Thursday, April 15, 2010

How Goodluck Jonathan Can Fix Electricity (1) - By Ijeoma Nwogwugwu

I have often wondered what it means to declare a “state of emergency” in the power sector. No one has been able to explain what it means. Would it involve the sack of PHCN workers and replacing them with other hands to run and manage our power infrastructure? Would it amount to an astronomical increase in electricity tariffs? Does it mean that private companies given licenses three or four years ago to invest in power stations will be given marching orders to complete them, failing which their licenses will be withdrawn? Or does is simply mean that an accelerated programme will be deployed to expand and upgrade power infrastructure to meet the yearnings of Nigerians? Quite frankly, no one really knows.

Since no clarity has ever been provided by this administration on what its emergency programme for the power sector entails, I can safely dismiss it as a sloganeering campaign devised by this government to give some semblance of seriousness about meeting our power needs. If we must be honest, resolving our power issues is not as difficult as it seems. With the right commitment, a phased approach, and adherence to the power sector reform programme that was given fillip with the enactment of the Electric Power Sector Reform law five years ago (yes, it’s been five year since the law was passed), appreciable results can be achieved.

But before the Acting President and Minister of Power, Goodluck Jonathan, proceeds; first, he must jettison the slogans. They are needless and a distraction from the issues at hand. Instead, a comprehensive programme with clearly defined timelines should be drawn up and specific groups/bodies/organisations given the tasks to meet them.

The programme should be made public so that it can be monitored and the society knows who to hold responsible for falling behind at their assignments.

A guide on how this can achieved is given below. It may not be comprehensive, but it will attempt to capture a lot of the salient issues deterring us from achieving energy sufficiency and how to resolve them.

Electricity Blueprint

In the next week, the power ministry must urgently invite all the stakeholders and groups to a meeting to fashion out a comprehensive blueprint for the power sector. The stakeholders must include PHCN and its distribution, generation and transmission companies, the Bureau of Public Enterprises, Central Bank of Nigeria, Ministries of Finance, Petroleum Resources, Water Resources, Defence and Steel and Solid Minerals Development, the Nigerian Electricity Regulatory Commission, the Nigerian National Petroleum Corporation and its subsidiary Nigerian Gas Company, international oil companies or their representative(s) from the Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, representatives of independent power producers, representatives of commercial banks, and labour unions.

Already, a committee along those lines has been established. It only needs to be expanded so as not exclude other relevant stakeholders whose input will be required for the blueprint. This committee should within two weeks develop and publish a comprehensive programme (the “Blueprint”) that comprises three phases, takes into cognisance the challenges mitigating against stable electricity supply in the country, and how these can be tackled head on.

At this stage, the information made available by stakeholders such as PHCN and its business units, the oil companies and NNPC on the status of power and gas infrastructure must be accurate or close to accurate. If it is inaccurate, resolving a lot of the issues in the power sector would run into troubled waters from the get-go.

In drawing up the blueprint, its drafters must also adopt a phased approach and include expected deliverables defining who should be held responsible for what. With this, a lot of pressure would be brought to bear on a body/organisation to meet its target(s). Where there are impediments or challenges to delivering its set goal, the government should name, shame and sanction those responsible for dragging us back.

Phase I

The first phase of the power programme requires PHCN to accurately diagnose the state of its infrastructure and identify quick fix solutions to rehabilitate and upgrade systems and equipment that can be integrated into the electricity grid within months. I understand that between PHCN power plants and the IPPs, the nation has the capacity to generate up to 5,000MW of electricity. However, it remains uncertain if the transmission and distribution infrastructure has been reinforced to transmit this much electricity to consumers. Availability of gas in the immediate term also remains an impediment to the attainment of 5,000MW.

Accordingly, the first phase of the blueprint should focus on short term solutions that can be adopted to ensure that natural gas is made available to the Geregu, Afam, Sapale, Olurunsogo and other power stations starved of gas within three to six months. This can be achieved if negotiations are commenced and concluded in a month with NGC and oil companies on the pricing regime for gas. If need be, let gas be benchmarked at the same price the oil companies currently sell natural gas to the Nigerian Liquefied Natural Gas company, which I believe is $1 per million standard cubic feet. That will serve as an incentive to compel them to repair and upgrade their gas infrastructure to make natural gas readily available for electricity generation.

Simultaneously, the power generation companies (gencos) would have to enter into gas purchase agreements with gas suppliers that set the terms for gas delivery and the penalties that would arise if the terms are not met. The gencos would also have to enter into agreements with the transmission and distribution companies on electricity transmission; while distribution companies would have to be prepared to raise electricity tariffs under the multi-year tariff order.

Raising tariffs would ensure that the oil companies and NGC have an incentive to see to the steady supply of gas to the gencos and save the government costly power guarantees. On the part of electricity consumers, it would be cheaper for them to pay more for electricity than to run their homes and businesses on fuel (diesel or petrol) powered by generators.

The input of the Ministry of Defence, NGC and communities where gas pipelines and infrastructure are situated will be very critical to the success of the programme. The ministry would have to deploy soldiers who will work with the communities to set up joint security task forces whose responsibility it will be to secure and safeguard the infrastructure.

Such task forces employing youths to secure the pipelines and infrastructure would come at a cost. Electricity tariffs would therefore have to be structured in a manner that factors this as an added cost – quite similar to the petroleum products cost structure that factors all elements in the fuel supply chain. Meanwhile, the pricing structure for electricity should be superintended by NERC.

NNPC and NGC, which in my opinion are the weakest links in the chain, must evolve a process that ensures that condensates are not allowed to build up in the pipelines conveying gas to the power stations. They must draw up and implement periodic clean up timetables to evacuate the condensates and move it to the refineries. If the refineries have no use of the oil condensates, it should be exported and the proceeds paid into the account of the federation.

It must be recognised that the evolution of a market structure between gas suppliers, gencos, discos and the transmission company may not be perfect at this stage of the power programme, but it must be encouraged and fine tuned along the way until it matures. Again, it will be the responsibility of NERC, with some assistance from the BPE, to set it up.

It should be noted that the trading arrangements between the business units or operators in the electricity sector will make them more attractive to prospective investors that may be interested in acquiring them under the privatisation programme that will be superintended by the BPE (definitive transfers to the private sector would fall under the second and third phases of the blueprint). It would be necessary to also give some serious thought to concessioning the pipeline infrastructure to the private sector for enhanced gas supply.

In the area of transmission and distribution, considerable resources have been pumped into National Integrated Power Project without discernable results. It is unclear if there is a project monitoring team whose responsibility it is to verify on going work. If there is none, one ought to be set up immediately to go after contractors responsible for the upgrade and expansion of the distribution and transmission network to ensure that they deliver. Defaulting contractors should be made to refund funds disbursed to them, and their companies blacklisted and barred from undertaking future power projects.

Under the first phase, the BPE has to kick start the privastisation programme for the power sector. Starting it off in the next few months does not in anyway suggest that it can be fully executed under the first phase of the blueprint. It is expected that the privatisation process will spill over into the second and third phases of the programme.

However, the BPE must start by recognizing that the privatisation process would have to be modified in line with current realities. When reforms for the power sector was started eight to nine years ago, delineation of existing infrastructure at the time led to the creation of 11 distribution companies and 6 generation companies. Quite a number of new power stations have been built by the federal government ever since. Distribution has also been expanded.

This means that the BPE would have to work with advisers to re-delineate the power network by creating new companies or business units that would also have to be sold outright or concessioned. It is only when this is done that it can start inviting investors to express interest in the companies.

To be continued...

1 comment:

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