NIPP: Taking Advantage of Nigeria’s Wasting Power Assets

Emmanuel Addeh writes that the National Integrated Power Project, which appears to have been relegated by the authorities, could hold the key to solving Nigeria’s electricity supply challenges

For years, especially in the ones leading to 1999, it is believed that the Nigerian power sector virtually lacked any major investment, reflecting in the declining supply of power in the country.

As a result, in 2004, under the President Olusegun Obasanjo administration, the government floated the idea of a National Integrated Power Project (NIPP), with an initial funding of $2.5 billion from the country’s Excess Crude Oil Account (ECA).

There was therefore the need to establish a national firm, which would manage the assets and serve as the legal entity to oversee the facilities. That initiative gave birth to the Niger Delta Power Holding Company Limited (NDPHC).

Today, the seed sown close to two decades ago now has 10 gas-powered plants, which include Olorunsogo  , Geregu  , Gbarain  , Alaoji , Omoku , Egbema , Sapele, Omotosho, Ihovbor and the Calabar power plant.

In addition, under the scheme, several transmission assets have been completed, plus a number of facilities under the distribution the part of the network, including injection substations.

But today, all those investments seem to be endangered. The NDPHC, which oversees the projects that were expected to push out about 5,000mw into the grid, can barely operate at half its capacity because the market is largely tilted against the company.

For one, the National Control Centre (NCC) located in Osogbo, a unit of the Transmission Company of Nigeria (TCN) has tended to favour the Independent Power Producers (IPPS), who come under the protection of their Power Purchase Agreements (PPAs).

Whereas the NDPHC owned by all the federal, state and local governments should ordinarily be the industry’s backbone, it has become an entity that is resorted to after other interests have been satisfied. For instance, it is always the first to be directed to shut down its operations when there’s a fluctuation in the system, leading to massive loss of revenue.

In addition, one would expect that the Independent Power Plants (IPPs) which are even more expensive than the power generated by the NDPHC should be asked to disengage when there’s need to shut down plants for any reason.

But no, the cheapest to operate and dispatch to Nigerians is always the one to bear the brunt. Aside that, the firm says it’s currently owed circa N150 billion by the market.

So, while the over 3,000mw generated by the NDPHC is left stranded, the IPPs are always the first priority because they must recoup their money while the government-owned entity is being used to simply subsidise them. The authorities have simply declined to sign a binding PPA with their own company, further elevating its problems.

While it continues to deploy its spinning reserve to help the network, the company says it does not also get anything as compensation for gas and other expenses going into maintaining its turbines when its power is rejected.

A TOUGH BUSINESS ENVIRONMENT

The Managing Director of NDPHC, Mr. Chiedu Ugbo, believes that the firm deserves more, given all the investments that have gone into it and the efforts to keep it afloat despite its many challenges.

The chief executive of the national power firm believes that if allowed to operate like other firms in the sector, the NDPHC has the capacity to rival its peers all over the world.

“I am managing generation assets: I have tariff that is 28 per cent lower than my peers, meaning that I am subsidising the sector by 28 per cent,” he said.

According to him, the company has approached the industry regulator a number of times to say that government has to take a decision on whether NDPHC is a social company or a business entity. He notes that the decision will literally decide the future of the company.

“Because if they increase our tariff, it will lead to overall increase in revenue judging by the capacity of 4,000MW that we have, ”he added.

Although the company has a record of over 3,500Mw capacity, it is only allowed to supply 700mw, Ugbo notes.

 “Again, I have over 3,500 mw capacity but I am told to supply only 700mw and it is on that that I get paid. Now, Discos remit about 50 per cent. It means that I get paid 50 per cent.

Right now, what is owed to NDPHC by the industry is somewhere around N150 billion. Which company survives with that level of debt?, ”he queries.

But Ugbo adds that the company remains undeterred, raising the hope that that the problems with the electricity sector would soon be resolved with the various interventions.

“NDPHC is providing interventions in transmission across the country.  Aside that, it is playing a big role in improving the transmission capacity of the transmission company, ”he stresses.

More so, the President, Nigeria Consumer Protection Network, Mr Kunle Olubiyo, believes that the federal government should halt the renewal of the retrogressive undertakings or the take-or-pay arrangement.

“Government is not paying NDPHC and is even buying electricity from them at a lesser price compared to other power generation plants…The existing ones that they have vesting contracts with, the vesting contracts will soon expire. So, we are not praying that those ones that have vesting contracts with the government be renewed, ”he argued.

In his comments, the Convener and Forum Director of the Nigerian Power Consumers Forum (NPCF), Mr Michael Okoh, urged the Nigerian Electricity Regulatory Commission (NERC) to accelerate the process of assigning real value to the NIPP intervention projects.

He stated that this was especially critical in power transmission and distribution so that the federal government could be part of its investments, and then, re-invest it into other power sector infrastructure.

 “From a rough estimate, if the NERC does this valuation, the NDPHC can recover nearly $4 billion or about N1.725trillion, which can be re-invested in providing meters, transformers and power lines, especially on the distribution networks as a soft loan to Discos’ operators,” he maintained.

TAKE-OR-PAY AS ALBATROSS

A major issue that has challenged the operation of the company is that there is no single take or pay contract with the company’s plants like Nigerian Bulk Electricity Trading (NBET) Plc has with some other generation companies.

The situation has therefore left the company unable to sign contracts with oil companies that would guarantee gas supply to the plants.

So, in essence, given the importance of take-or-pay clauses to the bankability of long-term energy projects, it is essential that the NDPHC is brought into the fray to firm up its business survival in the long term.

 Typically, typical take-or-pay clause requires the buyer to either take or pay the contract price for a minimum contract quantity of the commodity, that is electricity or gas or in the alternative, pay the applicable contract price for such quantity if not taken in the applicable period.

As has been variously argued, in a market that works, no one needs a take-or-pay arrangement. For now, the fair take is that if the phenomenon must continue it should be done across board, rather than the current discriminatory practice.