Minister of Power, Bart Nnaji, opens up on the state of Nigeria's energy sector and the
Electric Power Reform programme in an interview

The nation has been bedevilled more with mega-excuses rather than the promised megawatts; Why?
Thank you for this opportunity to talk about what we are doing. I did not realise that we have been offering so many excuses. I thought
We were telling you what the situation is. I have been minister for ten months. Prior to that I was adviser to the president on power and when we came, what we saw was an absolute mess of the power sector. We met 2,800MW of power delivered to the grid; a lot of the power plants were never really in order and got epileptic maintenance that naturally produced epileptic power supply. Ideally, a power plant should be maintained on schedule and if you don’t do that, you run the risk of running down the plant. So we had a lot of power plants that did not produce up to 50 per cent of their installed capacities; that is the sort of thing we met.

The national grid was also weak, which means if something happened on the grid, you ran the risk of cutting off a whole region. In addition, there was no plan for gas supply to the thermal power stations, so we had plants that were being built without gas availability or a proper plan; the distribution plan was also in disarray, such that we could have a power plant without actually getting the electricity to where it could be used. Unfortunately, those in the sector know that power production and delivery are not like building roads and some other facilities. If you are building a road, you can build 50 per cent of it and put it to use, but for power, 99.9 per cent will not be sufficient; you have to have 100 per cent completion to fire it to work. Secondly, it takes time to build a power plant, no matter what anybody tells you, you do not buy power turbines off the shelf. If we had started when we came in here to build any power plant, we would not have completed it by now, no matter the miracle.

So that is the situation we met but we found that Obasanjo’s regime had covered a very positive and important mileage in the power sector, that is the establishment of the Electricity Power Sector Reform Act of 2005. That Act was essentially aimed at reforming the sector with the realisation that NEPA as an authority that prevented anybody else from generating electricity or distributing electricity was not in a position to solve Nigeria’s power problem, and that the population was growing at a tremendous rate. We needed an economy that would compete with others in the world, and prior, we had not invested in power for a period of 15 years so there was no real investment in power production, and there was no way we were going to catch up with the rest of the world with NEPA as the driver of the power sector. So on realisation of this, the natural thing was to reform the sector.

It therefore paved the way for private companies to generate and distribute electricity, that’s what informed the 2005 Electric Power
Reform Act. But an act of parliament could not just be on the shelf with no accompanying action. We thought that a way to start would be to have a roadmap based on that Act and that roadmap which the president launched in August 2010 provided for step-by-step implementation of the Act, as well as the assurance that with that implementation we would reach the point of absolute reliable and sustainable electricity in Nigeria. So a lot of work had been going on behind the scenes, not something that could give you electricity today but something which if we implement as we are implementing would absolutely ensure that we have electricity in the medium to long term.

With respect to implementation, we are getting to the point of completing implementation of the key pillars of the reform programme.
When we started to implement the roadmap, we took a two-prong approach as the president announced in his speech. First, we said let us do as much as possible to recover capacity at the power plants that are installed but not working, let us fix them. Based on that, we would have been able to recover more than 1,000MW within the short period. We also said let’s aggressively pursue fixing the transmission network, so that as we continue to improve power we would be able to take the electricity to the needed destinations, which would translate to an investment on improved distribution network in the short term. The next step was to create the institutional framework that will ensure reliability and sustainability and those institutions would be there to ensure that we are able to purchase power and provide guarantees that would pave the way to transition from public management to private sector management – the privatisation programme is part of that, with transparency in view. Therefore it is not something that you could go and do in the backroom and come out and finish instantly. It was a step-by-step process that required carrying the public and the international community along in the completion process.

