As I am writing this I am hot, frustrated and angry. I am using a rechargeable lamp (recharged using my generating set) because I have not had power from PHCN for the past 24 hours. Nothing new.
I am frustrated because although the problems of electric power generation in Nigeria are complex, they can be solved. I am angry because the present government is spending too much time on the past rather than concentrating on doing something now to address the problem. What the government needs to do is to tackle the generation, transmission and distribution problem in a methodical fashion.
Take as an example the issue of inadequate generation. Recently we were told that PHCN is currently generating less than 2,000 MW. Quite pathetic one might add. What if I tell you we can double this in the next 3 years by spending between $3 and $4 billion dollars? Believe me it is possible. This is how.
The previous Obasanjo administration mandated Oil Majors who are currently in Joint Venture (JV) partnerships with NNPC to build Independent Power Plants (IPP). The projects will include High Voltage transmission lines, gas i nfrastructure and the gas where required. The Oil Majors will contribute between 40-45% of the cost of the project (this is based on their equity in the JV) while NNPC will contribute between 55% and 60%. There are several benefits of this arrangement:
1. The government will only contribute 55% - 60% cash during the construction of the project (typically 3- 4 years) instead of 100%. Therefore the impact on the cashflow of government is minimized. The JV partners will recover their contribution over a couple of years after the project has become operational.
2. PHCN benefits from the project management experience of the Oil Majors. The IPP’s will surely be delivered by the Oil Majors as they have their reputations to protect. The current scandals surrounding the NIPP projects will certainly not be experienced in the IPP projects. For example Agip have since delivered their IPP project. Without the Agip IPP our current crises could have been even worse.
3. The Oil Majors will ensure gas supply to the IIP since they are directly involved in gas production.
Unfortunately for Nigerians only Agip has been able to deliver on the IPP due to lack of funding from NNPC. While the Oil Majors are willing and able to fund their share of the project, NNPC has failed in the last two years to provide funding for the projects. For one reason or the other, Shell, C hevron, Elf and ExxonMobil have not received the funds from NNPC needed to deliver the p rojects. Shell has made significant progress without f unds from NNPC. However, for how long do we expect Shell to carry our burden? NNPC is not really to blame as the government refused to appropriate NNPC the funds it needs.
The real question t hen is how much money is required to deliver the projects? Between Shell, Elf, Chevron and ExxonMobil the amount that is required from the government is between $3.5 to $4 billion dollars. Let me put this amount in context. The $4 billion is about 37 days of oil production if we assume oil price of $90 and 2.2 million barrels a day production and government take of 55% of the production. Please note that this is a very conservative estimate. Can you imagine! All we need to fund the four IPP’s is to commit 37 days production spread over 3 years (approximately 2 weeks production per year!).
Although what I have proposed is rather simplistic, it is equally not that complex. Unfortunately for Nigerians the government of Yar’Adua and NNPC just don’t get it. The whole country cant move forward because of the power situation. Meanwhile oil price is at record highs and NNPC is starved of funds to execute national priority projects.
For the past few months NNPC has been discussing with Oil Majors on how to fund its projects (including IPP’s). With oil price above $100 this is totally unnecessary. This is the time to use the oil money to invest in infrastructure and the oil industry itself. This is not the time to engage in long discussions with Oil Majors on funding. Unfortunately some advisors have convinced the current president that this is the way to go.
Yar’Adua told us during his campaign that power is a priority. However, his actions contradict this. The 2008 budget did not provide the required amount to execute the IPP projects or any major power project. When something is a priority the logical thing to do is to allocate funds to it.
So we continue to live in darkness. Until such a time when someone does the simple calculation and realizes that all we need is 37 days of production to add 2,000 MW to the national grid. While 2,000 MW might look small,it will be a huge leap as it will double our current generation. And perhaps our nights will be brighter and cooler.
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4 comments:
the govt already promised to generate upto 6000mw by mid next year, they cant click their finger for it to happened today. the govt didnt allocate anything to the sector probably because they are looking to get the money from elsewhere if you notice the govt is trying to bring in private companies in the meantime they are looking for alternative funding like they did in the past only that it wasnt monitored. the excess crude oil fund dont actually have any law backing its spending theres's no law to say what exactly it is for-im sure tehy will soon direct the funds to the major issues in the country
There is abosolutely no way they can deliver addition 6,000 MW by middle of next year. It is not possible.
I am currently involved in a power project and i can tell u it takes at least 4 years to put up a plant from start to finish.
As for looking 4 alternative funding, this is a joke. Oil price is over $100 per bbbl. So why are we looking 4 a loan?
What is this excess crude? It is just nonsense economics. At the beginning of the year we budet at $50+ a bbl knowing fully well it is above $80 a bbl. Once it is excess it becomes difficult spending it.
But the difficulty can go away. All we have to do is to share it according to the agreed revenue allocation formula 4 fed, state and LG's. The Fed can then use their share to fund projects like the power projects.
Right now the power situation is bad because the govt has not allocated money to the sector. If the oil majors are given gunding they will deliver the plants. it is that simple.
delivering 6000mw by mid-next year is very possible!
i'm not talking about new plants, i'm talking about ongoing projects, the major obstacle at the moment is getting gas to power plants and completing those that are in the pipeline, with a proper project manager and direct access to funds 6000 is very possible.
if the FG use their funds alone from the crude the wont have enough to run the country! you'll agree that majority of these governors lack initiative and they sign any contract as long as an international contract comes along. the also have to put in money to build power projects or else they'll ignore it like they ignore most FG facilities in their area.
There is a differnce bw generating upto 6000MW and generating an additional 6000 MW.The govt said it will deliver additional 6000 MW by the end of next year.
I can bet u by the end of next year this govt will not be able to deliver an additional 6000MW. One power project that i am sure will start delivering power by next year is Shell IPP.
I dont agree with u that if this govt devotes some money to power projects then it won have money to do other things. For starters, the budget was based on less than $60 per bbl. Right now oil is at $100+ per bbl. So this govt is awash with cash.
Furthermore, what my article is advocating is less than $4 billion spread over 3 years so that the Int Oil companies can complete their IPP's. In the current climate this is small chnage.
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