of their services. Should the IOCs be forced to carry out their long standing threat of stopping further supplies to the PHCN, it will be calamitous for the whole nation.
Indeed, more investments are critically needed in the power sector. Fresh investments of $10b annually are needed for the next decade to enable our country to generate 40,000MW by 2020 so that we can become one of the 20 biggest economies in the world by 2020. We must encourage companies like Shell, Agip, Siemens, Daewoo, GE and the rest to continue to have confidence in our country. After all, return on investment is much higher in Nigeria than in practically every country in the West. Investors in infrastructure are doing quite well, as demonstrated by those who have invested in telecommunications in the last decade. The power sector is the next theatre of action.
Let us conclude this conversation by calling to mind the title of a prophetic poem by the late distinguished South African writer and anti-apartheid activist, Dennis Brutus. In “The Sun On This Rubble” published in the 1980s, Brutus predicted that the racist government in South Africa would be terminated within a few years. Cynics thought that Brutus was too optimistic. But the apartheid system did crumble irreversibly in the early 1990, and Nelson Mandela became South Africa’s first popularly elected president in 1994.
The sun has been shining on South Africa since 1994. It is about to start shining on the Nigerian power sector. God bless Nigeria.
