A Roadmap for Nigeria’s Energy Crisis by Nasir El Rufai

Ask any Nigerian entrepreneur what the country’s biggest problem is holding back economic development, and they’ll tell you it’s not the horrible corruption, insufficient security, or even the red tape.  It’s the woefully inadequate power supply, one of the most tragically ironic examples of Nigeria wasting away its abundant resource wealth.  Exacerbated by years of government mismanagement, and, in the case, of the Yar’Adua government, profound indifference, Nigeria desperately needs to come up with a new road map in order to make the necessary mid- and long-term reforms to attract investment to increase production.  Back in 2007, under a mandate from President Olusegun Obasanjo, FCT Minister Mallam Nasir El-Rufai formed a Presidential Committee on Power Supply Improvement.  Many of the recommendations from this report remain valid, and may form the basis of a new discussion of what policies need to be undertaken.  Below is just the executive summary and recommendations; the full PDF text of the report is available here.

Executive Summary and Recommendations

The Committee on Power Improvement was set up by His Excellency, President Olusegun Obasanjo, GCFR in April 2007 under the Chairmanship of the Minister of Federal Capital Territory, Nasir Ahmad el-Rufa’i, OFR to proffer short to medium term interventions addressing the then dwindling Electric Power Supply situation in Nigeria. Following its inauguration on 5th April 2007, the Committee, which comprised the major organizations and key individuals in the Power Sector obtained and reviewed several documents. Members also undertook study tours to fourteen (14) out of the seventeen (17) Power Plants across the country.

1.0 SUMMARY

1.1 The fall in power generation prior to the setting up of the Committee, resulting in power rationing and attendant load shedding called for concern. Generation fell below 2,200MW on many occasions compared to the usual level of 3,500MW.

1.2 The fall in generation could be attributed to the vandalized gas pipeline along Escravos and eventual drop in gas supply to Thermal Stations due to the presence of condensate in the pipeline that necessitated “pigging”.

1.3 The presence of condensate in the pipelines was due to wet gas from Shell’s Utorogu Plant and the demand pressure on the gas pipeline, which had hitherto, fallen well below the usual level before the vandalization of 18th February 2006.

1.4 The fall in generation can further be attributed to the shortfall in water system in the Hydro Stations. As a result of the drop in gas supply, which also led to the drop in the Thermal Stations, Hydro Plants that were on water management were used to supplement power generation.

1.5 The need to find alternative sources of electric energy to supplement the existing ones and to diversify fuel mix in the Sector cannot be overemphasized.

1.6 There is need to supplement the funding of the existing Power Plants, Transmission and Distribution infrastructure.

1.7 Maintenance programs were not undertaken as and when due in the PHCN System due to poor funding as it appeared that the existing infrastructure, which are old and fragile were compromised with the funding of new infrastructure.

1.8 There is need to further explore gas development for the Power Sector and other sectors. Although natural gas exists in abundance, the production for power generation is inadequate.

1.9 The residual PHCN issues with respect to its successor companies need to be reviewed. It is obvious that the unbundling left some gaps in the coordination of activities.

1.10 The Power Sector requires continuous funding especially when the tariff system does not allow for economic return on investment. While the unbundling activities went on, the funds for the continuous operation of PHCN infrastructure was compromised. This has resulted in a situation where several power and distribution transformers failed and cannot be replaced. Generation and Transmission infrastructure have the same problem.

1.12 Practically all senior positions in this technology-intense Sector are manned by Nigerians and this should be noted and encouraged. However, as a result of years of inadequate funding, manpower development and capacity building in the Power Sector were neglected. Consequently, the Sector is witnessing shortage of requisite skills in adequate quantity and quality.

1.11 Timely completion of NIPP and FGN Power Projects is being hampered by delays in the provision and processing of funds for the projects and by lingering community issues.

2.0 RECOMMENDATIONS

2.1 SHORT TERM

2.1.1 Ongoing effort, following access to the vandalized Escravos Gas Pipeline, should be sustained and completion of the repair work as scheduled in June 2007 ensured. Completion of the work will also minimize the presence of condensate leading to “pigging”.

2.1.2 Discussions with Shell on the upgrade of the Utorogu Gas Plant must commence immediately. The choice of appropriate well selection to limit liquid production should also be explored.

2.1.3 The expansion process of the ELPS capacity should be expedited. The contract should be awarded immediately.

2.1.4 NNPC should be directed to, as a matter of urgency, commence a project to link the Eastern Natural Gas Network to the Western Gas Network for greater flexibility and to enable diversion of supply capacity in the East to the West and vice-versa.

2.1.5 Completion of the on-going PHCN Power Stations in Geregu, Omotosho, Ibom I, Olorunsogo and Alaoji should be expedited to ensure that power generation is improved. The adjoining Transmission Line projects to evacuate the power generated should be hastened to ensure completion.

2.1.6 The FGN should sustain funding for PHCN Headquarters to cover common industry liabilities (gas supply, laboratory, etc) during transition.

