‘Embedded power scheme is the only way to Nigeria’s power problems’
June 22, 2015 | 1:53 pm| | | Start Conversation
Faruk Agoro, managing director/CEO, PIPP LVI Genco Limited, located in Lekki Phase 1, Lagos State, is one of the few companies striving to help improve the power situation in Nigeria through Public Private Partnership (PPP) initiative. In this interview with Olusola Bello, energy editor, he explains his efforts and challenges in helping to improve power supply in Lagos, saying the power problem can only be tackled temporarily through embedded power schemes. Excerpt:
Q:What informed your doing this kind of project at this time when you have to contend with tariff?
Just like everybody else; the diesel that I use, the inverter, combine with solar power and power from the dis- tribution companies, I pay for.
How- ever, this is from my personal point of view. Going forward, the Lagos State government and us have partnered for public utilities around Lekki.
Now, you can see a lot of street- lights coming on these roads, what we discovered is that immediately works are completed on the roads they are left like that; no light on the streets.
One of the first things we thought was that this is an estate, why don’t we put infrastructure in place here.
Would it not make sense to have a power plant somewhere around here? The estate is captive in nature and it is a Lagos State government owned.
We look at it and said there are about 10,000 people that lived here and it would be a good test case for a generating company, and perhaps Lagos State can set up a distribution company within the estate.
This plant looks like a gener- ating and distribution company. Can you take us through the fi- nancing of the project?
The easiest part of the project was the financing aspect, since we have an off-taker like Lagos State which has already pledged commitment to take the power by putting all the public infrastructure on the network.
For me, this was bankable enough.
For the project to attract financing, of course, we all know that financing in Nigeria is difficult.
We got financing at 24 percent interest rate.
There is the fund that they keep advertising at the Bank of Industry (BoI), and we tried to access the fund at 9 percent, but there is just too many bottlenecks.
I don’t think these funds are created for small businesses like ours, but for the big power plants, and I think that is a big mistake because an organisa- tion like ours would definitely drive the economy.
Any business that is established along this path in this estate; for instance, if it is into ‘pure-water’ business, which is sold for N100, with this type of plant around the person can actually sell for N50 because the majority of production cost in setting this up is energy.
There is a plant here, already there is power for the busi- ness to tap on.
In terms of financing, the BoI fund needs to be opened up to smaller firms and the obstacles that have prevented smaller people like us accessing it should also be removed.
Who were your financiers? Heritage Bank was our financier, because of all the banks we ap- proached they were the most forward and liberal thinking.
They keyed into the future we are selling.
The future is that one day we would have a dis- tribution network of a 25 kilometres.
Even though we are starting with 8.5 megawatts, our plan was that we should hit 30 megawatts in the future.
We are also looking at plant we can reconfigured in order to get more megawatts from.
We are partnering Oando as well, which is suppose to pipe gas to Lekki.
One of the biggest challenges we have is that we don’t have natural gas, and we are working with Oando to get that.
So, to us we are the generating company, distribution company and the innovators to an extent because we are working on Oando to get the natural gas to Lekki.
You have put the plant in place, and have already supplied power to some government utilities.
What are the challenges in terms of feed stocks? At the moment, we run on com- pressed natural gas (CNG). So, we have not really faced any challenges in terms of feed stocks from our sup- pliers.
But this is one of the reasons we want Oando to expedite action so that we can stop to run on CNG.
But as I said, as we ramp up we can- not run on CNG for too long. We are limited now because the infra- structure is just not there. When the infrastructure comes the sky is the limit of what we can do.
Relationship with EKO Disco You would assume that Eko Disco would be interested in what we are doing, because power affects a lot of people.
But for more than three weeks we have not had power, and if we are going to get, maybe at the middle of the night, and may have it for just two hours, and we run gen- erator all day.
You would assume also that the distribution company would have tapped into this scheme but to my amazement, the reaction has been in the opposite.
We participated in the Eko embedded power scheme at one point, but after having discus- sions with the managing director and the company’s team we found out that, let’s put it this way, we were yet to agree on terms.
So, pricing would always be an issue?
