Chukwueloka Umeh, is the managing director of Century Power Generation Limited which is building a 495megawatts plant at Okija. The plant, when completed, he said would boost power generations and also will help to energise the nation’s economic growth. In an interview with Olusola Bello, the Century boss gave insights into what propelled the promoters to embark on this highly capital intensive project. Excerpts:
Tell us about Century Power
Century Power is a private company, started by the main sponsor, Nestoil Limited. The idea behind Century Power is to develop, build, operate and maintain an Independent Power Plant, (IPP). Now the whole idea was to provide electricity to Nigerians for the purpose of national growth. You know we have 180 million people. According to statistics we are still generating less than 4000 megawatts of electricity per day. Meanwhile, Nigeria has the world 9th largest gas reserve so there is no excuse. We have the gas, we have the fuel, we have rivers, so we can do hydro power plant, we have a lot of sunlight in the North, we can also do solar power; we have coal as well, so we can generate power through coal. So Century Power is simply trying to help the Nigerian people by trying to make available power that is affordable and steady.
Phase one of the plant which is ongoing involves the construction of a 495 MW (ISO) Open Cycle Power Plant (OCPP) consisting of multiple E-class gas turbines, with provisions to add Heat Recovery Steam Generators (HRSGs) and steam turbines in a later phase.
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You mentioned various sources of power, but why is it that we are not using coal in the country to generate power?
What is happening in Nigeria is that, the power sector has been ignored for many years. Remembered back in the 70s we had power plant that used coal, we were also using it for mining coals in Enugu and it was also supplying electricity to the public. But today, that power plant has been neglected. If you drive down to plant site, you will just see bushes and scraps of equipment lying around, the mines are no longer working. Nobody is producing Coal and we are not selling Coal. So if you are not producing Coal, you cannot run Coal power plant.
The power sector has been neglected; no new investments were made over the years. But now we are trying to restart the power sector.
In my opinion, we’re doing it in the inappropriate way. The government is trying to put a lot of regulations in place, hopefully, have the regulations start the industry rather letting the industry start and then let the regulations catch-up and direct how things are done.
Government main worries are that it does not want power companies, the producers and the distributors to sell power at a price that would be unfair to the people, but they are forgetting something, you cannot expect someone to build a power plant, you cannot expect someone to invest in distributions or transmission, you can’t expect someone to produce gas without them knowing how to make their money back and that is the main problem.
The Government has now said that if you’re a power producer, they can only pay you 7.5 cents per kilowatt hour. But the person that is going to produce that power needs to be able to raise money to build that power plant in the first place. So in Century Power, for example, we’re working to build a 495megawatts plant which is going to cost us about $700 million. We are going to borrow a large percentage of that money, the people, the banks and investors that we are going to borrow this money from want to know how much you are making and the percentage return and what is the guarantee that when we produce power and sell it, you would get paid for it. This is a big problem, is a big lacuna. This question is not being answered but when we talk to Nigerian Bulk Electricity Trader ( NBET), you discover that NBET has real concern too. We produce power and sell to NBET and they buy it and sell to the Discos. The Discos are not able to collect the money for the power they sell to people. Number one, the Tariff is too low. Number two, the ATC&T losses are way too high, so they are collecting about 35percent of the money for the power that they distribute. That’s never going to work and that is part of the real problem.
Since your company is aware of this problems why putting this project.
Yes, we are aware of the problem, if we don’t do it that who will? So we go back to square zero! Somebody has to do it. You know in 2011, when this power sector reform started, the government went into privatization. She privatised the assets, the power plants and the Discos. The regulations created then were very sound and people jumped into the sector and we also got into the sector. However, with time the regulations started to change, and they were flip-flopping. Today, they tell us this is the regulation, and tomorrow they give you something different. So confusion started and with the confusion everything started breaking-down, those of us hanging in the sector, we have invested a lot of money to develop our own project to where they are. Not just us, there are other people who invested a lot of money too, these are millions we are talking about, the designs, legal and the commission part of the plant, we also invested in doing environmental and social assessment studies, the money has already been spent but the regulations keep changing. We don’t really have a clear path on how we will get our money back. But as patriotic Nigerians we know that we have to make things work because whether we like it or not, Nigeria’s economy is in trouble and the only way for any economy to grow is, you must become a producing economy. Not producing oil, but producing goods that you can sell and you can export, the only thing we export meaningfully in Nigeria today is oil: crude oil and natural gas. That is our main source of income in this country.
Do you have PPA, GSA and others in place now?
As far back as three years ago, we had the Power Purchase Agreement (PPA) that we negotiated with the government and other agencies and we initialed that agreement. Over a year ago that agreement that we initialed we were told was longer valid and that we need to do a new one. Now think about this, we spent several millions dollar paying advisers to do this work for us, to come up with a bankable PPA and all of a sudden that document means nothing and we have to start all over again, paying the same lawyers to do the same work that we had done before. How can you have meaningful investment in that kind of environment?
The gas supply agreement we have one, we negotiated several times over as a company, we had to go into developing not just the power project but also the gas supply to power plant, we have invested in gas assets, we also started investing on pipe-line to bring gas to our plant. The government is supposed to build the pipeline. Right? But we are now doing it as a private company. So those documents are all there.
What is missing is that the government has not been able to allow private companies to do what they know how to do with the support of the government to attract investment. Foreign investors are nervous about the instability in the regulatory environment in the country, that they are not really willing to invest. Where are we going to raise $700million from? Nigerian banks cannot provide such money. Nigerians investors cannot raise the money because a lot of investors would rather invest their money in overseas. So we have to go overseas and they need to see all these documents: PPA, the gas transport agreement, the gas supply agreement and so on and so forth. But the government doesn’t see it.