2.1.7 The FGN should provide funds to complete some of the ongoing rehabilitation of/repairs in Afam, Delta III & IV, Sapele, Kainji, Jebba and Egbin Power Stations. Transmission and Distribution infrastructure also need a lot of interventions to replace obsolete equipment and damaged transformers.

2.1.8 Revitalization of existing Finance Committee, which consists of the Federal Ministry of Energy, Federal Ministry of Finance, National Integrated Power Project, Central Bank of Nigeria and the Accountant General of the Federation to resolve observed bottlenecks and facilitate the administration of financial issues in respect of all NIPP projects.

2.1.9 To ensure quick intervention in power generation, Egbin Power Station must keep adequate stock of LPFO at all times. This will ensure Unit ST04 can produce electricity in the absence of gas.

2.1.10 The FGN should strengthen the coordination framework during the transition in a manner that ensures the enhancement of sector efficiency.

2.1.11 In order to consolidate the progress made in the reforms in the Sector, managed transition process effectively, attract private investment and increase competition, NERC needs to introduce the new tariff regime without further delay.

2.1.12 The risk faced by Generating Companies need to be addressed through effective Securitization if further investment in the Sector must be attracted. Stakeholders should meet and conclude on the package for securitization.

2.1.13 The transition trading arrangements, especially as they concern the participation of NELMCO in the procurement of new capacity, the use of vesting contracts and the phased introduction of bilateral contracting need to be firmly resolved and implemented.

2.1.14 The National Energy Policy, Renewable Energy Master Plan and the National Energy Master Plan should be instituted through an Act of National Assembly.

2.1.15 There is a need to develop and site Small Hydro Plants and Solar-based village pilot schemes.

2.1.16 Immediate provision of the required funds to BPE to settle severance packages for PHCN staff that will be affected by the restructuring exercise. All labor related issues should be completed as quickly as possible.

2.1.17 A skills gap analysis in the Power Sector needs to be carried out to determine the existing skills and competencies, identify areas of deficiency, and recommend appropriate measures for skills and capacity development.

2.2 MEDIUM TERM

2.2.1 The major portfolio interventions presently embarked upon by NNPC to enhance seamless management of gas supply to Power Plants must be given adequate support by all the Government agencies and regulatory bodies involved.

2.2.2 The central issue of integrated resource planning particularly as it relates to bridging the wide gap between demand and supply of electric power energy must be given top priority. The issues raised in the 25-year Power Sector Development Report should be implemented to forestall further crises.

2.2.3 There is the need to adopt NNPC’s proposed legislative intervention, which makes it mandatory for gas operators to meet domestic demand before export.

2.2.4 Adequate measure to ensure improvement and protection of gas supply to existing and on-going Power Plants must be fully entrenched.

2.2.5 Shell and other producers of natural gas for electricity generation should be directed to upgrade the performance of their flow stations to ensure that gas supply for power generation meets the specifications in Gas Supply Purchase Agreement (GSPA).

2.2.6 Comprehensive rehabilitation of the ageing Power Plants (thermal and hydro) through execution of units overhaul and remedial works is mandatory in order to achieve optimum plant performance to curb incessant equipment failure and frequent system collapses.

2.2.7 Enhance the timely completion of on-going power expansion projects by ameliorating all the identified bottlenecks – financial, technical and environmental.

2.2.8 Facilitate further expansion of the nation’s power generation base through provision of attractive and investor friendly incentives to create a conducive climate for active participation in power production.

2.2.9 Explore and exploit the abundant alternative renewable energy sources to achieve increased availability and wider spread of electric power supply in the country.

2.2.10 Actualize the realization of Hydropower projects through installation of turbines in known completed dams and development of identified hydropower potential sites.

2.2.11 Establish appropriate staffing structure for the Sector through the implementation of the recommended phased restructuring of PHCN staff, injection of competent and qualified manpower and development of specialized training institution to address the human capacity requirements of the Sector.

2.2.12 The need to adopt the energy mix strategy for the generation of power cannot be overemphasized. The present arrangement where generation capacity is over 2:1 in favour of thermal needs to be balanced, considering the inadequacy of gas supply in the short and medium term. Future overdependence of power generation on thermal should be reviewed and efforts geared towards active participation in other generation fuel sources.

2.2.13 There is need for the FGN to provide an investor friendly environment for the utilization of the abundant coal reserve for power generation.

2.2.14 The process of procuring spare parts for the Power Plants should be relaxed especially for emergency cases, to ensure speedy repairs.

2.2.15 Power Plants spare parts manufacturers should be encouraged to setup manufacturing plants in the country to ensure availability.

2.2.16 For new Power Projects, there is need for the involvement of State and Local authorities at conceptualization stage to curb community restiveness. Also, various project site options should be considered and selection made based on willingness of communities to facilitate peaceful work on site.

2.2.17 The two-pronged approach of strengthening existing institutions for capacity building and encouraging the Private Sector to establish a world-class training institute for manpower development should be adopted.

Originally published on  http://el-rufai.org/2011/07/a-roadmap-for-nigerias-energy-crisis/