Don’t you think the priority would have been to maintain the existing level of power supply by fixing the old plants, the fragile infrastructure of the existing plants under your rehabilitation exercise, and then proceed to the bigger project that takes us to increased output and privatisation?
That’s actually what I said. We are taking a two-pronged approach – the first is involves quick recovery of installed capacities, but we should not forget what actually it takes to undertake recovery. It means the fresh installation of 1MW of power, which costs $1 million.
That means that if you are going to build a brand new 1,000MW station, it will cost you $1 billion. However, we don’t have such resources now. I will give you a simple example: the recovery of one unit of Afam provides 138MW, at a whopping costs N6.9 billion but that is just 138MW. You will find some others that cost more, so the money isn’t just there floating for us to do the massive recovery that is needed to turn the sector around. That is why the privatisation of the sector is essential. As such, the first thing that made sense was to a do a quick fix and right now this approach has yielded 1,000MW extra, with an additional 1000MW expected this year which should bring total available capacity to 5,400MW. If we had been consistent with this type of aggressive approach, we won’t be having the problem we are having now. Then again, Nigeria is a country of 167 million people so even when we recover 2,000MW that will be insignificant. So for this year, we are going to rely on the quick recovery approach and the coming on stream of the National Integrated Power Projects (NIPPs) that was started sometime ago and stopped in 2007 for almost two-and-half years and then restarted by this administration with a fast-track philosophy. We are aggressively pursuing the completion of these plants and we will be able to get a number of them on stream this year.

So what are the main challenges you anticipate in wheeling out the extra capacity expected to come on stream?

Actually, our problem is going to be the scarcity of gas. We have a problem there. If you give me gas today, I will give you an additional 1,500MW because we have the stations ready to take the fuel but we don’t have the gas. Just two days ago, Utorogu Gas Plant was shut down for repairs, and what we have lost because of that is over 390MW. So the problem of power supply in the recent past has been lack of coordination; we have not coordinated in such a way that we have enough gas for electricity production. There is also the problem of transmission infrastructure, but we are handling the transmission part. However, gas is going to continue to be a major challenge unless something is done, the same thing that we have done in power needs to be done in gas for us to have adequacy.

What is the problem with having gas, it is not that it is not available, so what is the problem?
We are a country very rich in gas, we have not just planned to produce gas for commercial consumption and the problem of insufficient power is here. By next year, we will have available capacity of close to 9,000MW from the NIPPs coming on stream. If we are able to generate the expected quantity of gas for power, we shall be able to witness a drastic improvement in power supply by the end of this year. Based on what is currently on the ground, starting from next month, you will begin to see an improvement similar to the December/January (last year) scenario when the improvement was felt by all. This will be repeated more prominently, we will exceed that quotient this year and we will stay like that on an incremental basis. But realistically, Nigeria should be leapfrogging, as I don’t want to be talking about 3,000-4,000MW. I want us to think about leapfrogging so that we can catch up with other emerging or developing nations, that is where I am heading for.

Don’t you think the situation in the power sector calls for something more than the emergency declared in the power sector?
There is no need for emergency in power really because we have tackled the main problem that will deliver power, I can tell you that.
(Cuts in…) But we are living in an emergency already, and the problem Dr. Eddie Iroh described captures it all. I think you can have an interface with Servicom so that the communication between consumers and service providers flows on a steady basis; it doesn’t have to get to the minister, but to somebody near his table and it comes under one page.

What we have done ourselves is to set up consumer consultative forums, which were launched last month, but of course we have to promote them, so that people should know they are available. With the forums in place, if we have any issue, we should just call or send an email and someone will respond within a certain period of time, because we have these problems ahead of these complaints – it could be a transformer fault or something else. Somebody was saying they were made to buy a transformer for their neighborhood, but it is not something that should be happening because transformers are provided by the power authority and are free. However, I must admit that we are dealing with one of the most corrupt, if not the most corrupt sector of the economy, that is where we have found ourselves, and what we are doing is to cut off the head of the snake through privatisation – transfer the distribution companies to the private sector, so this way, the owners will now be chasing after you instead of you chasing after them.

