cabinet committee report on power supply in nigeria 2007

REPORT OF THE PRESIDENTIAL COMMITTEE ON POWER

SUPPLY IMPROVEMENT IN THE SHORT AND MEDIUM TERM

MAY 2007

CONTENTS Endorsement Sheet 6 Executive Summary & Recommendations 7 Outline of Report 13 Membership of the Committee 15 Terms of Reference 18 Chapter One Background/Overview of the Power Sector 19 State of the Power Sector Pre-1999 19 Post 1999 to Date 21 Gas Supply Snapshots 24 Power Supply Crisis 26 Chapter Two Visitation to Ongoing and Existing Power Plants 27 Summary of Visitation 27 Recommendations from Visitation 32 Chapter Three Short Term Interventions 35 Gas Supply Improvement 35 Generation Improvement 36 Transmission Improvement 37 Distribution Improvement 37 Sector Reforms Issues & Regulation 38 Renewable Energy and Energy Efficiency Measures Improvement 40

Chapter Four Medium Term Intervention 43 Gas Portfolio Management 43 Gas Supply Status 44 Gas Supply Improvement 48 Generation Improvement 49 Potential Hydro Projects 50 Alternative Energy Sources/Power Generation Potential from Coal 55 Renewable Energy and Energy Efficiency 56 Human Asset Management 57 Annexure Annex I Reports of Visitation to Existing and Ongoing Power Plants Annex II Sub-committees Submission on Terms of Reference Annex III National Integrated Power Project: Financial Input to the Committee Annex IV List of Documents Reviewed Annex V Gazetted copy of MYTO Annex VI Minutes of Committee’s Meetings Figures Fig 1.1 Pre-1999 Government Funding of the Nigerian Power Sector

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Fig. 1.2 Per Capita Electricity Consumption vs Per Capita GDP (Real Term) 2003 Fig 1.3 Electric Power Sector Funding 1999 – 2007 Fig 1.4 Sectoral Allocation of Approved Capital Expenditure 1999 – 2006 Fig 1.5 Annual Gas Consumption Fig 1.6 Energy Generation (GWH) 2000 – 2006 Fig 1.7 Existing Gas Plants and Capacities Fig 3.1 Pipeline Vandalisation Fig 4.1 Overview of Gas Supply Plan Tables Tab 1.1 Network Reinforcement 2000 – 2006

Tab 1.2 Gas Plan Supply Capacity Tab 2.1 Summary of Reports on Visitation to Power Plants Tab 3.1 Estimated Capacity of Explored Renewable Resources Tab 4.1 Gas Supply to Geregu, Omotosho, Papalanto and Alaoji Plants Tab 4.2 Gas Supply to National Integrated Power Projects Tab 4.3 Gas Supply to Joint Venture Power Plants Tab 4.4 Overhaul & Remedial Works in Existing Power Stations Tab 4.5 List of Independent Power Projects Licensed by Nigerian Electricity Regulatory Agency Tab 4.6 Operable Small Hydro in the Medium Term

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Acronyms Bureau of Public Enterprises BPE Capital Expenditure CAPEX Economic Community of West African States ECOWAS Electric Power Sector Reform EPSR Electric Power Sector Reform Act EPSRA Electricity Corporation of Nigeria ECN Escravos Lagos Pipeline Systems ELPS Electric Power Research Institute EPRI Federal Government of Nigeria FGN Generating Companies Gencos Giga Watt Hour GWH Gross Domestic Product GDP Gas Supply Purchase Agreement GSPA Independent Power Producers IPP Joint Venture JV Kilo Volts KV Low Pour Fuel Oil LPFO Letter of Credit LC Million Standard Cubic Feet MSCF Mega Watt MW Mega Volt Ampere MVA Multi-Year Tariff Order MYTO National Integrated Power Project NIPP National Electric Power Authority NEPA National Economic Empowerment and Development Strategy NEEDS National Office for Technology Acquisition and Promotion NOTAP Niger Dams Authority NDA Nigerian Electricity Regulatory Commission NERC Nigerian Gas Company NGC Nigerian National Petroleum Corporation NNPC Nigerian Electricity Liability Management Company NELMCO Nigerian Electricity Supply Industry NESI Power Holding Company of Nigeria PHCN Power Sector Reform Act PSRA

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Power Purchase Agreement PPA Public Private Partnership PPP Rural Electrification Agency REA Shell Petroleum Development Company SPDC Turn Around Maintenance TAM Trillion Cubic Feet TCF West African Power Pool WAPP

