POST ELECTION: Setting a Power Sector Agenda for GMB and Professor Osinbajo
Proem
In this edition, the writer seeks to set a power sector agenda for the incoming administration. He highlights matters, which should not preoccupy the time and efforts of the incoming administration and then concludes with issues that should be given serious attention.
The writer is of the belief that if the issues highlighted below are given due consideration and adequate steps taken in connection with same, the electric power sector would very quickly improve and the populace would experience a substantial improvement in the sector together with the heartwarming multiplier effects of an improved electric power sector.
What General Muhammadu Buhari (GMB) and Professor Yemi Osinbajo Must Not Do
The writer believes that the incoming administration should learn from the mistakes of the outgoing one. It should start by avoiding the mistakes this administration made. Further, the writer highlights below, other mistakes the administration should avoid.
Nuclear Fission Power Generation: Putting the Cart before the Horse
There are several things that need to be put in place, before considering certain other lofty ideals. In life, one starts from the basics- the most fundamental or the low hanging fruit before seeking greater achievements. In the same respect, Nigeria for example, needs to solve the natural gas supply insecurity challenge, support some other forms of renewable power generation such as the new clean coal technology especially because of Nigeria’s large coal deposits together with an improvement in emergency response before considering technologies such as nuclear fission for generating electric power. Nigeria would be inviting large-scale calamity if the country begins to generate electricity using nuclear fission, anytime soon and without first dealing with the matters highlighted in this part of my piece.
Although, a handful of developed countries use this form of energy for the power sector, it is important that Nigeria doesn’t employ this approach yet. This is because we do not have the pre-requisites for same. The technical know-how to manage such energy is not available neither do we have the personnel to do this. It is factually the case that many of the developed and technologically advanced countries who boast of having experts in the field have not succeeded in harnessing such forms of energy without serious hitches and fatalities; in a number of cases.
The Fukushima Daiichi nuclear disaster in Japan, which occurred in the early part of March 2011, is a good example of how countries that have advanced technologically have suffered detriment from nuclear disasters, irrespective of the multiple layers of safeguards put in place. Although, this particular disaster was as a result of an act of God (a tsunami which hit the Nuclear power plants), it would not be inaccurate to say that similar losses may arise from negligence of personnel, lack of good maintenance culture or similar causes.
Change of Personnel solely for Political Reasons
As is common practice and had been witnessed in the past, change in government typically means change in personnel whether these persons are excelling at what they do or not. These changes range from the appointment of advisers, experts and workers in several government ministries. This is mostly done for political reasons as newly elected candidates prefer to surround themselves with ‘their people’ and loyalists. It is important that the incoming government refrains from employing a similar approach especially where it is likely to result in loosing experienced and tested hands.
The importance of skill and expertise in a sector so delicate should not be sacrificed on the altar of ‘nepotism’ or political ‘patronage’. This is not to say that the current crop of persons working in the sector is the best the Nation has to offer; however, a number of them would appear capable of producing outstanding results if given the necessary support and who says that former Ministers such as Prof. Nnaji cannot be recalled? However, it is important that the Buhari/Osinbajo administration sees fit to retain productive personnel and minds that will drive the sector in the right direction.
‘Politicizing’ the Electricity Commission
Every time I have had the opportunity of speaking about the Nigerian Electricity Regulatory Commission (“Commission”), I always mention that I felt the Commission was doing extremely well. However, shortly before the general elections (in Nigeria, of course), a few issues came to the fore, which revealed an inconsistency of policy by the Commission. I believe strongly that it was the resultant effect of political interference. Specifically, on Monday March 16, 2015, the Commission indicated that the exchange-rate weakness was likely to lead to a rise in the tariff from around June.
However, by the next day, the Commission announced a fifty per cent (50%) reduction in electric power tariffs. The Commission subsequently explained that the reduction did not apply to residential users who the Commission stated (and MYTO 2.1 does confirm) had been granted a six (6) month reprieve from an increase already imposed on commercial and industrial users with effect from January 1, 2015.
