DisCos Must Pay Their N500 Billion Electricity Debt – Ugbo

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The Managing Director/Chief Executive Officer, Niger Delta Power Holding Company, Mr. Chiedu Ugbo, tells OKECHUKWU NNODIM that power distribution companies must clear their indebtedness to the Nigerian Bulk Electricity Trading company, among other issues

The electricity market does not get the required remittance from power distributors. How has the NDPHC been coping?

It’s quite challenging, I must say. Our only source of revenue is from the sale of power, which is the power we generate, put on the grid; the transmission company transmits to distribution companies, who now sell to consumers. That is the flow of power from generation companies to final consumers.

Money travels in the opposite direction and you expect the same value in monetary form to travel back. But what the Discos were accounting for earlier as remittance was between 20 and 25 per cent. In fact, 25 per cent was the upper limit.

 In one particular situation, I think in December last year or January this year, we had like 19 per cent. So what that means is that if you sell a product worth N100,000; you are getting N20,000 in return.

It was very difficult and that percentage was far less than our gas consumption. International oil companies like Total and Shell collect their money for gas upfront, meaning we pre-pay. And once the payment is exhausted they turn us off.

So we have been managing all this while. But early this year, the Federal Government intervened through the payment assurance programme to the Nigerian Bulk Electricity Trading Company. The government came up with the N701bn to resolve the power sector liquidity challenge. It’s a payment assurance that is basically to ensure that we pay gas suppliers.

What is the average amount, in terms of percentage, that you get as payment for the power you send to the grid?

As of last year, it was an average of 25 per cent. This year I think it is coming up to like 30 per cent. And that is the remittances from the Discos. On how we have been surviving, you remember I mentioned the N701 billion intervention.

From this fund, sometimes government comes in to support us with about 50 per cent of what we need for a particular month, which is often the average percentage that you spend on gas. So with government’s 50 per cent and the 30 per cent we get from NBET, it takes you to about 80 per cent. So what you won’t have will be in the range of 20 per cent.

Going by all you have said; are you running at a loss as a company?

The power business is a good business, but our obligation first and foremost is to Nigerians and, of course, the shareholders. But my shareholders represent Nigerians and they are the federal and state governments. They are more interested in serving Nigerians than in making profit, and even if they declare profit, it will still be used to serve Nigerians.

With the power situation now, I wouldn’t say we are operating at a loss because in our books, we have the receivables. So it is not as if we are losing the money but we are being owed this money by the Discos.

This is why government comes in every now and then to intervene, like the N213bn Central Bank of Nigeria intervention from which we got N8bn as well as the N701bn power assurance fund.

So, we are not operating at a loss; it’s just that we do not have the cash. Also, we do a lot of cash management and so the little fund we have, we spend on transmission and distribution projects.

Who is going to pay the about 70 per cent unpaid remittance that has continued to widen the revenue gap in the power sector and when is it likely going to be paid?

The Discos will pay it and it will happen. The Discos have their own challenges too and they have always been saying that. One of such challenge is the Ministries, Departments and Agencies’ debts, whether federal or state government MDAs.

The Federal Government has done some reconciliation on its part and has come to a conclusion of N26 billion as the debt that is being owed the Discos by federal MDAs. And the Federal Government has said it is going to pay that money. But the government has also said, hang on Discos, you owe us, because NBET belong to us and the amount is over N500 billion.

Now if you check, their indebtedness to us, NIPP (National Integrated Power Project) alone, is about N180 billion. So the Discos have to pay a portion of what they owe the NBET, even though the N26 billion may look small when compared to the over N500 billion that they owe. There will be other opportunities like this for them to pay. There are a lot of options which government can use to get its money from the Discos.

Please tell us about the operational statuses of NDPHC plants

All NDPHC power plants in technical terms are available. For installed capacity, I think we are somewhere around 3,000 megawatts, but deliver far less than this figure.

So does that mean you don’t have enough gas to produce more power?

No it’s not so much a function of gas this time; it is a function of Discos picking load, the so called load rejection. So if Discos don’t pick load, it impacts on the grid stability.

What I generate must be equal to what the consumer takes, provided the transmission is good. If the consumer doesn’t take what I generate, it falls back on transmission and that is the frequency challenge you often hear.

Transmission frequency must balance at 50 hertz; it can go to 50.2Hz or around 49Hz, but it mustn’t be beyond this range. And so if there is a lot of power in the system it gets heated and trips off.