ENDORSEMENT Nasir Ahmad el-Rufa’i (OFR) Hon. Minister, Federal Capital Territory

Bala M. Borodo Hon. Minister, Mines & Steel Development

Frank Nweke Jr Hon. Minister, Information & Communication Turner Isoun Hon. Minister, Science & Technology J. O. Makoju Special Adviser to the President (Electric Power)

F. A. Somolu Senior Special Assistant to the President (Power Reform)

A. O. Adegbulugbe Special Adviser to the President (Energy)

Irene Chigbue Director-General, Bureau of Public Enterprises

Peter Odili Executive Governor, Rivers State Edmond Daukoru Hon. Minister, Energy Adamu Bello Hon. Minister, Agric & Water Resources Elias N. Mbam Hon. Minister of State (Finance) Funsho Kupolokun GMD, Nigerian National Petroleum Corporation Abubakar S. Sambo Director General, Energy Commission of Nigeria

Ransome Owan Chairman, Nigerian Electricity Regulatory Commission

J. O. Ayodele Power Holding Company of Nigeria

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,

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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.

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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.

10

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).

11

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.

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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.

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OUTLINE OF REPORT

This report is divided into four (4) chapters as enumerated below:

Chapter One (1) provides an overview of the Electric Power Sector from inception in

1886, through the era of Niger Dams Authority, Electricity Corporation of Nigeria, National

Electric Power Authority (NEPA) and the Power Holding Company of Nigeria (PHCN) Plc

being an entity that was recently created in furtherance of the reform programme for the

Sector.

The chapter highlights issues regarding funding in the sector; generation capacity in

relation to other emerging economies like Iran and South Africa; and, the state of

infrastructure pre-1999. It presents key reform activities of the Obasanjo Administration

including the milestones achieved by the reform implementation agency, the Bureau of

Public Enterprises (BPE), which include the unbundling of PHCN, creation of successor

companies, establishment of a sector regulator, Nigeria Electricity Regulation Commission

(NERC) and a Rural Electrification Agency (REA).

Finally, the chapter identifies the challenges that culminated in the dwindling power

availability in the country and the resulting crisis that led to the constitution of the

Committee on Power Improvement by Mr. President.

Chapter Two (2) reports the fact-finding visits to Hydro and Thermal Power Plants by

the Committee. It presents general and specific challenges/problems that have hindered

their smooth operations and proffers recommendations.

Chapter Three (3) proposes interventions necessary in the short term with regards to

gas generation, transmission and distribution infrastructure; and, funding for the Sector.

The chapter also identifies issues that need to be addressed to enable the reform

programme for the sector to succeed.

Chapter Four (4) proposes medium term interventions required to drastically improve

efficiency in the Power Sector. Amongst others, this chapter emphasizes the need for

14

integrated resource planning and coordination that takes into consideration, demand and

supply levels and growth of the sector. It highlights the need for policies that will make

gas readily available to new Power Plants at completion and meet future expansion plans

of existing plants. It suggests that urgent remedial works need to be undertaken in

relevant Power Plants while stressing the need for timely completion of on-going projects.

It also notes the need to develop incentives to attract investments in the Sector; the need

to develop small hydro stations and other sources of renewable energy; and, the need to

address funding and human capacity issues in the sector.

15

MEMBERSHIP OF THE COMMITTEE

1. Nasir Ahmad el-Rufa’i OFR - Chairman

Minister of Federal Capital Territory

2. Peter Odili - Member

Executive Governor, Rivers State

3. Edmond Daukoru - Member

Minister of Energy

4. Frank Nweke Jr. - Member

Minister of Information & Communication

5. Bala M. Borodo - Member

Minister of Mines & Steel Development

6. Adamu Bello - Member

Minister of Agric & Water Resources

7. Elias N. Mbam - Member

Minister of State (Finance)

8. J. O. Makoju - Member

Special Adviser to the President (Electric Power)

9. F. A. Somolu - Member

Senior Special Assistant to the President (Power Reform)

10. A. O. Adegbulugbe - Member

Special Adviser to the President (Energy)