In this respect, what has happened in the telecoms industry will surely happen in the power sector – the bidding process will be completed in July next month and bidders will submit their bids by October, so we expect that we should announce winners soon after. Under the current dispensation, those who call themselves distribution companies that interact with the consumers are marketers who work for themselves; they are out there, their small networks or companies, exploiting consumers and we have heard about them. But we have to stop this whole thing because the key to having investors agree to build a power plant is that they must sell to credible buyers. What we are doing to contain this fraud is to use the bulk trader to buy power and provide guarantees. But really, the ideal situation is to have a bilateral agreement. You don’t need to have a middle man in the business, but to have that, you need to have a credit worthy off-taker, and a credit worthy off-taker means the distribution company network should be robust, that the distribution company mode of collection must be efficient, that you must have a really efficient and honest system that can only come through the privatisation process.

What this translates to is that if your transformer breaks down, the distribution company must come to repair it because it will be losing business if it does not fix it. You will be provided with a prepaid meter, because that establishes a transparent transaction between you and the provider, which would rather be efficient than argue with you. The provider would want your business. This is the market structure we are headed towards and we are almost there. But many want to remain under the old order where the distribution companies preferred the corrupt billing system rather than the pre-paid metering system.

On this issue of distribution and increased tariffs, what have you done about the emergence of a private sector monopoly in the absence of an energy trust law?
It is not increase in tariff, it is tariff adjustment.

Up or down?
Down for the rural dwellers and the urban poor, from N7.00 per kilowatt hour to N4.00 per kilowatt hour. Then other category of consumers will pay more but it will be graduated.

But how can you increase the electricity tariff for other consumers that they are not getting?
Nobody is asking you to pay for what you don’t consume. Who is going to charge you for what you have not consumed

But not with the way PHCN goes about doing their estimates?
No, they will not. In any case, this will end with the introduction of prepaid metres, so you will only pay for what you consume. Like I said, we have endured this problem for so long, and we are almost at the point where we will say good bye to all that. But let me come to the issue of trust and monopoly raised by Mrs. Uwais. The goal is to privatise the distribution companies, as we have 11 distribution companies covering the entire nation. Some of the distribution companies have five states, some have four states, and only Lagos has by itself two distribution companies – Ikeja and Eko. A distribution company will cover a territory because electricity is necessarily territorial in nature. However, at the time we reach the point of wiling buyer and willing seller, stability will emerge, and it becomes possible for electricity to be sold as a commodity. You can buy from some other company that is putting power in the grid and selling to you while your neighbor can buy power from another company. So that time is coming, but for now, we have the territories, just 11 of them in the country and they are being privatised. When this happens, it is also possible that each company can decide to break up and have more companies; that can happen. Ibadan, for example, is a huge distribution company and could decide to just break up, which can further expand to more companies by choice. But for now, there are 11 distribution companies covering the entire nation. So the issue of monopoly does not arise. That was the essence of the Electric Power Reform Act to break up the old NEPA into competing units.

What are your biggest obstacles to the reform measures, corruption or the generator companies?
What have you done to resolve this problem?
I have too many, I can give you some comprising internal and external challenges. For example, people who are benefiting from contracts within the system are obstacles and they would rather we don’t privatise anything; they would rather not reform anything.
They are happy with the way things are. Those people exist, there are people outside or semi-outside who are the contractors and they will prefer to enter into contracts with government than the private sector for obvious reasons, and this is before you come to generator suppliers, diesel suppliers, and workers who are in business for themselves selling electricity and enriching themselves in the process. The good thing though is that the electricity unions have come to an understanding that Nigeria must move forward, so we are getting closer to an understanding. Before, they were used to conducting prayers against Bart Nnaji, because they didn’t want me to survive, they wanted me to die. Those people are there, but the expectation is that we would come to the point where everybody will see that this is really good for them. It must be acknowledged, nonetheless, that reforms are like this, maybe even harder in Nigeria, because they are normally resisted. I am sorry to say this but Greece is where it is because people refused to take proper economic steps and that is why they are where they are today.

