Why NIPP should be sustained
Despite the challenges facing the National Integrated Power Project (NIPP), electricity supply from the power stations built under the initiative, accounts for at least 25 per cent of the total output from the national grid. The percentage contribution by the project excludes capacities of some of the power plants that don’t get gas to fuel the turbines.
At the moment, the NIPP programme is facing an uncertain future with huge debt overhang as the Niger Delta Power Holding Company (NDPHC) that oversees the project is being owed N64 billion by the Federal Government, work and privatisation schedules have been disrupted and currently at standstill. The NIPP dream according to industry stakeholders, must not be killed if government’s aspirations in the power sector should be achieved.
The National Integrated Power Project (NIPP) superintended by the Niger Delta Power Holding Company (NDPHC) on behalf of the three tiers of government (federal, state, local government) is a programme conceived in 2004 to fast-track the addition of significant new generation capacity to Nigeria’s electricity supply system. After the establishment of the programme, the government in 2005 incorporated NDPHC to serve as the legal vehicle to contract for, hold, manage and operate the assets developed and built under the NIPP using private sector best practices.
The National Integrated Power Project (NIPP) superintended by the Niger Delta Power Holding Company (NDPHC) on behalf of the three tiers of government (federal, state, local government) is a programme conceived in 2004 to fast-track the addition of significant new generation capacity to Nigeria’s electricity supply system
The original plan was that NDPHC would also build hydropower dams in the North in the second phase of the NIPP after the completion. The 10 power plants built under the NIPP include Alaoji Generation Company in Abia State, Benin Generation Company in Ihovbor, Edo State, Egbema Generation Company in Imo State, Gbarain Generation Company in Bayelsa State, Calabar Generation Company, Cross River and Geregu Generation Company in Kogi State. Others are Omotosho Generation Company in Ondo State, Ogorode Generation Company in Sapele, Delta State, Omoku Generation Company in Rivers State Olorunsogo Generation Company in Ogun State. They have a combined installed generation capacity of 5,453 megawatts (Mw) and they are all gas powered. Apart from increasing the power supply, the plants were meant to take substantial quantity of natural gas to actualise government’s efforts to end gas flaring and utilise the flared and non-associated gas for the good of the citizenry.
Besides power generation, the NIPP project factored in construction of complementary electricity transmission and distribution infrastructure, as well as the infrastructure required to deliver the natural gas needed at the power plants. Therefore, investment and provision of infrastructure under the NIPP cut across the entire electricity power value chain but currently the projects seem abandoned.
Discontinuing the NIPP programme would have far-reaching impact on the power sector. Besides affecting the level of output, the fate of thousands of direct and indirect jobs provided by the project will be hanging. For Dr. Austin Nweze, an oil industry analyst and don at the Pan Atlantic University, Lagos, because of the strategic nature of the project, if the government abandons the project, the current contractors handling the project will leave and certainly government will re-award it to fresh contractors at higher cost. The old contractors in view of their commitments to the financial institutions and breach of contract may take the government to court.
Nweze said: “It would be unfortunate for the government to abandon the NIPP programme. There should be continuity in government. Government is a continuum. Therefore whoever is there today may be out of there tomorrow but the most important thing is that projects embarked upon by an administration that are beneficial to the populace, should be continued by successive administrations. But this is not the case in Africa and particularly in Nigeria, where governments don’t see anything good in what their predecessors did.
“It behoves the government in power to continue the project initiated by the previous administration for the benefit of the citizens but in Africa, leaders shove aside all the efforts and projects of their predecessors and this attitude has drawn back Africa and Nigeria over the years.This has resulted in wasted resources and funds in billions of dollars that were invested in such projects.”
He said the present government should not throw away the baby with the bath water, adding that the project will be continued so far as it is in the interest of the populace. Abandoning such a huge and calculated project meant to enhance the economy and future of the country will cost the country more in the future, he added. Nweze said: “It will cost us more as a nation if the project is abandoned. The absence of continuity in government and abandonment of projects embarked on by previous government is an attitude that has led to many foreign investors and people not doing business in Nigeria on the long term and this will derail the long term objective of a nation.
“The United States of America and Europe solved their power problems within 50 years but in Africa and Nigeria, we have been struggling to solve the same problem in over 100 years and this has remained a major setback to industrialisation. In Nigeria, 85 per cent of manufacturing components depend on power, and stable power supply improves the quality of life. With stable power supply, production cost of goods and services will drop substantially.