16

11. Funsho Kupolokun - Member

Group Managing Director

Nigerian National Petroleum Corporation

12. Ransome Owan - Member

Chairman, Nig. Electricity Regulatory Commission

13. Irene Chigbue - Member

Director-General, Bureau of Public Enterprises

14. Abubakar S. Sambo - Member

Director General, Energy Commission of Nigeria

15. J. O. Ayodele - Secretary

Power Holding Company of Nigeria

16. Hauwa Yabani - Secretariat

Special Assistant to the FCT Minister

TECHNICAL TEAM

17. S. Maigida - Power Holding Company of Nigeria (PHCN)

18. M. A. Ganiyu - PHCN

19. J. A. Akinola - Federal Ministry of Agriculture and Water

Resources

20. H. Nggada - Federal Ministry of Energy

21. Sam J. Agbogun - Bureau of Public Enterprises

17

22. Gabby Meheux - Nigerian National Petroleum Corporation

23. A. A. Esan - UNIDO Regional Centre

24. O. C. Iloeje - Nigerian Electricity Regulatory Commission

(NERC)

25. Usman Abba Arabi - NERC

26. C. O. Ukabiala - NERC

27. O. N. Ekpenyong - Energy Commission of Nigeria (ECN)

28. I. J. Dioha - ECN

29. Christian C. Okeke - Federal Capital Territory Administration

18

TERMS OF REFERENCE

1. Review the current electric power situation in the country.

2. Proffer short term interventions to improve the situation.

3. Review the ongoing power sector reforms and comment as appropriate.

4. Identify other energy sources and energy efficiency measures.

5. Make recommendations for medium term interventions.

6. Identification of asset management & infrastructure needs and suggestions on

human resource transformation and sector funding.

7. Conclusions and recommendations.

19

CHAPTER ONE

1.1 BACKGROUND/OVERVIEW OF THE POWER SECTOR

1.1.1 Evolution of the Power Sector

Electric power supply in Nigeria dates back to 1886 when two (2) small generating

sets were installed to serve the then Colony of Lagos. By an Act of Parliament in

1951, the Electricity Corporation of Nigeria (ECN) was established, and in 1962, the

Niger Dams Authority (NDA) also established for the development of Hydro Electric

Power. However, a merger of the two (2) was made in 1972 to form the National

Electric Power Authority (NEPA), which as a result of unbundling and the power

reform process, was renamed Power Holding Company of Nigeria (PHCN) in 2005.

1.1.2 State of the Sector Pre-1999

The Power Sector before 1999, was in a deplorable state due to poor funding and

inadequate infrastructural development. For over ten (10) years prior to 1999, the

Sector did not witness substantial investments in infrastructure, (see fig. 1.1), while

poor funding left the existing infrastructure in a state of decay.

FFiigg.. 11..11

GGoovveerrnnmmeenntt FFuunnddiinngg ooff tthhee NNiiggeerriiaann PPoowweerr SSeeccttoorr ((11997744 –– 22000011))

0

50

100

150

200

250

300

350

400

450

500

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Mill

ions

$

Period of poor Funding & Neglect of the Nigerian Power sector

20

The lack of maintenance and replacement of damaged equipment led to a wide gap

between demand and supply. Generation went down from the installed capacity of about

5,600MW to an average of about 1,750MW, as compared to a load demand of 6,000MW.

At the same time, only nineteen (19) out of the seventy nine (79) installed generating

units were in operation. The net implications of the above on the Power Sector include but

are not limited to massive load shedding, voltage and control problems, frequent system

collapse, public outcry and bad image for the Utility and above all, low economic activities

due to high cost of self generation.

Whereas power generation capacity in Nigeria was about the same with Iran (about

2,000MW) in the 70’s, today Iran has a generation capacity of over ten (10) times that of

Nigeria. Similarly, South Africa has capacity of over 36,000MW, while Egypt generates over

23,000MW.

Figure 1.2 below shows the per capita electricity consumption versus per capita Gross

Domestic Product (GDP) for selected countries with similar history of economic

development as Nigeria.

Per Capita Electricity Consumption versus Per Capita GDP (Real Term) 2003

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

0.00 5000.00 10000.00 15000.00 20000.00 25000.00

Per Capita GDP (Real Term) (2000US$/Cap)

Per C

apita

Ele

ctric

it C

onsu

mpt

ion

(kW

h/C

ap)

Fig 1.2

Nigeria India Algeria

China Brazil

Libya

S/ Africa

Saudi Arabia

Singapore

ChileMalaysia

Low Income

Countries

Middle Income

Countries

High Income

Countries

21

1.1.3 Post 1999 to Date

The Government expressed its determination to tackle the poor state of the

Power Sector and the first step was the setting up of a Technical Board, to

amongst others;

! Address the issue of collapsing infrastructure;

! Rehabilitate some of the generating stations, transmission and distribution

infrastructure;

! Commence the unbundling of NEPA for improvement in efficiency; and,

! Prepare grounds for private sector participation.

