• Thursday, March 28, 2024
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Government support, not strict regulation will develop the Power sector

Chukwueloka Umeh

Chukwueloka Umeh, executive director,  Nestoil,  have identified non adherence to signed agreements by regulators, fixing of uncompetitive price and lack of support as malaise to the provision of regular power to Nigerians. In this interview with Olusola  Bello at the sidelines of the recently held Nigeria Oil and Gas conference in Abuja, he mention ways on how government can make provision of power available to the citizenry.

How can Nigeria as a country tap from its huge natural gas reserve to develop the power sector?

Like I earlier said Nigeria is at the point where we need to decide where we’re going as an economy. Our primary income is from oil and gas with a large percentage of that skewed towards oil. But the world is changing, the energy focus is changing and we must also change so that we can survive as a country.

Where we are today. We export. You heard the ghroup managing director of the Nigerian NationalPetroleum Corporation  (NNPC)  said that  we will use only about 10 percent or thereabouts of our gas domestically. And I think this is what causes a lot of the economic challenges that we are having in the country today. We should really be a gas economy rather than an oil economy. But as you know it’s the other way around.  For us to be a gas economy, we must make the entire gas value chain work. What that means is the gas producer should be able to make the investments required for them to produce, the gas transporter, the owner or the owners of pipelines should have robust infrastructure to move their gas around the country.

And it’s not just what we have today. The pipelines we have in the country today are grossly inadequate to move our gas around. So, we should ideally have pipelines running to every part of the country. Every state in this country should have a gas pipeline get into it. Beyond that, the actual use of the gas in the country is of optimum importance. What I mean at this point is that we need to have power plants running on gas in most parts of the country. It’s a travesty that we’re producing 4000 megawatts every year to 180 million people.Meanwhile in Norway, you heard the high commissioner said they have 3 million people but they’re producing 36,000 megawatts. South Africa has 57 million people and they’re producing 42,000 megawatts and we’re still talking about 4000 megawatts in Nigeria.

We hit 4500 megawatts, I think a year ago and people were clapping, they should be crying. People should be weeping. As the High Commissioner from Norway was speaking I was ashamed. We should be crying. So the power industry must work, the petrochemicals industry must work. We produce or we have the capacity to produce about two million metric tons of fertilizer in this country per year, but we also import petrochemicals. We shouldn’t be importing. We should not import fertilizer. We should be producing, using it domestically and also export and we have the capacity, so those value which is part of the value chain must work, distribution companies should be able to make the money required to make the investments that they need to make.

How can we have a truly gas economy that will protect the value chain?

How is it possible that a DISCO, like EnuguDisco that covers the five southeastern states, they have only metered less than a million people. How is that possible and we have over 80 million people thereWhere’s the power going? But you can’t blame the Discos because they need to be able to make the investment and make their money back.  When the government tells the DISCO how much they can sell power, they can’t make their money back. That means they can’t invest, so DISCOs must be able to sell power at a price and a tariff that allows them to make the investments and then still make a return.

Like I said nobody is in business for their good health. People go into business to make a return. For us to be able to achieve this, the government must work with the private sector as true partners. They must realize that private companies are the ones that are going to catalyze the industry.

They’re the ones that are going to make the required investments, they’re the ones that are going to attract foreign investments for us to grow our energy industry.  So once the distribution networks are working, people are buying power and paying for the power that they buy, they are able to pay the GENCOs for the product that they produce and sell to them. The GENCOs are able to pay the gas transported to the owners of the pipelines and then to the gas producers and the value chain works. Only then can we have a true gas economy in this country and we can do it within,if I’m being conservative, within 15 years, within our lifetime, we can actually see this happen. It’s within our lifetime that China went from a relatively poor economy to almost a superpower. It happened in the space of about 20 years. So we can do the same thing and you know when we talk about oil and gas, I tell people don’t put the cart before the horse. We must allow the industry to grow. The investment will come. Companies like Nestoil will grow, other smaller subcontractors will growtoo. Nestoil will also grow, other companies will start just like Nestoil started 28 years ago, so it’s a chicken and egg situation.

But we must do the right thing. We must slacken our regulations to a point that they would allow private companies to start building. In the eight to nine years that we’ve been talking about power privatization, only one power plant has been built, only one which is the Azura power plant. But the Government has given out licences to over 100 companies, yet only one was able to build a power plant. And even today, it is struggle to collect the money for the power they produce. So ladies and gentlemen I pose it to you, we have to change the way we do things in this country. Only then can we start to see true progress.If the oil price fall to $30 a barrel today, we are in trouble.

Successive government have done a lot in the power sector, but  why are  we  still having the same issues?

I will respond by asking the question back to you. We privatized the telecoms industry some years ago to date and it works very well.

