Strategic areas of focus for new power team

On November 11, 2015, President Buhari finally appointed and assigned portfolios to his much-awaited Ministers. Babatunde Raji Fashola, SAN, immediate past governor of Lagos State, was saddled with the Power, Works and Housing portfolio, while Mustapha Baba Shehuri was appointed as Minister of State for the same ministries. Interestingly, President Buhari had the day before, appointed Louis Edozien as the new permanent secretary for the Ministry of Power. Edozien will be taking over from Godknows Igali.

Other than Edozien, who was once an executive director of the Niger Delta Power Holding Company (NDPHC), Fashola can be considered relatively new to the power sector at national level. Not much is known about the Minister for State.

Granted, Fashola implemented a number of power generation projects such as the Island Power Project, a 15MW IPP, the Akute Power Project, the Alausa Power Plant and others, while serving as Lagos State Governor. However, as minister for power, he will face a very complex and regulated industry structure spanning gas, generation, transmission and distribution as well as intimidating challenges along each segment of the electricity value chain, very much different from the ones he may have faced while serving as governor.

The power sector is fully privatized, except for the Transmission Company of Nigeria (TCN), which is under a management contract with Manitoba Hydro International, a Canadian firm. In our view, Fashola’s ministerial roles in the power sector would be greatly limited to mainly setting policy directions.

Under the Electric Power Sector Reform Act (EPSRA), the Minister of Power has no powers of sanction or oversight responsibilities over licensed operators in the Power Sector. This is the exclusive preserve of the NERC and to some extent, the Bureau of Public Enterprises (BPE) under the Performance Agreements with the core investors of the privatized successor PHCN companies. However, we expect that Fashola’s strong personality and influence, coupled with the backing of President Buhari, would provide sound leadership to the sector and steer the sector and stakeholders in the right policy direction.

There have been calls for the new power team to look for the root cause of decades of epileptic power supply in the country. In our view, this is akin to chasing shadows and a distraction for the new team. Besides, the issues plaguing the power sector are well known. Thus we have refrained from rehashing these issues. Rather, we deem it more important to highlight the following seven strategic areas of immediate focus for the new power team in order to move the power sector forward:

Resolve the tariff impasse between NERC and electricity distribution companies (Discos) and get NERC and Discos to agree on credible, cost reflective and sustainable electricity tariffs. The continued impasse on the tariffs must be resolved for the sector to move forward.

Resolve the huge and growing liabilities in the power sector as a result of the persisting revenue shortfalls due to discos inability to pay 100 percent for the energy sold. If not sorted now rather than later, the revenue shortfalls will cripple the power sector completely and put the entire sector in reverse gear. intervention of the Federal government by way of federal government support via guarantees and possibly leveraging on the debt capital markets will be key to achieving the revenue shortfall resolution.

Ensure NBET is placed in a position to deploy its capitalization to support the power sector as the sole buyer and seller of electricity in a transitional electricity market.

Work with the Minister of State in the petroleum resources ministry and the NNPC to resolve issues on gas-to-power pricing (domestic gas pricing and gas transportation), as well as address the huge liabilities owed to gas producers by the power sector.

Ensure conditions for the Transition Electricity Market (TEM) declared on February 1, 2015, are met and TEM is effective. Key to an effective TEM is ensuring the activation and effectiveness of relevant agreements such as Power Purchase Agreements (PPA), Gas Supply and Aggregation Agreements (GSAA), Vesting Contracts by all Discos and other agreements that underpin the smooth working of TEM.

Work with board of NDPHC to resolve the issues affecting the sale and conclusion of the privatization of the ten (10) NIPP thermal generation power plants. The privatization of the 10 NIPPs, which started in November 2013, has dragged on for two years with no seeming headway as a result of gas issues and negotiation of some key transaction terms and conditions such as providing bankable put call option agreements (PCOA), a key agreement which investors and their lenders require to reach financial close for the acquisition. The sale of the NDPHC, expected to generate over US$5billion in revenues to the government, is critical to unlocking over 3000 MW of stranded power from the NIPPs and increasing Nigeria’s power generation to 7,000 MW by 2017.

Set strategic policy directions for achieving an efficient and sustainable energy mix. A situation where more than 83 percent of Nigeria’s installed and available generation capacity is from gas fired thermal power plants located in the South East, South South and South West corridor is a national security issue. The Minister and his team must come up with, or rejig existing generation policies and plans covering clean coal fired thermal plants, hydro plants, and other forms of renewables. The policy direction should focus on fast tracking clean coal fired IPPs, hydro generation projects such Mambila and Zungeru, as well as stimulate the promotion of new small scale hydro power plants across Nigeria, and renewable energy from solar. A 300 MW coal fired plant provides off-take for the coal industry and would stimulate the coal mining industry, which is almost comatose. Damming rivers to build small hydro generation plants would create river basins and aid irrigation for all year round farming for the communities that surround these dams and rivers. Solar energy installations would create jobs and electrify rural communities not served by grid power in the far north, plagued by insurgency.

Longer term strategic areas of focus for the new power team is growing the ability of Discos to absorb more power and become more efficient in their operations, improving the ability of TCN to achieve a wheeling capacity beyond the 5,400 MW it can currently wheel out and ensuring that the power sector value chain remain viable and bankable.

ODION WESLEY OMONFOMAN

Odion Wesley Omonfoman is an energy consultant and the CEO of New Hampshire Capital Ltd. E-mail: orionomon@outlook.com