We are running on more expen- sive fuel because we don’t have the infrastructure to support the supply of cheaper natural gas here, and this is why we said we are partnering Oando to try and get gas here so that we can reduce the cost for our tariff to be lower.
If you were to supply other people, aside government, what would happen?
The regulations put in place would not allow us supply other people, even though we are under a private partnership agreement.
What kind of pricing regime would you be looking at if you were talking to discos?
To discos, the price would be de- pendent on the level of off-take they are ready to take from us.
And again, the National Electricity Regulatory Commission (NERC) is trying to put in place an arrangement whereby anybody that want to buy power from us would come and we then go to the disco together.
And when we get to the disco, the disco would say I would add this to the price you already agreed upon so that the customers who want the power would reach an agreement or negotiate with both our company and NERC for the price or tariff that would please all parties.
So, the N40 I might be willing to sell and you are willing to buy, but the time we get to the discos, it might just add N10 to it and it would be N50 per kilowatt/hour.
This is an option that NERC is facilitating.
However, in all these, Eko Electricity Distribution Company needs to be reasonable about rela- tionship with power companies and to the intending customers.
It does not make sense in a country where residents are close to power and they cannot have access to it.
As a matter of fact, the Estate residents have written protest letters to us complaining that it is improper for them to have a plant here and they are not getting power.
We need to find a way out without waiting for the legislations.
However, you must note that the owners of discos have invested so much and they are not really particularly happy losing customers even though they are going to get pre- mium, and losing those customers is a coversation they are not willing to have in reality.
On papers and in the newspapers they are willing to have these things but in reality we don’t see that happening.
What is the way out?
The way out is for the market to be liberalised a little bit. In a captive environment here I should be able to sell.
If I take away Lekki Phase 1, which consumes about 40 mega- watts or 50 megawatts of electricity, the megawatts I take away would be used to service other parts of the distribution network.
For me, this is the next line.
The discussion period between Eko Disco and those that have the power to supply is too long, it’s drag- ging.
A lot of companies under the embedded scheme have been pre- qualified since February, and yet nothing tangible has come out.
When you have a willing disco, there is always a willing seller of power. For instance, our company has more power than we can use.
We have capacity to produce more power. The biggest challenge for the IPPs is having a willing disco, that is, people who are willing to take more power even after you have gone ahead to look for the customer.
We have been to Eko Discos but we received a hostile reception. We were not encouraged. If we have dependent on their business I don’t think we would have done this. But the truth here is having a willing disco.Because the discussion is dragging for too long the common man on the street is suffering, and of course, I am paying interest rate at 25 percent.
At one point I am going to cut my losses and say these people are not willing to do business. I think government needs to step in strongly and not just on paper.
What is your hunger to move this forward as a businessman? For us, we are looking at various sites; we are thinking of replicating this throughout the city of Lagos State; we are also looking at Oyo and Ogun. We feel that Nigeria is not going to wake up tomorrow and suddenly find 10,000 megawatts, this is not going to happen; it is only go- ing to happen in 10, 15, 25 years, as there are more people coming into the business.
A few IPPs are in Lagos. If I have up to 200mw, perhaps I have 20mw here and 100mw somewhere and another 15mw elsewhere, by the time I dot it around servicing certain captive or embedded areas we would more or less be freeing the grid and be able to pass more powers to the discos so that they can focus on their core busi- ness of actually fixing all the faults and transmissions lines.
If I send my power to Eko Disco on the grid, I don’t know where that power is going into. Neither would Eko Disco or anybody can tell me where the power is going to now. There is so much losses in transmis- sion and distributions, even this itself makes it impossible for me to give it to them and I would expect them to give me my full money. I need to recover the money for my efforts.
How close are you to replicat- ing this elsewhere?
We are pretty close to replicating it in some other places.
Which other areas are you looking at in Lagos?
We are looking at Ilupeju. Mushin and Oshodi, Surulere, Orile – these are the areas that we see are quick to go. However, there would be Public Private Partnership (PPP) in different forms. For instance, the one in Ilu- peju would be for the industrial area and the one in Surelere, may be, with Lagos State government and hope- fully since there are industrial con- cerns there they would participate. Lagos State government could have an added advantage because the government has so much facilities that our facilities can actuallysupport.
