Only market forces will deliver stable power, not govt interference – Century Power CEO

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When Century Power Generation (CPG) was birthed,  it had its gaze on scaling up electricity generating capacity at utility scale, backing government’s drive at privatisation. Maintaining focus, it is currently developing a 1500MW gas-fired power plant in Okija, Anambra State. CHUKWUELOKA UMEH, its chief executive officer says Nigeria’s ambition to generate sufficient power for its economy will be realised quicker if the government allows market forces prevail. TEMITAYO AYETOTO brings his excerpts from an interview with journalists at Nestoil office in Lagos.

 

What spurred your in Nigeria’s power industry as a local company?

It’s painful to see that we’re literally sitting by the banks of a river and we are dying of thirst literally. A man lives on the banks of the river that produces water but then every day, he travels 20 to 30 kilometers to go and buy water from someone else who takes water from the same river, puts it in bottles and then sells it back to him. That’s the tragedy of our situation and this is the reason we decided to get involved in the industry as a Nigerian company. This is the only home we have. This company is owned by Nigerians and is run by Nigerians. We’re not running anywhere. So if we’re going to live here, going to do business here, then we should fix our own home. We go overseas all the time; we travel to many different countries to buy things that we use in our business and when we go to those countries, we see that things work and things work there because they use the resources they have. They also use the resources they buy from other places including Nigeria to make their countries work. You go to a place like China. Twenty years ago, the economy of China was small compared to the economy of Japan, though by land mass and by population size, China is much bigger than Japan. China’s GDP at the time was tiny compared to Japan. What did China do? It invested in energy. It invested in power. And within 20 years it turned its economy around. Today, China has moved from a country that is seen as the low-cost manufacturing plant of the world to a technology leader. Indeed, China is now a global superpower. It has speed rails, good roads, massive buildings and massive industries. Today people in China are able to spend money on locally produced goods. A lot of millionaires have been made in just few years but look at Nigeria. We are still talking about Nigeria’s potential when our contemporaries 30 years ago have become first world nations. For as long as many of us in this room have been alive, we’ve been talking about the potential in Nigeria. Some of us remember those days when we used to produce tires here. I remember those days I remember the days when we used to export a lot of products, timber rubber palm produce. I remember those days when we had an exchange rate of one naira to one pound, 80 Kobo to one dollar. Those days are burned into our memories. We mourn those days when if NEPA was going halt power supply, they announced it weeks in advance so that people would be ready. The roads were good even though they were not too many. Lecturers were seen as middle-class people and at every vacation every summer, they could send their children overseas. We remember those days. I remember that very well but what happened to Nigeria? We stopped investing in infrastructure. At one stage we didn’t build new ones and when you look at the heart of the issue, I argue that the height of the problem is energy. We did not keep up our investment in the energy industry, so as a local company we decided that we need to participate in fixing the problem.

The sector is fraught with many hiccups. How will Century Power approach these?

Since its inception, Century Power realised that for it to achieve its goal of helping to develop the country, we need to get involved in not just generation of power but also several other parts of the value chain in the power industry. Our focus is on gas-fired power plants. There are many others we could talk about – nuclear. We could talk about coal-fired, and we can talk about hydroelectricity. We can talk about renewables like wind and solar but I’m going to focus only on gas-fired today because Nigeria has the world’s ninth largest proven reserve of natural gas.

So the value chain for this starts with gas production, if we produce gas then it goes to gas transportation through the pipelines that we have today. And then you get on to generating the electricity. You’ve got to transmit the electricity over the transmission lines currently owned by the Transmission Company of Nigeria (TCN). TCN then transmits the power to the respective distribution companies that eventually deliver the power to our homes. So you’ve seen that energy flows from gas producers all the way to the electricity distributor and then the money flows from this distribution backwards. They collect the money and then they pay the gas transporter and pay the gas producer.

The entire value chain must work for the energy industry to work. And Nigeria has been blessed. So again when you think of the family living by the river, the river, in this case, the water, in this case, is natural gas. Natural gas is one of the cleanest fossil fuels that you can use to produce electricity and other countries use this to develop themselves. We have it in abundance but we’re not using it. This has to change and that’s why I said it is by getting involved in several aspects of the value chain so as the CEO of Century power, we know we have to get involved in the transmission, so we’re upgrading the transmission line from Century Power to the closer substation. We have an agreement with the government to do this upgrade. We are also now involved in developing a gas pipeline that would transport gas to send to you and we are going back even further to work with a company that will produce the gas to make sure that they produce the gas in the quantity needed and then the timeline that is needed.

