Nigerian Electric Power Sector- Status Update
A lot has happened in the electric power sector in the last few weeks; from appointments and nominations, to the termination of appointments and non-renewal/ termination of contracts; and the signing of new contracts. There definitely has been no dull moment in this very important sector. This week, therefore, we shall take a look at a number of events which have occurred in the sector and express views on same.
Manitoba’s Engagement Over
The writer believes a lot of people are not aware that the federal government of Nigeria would not be renewing the management contract entered with Manitoba Hydro of Canada (“Manitoba”) for the management of the Transmission Company of Nigeria (“TCN”). Incidentally, the writer is aware that Manitoba has been informed that its services would no longer be required. At the time you are reading this, you may already be aware of that state of events in the sector. To give a historical background for readers who may not be aware, during the privatization of the electric power sector in Nigeria, the TCN was not privatized with the ownership of the transmission systems and infrastructure, which were transferred by Power Holding Company of Nigeria (now liquidated) to the transmission successor- the TCN. , remaining with the Federal Government of Nigeria. A management contract was only signed with Manitoba for the purpose of managing the transmission system efficiently.
The management contract was first executed with Manitoba in the year 2012 and was later extended in the year 2015 for another year. However, for reasons best known to the federal government, it has chosen not to further renew or extend same. However, there have been arguments that no visible improvement in transmission has been experienced, and further, there has been a bad relationship between the Manitoba team and the representatives of the federal government of Nigeria working to achieve an improvement in transmission.
Counter-arguments in favour of Manitoba include the fact that Manitoba could hardly take critical decisions related to transmission issues in the country, without the sign-off of the Nigerian management of TCN which slowed things down and even led to situations where such decisions, that could have substantially improved the sector, were not supported by TCN’s management and hence could not be implemented. Hence, Manitoba could not have achieved as much as it had the capacity to so do.
Although, the writer was part of a team which provided advice to the government on what plausible options the government may consider, it not clear what the government’s next steps may be and one may only guess at the moment.
Bid Process Now Required for NBET and Embedded Disco Procurement
The Nigerian Electricity Regulatory Commission (“NERC”) in the year 2014, developed the NERC Guidelines and Regulations for the Procurement of Generation Capacity (the “Regulations”) which came into effect in February 2014. The Regulations state a procedure to be adopted by the National Bulk Electricity Trading Plc (“NBET”) and any electricity distribution company looking to engage in embedded power transactions, in procuring additional electric power.
The Regulations specifically proscribe, unless otherwise approved by the NERC for what it termed ‘good cause’ (these includes renewable energy projects in some cases; projects which source of fuel are industrial or other productive activity wastes; projects developed for grid stability; captive plants selling excess power; some government funded projects and some projects with available fuel which could include gas companies looking to monetize their gas reserves) the unsolicited bids or proposals for the provision of generation capacity outside a competitive bid process. In response to exigencies and several complaints, in the year 2015, the NERC suspended the application of the Regulations.
However, the NERC decided in May 2016, to now enforce same such that from 1st July 2016, the NBET would cease to negotiate power purchase agreements with unsolicited project developers.
Further, NERC has stated that all other energy projects being negotiated with NBET outside the 400MW approved for exclusive bid among the renewable energy projects in advance stage of negotiation were to be subject to competitive procurement. Further, same were to be pre-qualified for the subsequent rounds of competitive bidding to be conducted by NBET pursuant to the Regulations.
There have been several arguments for and against the Regulations which the writer does believe have their merits. Some industry participants have argued that with the country ‘under-powered’/’under-electrified’, such a set of Regulations should not have been issued; so that more developers/promoters can develop power projects with some expectedly failing to succeed. The arguments for the implementation of the Regulations include the need for orderliness and to ensure that the public is protected from unnecessarily high tariffs due to inefficiency etc.
Hence, in looking to develop power projects now, one must be strategic and smaller projects of 10mw may be easier to develop especially when looking to side-step the now more strenuous regulatory regime. It is, nonetheless, pertinent to note that the Regulations would generally not apply to private sector arrangements/ merchant plants where members of the public would not be the ultimate buyers. Hence, projects in housing estates/ industrial clusters which are not connected to the grid would not fall within the purview of the Regulations.
New Appointments and Nominations in the Sector
After what may be considered a stellar performance by the erstwhile managing director of NBET, his appointment was terminated and Dr. Merilyn Amobi was subsequently nominated as the new managing of the institution. Dr. Amobi has served as an energy (electricity and natural gas) policy advisor in Europe, North America and Africa, and has conducted extensive research in connection with electricity. She has also undertaken research in connection with market structure, evolution, rules for setting prices, settlement process and governance.
Apart from the appointment connected with NBET, the President of the Federal Republic of Nigeria has nominated new commissioners for NERC and these nominees come highly rated. Although, a number of persons have argued that the nominees have good degrees and some good work experience, however, they may not all have practical hands-on experience performing electricity work or working with regulators. The foregoing notwithstanding, it is pertinent to mention that they all appear to at least ‘theoretically’ have the pedigree and the academic qualification which makes them appear incredibly qualified.
It is expected that these nominees would be officially appointed soon, and then be in position to push those agenda that should improve the electric power sector for good and also make the system work more efficiently without the old bias particularly because many of them are not from what may be tagged the ‘old order’.
Execution of Solar PPA
About two years ago, NBET developed a template Power Purchase Agreement (“PPA”) for solar power and had begun to negotiate the bulk purchase of solar power from a number of these projects with the intent of also supporting the federal government’s drive towards having a more robust energy mix for power generation in the country.
A number of steps had been taken, including negotiating feed-in-tariffs and previously initialing those PPAs before their eventual execution. For quite some time, there were disputes as to the right pricing for solar power and the volume of electricity that the NBET could purchase for resale at prices being negotiated for same.
The journey was quite long and tedious for some whilst a few joined along the way. All the companies which were negotiating the PPAs were completely exempted from the purview of the bid rules for new electricity generation. Further, because of the solar potentials of the Northern part of Nigeria, almost all of the solar projects are to be situated in that part of the country.
The expectation is that execution of the PPAs would aid financial close so that construction can be completed, and solar power generation may commence in the country in order to reduce the reliance on gas fired plants. In addition, it shall also reduce the impact of the problem occasioned by the destruction of oil and gas pipelines and general pipeline sabotage in the Niger Delta Area of Nigeria.
For more information on the power sector in Nigeria, read the text, “The Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business” by Ayodele Oni.
AYODELE ONI
Ayodele Oni (ayodeleoni@outlook.com), a solicitor, specializes in international energy (oil, gas and electric power) investment law and policy.