Clearly, the equivocation was not in the nature of the Commission and coming a few weeks before the elections, it appeared (and strongly too) politically motivated. The new administration should avoid the lure of interfering with the duties/functions of the Commission and any regulator for that matter. Regulators should be allowed to perform their functions without fear or any sort of political pressure. Government allowing the regulators do their jobs, gives confidence, amongst other benefits, to would-be investors in the power sector.
AREAS OF FOCUS
Emergency Power Policy & Delivery
The incoming administration is expected to pay more attention towards the delivery of temporary solutions to power shortage in the country whilst long-term solutions are fine-tuned. Already, creative businessmen have begun to use haulage, by trucks, of compressed natural gas from gas fields/ processing plants to where they are required as fuel for power generation. This is seen as a useful alternative to the currently poor gas pipelines infrastructure.
I believe that in the short-term, this would be quite popular but the new administration needs to think through an excellent emergency power policy as that was one of the failings of the current administration. Embedded generation was encouraged. However, that came quite late and there were a lot of bottlenecks that made it difficult to achieve as much success as it should have.
It is pertinent for the incoming administration to make the point that emergency power would be more expensive but would be a stop-gap. Further, creativity and thorough analysis should go into the administration’s emergency power policy for several reasons. One of such is that for power projects to be bankable, they should usually have long term off-take agreements such as power purchase agreements and where the emergency power plants are for short tenures same may not be attractive to investors. Therefore, it is important to forge a delicate balance between having emergency power plants and the terms of such contracts particularly where many people believe that grid power could increase shortly. Hence, some questions worth considering revolve around tenure, pricing, government intervention and gas related issues as far as emergency power delivery is concerned.
Beyond building emergency power plants, a national power audit is necessary for the proper determination of the actual volume of electricity required; the type and the periods when such power is required by various geographical regions of the country. The power audit is likely to show for example, that certain areas require very little power (have little load) at certain times of the day or month. It then means that the system operator can ensure that there is a proper balancing and scheduling so that (for example), largely commercial areas engaged in certain types of business can have more power wheeled to them at certain days or periods.
Transmission Privatization/ Upgrades
There is a need to upgrade the transmission infrastructure currently in place as the entire electric power sector cannot thrive merely on the immense strength of one component, but on the all-round effectiveness of each of the components that make the sector function. Hence, the saying that a chain is only as strong as its weakest link is true with regard to the power sector. Thus, there should be as much focus on transmission (and other components of the power sector) as there is on power generation. Any efforts to proverbially force a V8 engine into a 1970s Volkswagen Beetle will be futile and eventually lead to failure. In fact, the increase in power wheeled through the same old transmission lines will strain the aging infrastructure. Ergo, there is a need for an upgrade of the system.
It would appear that the current model of having a management contractor which is still overseen and guided by the federal government is not achieving the desired results. Hence privatization may be a viable option. Clearly, the privatization of the power generation and distribution companies (which by the way, is laudable) only addresses one part of the problem. Resolving the transmission challenge is another major issue as the transmission would not be able to wheel the power generated if the power plants in Nigeria were to operate at full capacity.
Therefore, the extant transmission network requires upgrade, expansion and proper maintenance in order to effectively wheel power generated and reduce substantially, transmission losses. Currently, the transmission company (consisting of three functional units perform different functions of transmission services provision, generation/transmission scheduling and marketing administration/settlement, respectively) is meant to serve the entirety of the country. However, the transmission company has hitherto, performed poorly. Although, the ministry of power is currently undergoing grid improvement and expansion activities, the government cannot properly maintain these or even do so much, compared to the private sector; hence the need to privatize same.
In privatizing the transmission system, it is pertinent that the right model is used and the privatization is corruption/ controversy free. The writer would in another piece provide insight into plausible means of privatizing the transmission system. Suffice to state that there are several models including the asset ownership and assets management split. Under this model, it may be useful to sever the system administration and market administration functional units from the transmission company and have the ministry of power take up that role with the management of the grid, privatized. This would ensure that while transmission is improved through privatization, government continues to play some oversight function.