The Technical Board between 2000 and 2001 embarked on the above and

succeeded in improving generation capacity from 1,800MW to just below

4,000MW. In addition, the Power Sector Reform Act (PSRA) was passed and

signed into law in 2005, which gave birth to PHCN and the restructuring

exercise to, amongst others, achieve:

- Development of competitive electricity market and creation of market

operations;

- Creation of Successor Companies out of the PHCN Structure;

- Private Sector Participation (Independent Power Plants (IPPs), Joint

Venture (JV) - IPPs etc) ;

- Establishment of Regulatory Agency; and,

- Establishment of a Rural Electrification Agency

With the support and commitment of the Federal Government, the Sector

began to witness better funding. For example, a total of N249 billion was

injected into the Sector between 1999 to date (See Fig. 1.3) as inflow to the

existing infrastructure, while another N250 billion has so far been expended

on new projects under the National Integrated Power Project (NIPP).

22

Electric Power Sector Funding 1999 to 2007

Fig 1.3

These have led to substantial improvements in generation capacity, transmission and

distribution networks. A phenomenal increase in PHCN’s monthly revenue was also

experienced from about N2 billion to over N7 billion monthly.

A lot of infrastructural projects were also completed, including the Abuja-Shiroro 330kV

project, Owerri-Ahoada 132kV project, Kano-Azare 132kV project, Ikeja-West-Sakete

330kv (Benin Republic) under the WAPP (ECOWAS) project, 34 Transmission Substations

reinforcement projects, and the Afam V Power Station expansion project. (See fig 1.4)

38

!"#$%&'(!"#$%&'( )((%#'$*%+,%-,)..&%/"0,1)234,5666,)((%#'$*%+,%-,)..&%/"0,1)234,5666,77 899:899:

-

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

1999 2000 2001 2002 2003 2004 2005 2006 YearGener ation Tr ansmission Distr ibution

Fig 1.4

Electric Power Sector Funding from 1999 to 2007

0200400600800

100012001400160018002000

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

Mill

ion

Dol

lars

23

Table 1.1 below shows the summary of network reinforcement between 2000 and

2006, while Fig. 1.5 also shows the gas consumption pattern to support the

increase in generation witnessed during the same period.

Table 1.1

Fig. 1.5

Annual energy generation increased from 22,000GWh to above 35,000GWh

between 2000 and 2006 (See Fig. 1.6)

Network )einforcement /2000 2 20064

63.312,2507,500Distribution Capacity (MVA)

36.415,00011,000Transmission Capacity (MVA)

71.536.021.0Bulk Energy Delivered (GWH)

85.03,7762,500Highest Daily Peak (MW)

48.54,0902,753Installed Available Capacity (MW)

% Change20062000

63.312,2507,500Distribution Capacity (MVA)

36.415,00011,000Transmission Capacity (MVA)

71.536.021.0Bulk Energy Delivered (GWH)

85.03,7762,500Highest Daily Peak (MW)

48.54,0902,753Installed Available Capacity (MW)

% Change20062000

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

x 10

00m

scf

Annual Gas Consumption

24

Fig 1.6

1.1.4 Gas Supply Snapshots

A total of ten (10) operational Gas Plants supply about 920mmscf/d of gas to all existing

PHCN Power Plants (See Fig 1.7). This translates to a generating capacity of 3,200MW

(2,400MW in the West and 800MW in East) on full load.

Fig1.7

Across most of these Gas Plants, there has been a steady decline in supply capacity

ultimately resulting in a loss of about 500mmscf/d (55%) of installed capacity (Table 1.2).

This in turn has resulted in the drop of generating capacity to an all time low of about

1,350MW.

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2000 2001 2002 2003 2004 2005 2006

Ye a r

GW

H

Energy Generation (GWH), 2000 – 2006

25

Table 1.2 Gas Plant Supply Capacity

The challenge of gas supply to Power Plants in the medium term is of even greater

concern. This is because of the unprecedented step up in gas demand to fuel many new

PHCN and IPP Plants towards the end of 2007. This step up in demand equally applies to

other domestic sectors such as fertilizer, methanol and other similar plants. The

corresponding reserves requirement in this case is equally enormous. Consequently, minor

operational interventions will not mitigate this impending challenge of reserves and supply

development.