Anywhere we go into we are going to as much as possible tap into public infrastructure that are available. As we all know, power is the problem.
Which, between Ilupeju and Surelere, is next?
Ilupeju with about 16mw and 6mw for Surulere. There are more industrial concerns in Ilupeju than in Surulere. Like I said, the idea is to keep replicating whether it is five here or 10 in another place.
The idea is that by the time you put all these together in about five or 10 years it would add up to 200mw. We must however situ- ate the plant close to gas pipelines because the problem of transporting gas here is a bit of challenge.
In terms of investment, how much did you put in Lekki and how much do you intend to spend more?
For plant like this you cannot take it in isolation. The plant actually is the cheapest of those things that are involved. The distribution network and all the streetlight you see are 25 kilometres network, which stretched to Ikoyi, Bourdillion, Victoria Island, Saka Tinubu.
This was the most ex-pensive part of it. If the whole process cost $20 – $25 million, the generating plant may have cost N8 million. In Ilupeju, we are looking at $10 – $15 million with more power from that end. That of Surulere would be a lot more cheaper than the other ones.
We are looking at Oyo, Ogun, Edo states. In Ondo State, we started discussion last year but they did not come back. But Ogun State is look- ing more positive. Abeokuta and Ibadan are the possible places we are looking at.
What is your thought on gas and power sector?
On gas, there is need for more investments and concerted efforts by the government to say, you know what, we are going to deliver 300 million scf to Victoria Island and we don’t care how we do it, but we need to do it.
That is what happened in America and everywhere that things are happening today globally. In America, you have the big- gest gas companies because every household uses gas.
The reason why we don’t have gas in this axis was because a concession was given to someone and the person has not done anything in the last 10 years. So, the people living on this axis are suffering. Government needs to make conscious efforts.
There is gas in Ikorodu and government can tap gas by constructing a pipeline under the water to link Lekki straight away. We need to innovate. I think we limit ourselves by the things we become accustom to.
When we started, we went to Ni- gerian Gas Company (NGC) in Warri and told the management we would bear the cost of laying a pipeline deep under water from Egbin to Victoia Island, which is just about 15 kilo- metre.
What this would have meant would be that I would have been able to build the pipeline independent of the government and put gas into and sell power to everybody around Lekki and even Eko Disco can add it own money, and then sell it to its customers.
There is no reason why there is no gas in Lekki because there are so many hotels and economic activities that would need it, but unfortunately they are all running on generators and this is not good for the environ- ment. Literally, the air we breathe in this axis is fumes.
In terms of the power sector as a whole, I think the market needs to be opened.
The government needs to sit down with the discos and say hay, there is a problem here, you people have invested so much, but unfortunate what you invested in is not what you are going to get.
So, if they seat down and discussed and agree so that independent power producers like us can come to the market and start feeding individual homes, if that happens in the next 10 years, there would be power ev- erywhere.
Because it is actually the financial decision now that makes sense for building the power plant, and supply everyone in Lekki and make it a catchment area and you are making enough money to sustain and improve the business. I think embedded and captive power is the way to go.
And govern- ment really needs to work on this. It took me one year to build this plant, I am sure that to build a 1000mw would probably take five years be- cause of the issue of gas and infra- structure. So, the quickest way to go is to empower people like us.
What do you think is the ap- propriate tariff?
The tariff with natural gas piped should be about N20 per kilowatt. I can amortise my capacity charge over 10 years, but I cannot amortise the cost of gas because it would have to passed to the consumers.
Putting these two variables together, the tariff should be N20 per kilowatts/ hour. For someone like me, I would be comfortable with this price, but if Eko Disco was to be doing this, of course, I would not know how much it would be doing that because that is not their core business.
How did you come this far?
I did my school outside Nigeria. I left Nigeria in 1994, and I came back after graduation and after working in the United Kingdom with so many companies such as Accenture to Centrica. I actually work with British Gas, where I develop interest in the power sector.
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