Lack of Funding as an Obstacle to Solving the Power Crises

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.

If I Were Yaradua

Nigerians elected Yaradua in April hoping that he would somehow deliver on the seven point agenda promised in his campaign. Seven months after assuming office, Nigerians are still hoping and praying that he would deliver. Will he?

Early signs are not encouraging. In the first place, the seven point agenda is too ambitious. Why not prioritize and choose two or three issues to focus on for four years? If I were Yaradua, I will only choose two issues to focus on in the next four years. These two are corruption and electric power.

Corruption is public enemy number one. We need to reduce or even eliminate corruption if we want to get anywhere. Obasanjo did well by creating EFCC even though he used it to fight his political battles. In my view, creating EFCC was the best thing Obasanjo did in his eight years in Aso Villa. He made the fight front page news and provided EFCC with all the support it needs to fight the menace of corruption.

Unfortunately, Yaradua through the Attorney General have slowed down EFCC. Considering the fact that so many ex governors have lost their immunity, one would have thought some will be behind bars by now. Alas, progress has been slow. With each passing day, I loose confidence in EFCC getting a guilty verdict against the very guilty ex governors.

If I were Yaradua, I will give Ribadu all the backing he needs to ensure some of these ex governors serve some jail time. This will serve as a deterrent to serving governors to keep their hands off public funds.

The second priority I will focus on if I were the president will be electric power. Nigerians have suffered for so long. Businesses of all sizes are groaning under the crushing weight of energy costs. Nigerian manufactured goods simply cannot compete with imported goods due to the high energy costs in Nigeria. The quality of life of Nigerians is compromised due to the poor electricity supply. It is not surprising therefore to find out that when two Nigerians meet, they more often that not spend time lamenting about the lack of electricity supply.

Although Yaradua claims that fixing the power sector is one of his priorities, I doubt if he really is the messiah Nigerians have been waiting for to deliver them from darkness. It is my view that when something is a priority, it should be properly funded. Alas, the power sector did not get what it needs in the 2008 budget. Yaradua made some noises about using alternative sources of funds. Consequently, the Independent Power Plants (IPP) being built by NNPC JV partners will be starved of funds yet again. Apart from Agip, none of the JV partners have been able to deliver on the power plants. This is due to no fault of theirs as NNPC to date has failed to provide its own share of the IPP costs. Without the required funding, these plants will not come on stream as planned. Thereby prolonging our stay in darkness.

Yaradua needs to wake up to the fact that if he wants to really solve the power crises, he needs to provide the required funds. In addition, the power sector is very complicated, it needs to be handled by experts who know the business inside out. Yaradua therefore needs to strengthen the sector with competent hands. Otherwise, he would spend the next four years without achieving much in the power sector just like his predecessor.

If Yaradua can concentrate on corruption and electric power and get results, Nigerians will forever be grateful.

I sincerely hope Yaradua will realize the enormity of the tasks facing him and begin to do what is required to change things. Otherwise his four years will pass swiftly without much being accomplished. That will be a shame indeed giving all the fanfare that greeted his swearing in as the first Nigerian president with a university degree.

Yaradua, we are waiting and expecting.