Wednesday, June 25, 2008

Power: Lukman Proposes Suspension of Privatisation

...Estimates $85bn needed to achieve 20,000mw by 2020
From Juliana Taiwo in Abuja, 06.25.2008 (THISDAY Newspapers)

The Federal Government should halt the privatisation of the power sector until necessary repairs are carried out in the existing infrastructure, the Power Sector Reform Committee headed by Honorary Adviser on Energy to the President, Dr. Rilwanu Lukman, has proposed.
Lukman, while submitting the committee’s final report to President Umaru Musa Yar’Adua in company with Vice-President Goodluck Jonathan, yesterday at the Council Chambers of the Presidential Villa, said: “We feel that it is highly important that the coordinating body in the PHCN be put in place. The privatisation of the successor companies should be suspended until the finalisation of these repairs and viability status is sustained.”
Preparatory to the privatisation of the sector, the former administration of Chief Olusegun Obasanjo had unbundled the National Electric Power Authority (NEPA) into 18 successor companies to handle generation, distribution and transmission, while Power Holding Company of Nigeria (PHCN) was incorporated to take over “stranded” assets and liabilities of the defunct NEPA.
Lukman was however silent on the fate of the 18 successor companies since they have already been “corporatised” – having been registered as independent companies at the Corporate Affairs Commission (CAC).
This recommendation for a new co-ordinating unit may also raise legal issues since the 18 companies are already corporate bodies on their own.
The committee also said Nigeria needed $85 billion (about N10.2 trillion) to meet her 20,000 megawatts electricity target by 2020.
It said the sum would be expended on the ailing sector in the next 12 years in order to achieve government’s short, medium and long-term target as contained in the Power Sector Masterplan.
He, however, was quick to add that this amount did not include another N301.3 billion that would be required for the immediate rehabilitation of gas infrastructural development to enhance adequate gas supply for the generation of the targeted megawatts.
He said 60-70 per cent of the country’s electricity requirement would be dependent on gas, while the remaining are hydro, coal and solar.
Lukman warned that while gas-related electricity accounts for about 70 per cent of total requirement, unless there was peace in the Niger Delta, the nation’s quest for adequate power supply would be a mirage.
All forms of privatisation in the sector should be suspended until Nigeria achieves a healthy power sector, the committee recommended.
The breakdown of the figure shows that of the N10 trillion, a total of $3.5 billion (about N411.1 billion) is to be sourced to solve the sector’s immediate problems and generate 6000 megawatts under the short-term plan which would last for the next 18 months.
For the medium-term plan, the committee is proposing the total amount of N434.3 billion to beef up total electricity generation to 10,000 megawatts which equates current demand.
This will be implemented in the next three to five years, while the long term plan which stretches through another six years, is expected to consume the balance of the whole sum.
The committee lamented that currently only 40 per cent of Nigerians are serviced by the PHCN, but the remaining 60 per cent are expected to be taken care of at the end of the medium-term plan implementation.
The committee advised government to consider emergency power generation in selected urban areas with a view to deploying it whenever there is a sudden drop from the national grid.
It said the facility could also be relocated from one city to another or even to the rural areas as soon as the situation improves in the cities.
While it recommended government’s immediate approval of the implementation of the short-term plan, it warned that gas supply and the Niger Delta where it is produced are the most crucial ingredients and aspects of the power generation in Nigeria and most therefore be given priority in public expenditure.
Assessing the current state of the country’s reforms in the sector, Lukman disclosed that gas supply is the single most important element of Nigeria’s adequate power supply, followed by maintenance.
He said the country had gas deposit that could sustain her power generation for over 150 years but decried the current indebtedness of PHCN of N14 billion to gas suppliers.
The committee also uncovered that while an average of N20 billion is required monthly for the settlement of PHCN retirees, 37,000 are workers in the utility’s employ as against the verified number of 22,115 staff by consultants.
He said 90 per cent of them do not contribute meaningfully to productivity as they lack professional training.
President Yar’Adua, while thanking the committee for a job “well done”, declared that with the submission of the report, his government would immediately proceed to work out the package for both the short, medium and long-term plans for the proposed declaration of a state of emergency in the sector.
He reiterated that the power sector remained the immediate priority in the government’s resolve to meet the vision 202020 target, adding that government would immediately examine the report and its recommendations with a view to implementing them without delay.