Of all the challenges you listed, availability of gas for the power plants remains central to the privatisation process and increased output, others are minor and can be resolved with privatisation. Also, we have been making this mistake of comparing the telecoms sector with electricity. One thing we forget is that reforms in telecoms were not hinged on the availability of gas. Meanwhile, up to 70 per cent of our electricity comes from thermal power stations, not hydro or coal, and is hinged on the availability of gas. So even if we privatise in three months, without gas, the problem will not be solved, yet gas is under another ministry.

Why are you not emphasising this; is there an interface between your ministry and the Ministry of
Petroleum Resources to resolve this thing once and for all?

What I would say is that unfortunately the investment process for the gas sector is perhaps even worse than the process of investment for the power sector. At this juncture, let me state that the IOCs (international oil companies) have no choice but to come to terms with the current arrangement. Right now, we have an inter-ministerial committee that is supposed to work on the emergency provision of gas for power; there is a quantum identified where we can quickly get gas for the next 12 months. The maximum that we can get out of that I believe is about 500-700 million standard cubic feet of gas, and that means we will have less than an additional
2,000MW that we can transmit, with that extra gas. So yes, if we are not able to solve the problem of gas, we will not be able to get to where we desire, which is 48,000MW and beyond. Something very transformational must happen in the gas sector that will change the direction, so that is a critical issue. But we believe that gas producers will be encouraged to begin to invest in gas production and transport to the power companies with the cost reflective tariff put in place.

Those of us on the power side have made every commitment that we’ve been asked to make. We have increased the tariff for gas from 10 cents that NEPA used to pay to $1 and next year it will be $1.50, then it will reach $2 the year after. We have also agreed that if the infrastructure for the transport of gas is built, that we are prepared to increase the tariff for gas transport to 80 cents, so we have made every commitment on the power side. It is now left for the gas producers to do what is expected of them, as we have followed through by putting in place cost reflective tariffs on the power side. This way, gas producers can be paid today for gas and instances of debt will no longer be a problem. This is because the PHCN owes the gas producers; we were only able to pay 50 per cent for the gas supplied to us. However, since we have the private companies, all these oil blocks in non-associated gas production should be opened up for production; non-associated gas production must come into play here.

Nonetheless, we should not be talking only of the associated gas, rather, gas flare-outs should also be exploited; we cannot be flaring gas in the country. That means serious efforts must be made to change the direction in gas exploitation if we must move forward, as we are going to rely more and more on gas. In fact, the plan I have is that by 2020, when we are talking about available capacity of more than 40,000MW, of that, 25,000MW will come from gas fired plants. But a review shows we are very far away from attaining that in terms of gas production to be able to attain this benchmark. Even the agreement that we have entered into with
General Electric (GE) and Siemens, is anchored on gas plants with 20,000MW as the goal, 10,000MW from General Electric and 10,000MW with Siemens. This is the first real serious commitment by major investors to join us in our mission to transform Nigeria’s power sector. When General Electric agrees to put down its money, it is good news because we have so many turbines made by GE in Nigeria. But of all these, GE has hardly invested a penny in Nigeria or even in sub-Saharan Africa, so this is the first time they are actually investing equity in Nigeria and Siemens has followed through. As such, it is tremendous, but gas must be there to support this partnership. I can even tell you that we would begin to see results from the agreement immediately because GE has mobilised its team for work.