Does this mean your challenge is not more about gas but other issues in the system?

Yes, we have enough gas for the 450MW Alaoji plant. There is enough gas for Gbarain, where one of its units is 125MW, depending when the other unit will be ready to make it 250MW. But for the 125MW, we have enough gas.

Also there is enough gas for the 600MW plant in Calabar and the plant there is supported by gas supply PRG, which is a signed agreement between our company and the gas supplier. The pipeline supplying the gas is dedicated to the plant, crossing about five rivers from Akwa Ibom to where the generation plant is located in Calabar. We work with Acugas and they are supplying us gas for Calabar.

What’s the situation with the privatisation of the NIPPs?

This privatisation process started in 2012 and moved to 2013 with the emergence of the preferred bidders. At that time it was a mix of market issues and internal issues that had to do with gas supply, completion of the power plants and evacuation. For instance, Alaoji and Calabar had no evacuation; the plants in the West side of Delta, from Sapele and Benin have gas supply problems.

Shortly before I came in, the company got approval that once we finish resolving the issue of a particular plant we should go ahead and sell the plant. So we were able to rush and finish the Ikot Ekpene switching station and the transmission line to Calabar, as well as the transmission line to Alaoji. This is because both of them come to Ikot Ekpene where the power is sent to Ugwuaji and from there to the rest of the grid.

So that resolved the transmission challenge for Calabar and Alaoji. Total has finished the dedicated pipeline to Alaoji power plant and they have started supplying gas to the plant. So Alaoji and Calabar both have gas evacuation.

We got approval for Calabar to be privatised. Alaoji was not included because it was under litigation. But the issue has been handled and Alaoji is back. In Omotosho, gas was the only challenge and we are working on that. For Geregu, we are discussing with GACN and NPDC to finalise the gas supply agreement for that plant.

So, in essence we have finished what is our responsibility for the three and we are ready to go. The other challenge we encountered was the market, because in 2014 the market was not bankable. It was difficult for bidders, as any lender coming to do due diligence on Nigerian market would just see what we were getting. That you would supply 100 per cent and get about 25 per cent and it was in generation.

They (lenders) were saying that the market couldn’t guarantee their monies. But we are still on the privatisation process because the preferred bidders are still interested as much as they were in 2013. We still have them and we are working with them as we try to close these three transactions.

We are working on a number of options with the Bureau of Public Enterprises and the National Council of Privatisation and we are just waiting for certain approvals now if the options we are proposing are accepted. That is why the privatisation has not ended because our mandate is that we should build and sell. The government has stated that development of the sector will be anchored on private investment.

Would you mind sharing some of these options?

Let me get my bosses to approve them first.

At what rate do you sell power from your plants to the grid?

Our tariff is somewhere around N18 while the rest of the generation plants are about N23 per kilowatt hour. We are discussing this with NBET right now because it is what we met. They plunged in the 2012 number without escalation built into it, like inflation and all that.

So while others kept going up, ours remained static. That is one reason, but we are discussing because there is no reason why we should remain low particularly when we don’t get capacity payments.

They are not allowing us to get the capacity payment even if we are available, but the other guys get paid. That makes it double jeopardy for us because the rates of the other guys are higher and they get capacity payments.

So, your risks are not appropriately dimensioned?

Yes and the argument is that we are government-owned. It is like taking from one pocket and putting in another pocket. But if I was getting budgetary allocations, it wouldn’t matter; we would know it is social service, but now the plants must make business sense to continue to run.

Are you under pressure to continue this way? How long can you go on?

The truth is that government will not allow the power sector to fold or collapse, and more importantly, provided we are running efficiently from things within our control. Government will not allow us to go under.

So, it is not our intention to continue to run the plants. If we can offload them to the private sector, that will be fantastic so that they will run on level playing field with the others, and we can go on to build more projects for the power sector.

If we had the money, we probably would have moved in massively to transmission and enable distribution to solve their problems though we still have almost 80 distribution substation and over 30 transmission projects.

To be clear, did you say the 10 power plants are still promising to investors?

Yes; it is just to clear the market risks around the plants so that the lenders can provide the funds to the investors. The business must make sense before the lenders will put their money there, and right now, it is not making sense when only 30 per cent of the product is being accounted for.

Are you still in the 3,010MW Mambilla hydro project, considering the fact that government approved it recently?

No, it is purely the government and the ministry. But if we are required to do anything, we will do because we are still government. We had included it in our portfolio because nobody was doing it, and now we don’t have money to do it. But government has signed international agreement to do.