So as you can see I wear several hats and we’re very busy but the whole idea is that this industry must work. You can move away from danger and go elsewhere but it’s the wrong thing to do. I lived in America for many years. I worked for General Electric in the US for many years developing gas turbine engines both for airplanes and for power generation. But this is my home, the easy thing for me to do would have been to stay in America and keep enjoying the infrastructure and keep enjoying the dollars. The hard thing to do was to come back here and help fix the problem and that’s why a lot of us are here.

The installed capacity in Nigeria today to  surpasses distributed electricity. What are the persisting problems?

So remember I spoke about the value chain at the beginning of the conversation. The reason we are not distributing as much as the installed capacity is because the value chain is broken. So when we have over twelve gigawatts of installed capacity. That just means the capacity of all the power plants that currently exist in the country. However, some of those pipelines are so old that installed capacity is not really there. Then you have plants that were built by the government but do you have gas coming to them? How do you run a plant without gas? You have plants that were built by the government that has gas but don’t have enough transmission infrastructure to evacuate the power. You can’t evacuate the power that’s part of the problem. And then you have distribution networks that were sold to private investors. You know these investors put in their money to buy these networks from the government however at the time that they were sold, the government gave numbers that they thought was the  Aggregated Technical Commercial and Collection Losses (ATCCL). So imagine this, someone buys a distribution network and they tell you that the ATCC losses are 80 percent. What that means is that from all the power coming into your plant, you can collect money for 80 percent of the power that you get but in reality you see losses of some of these networks which is about 80 percent which means you can only collect money for about 20 percent of the bar you’re given. How can you pay your loans when there are many things like metering still unsolved? A lot of the networks are not properly metered, a lot of the networks have lines and transformers that are so old. You also have a lot of networks where people are stealing power from them. So if you’re collecting money for only 30 percent of the power you’re given, how can you pay for the part that you’re supplying? So at the end of each month, the regulators expect you to remit a certain amount of money that you cannot give because you’re not collecting. So you cannot pay the generating company that supplied power to the grid for you to take the power. Now because you cannot pay them, the generating companies also cannot pay the transmission companies. So it’s a vicious cycle of failure. And they also can’t pay because would you sir? So guess what, everything is broken. This is the real problem. So what needs to happen in this case and you find that starting to happen in some of the networks, the DISCO owners are trying to play catch up in metering. The government needs to support them to enforce. If I sell power to you through your meter, you need to pay for that power.

Two years ago, the chairman of the Nigeria Electricity Regulation Commission (NERC) said that only about 30 percent of the households are metered. Under this scenario, how can the Distribution Companies make money? So we need to find a way that the Discos can provide meters to every household, every business that needs power. So at least that they start paying for the electricity that they take and then see that this money is collected. They need to be allowed to raise the tariff so that they can start to cover their costs. Right now the government is enforcing a set tariffs that don’t make economic sense for the DISCOs.  For them to optimally serve us, they need to be allowed to come up with their own tariffs which is what we call cost reflective tariff that will cover their costs.

Look, generating companies need to be able to charge a tariff that allows them to generate power by gas and the government should not be telling private companies this was what they should charge and then competition should be what drives the price down, drives tariffs down. Let GENCOs compete amongst themselves, likewise DISCOS. Market forces will drive down the prices, just like it happened with the deregulation of the telecoms sector. So the government simply needs to create an enabling environment and then step out of the way to let private companies compete for business. They believe that they’re helping the masses by fixing prices. In reality they are not.  So the people lose but if the Disco charges you 14  kilowatt per hour for example and they provide you power 24 hours a day, seven days a week, you will be happier and healthier paying that money to noise pollution. It will give you stable power.  Yes, that is what will provide stable power in this country. When you let a company like Century power produce power and sell the power at a tariff, a cost reflective tariff that allows them to make their money back, which allows them to pay for the gas that they buy. Guess what? Century power will be able to run that plant 24 hours a day, seven days a week and oh, by the way, I should be allowed to sell that power to any DISCO. So whoever is paying, I should be allowed to sell it to them at the price that I know I’ll make my money back and if my price is too high then maybe a competitor with lower price. Let it generate and sell to them, let us compete. That is only when you will get stable power in this country.