It is a little bit uncertain when as a minister you are telling us that there is problem with gas. Is it not the same government that is pursuing the electricity road map that draws up a policy on gas?
Why is it that there is no coherence in government? It is not like we are talking of gas controlled by
Niger Republic or Republic of Benin?
We find this very strange
We have to take the PIB very seriously, we need to do that. We need to have a bill that makes it possible for private companies to invest and be able to recover their investment in Nigeria’s gas industry. Right now, it is not quite like that. We all know that Nigeria is more of a gas country than an oil country – 187 trillion cubic feet of gas is available in Nigeria. This means that we can be awash with gas for domestic consumption, so we have to take the issue of gas seriously.
You were one of the first individuals to setup a private power outfit – Geometric
– What were the challenges you had and how would you compare them to what you are facing now?
Besides, don’t you see your role now as minister and an operator in the sector as a conflict of interest?
I am not currently an operator in the sector, but I found a company that is in business, and that company Geometric Power took a risk to work with our people to improve the power sector. That is not a crime, but I think people try to make it seem as if there is something wrong there. However, I can tell you that the experience I got from that project is what is helping me to solve the problems I am facing now, because I faced tremendous challenges. And talking of challenges, I know where the dead bodies are buried and so because of that I can solve the power problems much better and we have gone very far in resolving those problems. So I don’t see any conflict between Geometric and my present assignment. Moreover, it is a corporation, it has a board and it has people there. So when I was appointed, I resigned and put my shares in a blind trust because that is how it is done anywhere in the world. As such, I don’t think people should make it a big deal that I formed a company or became the first indigenous power company in this country that invested hundreds of millions of dollars to build a power plant, because other people also came and invested in it. In my estimation, I think you people should be praising the effort that we made and that we didn’t do it from a corrupt background, that this was legit, built and financed in the normal way that it is done anywhere in the world. I think that is important.

Irrespective, I faced a lot of challenges; the first was it had never been done. In fact, the first private power company was NESCO, a tiny little hydro plant built in the 1920s in Jos and of course you know the effect of that, because with NESCO, that part of Jos got reliable electricity. So what we set out to do in Aba was to set that city on absolute reliable electricity with a power plant. That is the only way you could assure that. These are the things we are talking about, bringing distribution companies to distribute power that is what we also set out to do in Aba – we had to invest in building and rebuilding the distribution network. For example, when we came into Aba, Aba had only three substations 2/15 MVAs, so even if you have all the power to give to Aba, it will not get to its citizens and that is the same thing in most parts of this country. That meant we had to build four brand new sub-stations plus the power station.
The investment just in distribution alone was about $50 million; the whole investment to make Aba electricity reliable is about N70
Billion.

But as we were getting started and found that the Electricity Act that was put in place had been suspended, the implementation of the project also got suspended, so investors froze; the regulator that was put in place also got sacked. And all these sent the wrong signals to investors, who felt understandably that this country could not do transparent business because the regulator who should be responsible for transparency was not in place. The spill over after the re-activation of the Act was that the unions refused to cooperate. Also, the banks which had never engaged in the business of power balked, because we are not talking about pennies here, we are talking about serious money, so the banks were afraid that if they went ahead without some international investors that they might lose money. That was another level of challenge that we encountered. But they were so many others. It also took us two years to negotiate a gas supply agreement. The very first commercial gas supply agreement in Nigeria took us two years on both sides to come to terms, and we had to chase the people all over the place who would sign the agreement

The previous government suspended the implementation of the NIPP for two-and-half years, how would you rationalise that?
I can’t.

It borders on criminality if you cannot rationalise it, because for a country that is in need of power and its own government stops what would have helped to advance the power sector for two and half years, so questions should be asked about that. You and the Jonathan administration owe the country an explanation.
Also the governor of Rivers State said recently that his state is capable of distributing power to
Port Harcourt and that Rivers State is ready, but the government says it must be transmitted through the national grid. I think one of the problems is this centralisation of the power sector. I would have thought the Rivers model should be encouraged, because the impression being given now is that states are stranded in this matter; there are some governors who also want to build power projects but they refuse to because they don’t want to take it to the national grid.
What’s your take on this?
On the first point, regarding the suspension of the NIPP, what I know is that I cannot rationalise it. And fast tracking the implementation of it now should be indicative that we were not in support of stopping the NIPP projects, as you can see, work is ongoing as the completion process comes closer. We have over 4,000 kilometres of high tension transmission lines as part of the
NIPP project; we have 10 power plants to deliver as part of the NIPP package; and over 4,575MW to be added to the grid from that arrangement. We have some distribution projects, so it is massive work that needs to be really completed. We believe that these projects should be finished and we are doing that with the speed it deserves.