Speaking to State House Correspondents after the presentation, Lukman said: “We decided that we are going to define the stages based on what is achievable. For the short term, our aim is to optimise, stabilise and maintain the existing systems. There are a lot of megawatts that could be gained. We also believe by so doing, the capacity of generation can be raised to 6000mw. We also understand that currently, the transmission network cannot raise more than 4000 conveniently, so because of that, transmission and distribution network must be added to the system. The short term plan is 18 months, from now to December 2009.
“For the medium term, we feel that something tangible must be achieved within the lifetime of this administration, the first term. Within three years, we can beef up the current demand which we projected as 10,000 mw. This is achievable.
“After that, we look at the long term. Then we look at 2020, what is achievable. These are the ways that we came out with the short, medium and long-term, considering what is practically achievable, and what is also reasonable.
“For any plan, there must be general assumptions that would guide the way we go about the plan.
“The existing stations would continue to be maintained as at when due. If you do not maintain what you have started with, you are going to go backwards. The Federal Government would release timely funds, the FG would complete all NIPP projects. There must be assurance of adequate supply of gas, there must be no vandalism of power transmission and gas pipelines. For the medium and long-term plans to be achieved, the short-term plan must be successfully completed. These are the assumptions.
“Short term plan is primarily designed to address the immediate shortfalls both in generation and transmission capacity to achieve 36,000mw daily power. What we understood is that as long as these maintenance works are not started, more and more units are going to breakdown. So the first thing to do is stop the rot.”
He also emphasised the importance of optimising the new power stations, so that the three new stations at Geregu, Omotosho and Osun Oshogbo could be fully operational.
According to him, “The grid is very weak, many of the equipment currently are causing power cuts across the country because they are old, they have not been maintained properly and they are aging. We also need to expand the distribution network to accommodate the new power that is coming, and the old power that had been there.
“If all is done, we are assured of 7365mw, but we are only working on ensuring 6000mw by December 2009 because we are still on transmission.
“The communication, control and signalling systems within the grid are all very old and very unreliable. At the end of the short-term what is required in terms of funds to complete the short term is $3.5 billion.
“Medium term is a very interesting phase because by that time, we are going to have new stations started by this administration and we are about completing all the NIPP projects. We believe it is time we start bringing other sources of energy into the mix for energy security. We also hope to start seeing the IPPs coming to complement what the government is doing.
“Three major introductions, one, the introduction of other sources of energy, more hydros, coal and some renewables, because we included some solar and wind power to be experimented. Then the IPPs, more joint ventures coming in. Hopefully by that time the Multi-Year Tariff Order (MYTO) would have raised the economy to a level where people can come in and feel convinced that the investment is right.
“Finally, in the long term, it is hoped that the private sector should at least equal whatever investment government is making in the power sector. It is our belief that, rather than trying to sell the few little ones that are available, people should add more because Nigeria needs more megawatts. It is better the sector is all open; there are a lot of opportunities for everyone. By 2020 the private sector should be the leaders in the sector, the opportunities are there. For the private sector to come into this industry, most of them should go into gas.
He said the committee projected that wind and solar would have contributed 200mw. “So much more again have to be spent, in terms of constructing of transmission lines and substations and this one is purely government responsibility according to the current policy.
“The same thing with distribution. Distribution networks can be privatised with time; individuals can construct distribution networks and connect them to the grid. This is still allowable. And this could relieve government a lot in the sector, it is very feasible. There is a lot of private money that can go into distribution networks.
“Between now and 2020, we projected that we need to spend about close to $85 billion to be able to realise our dream. This is money that can come from all sectors. This does not include money required for gas infrastructure, which would also be massive.
“The plan here is for power, but there would be required a sort of equivalent gas infrastructure for them to be able to service all these thermal stations that are going to constitute about 6-7 per cent of the requirement. It is nearly also about eighty something, or ninety something million US dollars.
“Based on the submission we received from the NNPC, this is just for the short to medium-term. This money has to be spent between now and 2009 to be able to address those shortfalls, because without spending this, those shortfalls would be more because they would not be able to provide the infrastructure required for the gas supply to the power stations.
“The overall priority of government should be to arrest the decay in generation which is currently below 3000mw by optimising the use of existing assets.”

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