Why did it work? I’ll answer the question.  When the government privatized the telecoms industry, they essentially did a proper part of that and then hands off.And let the private sector drive the industry, the NCC today does what I call intelligence regulation. The NCC allows private companies when they are issued frequencies to work within their frequencies and then they regulate, they say how many states you must roll out in. Some of the things you can and cannot do and they allow them to do business.

The network providers, when they came to this country, they charged a very high tariff but people were still happy to pay it because at least the network was functioning.People underestimate the ability of Nigerians to use the resources available to them. The government today in power is very concerned about people paying more than they think they should pay for power and because of that, they are regulating the industry so much that it stifles any growth, it stifles any development. When the privatization of the power industry started back in 2010, they had a very nice roadmap laid out, it was clear how all the assets were going to be sold, It was clear how all the debt within the industry was going to be handled and it was clear the metrics that successive companies had succeeded in buying these assets will be held to.

All of that has changed. All the private companies that came in from overseas and governments that came in from overseas to invest have so been demoralized because the regulations continue to change every time. Agreements that were signed, you heard the British High Commission saying we must respect contracts. A lot of the contracts that were signed were not respected, a lot of the rules were changed in the middle of the game. When you say to a person if you buy this asset you have 30 days or 60 days to pay for it, if you don’t pay we’ll take the asset that way and give it to the next bidder. When we don’t do that, guess what happens?  You are sending a message to the investors that we’re not going to do what we said we would do. And that’s what happened. Now the people that bought the assets were told that within a number of years they expected to make certain investments and if those investments are not met, there were certain sanctions that would be allotted to them. None of that has really been done. So we have not done a true privatization. Today, as a power company, you would jump through so many regulations to try and get a simple license and I say to people the licence is just a piece of paper. It doesn’t help you get money to build any assets, so I say to the government what we are trying to do in Nigeria is that we are trying to regulate the market into existence. You can’t do that. Let the market grow first. Then you regulate it. The regulations that the government should worry about today are simply the regulations that will say these are the type of companies that can do this type of business, these are the metrics that you must meet for you to be able to do this business and these are the areas where you’re allowed to work. Beyond that, the government needs to step back and let the companies do what they need to do so that they can actually raise money to do business. We have invested over $50 million in the energy industry,in the power industry at Century Power.  We have gone through all the agreements that the government said we needed to go through, we have gone through a lot, which is, I mean we paid lawyers, local and international lawyers, we paid technical technocrats, technical consultants from different countries to do all the things we were supposed to do. We have done environmental impact assessments approved by the World Bank.  Where are the agreements for us to now go and raise the money?  They are there but they’re not bankable.  Bankable mean that you cannot secure a loan with those documents and your guarantee that you’ll be able to repay the loans. So the industry would never work.  On that, what we are currently doing, it would never work. I said it five years ago, six years ago, I said it four years ago and I’m still saying it again, it will never work. It is just a dream.

How can the industry work?

For the industry to work, we must change the way we do it. The government must relax their regulations. I am not saying do not regulate it. I’m saying you must relax it. You must let private companies deal with each other as through the willing buyer – willing seller type regime. You cannot regulate gas price. You cannot regulate the price of power that the generating companies produced and you cannot regulate the price that distribution companies sell their power.  Let competition regulate the price. People will buy. Today, you probably pay about N30 per kilowatt per hour for the power you get from the National Grid, when you use your generator you are probably paying close to N100. But you don’t know that, you will be happy to pay N50if you get power for 24 hours a day,seven days a week, you will be happy to pay it. But a lot of Nigerians do not know what they are currently paying, so they think that the government is doing them a favor by regulating these prices. They are not doing them a favor. Even some people in the government do not realize what they’re doing. So you must let private sector work with them as partners. That is the only way it’s going to work.

I thought you are going to give us good news about the OB3 pipeline project, but as business people have you approached  government on power situation  and say these  things cannot work they way they are going?

On OB3 Pipeline construction: That pipeline work is still ongoing. And I seriously still welcome you to come and see it.  I say to people that we have 10 percent more rainfall in Niger Delta virtually every year. It is better you see it, than you hear it. When you see the River Niger go up from a certain level in meters in the space of four weeks or five weeks. You can’t imagine it, you can only see it.

What are you doing on advocacy to get the message on  the power sector to the right quarters?

On advocacy, I would be more than happy to have a chance to sit with the president for 10 minutes, all I need is 10 minutes of his time. However you know the country we live in, so sometimes they’re set in, it’s difficult to have that kind of opportunity to talk about things like this but we’re still open to having that engagement.

People are trying to sell power directly to customers, particularly  MAN considering it’s profitable instead of sending to the grid. How does that work for you?