“Also if the government directly or indirectly shows disinterestedness in the project, the contractors will abandon it and the same contracts will be re-awarded in the future at a higher cost. Also if the project is abandoned, salaries will not be paid, the contractors can take the government to court for breach of contract, and this may lead stagnation of the economy with the attendant job losses, among others.
“President Muhammadu Buhari should manage the process well. Irrespective of the past negotiations, government should settle the debts owed NDPHC and keep the project running. Whatever the former President, Goodluck Jonathan did, was not on personal basis but on behalf of the nation, therefore Buhari should continue the project from where the previous government stopped.”
A source in the power ministry told The Nation that currently as activities on the NIPP and at NDPHC stand still, over $14 billion pledged to be invested in the second phase of NIPP by foreign firms has been stalled.
According to the source, the second phase projects include construction of large hydropower plants such as Mambilla, Gurara II and 10 small hydropower plants, transmission and distribution facilities and equipment.
He said the State Grid of China/CET/Westron, had committed to invest over $8 billion in first tranche and additional $4 billion later (on equity/loan participation) in Transmission Company of Nigeria through NDPHC with minimum $600 million contribution by NDPHC. He noted that Africa Group from United States of America has also committed to invest over $2 billion in power projects in Nigeria using NDPHC as a fulcrum. There are some other interested investors committed to self-financing small transmission projects in the range of $50 million and $200 million, citing a firm called Ak-Ay, as an example, he added.
He stated that the delay in closing transactions on the NIPP first phase and the over N64 billion owed the NDPHC by the Federal Government, the foreign investments seem stalled and when the foreign companies begin to withdraw their commitments, it would be difficult to achieve the second phase of NIPP. Therefore, the earlier the issues confronting the first of NIPP are addressed, the better for Nigerians and the economy.
He said: “On NIPP phase two programme implementation, the National Economic Council (NEC) approved the construction of some hydro-electric projects and additional strengthening of the transmission network from the proceeds of the sale of 80 per cent shares in NIPP generation projects for implementation as Phase II of NIPP.
“Meanwhile, 80 per cent share sales transaction supported by Messr CPCS Transcom International of Canada resulted in $5.7 billion, however, as no payments have been received from the share sales transaction due to gas and market bankability limitations, the NIPP Phase two implementation cannot commence as initially intended.”
Besides the initial problem the NIPP programme had in 2007 when it was alleged that $16 billion was invested in the project with nothing to show for it, the project has been a huge success. The 2007 problem dragged the project into controversy and litigation, and later suspension by the government in power then, which described it as a huge fraud and drainpipe of public funds, but after two years, the suspension was lifted and the government continued with the project.
By mid 2013, the 10 power plants constructed under NIPP phase one have reached various completion levels generating over 2,000 megawatts (Mw) of electricity. In line with the original plan, 80 per cent stakes in the 10 plants were put up for sale to generate part of the funds that would be used in the second phase. The board of NDPHC comprising representatives of the shareholders and statutorily chaired by the Vice President, had agreed that the $4.3 billion proceeds expected from the sale of the power plants will be reinvested into the project to ensure the country attains the stage of supplying uninterrupted power to its citizenry.
But currently, the divestiture of NDPHC generation assets is uncertain as the planned privatisation transaction of the 10 power plants is stalled due to inadequate gas for full commercial operation, and partial payment of energy invoices arising from the poor liquidity of the sector and this constitutes a major setback as NDPHC alone is owed over N64 billion. Besides, four of the 10 power plants including Alaoji, Gbarain, Ogorode and Omoku are under litigation. In view of the development, most of the bidders have withdrawn their bid bonds hence the uncertainty on the fate of the transaction.
According to the industry source, resolution of these issues would pave way for the sale and commencement of new investment under NIPP phase II in which the organisation would invest in transmission infrastructure, large hydropower and 10 other small hydropower plants.
He stated that following the challenges confronting the project and the over N64 billion owed the NDPHC by the Federal Government, the foreign investments may be stalled. He said: “On NIPP phase two programme implementation, the National Economic Council (NEC) approved the construction of some hydroelectric projects and additional strengthening of the transmission network from the proceeds of the sale of 80 per cent shares in NIPP generation projects for implementation as Phase II of NIPP.
