Afolabi Aieyela, the managing director/chief executive officer of Welbeck Electricity Distribution Limited, in this interview with ZEBULON AGOMUO, Editor, believes that the cost reflective tariff regime will lead to development in Nigeria. He says with three IPP’s ranging from 2.5MW to 5.5MW in Lagos and more upcoming this year, the company is in the right position to offer customers an independent source of uninterrupted power. Excerpts:
May we know your core area of operation?
Our core area of operation is independent power. We are known as an IPP company, which is an independent power producer. We use gas to generate electricity and then sell that electricity and then sell that electricity to end user.
In recent time, the issue of cost reflective tariff in the power sector has been a contentious one. Now, how do you see the development and the campaign against it?
I think it is a difficult issue, because it is a bitter pill to swallow for the populace; to say that tariff is going to increase; on the basis of promise that service will get better. But when you look into it, especially someone that is in the industry, we cannot get the investment that is needed to improve the service without cost reflective tariff. This is because one thing government has made clear is that the term is ‘cost reflective’. We have to take account the cost of gas; cost of generating; cost of transmitting; and the cost of distributing, and then you have to remember that at each of those stages, we need to attract investment, so that each of those areas in the delivery chain will be improved. That’s the only way we can achieve stable power in the country. But as an independent producer again, even for our side of the industry; cost reflective tariff means that we too will see a lot of investment. We will see more people going into independent power which will help the overall situation.
The major problem Nigerians seem to have with the cost reflective tariff promise is trust deficit. They seem not to believe that they would get value for their money even when the regime comes into effect. What would you say to those who may be this pessimistic?
I think if you look at all of us in the value chain, we are private business owners on behalf of shareholders, people going into business to make money. Let me put it this way; you have someone that bags and sells rice. If he knows that after clearing, polishing, bagging it and then taking it to market the margin he receives is barely enough to cover his rent and feed his family, he is not going to be motivated to expand that business any more. In fact, if there is something else he can also do on the side he will be also working on that. But if the cost of rice goes up and he now sees that the margin is very attractive, he would want to do more. He would want to buy more rice, more bags; he would want to expand the business. At that point, maybe, he calls his brothers or cousins from the village to come help him in the business and you now see more rice in the market. I think the same can be said of the power sector. Government is not the one driving the sector, it is the private sector; investors that want to make money; and you have to remember that there are investors outside of the country who like things like public utility, power sector, etc. Until now, they have looked and said without cost reflective tariff, it doesn’t worth it. We now expect that with that kind of motivation we will see investments in the sector that will also drive improved service.
What are the feedbacks from your major customers on the issue of cost reflective tariff?
I think for customers such as MTN, GAC Motors, FAMAD and some other customers, they have keyed into our service long before the tariff increase and they are happy with our service. So, what it means to a big company like MTN that is always looking at the budget; looking at, are they doing things in the most cost-effective way; when they now look at the tariff increase and alternative to us; I think they would be more grateful that the service they are getting from Welbeck Electricity is saving them even more now that the tariff has gone up.
You recently said that Nigerians would see better service next year when the cost reflective tariff would have come into effect. Why do you sound so confident?
You have to remember that what is going to drive the improvement in the sector are private investor, equity and banks. You will be sure that with the new tariff, banks will be more willing to lend to DISCOs GENCOs, and gas producers. So, we are expecting that this year we should see agreements being signed whether for funding; whether through equity, or local fund or through debt. You expect that equipment, upgrading and retooling should happen next year, and may be, toward 3rd, 4th quarter we start to see some of those improvements.
This is an ambitious business you are running. May I ask who is behind the CEO of Welbeck?