The government should not be the one telling us how much to sell our power because you know it would never be a question of capacity anymore because guess what, by the time I find that I’m selling all and it’s five megahertz that I produce and the people asking for more, I will produce a thousand megawatts, when they need more I produce it. It’s business.

So where does the knowledge gap lie for consumers and government?

The bigger problem is that ordinary masses do not understand these dynamics. That is why they continue to pressure government for lower tariffs. To address this issue, we can start by educating people through local leaders. This was done in the past. They should go to the Emirs, Obas, Imams, and the leaders in different communities before they raise the tariff. People understood if they see how it benefits them in the long run. Let us educate the masses if we need to, get in the masses and then we’re not charging for the power people do not use, the people will welcome it.

 

 

Some still believe that the unbundling of the power sector was a error by the government of the day then as people can’t see the difference promised then. How do you see this?

 The government did a very good job in unbundling this industry. However, these licensees will profit from the government deregulating the market even more. Think about it. You already own the assets. All you need to do is optimize your asset. Invest money to optimize your market to your assets. And with that investment, you will be able to make more money at the end of the day. Even though competition is coming, you’ll still be able to make money and I said to private companies today they’re currently issued. Currently, there’s no competition. We are all partners right now because we’re seeing that Nigeria needs 20 gigawatts. Nigeria doesn’t need to integrate. You probably need about 60 gigawatts. I mean South Africa has a fraction of the population that Nigeria has but South Africa currently produces about 50 gigawatts of power and is still not enough. Nigeria has a population of 180 million at least and every month we produce less than 4 gigawatts of power. So as far as I’m concerned there’s no competition. We’re not competitors. Where we should all be partners. There’s a lot to go around and year in year out we will be struggling to meet the demand. But the problem is that you don’t really seem to see the demand because every Nigerian that can afford it has a generator on their own. So you don’t really know what the real demand in Nigeria is. When MTN came to Nigeria they thought that 500,000 lines were too much but now it is still struggling to meet the demand just like every other cellphone company. When private GENCOS and private Discos start working properly, they will struggle for many years to come to meet the demand and this is real. This is not speculating, this is real.  A lot of us today generate our own power and pay a much higher tariff than what we can get from the grid system.

How will all these combine to stimulate the economy to grow?

Let’s start with when we generate 500 megawatts and industries are able to now start producing goods at affordable prices. Currently, we export timber from Nigeria but we import toothpicks. Does that make any sense to anybody? Guess what, because of our power situation, it is probably easier to import tooth picks than to produce them here. But if we are selling power from Century power and we give power 24 hours a day, seven days a week reliably at an affordable price. Companies will start producing goods and as they’re producing goods they’re hiring people. Nigerians are hiring Nigerians. They’re providing direct and indirect employment. It means more people will have jobs and can buy more goods produced here. Don’t forget we have the population. It is that simple. Think about it today with the homes that use gas to cook. You buy gas in cylinders. You shouldn’t be doing that. You should have gas pipelines run into your houses just the same way it is in other countries. I lived in America. All I need to do is open the line and gas is going on; I get billed as I use. We should have that in Nigeria as more gas is produced. You know we import fertilizer in Nigeria today because we don’t really have the gas available to produce that fertilizer. But the government is doing a fantastic thing in forcing the people to get into agriculture which is a very good thing but they are importing fertilizer. We should produce fertilizer here. We have gas. We shouldn’t import bottles. We should produce bottles here because we have gas. We shouldn’t import plastics because we have the gas to produce plastics here. So there’s an add-on effect. So it goes round and round. So Century power cannot go to sleep from producing power.

There used to be excitement in the industry but not now as banks are careful to support the industry due to risks. Do you believe the excitement can return and banks will live up to the billing to help investors in the power industry thrive?

So there used to be a lot more excitement in the industry from the banks and the private investors. There’s still a level of excitement because they know it’s a matter of time for us to get it right. Again we’ve been talking about the potential of Nigeria. We must move from potential to reality. Private citizens, private companies are starting to understand that this industry can actually work. So they are asking for the industry to work. Government is getting under increasing pressure to allow the industry to work so the banks know that this will happen. And so they’re gearing up to make sure it does happen.