So, what projects are in the pool for your phase two?

Broadly, I can tell you that we want to do transmission; we want to do renewables, but we have not narrowed down to specific projects. We are doing distribution a lot now, and I tell you that President Muhammadu Buhari made a promise to make sure Nigerians have light and we are doing that.

We have hundreds of distribution projects in various zones and we are ready to continue to do that. My responsibility is to optimise the about 3,000MW in our plants to get to end-users. Power plants are meant to run all year round except for scheduled maintenance. They are that rugged and if you keep them idle you are killing them.

So it is in my best interest that they continue to run. The only way to do this is that we develope three-pronged strategy. One is that with the declaration of the eligible customer regime, we have now identified eligible customers not too far from the plant that we can supply directly either with little or no investment in networks, and we supply them directly.

Then we find out distribution challenges and areas where they have aged infrastructure and we can go in and work with them. We also intend to do end-to-end investments in areas that are too far, maybe in renewables, to serve clusters.

Do Discos still refuse your distribution infrastructure built to improve their operations?

Yes, they still do, but we are discussing with them and we want to see how far we will go with that because I met the challenge. Essentially, it will mean they have the capacity to take power to certain levels of consumers they don’t want to serve at all.

In power business, the tariff is always structured to see that the high-end customers who are few pay about 60 per cent of the total while the regular pay 40 per cent. But the Discos want to serve only the high-end customers and leave substantial part of the low-end customers.

There is a Universal Service Obligation in every network business because the rich will always subsidise the poor. Now the government is saying the generation companies should go and serve the people that are underserved and the Discos are screaming blue murder.

There are claims NDPHC owes its contractors for out of scope works. What are you doing about this?

We have paid everybody who built our plants, but these are claims and all the legitimate claims are being processed. We set up a team; they are reviewing the claims. I sent it to due process for approval and if it is more than 15 per cent of the original contract sum, it has to go to the President for approval. We are doing that for every legitimate claim and we are not turning down any.

What is your honest assessment of the electricity market so far?

There are challenges; there are hiccups, no doubt. It was going as planned until after privatisation which came with new challenges that were unforeseen. This government came in and inherited those challenges and it has been extremely creative to deal with these challenges.

One of the ways of resolving the challenges is the PSRP (Power Sector Recovery Programme) with the World Bank. And world over, especially in emerging markets where they have done privatisation, they also encountered these challenges. There would be challenges; it is a movement from public service to market commodity and this must attract its own price and even in some cases profiteering.

It is left for the regulator and the government to keep monitoring the market and even stay ahead of the market because the average business man wants to maximise his profits especially with near natural geographical monopolies like the Discos.

You inherited so much court cases on your projects; how have you dealt with them?

Yes, especially on way lease and passing people’s land. We had a lot of challenges in Enugu, Oronta, Calabar, and Abia. My attitude was to get through them and not staying in courts. They wanted compensation and claimed they were treated unfairly.

We analysed their complaints and where there was merit, we treated them and met ourselves halfway. That was how we were able to get these resolved, especially at Ikot Ekpene because it was a major one but stalled for a very long time because of court injunction. It is a question of compensation.

What about contractors who have given this company a lot of trouble?

Again, I weighed the consequences of the choices that were before me – either to terminate or not. Do we get muddled up in controversy or find a way to move the projects? We have to move the projects.

We have recalcitrant contractors; there were four power plants under a contractor’s control, one has been partially completed, one will be fully commissioned this October; another  one, I have assurance that it will be ready before the year ends, and the last one, we should conclude on that by mid next year.

All the recalcitrant contractors have realised I am not joking and that is the truth. However, we have enjoyed cooperation outside and inside. We have also helped them to overcome their problems. We are staying close to the projects and the contractors to know what their problems are. We don’t just sit back in our offices because we are not engaged to do that.

You inherited a workforce; how were you able to get their support in handling your many projects?

I work directly with my team but it is not a pyramid structure despite the official status. For every project I work with the executive director and the team he has for the project. So I don’t have to wait for the executive director if he is busy somewhere and I cannot reach him. I should be able to reach the project manager.

We also interact every now and then. I was involved in the privatisation process and when I came here, a lot of them felt the undertaker had come. But I had to let them know that I was not sent here to push people out of job but to give Nigerians light. We are all friends to get the job done and if I have to wield the big stick, I will wield the big stick.

Source: IWIN

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