“Meanwhile, 80 per cent share sales transaction supported by Messrs CPCS Transcom International of Canada resulted in $5.7 billion, however, as no payments have been received from the share sales transaction due to gas and market bankability limitations, the NIPP Phase two implementation cannot commence as initially intended,” adding that the situation is worsened by the withdrawal of bid bonds by the prospective investors.
He however, stated that the share sales transaction has to be redesigned for phased closure, adding that public procurement process for the engagement of a project management consultant to support NDPHC in project selection, design and implementation of NIPP Phase two projects has been completed with AF-Consult/Otis emerging victorious.
Funding and Progress
The NIPP projects are funded from the excess crude account, with the Federal Government contributing 47 per cent of the funds, while the state governments contribute 35 per cent and the local governments 18 per cent. As at May this year, about $11.1 billion has been committed to the project. Out of the $11.1 billion, $7.1 billion went into the building of the 10 generation plants, $0.5 billion into gas assets, transmission assets $2 billion, and distribution assets $1.5 billion.
The NIPP plants were designed to deliver combined installed capacity of 5,453 megawatts (Mw). Eight of the 10 power plants are designed as Open Cycle Gas Turbine (OCGT) power plants and the other two as Combined Cycle Gas Turbine (CCGT) power plants. The CCGT power plants can generate power through gas and steam turbines. For instance, the Alaoji power plant was designed as a CCGT project with a plant capacity of 1,131.4 Mw. The NDPHC had projected to attain a combined generation of 5153.1Mw by mid 2014 when it planned to fully privatise the power plants and hand them over to the new investors. However, the projections were disrupted due to lack of gas supply to the power plants and inability of some of the preferred bidders to make payments for the assets they bought.
Under the NIPP programme, 296 distribution injection substations have been undertaken and 265 completed. The remaining 31 substations are in advanced stages of completion. Also all the High Voltage Distribution System (HVDS) outgoing 11kV feeder networks from 162 of these completed substations have had their CSP transformers fully deployed to serve consumers, The Nation learnt.
The programme also carried out the installation of 114 transmission lines and substation projects. The projects were done to evacuate power from the new power plants as well as expand the capacity of existing substations to wheel the additional generation. It was also necessary to enhance the grid by closing the loop from South-South via South East and North Central to North East Nigeria. The projects include the Makurdi-Jos 330kv and 330/132/33kv lines; Makurdi 330/132kv; 330kv DC Makurdi-Aliade; 330kv DC Aliade-Ugwuaji and 330/132kv New Haven, Enugu, among other across the country. Some of the project contractors and EPC (enginerring, procurement and construction) contractors include Colenco, North China, Dextron, Energo, CCC International, Payma Bargh and Cartlark, Fichtner, Hoquado Limited.
But currently, the divestiture of NDPHC generation assets is uncertain as the planned privatisation transaction of the 10 power plants is stalled due to inadequate gas for full commercial operation, and partial payment of energy invoices arising from the poor liquidity of the sector and this constitutes a major setback as NDPHC alone is owed over
The Managing Director of NDPHC, James Olotu in a forum in Lagos, said some substantial investments have been made in transmission and distribution. He said 2,370MVA of 330kV and 132kV transformer capacities are in service in the national grid, while over 80 per cent of transmission lines have been strung out of 2,903km line with substantial transmission lines already in service. He also noted that substantial upgrade has been carried out to strengthen the weak transmission system along the stretch of the eastern transmission loop which extends from Afam in Rivers State to Ikot Ekpene in Akwa Ibom State, Ugwuaji in Enugu State, Markurdi in Benue State and then Jos in Plateau States.
The management of NDPHC, according to records, has shown a measure of accountability. Data obtained by The Nation showed that the NIPP projects were duly processed and approved. The PricewaterhouseCoopers (PwC) has audited the NDPHC accounts for financial years 2005 – 2012, while the audits of 2013 – 2014 accounts are ongoing. Also external investigations of NDPHC affairs since 2005 to this year, gave the company clean report of integrity, transparency and full accountability. The investigations include those carried out by the National Assembly, SSS/ICPC/EFCC, and the Presidential Project Assessment Committee (PPAC).
The 10 power plants are still at different levels of completion while there are several uncompleted distribution and transmission jobs ongoing in various parts of the country. Discontinuing the project at this time according to stakeholders, would mean wastage of resources and funds. The $11 billion already invested in the project will not be optimised and the over $14 billion investment foreign firms have committed, will not only be stalled but the NIPP second phase dream would have been aborted.
Culled from http://thenationonlineng.net/why-nipp-should-be-sustained/