1.1.5 Gas Supply Challenges

The shortfall in gas supply to power projects has been occasioned by a number of

challenges, which can be addressed with respect to short and medium term perspectives.

In the short term, recent disruptions of gas supply have been attributed to two (2)

developments. Firstly, there has been a major increase in pipeline vandalisation (over

thirty (30) cases in 2006) which was followed by host community interruptions at areas

where repairs are required. The second development involves condensate build-up in gas

supply pipelines.

The Nigerian Gas Company (NGC) supplies gas to PHCN plants at Egbin via the Escravos -

Lagos Pipeline Systems (ELPS) which is sourced from Chevron and Shell Petroleum

Development Company (SPDC). In February 2006, the ELPS was vandalised by the host

community of Gbaramatu in Delta State. Subsequently, the Community prevented

Nigerian National Petroleum Corporation (NNPC) engineers from gaining access to areas

of damage to undertake prompt and effective repairs with the resultant effect of the

entire Chevron supplies from Escravos being shut off for over a year. The loss of gas

26

supplies from Chevron in turn resulted in the SPDC supplies being the only gas supply

source to the Egbin Power Plant. Historically, SPDC’s Utorogu Gas Plant consistently

introduced gas with high condensate content into the pipeline and this was mitigated by

the much drier gas from Chevron. The resulting disruption had a further unintended effect

of increasing the condensate in the pipeline which led to reduced gas supplies. This was

also compounded by threat of equipment damages with ingress of condensate.

The estimated Proven Gas Reserves is about 181 TCF whilst available Proven Reserves

over a 20-year horizon is limited to about 130 TCF. The Gas Master Plan Study of NNPC

shows that significant reserves (about 50TCF) are cap gas which will eventually be

available in the longer term, say about 15 - 20yrs, from now. Additional gas reserves will

also only be available from later year oil production. Although estimated gas reserves is

about 181 TCF, almost 40% of these will not be available in the short term as they are in

gas caps and not available until much after the production of oil.

1.1.6 Power Supply Crisis

The Sector experienced a dip in power generation primarily from 18th February 2006 due

to the vandalized gas pipeline at Escravos in the Niger Delta area. In year 2007, a major

negative development also took place in the gas supply to Egbin as a result of the

presence of high condensate in the pipeline. Starting from around 18th February 2007,

condensate drop out in the gas had built up to a dangerous level which necessitated

‘pigging’ and eventual temporary shut down of Egbin Complex (Egbin being the largest

Power Plant with the capacity for contributing about 30% of total power generation).

As a result of the loss of over 700MW from Egbin Complex, power generation dropped to

an average of 2,200MW, since some of the Hydro Stations were also experiencing

seasonal water shortage. This led PHCN to embark upon massive load shedding with

consequent deterioration in power supply delivery. In the light of this, the Federal

Government intervened to assist in fast tracking all measures that can be possible to bring

up generation. This also triggered the resolve of the Federal Government to set up this

Special Committee charged with the responsibility of reviewing the Power Sector and

proffering short to medium term solutions to its compounding challenges/problems.

27

CHAPTER TWO 2.0 SUMMARY OF REPORTS ON VISITATION TO POWER PLANTS

Table 2.1

Observed Problems/Findings S/No Station/ Capacity (MW)

Contractor/ Consultant

Financial Technical Environmental Remarks

1 Gbarain, Bayelsa State (225)

Rockson Engineering

Delay in Letter of Credit (LC). Reimbursement by NIPP awaited. Workers wages demand above FGN minimum wage.

Withdrawal of Experts due to kidnappings and militant activities.

Site closures due to youth restiveness. Flooded location as site – sand filling.

Youth disturbances may elongate target.

2 Ibom Power, Ikot Abasi (190, Phase I) (500, Phase II)

PB Power (Group 5)

US $25m bridge facility (Phase I). CBN refusal on foreign exchange payments to Contractors. NOTAP non-approval – Form A.

Eket-Uyo-Itu 132KV line (Phase I) outstanding. Ikot-Abasi-Ikot Ekpene Transmission (trx) line (Phase II) also outstanding.

Youth restiveness. Power evacuation facilities could delay delivery of equipment.

3 Odukpani, Calabar, Cross River (561MW)

Marubeni Engineering

Letter of Credit in operation hence minimal problem.

Lack of adequate surface water – Combined cycle. Delay in gas pipeline award.

Youths restiveness and incessant demands disrupting work. Four (4) interruptions experienced so far.