As for state governments investing in the power sector, they can also invest in the distribution side. Each state that wants to distribute electricity should be allowed to do so. However, privatisation actually is aimed at achieving that in a coherent manner, by having 11 distribution companies. For instance, Rivers State is part of four states – Rivers, Bayelsa, Cross-River and Akwa-Ibom States – that are covered by what is called the Port Harcourt Distribution Company, which will be privatised upon completion of the privatisation programme in October. That group, however, can decide to get a divorce in their marriage if they don’t want to be under one Distribution Company. So Rivers State can now decide to break off and establish a distribution company there servicing it; but realistically, it takes some time to untangle certain things like the electricity network.

Accordingly, we believe that the states should be accommodated as part of the whole reform programme. As such, Rivers, Akwa Ibom, Cross River and Bayelsa will become part owners automatically of the Port Harcourt Distribution Company that covers them. In addition, we have given the states opportunities to be part of the bid process, so they can choose a company/consortium that has already been approved by BPE today as a bidder and bid alongside it. Of course, these four states actually have a company that they are backing. However, all they are really asking for is that we should hand over the distribution companies to them today. But why should we do that? In doing so, we will be telling the whole world that we are now stopping privatisation and just going to hand over the distribution companies, and that the transparent process that we started is no longer going to be possible. However, a power plant is different from a distribution company because anybody can build power and sell.

But are the states interested in producing power for business or for their people?
That’s what we should ask because if a state builds a power plant, it can request that the power be domiciled locally and nobody is saying no to that.

What is stopping you from dismantling your legislation and allowing states or whoever to generate and distribute power with absolute control?
Technically nothing; people can come to it if that is what they choose but there is nothing that suggests that the states can be better managers of electricity than the federal government, and if you want to solve the problem, it is not by trial and error. You have to do something that you will be sure would work.

Why don’t you just open up the sector and relieve yourself of political pressure?
That is what we are doing. We said that by October of this year, privatisation will be concluded and it is a certainty. Upon completion of the privatisation of, say, the Port Harcourt Distribution Company, the federal government will have at best, less than 25 per cent of equity ownership there. So combined, the federal government, states and workers will have about 49 per cent, while 51 per cent goes to the private sector investors.

But the percentage holding will appear to still mean certain political interference; what is the purpose of the percentage holding?
By October, you will no longer hear me talk about distribution because it would have gone private, but if you are saying the federal government should sell 100 per cent, so be it but the way it is structured is that private entities should take 60 per cent because the valuation in advance of the states' contributions has not been done yet. So it is important to say the private companies should take 60 per cent ownership and reduce the federal government’s ownership to 40 per cent to start with. Then, the federal government should give up a portion of the 40 per cent to the states as part of the automatic acquisition of shares because of the valuation of their contributions. We don’t know what that is, but if it is that the state government invested 100 per cent in the distribution company, then the federal government would have nothing which means that the state would have 40 per cent. But if the state invested 30 per cent, the federal government will have 10 per cent and workers that would now come in, should be entitled to take up to 10 per cent of whatever the federal government is holding. That is the law.

It means that with the federal government still retaining shares, and then the regulator is an investor?
No, the regulator is a regulator and always an independent entity.
What is the installed capacity of private generators in Nigeria because it is believed that we are privately generating about 100,000MW and Nigeria plans to increase power to 15,000MW in the next three years. Given our population growth, meaning that it will make no difference?
No, you just made up figures from the top of your head and last January when we hit about 4,000MW, it was felt by people.

What is your projection by 2015?
The projection for 2015 is that by its end, we would have installed capacity of 18,000MW. There are actually three categories of output—installed capacity, available capacity and then on grid capacity. You can have installed capacity and not all the units will be functional. Available is that the unit is ready to generate power if you give it fuel and that is where we will like to be for all the power stations. But on grid capacity refers to when we have the fuel to generate and we actually do so; that is where we are.