A 19.577 billion package for revival of power plants has been approved by the Federal Government. The package is expected to boost power supply by about 1,500 megawatts.
The Minister of State for Energy (Power), Mrs Fatima Ibrahim, who broke the news at the inauguration of the Nigeria National Petroleum Corporation (NNPC) Clean Development Mechanism (CDM) in Abuja at the weekend, added that publicly-owned infrastructure is struggling to keep pace with the expectation of consumers nationwide.
However, she noted, the Federal Government has identified the strategy in improving power generation within the short-term horizon is the restoration of the productive capacity of the plants, where it is deemed to be economically viable.
According to the minister, technical audits of the power plants were undertaken to provide a cost-benefit report on the rehabilitation.
The audits showed that rehabilitation of transmission and distribution infrastructure is expected to require N 21.65 billion. A proposed expansion of the national grid for wheeling 16,000MW would involve an expenditure of about N 200 billion.
Commenting on the completion of the National Integrated Power Projects (NIPP), Mrs. Ibrahim claimed they were conceived as a fast-track intervention of the three tiers of government designed to pull the nation out of the vicious cycle of infrastructural deficit in the power sector.
“It is expected that the power plants under the scheme would be privatised immediately upon completion to facilitate the recovery of funds invested by all the partners in the initiative.
“I wish to once again thank all the State and Local governments in the Federation for consenting, through the National Economic Council, to partner with the Federal Government in completing this important scheme. The NIPP is expected to contribute at least 1,200MW of power by December 2009,” she added.
The minister noted that the electricity tariff regime had over the years been below cost of service, consequently causing PHCN a monthly cash flow deficit of about N4billion, adding that Power Holding Company of Nigeria (PHCN) and the power sector would have been technically insolvent without the support of the Federal Government, particularly in capital expenditure.
Mrs Ibrahim said the involvement of the private sector in the nation’s electricity industry would therefore be a nullity, unless an investment climate is provided that would allow for cost recovery and a reasonable return on investment.
Recounting the landmark achievements of the present administration, she noted that the recent approval by the Federal Executive Council of a tariff determination mechanism, the MYTO, is enshrined in a framework developed by the Nigeria Electricity Regulatory Commission.
The minister noted that the decision of the Federal Executive Council provides for a subsidy of about N 177 billion over a three-year period after which the sector is expected to generate sufficient revenues for its viability.
The Federal Government is working on the finalisation of the mechanism of disbursing the MYTO subsidy.
“We are confident that the MYTO policy would provide sufficient confidence to investors exploring the IPP opportunities in the nation’s power sector,” said the minister.
Mrs Ibrahim noted that government is fully aware of the expectations of international Project Lenders wishing to finance projects in the nation’s electricity industry.
Similarly, she revealed that the federal government has realised the weakness of the previous Power Purchase Agreement that PHCN could not maintain.
“Our recent past experience has indicated that the sense of urgency prevalent at the time of implementing some projects has led to lop-sided and inequitable Power Purchase Agreements that are not sustainable by PHCN.
“In this respect, a consultant has been appointed to develop a PPA template that draws on international experience and requirements for equitable allocation of risks. I am also pleased to report that the Federal Ministry of Finance is finalising the development of securitisation of payments for power under the PPA. “The national effort towards involving the private sector is further supported by the World Bank through the provision of a Partial Risk Guarantee (PRG) on PPA payments by PHCN.
“I understand that the new JV-IPPs are now clamouring to be availed with the opportunity of the PRG support which may subsequently be expanded to include payments under the GSPA.”
While reviewing the state of the PHCN, Mrs Ibrahim noted that numerous reports on PHCN had consistently identified “lack of co-ordination and commercial direction” as one of the reasons for its sub-optimal performance. The Federal Government has, therefore, addressed the situation with the recent inauguration of a transitional management that is expected to drive the organization to full commercialization.
She reiterated that the Federal Government would not re-bundle PHCN nor reversing the reform of the power sector.
According to the minister, the recent developments at PHCN are fashioned to reinvigorate and optimise the technical, commercial and managerial performance of the utility company as the transitional Board of PHCN is expected to prepare the organisation for full commercialisation and eventual privatization.
“I am particularly happy to state that this strategy is already yielding good results, given the noticeable improvements in both managerial and generation capacity of the sector,” Mrs Ibrahim said.
According to her, the Ministry of Energy (Power) has initiated the establishment of a Carbon Finance Group to be domiciled in the Ministry.
She spoke of the many problems of the sector, saying: “The final challenge in generation is low energy security arising from over-reliance on gas-fired power plants which currently account for about 70% of the generation capacity.”
The minister also pointed out that the national grid for transmitting power between major load centers is currently limited to wheeling only about 4,000MW of electric power.
She added that the security of supply is vulnerable, because the fragile and radial nature of the network does not allow for alternative means of back-feeding supply when vandals strike. “Furthermore, a recent diagnostic review of the sector indicates that most of the power transformers are overloaded by about 20%, thereby limiting the capacity of most sub-stations to efficiently take up the power allocated to the distribution companies.
“The transmission constraint was recently brought to focus by the inability of some load centres to fully take advantage of the recent improvement in generation which has risen about 3,600MW,” Mrs Ibrahim said.