Delay in delivery of power/

4 Egbin, Ikorodu, Lagos State (1,320)

Marubeni Engineering

Market Operators transfer inadequate for major repairs and capital spares. Procurement process for spares and equipment subject to Government bureaucracy.

Continuous shortage of gas and TAM not implemented. Inadequate LPFO reserve/ logistics of supply. Lack of capacity building in terms of business and commercial activities.

28




5 Olorunsogo, Ogun State (335)

SEPCO and Construction Corporation, China

Non-opening of LC for 330KV Trx lines. Delayed payments. Non-signing of PLC contract.

33KV Trx line at Ewekoro still awaited. 330KV Trx line delay. Gas yet to be supplied on site.

Community related issues still outstanding.

6 Omotosho, Ondo State (335)

China Machinery and Equipment (Import-Export) Corporation (CMEC)

330KV Trx line yet to be completed. Communication facility to NCC, Oshogbo not yet in place. 33KV Trx line for alternate cold start not in place. Inadequate source of water supply in dry season.

Outstanding community related issues.

Phase I commissioned 17th April, 2007.

7 Omoku (Rivers State) (230)

Rockson Engineering, Steag

Delays in the issuance of Letter of Credit. Contractor’s loan for land compensation not repaid. Various payments to Contractor outstanding. Outstanding liabilities of PHCN on the project not yet taken over by NIPP.

Gas pipeline construction yet to Start. Trx line construction yet to commence.

Latest change in plant concept delaying completion date (3 months).

8 Egbema (Imo State) (338)

Rockson Engineering, Steag

The LC for the remainder of the contract yet to be established. Contractor’s loan for land compensation not repaid.

The construction of gas pipeline outstanding. Contractor loan for land compensation not repaid.

Community problems caused work stoppages.

29




Various payments to Contractor outstanding. Outstanding liabilities of PHCN on the project not yet taken over by NIPP.

Militant activities hindering presence of Technical Assistants (Foreigners). Outstanding decision on request for 5km road by community.

9. Alaoji (Abia State) (504)

Rockson Engineering, PB Power

Letter of Credit not adequately funded and established for other payments. Increased project risk to the contractor due to delays in consolidation of change orders in contract. Contractor’s loan for land compensation not repaid. Various payments to Contractor outstanding. Outstanding liabilities of PHCN on the project not yet taken over by NIPP.

Gas pipeline construction yet to commence. Contract for the 330KV evacuation line yet to be awarded.

Militant activities hindering presence of Technical Assistants (Foreigners).

10. Shiroro Hydro (Niger State) (600)

Owned by Federal Government of Nigeria

Due Process compliance in the purchase of spare parts and other consumables causes delays.

Spillway gate No. 4 not operational, seal ruptured. Concrete superstructure of spillway gate No. 4 defective. There are cracks in the Power House in several places.

Threat of low water supply to the dam reservoir due to over use and insufficient rainfall in Kaduna River Basin.

30




A five (5) year inspection of the dam report not complied with. Silting constitutes future threat to operations of the station. Comprehensive overhauling of dam since 1983, yet to be done.

11 Kainji (Niger State)


Indebtedness (N200.7m) for incurred expenditure and staff salary arrears (12½%).

Plant is old without major comprehensive overhauling. A 3 years circle flood has destroyed units IG5. Inadequate training of technical staff. Substantial power can be generated especially during flood period.

It was observed that out of the regular staff, 568 are non-technical while 282 are technical. This arrangement is inefficient and should receive immediate attention.

12 Jebba (Niger State) (540)


Water leakages through the expansion joints to the power house walls. Spillway outlet massively eroded its banks; Navigation lock vandalized, needs replacement.

13 Afam Power Station (VI)

SPDC The Financial and legal matters are handled in the SPDC head office.

Security threats by the Youth of Anyana Community. Much money is spent on pacifying them.

31




14 Geregu (Kogi State) 414MW

Siemens Inadequate supply of gas for the third turbine. Insufficient water for generator cooling.

Shortage of accommodation for operational staff.