Dr. Fayemi of the All Progressives Congress mentioned at the recent Lagos Business School breakfast meeting that transmission would be deregulated, regionalized and privatized. It is, however, pertinent to note that transmission at a country-wide level requires central control of power loads to be unqualified/ absolute. Hence, it would be risky to fragment that control, even whilst privatizing that aspect of the value chain.
Natural Gas, Gas Pipelines and Gas Distribution
Nigeria has been described by many as the ‘island of oil sitting on an ocean of gas’. In spite of the proven gas reserves of about 186tcf, the availability of gas locally has been a major challenge to the country. One of the major reasons for this is lack of adequate infrastructure. Gas producers in Nigeria who have the technical and financial capacity to develop infrastructure and produce gas have historically focused more on gas export projects in form of liquefied natural gas and gas liquids projects generally. This has been due, largely, to the unavailability of a local commercially viable pricing structure and poor infrastructure.
The major setbacks associated with the use of gas in the power sector and the issues of availability for domestic use can be resolved by implementing a proper electricity pricing regime which accounts for the cost of gas (which is what the multi-year tariff order seeks to achieve); and construction and rehabilitation of gas pipelines. Government may still need to provide some support with the infrastructure- in all fairness, the gas subsector is improving. Government just needs to give it some more push.
As stated above, the current administration took bold steps and a number of gas exploration companies are already working hard to improve domestic gas supply. However, the disbursement of the power sector intervention fund to be used partly to settle legacy PHCN debts to gas companies should be monitored and audits conducted to ensure that same has been judiciously utilized and was expended for the purposes for which same was provided. One can certainly project that the increase in energy (gas) supply for domestic and commercial purposes will result in an improved power generation, at least. Ultimately, same should have an immense effect on the economy in terms of industrial, commercial and socio-economic activities.
More Robust Energy Mix
There is a need to shift from employing just hydro and gas as sources of fuel for power generation. In order to arrive at a more sustainable and dynamic power supply scheme in both rural and urban areas, a good energy mix is required. Therefore, focus should be placed on other forms of energy and power generation such as solar, coal gasification technologies etc. Nigeria is especially blessed to have areas where solar generation would thrive and to also have reasonably large coal deposits.
Coal Gasification for example, is regarded as the clean energy of the future. With this technology, rather than burning coal directly, gasification breaks down the carbon-based feedstock into basic chemical components. Natural gas extracted from coal gasification can also be transformed into liquefied natural gas. By-products of Coal Gasification include coal tar, coke (which can be used for making smokeless fuel), medicines, etc. Sulfur for instance, can be extracted in solid or liquid form and sold commercially. One of the major advantages of this form of energy is that it can achieve relatively low emissions from burning coal derived gases.
The current administration (working with the Commission) has done quite a bit in encouraging renewable power generation. Some of these steps have included the development of Feed-In-Tariffs (ReFits) for renewable energy (wind, biomass, solar and small hydro) which were included in the Multi Year Tariff Order (MYTO) II issued in June 2012. Recently, the government also signed a memorandum of understanding with a US company looking to use clean coal technology to generate electricity and the incoming administration should continue to support initiatives of the outgoing administration in the renewable energy space and also provide additional support.
The Ministry of Power, the Bulk Trader and the Commission also need to do more in this regard in terms of policy, completing the development of the template renewable power purchase agreement and the provision of genuine support to prospective investors in the sector. There have been complaints in the past, by certain investors that the Ministry of Power has been hostile and was selective in its support to would-be investors in the renewable energy space. This needs to stop in order to engender investor confidence.
Speak to Patience
By this, the writer is not referring to the outgoing First Lady of the country, No! The incoming government must from the onset, inform Nigerians that the things outlined in its power policy, would not happen overnight. In fact, the long term power generation and distribution targets will take a few years to crystalize into to an energy mix that can assure the citizenry decent power supply. Communication is really important so that the citizenry is abreast of the developments taking place in the power sector.
For more information on the power sector, read the text on the power sector authored by the writer.
Ayodele Oni
Ayodele Oni {ayodeleoni@outlook.com}, a solicitor, specialises in international energy (oil, gas and electricity) investment law and policy. He holds an LLM in Energy Law and a mini-MBA in power & electricity. Follow him on twitter @ayodelegoni.