If the power producers are allowed to negotiate directly with the gas suppliers and gas transporters and pay them what they need to be paid to have them have a viable business, and then the power producer is allowed to sell his power at a viable price that allows him have a reasonably return to be able to build his power plant, and the distribution companies are allowed to charge the end users the reasonable tariff in order for them to make a required investment in the distribution networks, then we’ll have a sector that can work.
Where do you think the power industry would be in the next 3-4 years?
I will tell you that it will really depend on what the government decides to do with the industry and how much importance it puts on it. If she feels the industry is so important and is willing to remove all the impediments that the private companies faced now and is serious about it, things can change quickly within two years. You will start to see the difference and you will start to see investments coming in. But it will take much longer to actually see the change in the power available in the country. The reason is this, it takes about a minimum of 24 months to build a sizeable power plant and I’m not talking about the fifty megawatt or twenty megawatt.
Where is the gas going to come from?
Private Company will supply gas to us
Why are you using your money to construct gas pipelines to the plant?
We are using our money and we are also going to borrow some money.
What is the timeline for delivery of the plant
Assuming that everything that we need, the regulating support from the government is given and we are able to raise the money that we need to build the plant, by the end of 2022 we should see this plant running.
What are the other regulatory requirements that you need now?
PPA
Are you going to do another PPA ?
We have already done that and initialed it after another round of negotiation and money spent but it has not been sent because we need to see a signed PPA by the government. We need to see some kinds of guarantees from the government that support PPA, we need to see the transmission company support, and so on and so forth. But the main thing is the payment guarantee and the Power Purchase Agreement from the government and then if the government doesn’t want to go into power purchase agreement anymore, then they should let private companies deal directly with one another and set the tariff that they need to be able to make their investment. You cannot force power producers to accept 7.5 cents per kilowatt hour and then force the distribution companies to sell at a certain tariff, but then, you still not giving us kind of guarantee.
What informed the power plant being cited in Okija?
Let me ask this question. Where are most of the power plants today located.
They are scattered across the country
Most of them are in the south-south part of the country and we have a couple in the deep north like Geregun, and one in Sokoto, there is a small plant the government built in Sokoto. Now think about it, where are the main economic zones in this country? Where do we manufacture things in the East? Where is the largest open air market in West Africa? Onitsha! Okija is 20 kilometer to Onitsha, Okija is about 16 kilometers to Nnewi. So if I put my plant close to these people and give them power, is it not helping the rest of the country? The way Okija is, we will transmit power to Onitsha Sub-station, then from Onitsha Sub-station the power can then go on to the Benin-line.. The power can go from Okija to Onitsha, to Benin, to Lagos and Kano, it can go any anywhere. This is strictly business decision.
Who are your partners?
We have a company called GLOBELAQ. GLOBELAQ owns about 2000 megawatts of power in other parts of Africa, they are just into developing and running power plant. GLOBELAQ is co-owned by United Kingdom and Norway, so they are my partners.
At what level do you want government to be involved in the power sector?
Government has no business in business, and you know that everything government gets involved in, doesn’t work. Government’s job is to make regulations, to regulate the business for the benefit of Nigerians.
How can the issue of non reflective tariff be resolved?
I can tell you that the price that we pay for our phone services is more expensive than what you get in other countries but we still buy it. Your vulcanizer probably has two phones, the average guy on the street that can’t even eat has a phone, but a phone is not considered as a necessity. When MTN came to Nigeria, they did not believe they could get up to 5000 phone subscribers, some companies refused to invest in Nigeria because they thought it’s not a viable industry. But today, MTN has several millions of subscribers and they are always struggling to meet up with demands, but phones are not necessities. Electricity is a necessity, companies should build power plants at whatever price and sell their power whatever price they need to sell to make a reasonable return, to justify their investment and let the competition drive the price down. By the time power plant ‘A’ is supplying to Lagos Eko Disco and power plant ‘B’ is also trying to supply Eko Disco, they will be fighting among themselves for price and price will come down and then the price to the end-users will come down that is basic business.
Do you see the transmission network to be better in the next three years?
It won’t take more than three years. This is simple economics of demand and supply. If the Discos are demanding power then the transmission companies would be forced to build transmission lines to get the power to them. Today the Discos reject power, sometime they send power to them and they reject the power, because they are not able to collect the money for the power that they already sold and the people are feeling they don’t have power. But the Discos are rejecting power.
If the transmission company has the incentives to build more lines, generating companies will have more incentives to build more plants. The gas producers will have more incentives to produce gas, and there will be more incentives to build more pipelines for the gas to get the producers. Simple economics!
What is your view about Embedded Power, Eligible Customers and other policies that have come to being?
These are steps in getting to the free market that we keep on asking for, the free market should simply be meeting the Gencos. Let me sell my power to whoever is willing to buy. My plant may be located in the Enugu Disco zone, but I want to be able to sell power to Benin Disco, Kaduna Disco or Abuja Disco through the transmission line. Let me deal directly with those Discos. If I sell to Benin and it doesn’t meet up with its financial obligations, next time I will move to another Disco. Somebody will buy because people are demanding. It should be open market, the same way with cell phones. I can choose to buy my service from MTN, if MTN doesn’t meet my standard, I will port with the same number to Airtel, it an open market.
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