32

2.1 RECOMMENDATIONS FROM VISITATION TO POWER PLANTS

2.1.1 General Recommendations on Thermal Plants:

(a) Prompt payment of approved invoices to contractors;

(b) Strengthen relations between host communities through continuous dialogue

and corporate social responsibility;

(c) Improve security of project sites;

(d) Site studies and soil tests to be carried out before handing over to contractors;

(e) Provision of emergency fund for urgent maintenance and upgrade of

equipment in existing plants;

(f) Outstanding letters of credit, as per contract schedule, should be issued

immediately by NIPP to contractor;

(g) Plant concept and site should be firmly established before award of contract to

avoid major mid-stream changes;

(h) Strengthening 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;

(i) To curb community restiveness, there is need for the involvement of state and

local authorities at the conceptualization stage;

(j) Various project site options should be considered and selection should be

made based on willingness of communities to facilitate peaceful and

harmonious work on sites;

(k) Ensure Turn Around Maintenance (TAM) activities are carried out as and when

due; and,

(l) Construction of housing facilities for the Plant staff.

2.1.2 Specific Recommendations on Thermal Plants:

Geregu:

(a) Impress on NGC to make gas available for the firing of the third unit when this is

completed in mid-May 2007.

33

Egbin:

(a) Ensure adequate Low Poor Fuel Oil (LPFO) strategic reserve; and,

(b) Address boilers problem.

Olorunsogo:

(a) Accelerate the sourcing of line materials required for the construction of the 330

KV Transmission Line.

Omotosho:

(a) Consider re-awarding the 33KV cold-start line to another contractor in order to

expedite action; and,

(b) Construction of a bigger water reservoir on site because shortage of water is

envisaged during the dry season.

Omoku:

(a) The Contractors and Project Consultant should review the work schedule with a

view to fast-tracking the project.

Egbema:

(a) The Contractor should synchronize the completion of both the Power Plant and

associated Transmission project;

(b) Addax and Shell should ensure the completion of the 12km gas supply pipeline

before commissioning in November 2007;

(c) The 5km road requested by the Mmahu community should be constructed but

linked with sustained community peace; and,

(d) Repayment of loan for land/crop compensation to the Contractor.

Alaoji:

(a) Repayment of loan for land/crop compensation to the Contractor;

(b) Contract for NIPP 330KV evacuation line should be awarded;

(c) Contractor’s loan for land compensation not repaid;

(d) Various payments to Contractor outstanding; and,

(e) Outstanding liabilities of PHCN on the project not yet taken over by NIPP.

34

2.1.3 General Recommendations on Hydro Plants

The cause of current low production levels from the Hydro Plants in the country is due to

seasonal water inadequacy. The following are recommended for improved water supply

to Hydro Plants:

(a) Bathymetric survey to determine level of silting with appropriate measures;

(b) Funds should be made available for scheduled maintenance;

(c) Five year compulsory inspection of Dams to be carried out; and,

(d) Structural overhaul of plant’s facilities to be undertaken as and when due.

2.1.4 Specific Recommendation on Hydro Plants:

Shiroro:

(a) Spillway G4 seal to be repaired; and,

(b) Divert water from Gurara to Kainji lake to shore-up water availability.

Kainji:

(a) Special fund required to pay a debt N144.8M incurred on repairs;

(b) Four open pits to be revisited for possible generation capacity expansion; and,

(c) The three year flood cycle should be harnessed for improved generation.

Jebba:

(a) Need to stop water leakage through expansion joints to avoid flooding;

(b) Lake dredging to remove logs that constitute debris;

(c) Rehabilitation of eroded spillway banks to avoid flooding and environmental

degradation; and,

(d) Repair of damaged navigation lock.

35

CHAPTER THREE

3.0 SHORT TERM INTERVENTIONS

The Committee has come up with measures for improvement in the short-term

(defined as zero to ninety days). These were guided by the following issues;

a. Gas Supply challenges and availability in the right quantities and quality.

b. Power Generation, Transmission, Distribution and Power Sector Reform

related issues.

c. Funding related issues, especially with respect to the new Successor

Companies of PHCN.

3.1 GAS SUPPLY IMPROVEMENT

3.1.1 Gas Supply Shortfall

As stated earlier, the Gas Supply to existing Power Plants in the country is about

400 mmscf/d compared to the total gas requirement of about 920 mmscf/d. This

was occasioned by the damage to the Escravos Gas Pipeline and the subsequent

restriction of access to the damaged pipeline which prevented prompt and

effective repairs. Additional supply challenges also resulted from condensate

build-up in the Escravos Pipeline.

Figure 3.1 below shows the points of vandalization and the dates they occurred.