On the issue of the smaller power plants or selling directly to Manufacturing Association of Nigeria (MAN), I just told you that we invested about $50 million in the power sector since 2012 till now. $50 million, playing by the rules set by the government at the time, getting all the required documents that the government demand. If you have this signing which is an agreement with you backed by the World Bank or by IMF or by whoever, and then all of a sudden we are being told that is no longer going to work you can now go and find your own off takers.What happens to that $50 million? Do you expect me to go and ask my board of directors to give out, say another $3 million to go and chase after the manufacturers association? Maybe a year later that regime also goes away. So that’s another money down the drain. Like I said, people are not in business for their good health. People are in business to make money and if you’re not able to make money, if you cannot see a clear path to making money then you don’t make the investment.

However to answer your question directly, we are talking to those manufacturers but that’s just the manufacturers. What about the residential clusters? What about those people that cannot buy one megawatts? Those people that need one kilowatts here or there? That means they are completely left out of the equation. So we are producing power, we are selling to those manufacturers that can afford to pay for it but then the regular population, myself and yourself were not able to get power. That doesn’t fix the problem. We still need to deal with the realities in my opinion and the reality is this, we need to build proper infrastructure. Short fixes, quick fixes have not worked in this country.

They are not going to work long term. And if you look at Nigeria today, we are constantly chasing the quick fixes so it is not going to work. Let’s go back to reinvent ourselves and do what is hard and what is hard is building proper infrastructure, build those gas pipelines.

The government must be given kudos in starting the gas master plan and funding part of it, but the government cannot do it alone. Companies like Seven Energy started building pipelines on their own, more companies like that need to be allowed to do business but they can only do it when they see that they can make their returns from the power industry and the petrochemicals industry.

We continue to import refined crude oil into the country in spite of what we have. How did it get so bad for the refineries that they cannot serve the people again?

I am old enough to remember the time in this country when we refined crude products. Kaduna refinery was working and so several other refineries were working in Nigeria, at least they were somewhat sufficient to cater to our needs at the time. But as the population grew, we did not keep up with the investments that we needed.

If you have a household, it is just a wife, the husband and one child and you are spending N10 every month to buy food, then all of a sudden and you are using I don’t know maybe 500 liters of water every week then you have a second child. Your bill will go up, you will go from N10 to N12 or something like that. You’ll start using, maybe a little as you might start using 600 or 800litres so you must make the investments for continuous externalities right.

By the time you find that you have seven children in your house my brother, you are spending N1000 every month, your grocery bill has gone up, your water usage and everything else will go up. You cannot keep the same size. That’s what we have learned in this country. We have not invested in infrastructure. I was driving from the airport in Abuja to Maitama and I looked at the roads and the question was why can’t we have this in every part of Nigeria. Do you know why? I remember when I could drive from Enugu to Onitsha in one hour, the expressway was just like this expressway in Abuja. Many years ago, I remember those days but when you tried to do that drive now, it takes you about two hours or more because we never kept up with fixing that infrastructure. You can’t just build and leave it. You have to be fixing it and you have to build more. So we must make more investment in this country. That’s why we are importing products today. So we must have more refineries. And it is okay for the government to own some of those refineries, but private companies must own some as well, Dangote is now getting into it but it shouldn’t be only him, more Dangotes have to be allowed to do it and they need to be supported to do it.

   GENCOs have been accused of wanting to recoup profit so fast, what’s your view about it?

So let me put it this way. When a GENCO, someone wants to build a genco, we want to build a genco, 495 megawatts scalable to 1500 megawatts. From that 495 megawatts, we need to borrow about $600 million.We signed a 20 year purchase agreement and we want to spread our loan between 10 and 15 years. I have to be able to pay that loan back within that period. Well,when I’m doing it, I should be able to pay my staff, I should be able to make some kind of return because otherwise I don’t have a business. So making your money back in 15 years, I don’t think it is in a hurry. lf I said I want to make the whole money in a year then l will say I am in a  hurry, but I’m trying to make my money back over a period of time so I can pay my loans back. And actually I can leave a business that runs when I’m no longer here. That’s not being in a hurry. That’s called business and every other investor in the world wants to do the same thing. Most private equity investors that want to put money in power want to make that money, but in between three to five years. And I think that’s fair because this applies the same way in every other country, developing or developed. So we are not asking to do something other people haven’t done. We are copying regulations from different countries. We should also copy the model that sees them paying back their loans in a reasonable amount of time. I don’t want to be saddled with a loan for the next 30 years. That’s my business. I would rather take that money and look for an oil field to buy. But we are trying to put it in power and we are not doing it just because we want to make money, we will make money definitely, but we want to help our country. It is embarrassing that you sit in a meeting, no matter where you go in Nigeria, you sit in a meeting and if you’re not running a diesel generator, the power will keep going on and off. It is embarrassing. It is embarrassing that as a country we have exported timber but we still import toothpicks.

I don’t know anybody that says that GENCOs want to make their money back so quickly. They need to come and actually look at what it takes to borrow money to build a power plant. It is much more difficult, about 10 times more difficult to borrow money to build a power plant than it is to borrow money to do an oil field.