Let me start by giving you the story of Welbeck. I used to work for Bank of Industry. I wanted to set up a business, and because I was involved in giving funds to manufacturing firms. When I learnt that their major need or concern is powering themselves or their plants. Some of them, the most important reason they find it difficult to compete with Chinese import is because of power. For instance, you are producing shoes; one of our customers FAMAD, is producing shoes, they are former Bata Shoe; they are competing with the imports from China where they are getting 24/7 electricity; where the cost of power isn’t that a huge factor. So, seeing that, I then registered this business and signed my first agreement with my first customer in 2016 and as a banker, I knew that the money I needed to build a site, I wasn’t going to be able to get as at then, which was why I then went to look for investors which I was able to find. There are four of us. My other partners, one is in Oil and Gas; one is in vehicle sales, another is a member of the Ibru organisation. So, essentially, I was able to sell shares to them. They brought in their money. We pulled our money together to build the first site. Our second site, we were able to seek funding from the bank and we also used suppliers’ credit. When you have a blue chip customer like MTN and you are telling your contractors who are doing your electrical work, your civil works, etc, and you tell them you are going to pay 60 percent, the remaining 40 percent to be paid over three months once the site is commissioned and they are sure that once MTN pays us we are able to pay the balance. So, in a situation where you are not able to get all the funding, I guess you have to think outside the box and see what you can do to make sure the site is delivered and commissioned on time because a company like MTN, you don’t mess up. If you say, you are going to commission, and you are one day late, they will charge you.
Where do you expect to see Welbeck in the next five to ten years?
Our business model so far has been to be completely independent from the grid. We have agreement with our customer, we go to NERC to request for licence and once we receive the licence, we build the site and supply that customer power.
The way we are operating now, we are working independently; we want, with a couple of Discos, if we supply power to any of their sub-stations, then all their customers that are reached by that sub-stations can enjoy good service, possibly even 24/7. I also know that there’s something the Lagos State government was working on under the previous administration. Yes, if you say in the next five years, I do see us working together with Discos to possibly crowd sub-stations to ensure that the power they get from the grid as well as independent power from us can now translate to 24/7 power for the people. Even if we can start that with Lagos State, this is something that can be replicated in other Discos in other states.
How do you source your gas?
We receive gas from Axxela. Axxela has the concession to pipe gas within the Lagos Metropolitan area. So, that gas comes from the Escravos Lagos pipeline. You have two lines that bring gas from the Niger Delta up to South West. One is owned by Shell, the other is being operated by Nigerian Gas Company. So that’s where we receive our gas from. And as a way of back up, we use compressed natural gas.
How intense is the competition in the industry at the moment?
I think competition is quite intense. What we have seen is that over the past one year or two, there have been more and more entrants into the industry. Being in the independent power part of the industry, the privatised PHCN has largely remained the same. But in the independent power sector, we have seen new entrants coming in; but what customers have to remember is that it is a very technical business; running and operating a gas generator or a gas turbine takes a lot. You know, if your diesel generator is the one that you can put in your house and your guard can come and switch it on and switch it off, you don’t need to be trained, but with the gas engines; our technical staff are sent for special training on installation, operation and maintenance from time to time, on the units and even with that, we do have issues, which is why we have redundancy. At the site in Ojota for example, we have 4.4 megawatts that we are using at every one time, and 1.1 megawatt of redundancy. From time to time, there are issues and corrective measures that we need to take either involving software or mechanical issues on the engine itself. So, it is a technical business.
It has always been said that the problem of lack of power has contributed in the rising youth unemployment in the country; do you see the cost reflective tariff system bridging that gap?
Definitely, most certainly, power supply is needed in the development of any economy. Whether you are talking about independent or grid power, with the cost reflective tariff, you will have more investment, improved services in grid-connected power. You will also have more investment in independent power. So, take for example, there is something we are working with the state government for youths that want do light manufacturing; small scale industries. We entered into discussion with them, and said the only way it is going to work is, if they have all utilities and amenities, they require, if you give them the equipment/amenities, they may set up somewhere but they will never have light; so they are running their petrol generator and the cost is too high and business fails. We said, why not set up an industrial park that you’ll run and operate, you provide the source of constant power; do the other utilities such as water, security and so on. If you demarcate spaces and put them there – in an environment that will not fail; we need to set up an industrial park in order to encourage development. So, whether we are talking about independent power or grid power, cost reflective tariff should translate in the end to economic development; more people, youngsters going out setting up barbing saloon, and things like that.