And when it happens that they have a piece  of the pie so they’re not rushing to give money to you but they’re saying let’s see the government do what it needs to do and then we’ll give you money to make sure that we don’t lose money gambling. Nobody wants to lose money essentially so we’re waiting for the government to do some of the things it needs to do to make the industry work.

So far, what challenges has the journey brought?

The journey has been tougher than expected. Regulations in the country have changed many times in relation to the energy industry. You know the privatization started in 2011 and the rules were clear but along the lines, the rules changed and keeps changing.

Private investors have had to also change their own rules of engagement. Some investors have left the country, foreign and some local companies that initially got involved also left and have gone to do other things but we are still at it. We are still at it because you can sit in your house or in your office and point fingers that the government is not doing what it’s supposed to or you can be part of the solution. So the journey has been very tough because each time the regulations change, we have to work with a new set of regulations and a new set of regulators and while you’re doing all this you’re spending money as it’s very expensive to hire the people that do this work. You know the lawyers, the technical people and the commercial people, are very expensive. We invested a lot of money, millions of dollars of our hard earned money in this. However, we believe that the government wants to do the right thing. But what we keep asking for is for the government to see private companies like ours as partners in this journey because the government alone cannot do it. The private companies alone cannot do it. We need the government to create the enabling environment for private companies to do what they need to do. The government must provide the enabling environment and we’re here to advise them to do it properly and for the good of the populace and it is our prayer that the government will listen more, that the government will create more avenues to listen to private companies to help them get along.

When is Century Power going to deliver the 1500MW of electricity facility in Okija, Anambra?

Our current schedule shows that the project coming online by the second or third quarter of 2022. Now that is assuming that we can get to financial close by the first quarter of the next year 2020 and for us to get to financial close, there are several things that the government needs to do. There are several critical documents that they have to approve and you know things have changed in the government. You know the will seems to still be there. Several of the people in the regulatory bodies are different. Several people have changed and any time there’s a change, you need to bring the new people up to speed and justify why things have to be done in a certain way. This is what causes a lot of delays. I mean the government has to do what they do. People have to change every now and then so that’s understandable. However, what we ask is that the learnings that were achieved by people in office should not be lost whenever there’s a change in the office. And if the learnings are lost, which we’ve seen happen several times, it’s almost like we’re restarting again. So you have to restart over and over and over again and you have to keep paying your consultants to do the same thing over and over. Don’t get me wrong; some of the people, some of the regulators are very intelligent people. Some of them are very capable; they have very smart lawyers; they have very some very smart engineers and some very smart economists. You know when you talk to them and see they understand the industry, some know what needs to be done. However for them to do the job, there are certain things that the government needs to put in place, certain things that the Minister of Finance has to agree to, certain agreements that the Minister of Justice has to approve and so on and so forth. So for us to get the financial close by the first part of next year which was shown on our schedule, some of these documents need to be signed in a timely fashion. And the government has to be in support. Otherwise, we can’t achieve this and what happens is the people continue to suffer because, at the end of the day, it is the people that the government wants to protect are the ones that still get to suffer at the end of the day.

Do you think a nuclear source of power is the next thing for the country? Is Nigeria ripe for nuclear power?

I don’t think Nigeria should be looking at nuclear energy at this point. You know we should focus on what we have an abundance of, which is natural gas. It’s clean, it’s efficient. We should focus on natural gas where it is doing some hydro plants. Keep doing what you’re doing in hydro. There a lot of people that are trying to do renewables. There is a place for a small quantity or small amount of renewables in the country. They should do that. Nobody should talk about nuclear right now because for nuclear plants, you have to do them carefully. And the potential problems that you can have from nuclear plants is not something that Nigeria can handle at this point. We’re not set up to handle that. You saw what has happened in Japan. You know when they had the nuclear disaster inflicted. There was a big problem. We can’t afford that in Nigeria and we’re currently not set up to do that. So we should stay very far away from nuclear power as a country. Gas is easily done. It’s much more easily done. Companies are flaring gas today. We should capture the flares, right. And we should drill associated gas wells and produce a lot of gas. That’s what should be our focus today not nuclear. We’re many years away from nuclear

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