Fig 3.1

PIPELINE VANDALISATION NGC Statistics

There was over 30 cases of major gas pipeline vandalization in 2006, representing a major increase compared with previous years. Denied access has prevented prompt and effective repairs

36

3.1.2 Gas Supply Interventions

In consideration of the current gas supply challenges, a number of interventions have

become imperative. These are:

! Expedite repair works on the vandalized Escravos Pipeline to ensure completion

by June 2007.

! Initiate discussions with Shell on the upgrade of the Utorogu Gas Plant in order to

limit condensate production and ensure appropriate well selection to limit liquid

production.

! According to the NNPC, the expansion of the ELPS capacity is being pursued on a

fast track basis with contract award expected in Q2 2007.

3.2 GENERATION IMPROVEMENT

The major draw back in the supply of electricity in Nigeria is the big gap between

demand and supply. Presently, the supply of electricity even with many of the plants

running is very much short of meeting the demand. The following are therefore

recommended:

3.2.1 Completion and Upgrade of Power Plants

a. Completion of Geregu Power plant slated for May 2007. At the moment, the

Power Plant delivers 276MW into the Grid. When the Plant is finally completed in

May 2007, an extra 138MW can be delivered into the system.

b. Completion of Omotosho and Olorunsogo Power Stations, each of which will

deliver 335MW to the system. While Omotosho will be completed by June 2007,

Olorunsogo will be completed by July, 2007.

c. Completion of the various repair programs in Delta, III and Delta IV which can

bring back about 200MW additional generation.

d. Completion of Ibom I Power Station for additional power of 300MW.

e. Ensure adequate stock of LPFO in Egbin to provide continuous backup especially

during any gas supply disruption.

f. Provision of supplementary funding for all the existing Power Stations to carry

out minor maintenance and stock some fast moving spares.

37

3.2.2 Financial Implications

In all, to assist in raising the generation in the existing Power Plants to their near

optimum capacity, a total sum of N2.8b will be required for the procurement of fast

moving items such as filters, all the Generation Stations (breakdown attached as

Annex III).

3.3 TRANSMISSION IMPROVEMENT

Transmission improvement can be embarked upon in the replacement of obsolete

Circuit breakers, Reactors, Transformers, Current and Voltage Transformers and

relays system. New transmission lines can be accommodated under the Medium

Term arrangement. However, some of the on-going transmission line

reinforcement projects can be on fast track to support increased generation

resulting from actions in 3.2 above.


A sum of N4.7b will be required to address the immediate bottlenecks in this

Sector (see breakdown in Annex III).

3.4 DISTRIBUTION IMPROVEMENT

Since the reform program started in 2004, there has been a total neglect in

funding to the Distribution Sector on the assumption that they are to be

privatized. This has created a situation whereby the existing aged infrastructure

break down and no replacements are made. The successor companies are not

getting enough funds to address the ageing systems despite increased revenue

from sales. The fact is that the Power Purchase Agreements (PPAs) signed with

AGIP and AES with a monthly commitment of about N2.4 billion is an added

burden on PHCN revenue without adequate tariff to cushion them.


A recent survey made on the Short Term intervention revealed that a sum of N6.9

billion will be required to address the immediate need to replace damaged

transformers and other equipment (see breakdown in Annex III).

38

3.5 SECTOR REFORMS ISSUES AND REGULATION

3.5.1 PHCN Liaison Unit

There is a need to come up with a framework for the coordination of the Power

Sector. The need for a coordination center cannot be overemphasized while

bearing in mind that there are issues of common concern that may affect several

successor companies, which no company may be able to address alone. For

example, the issue of gas and water management for companies sharing the

same water flow needs to be coordinated. Energy crises can not be addressed by

one company alone, but by concerted efforts of stakeholders.

3.5.2 Reform and Regulation

In spite of of the progress of the Power Sector reforms, a number of issues have

to be addressed in the short term and appropriate measures taken in order to

consolidate the gains made, manage the transition process effectively, attract

private investment, increase competition and set the Sector firmly towards the

medium term. Some of these issues are discussed below:

3.5.2.1 Tariff Reform

The most important risk factor faced by existing and prospective operators in the

Nigerian Electricity Supply Industry (NESI), is the current reality of insufficient

liquidity in the Sector to ensure recovery of costs and adequate returns on

investment. NERC has developed a Multi-Year Tariff Order (MYTO) to address the

issue. The Order provides a 15-year tariff path for the Sector, recalculates the

tariff every five years and slightly modifies the values annually, depending on

changes in fuel prices, exchange rate and inflation rate. In compliance with the

requirement of Electric Power Sector Reform Act (EPSRA), NERC has gazetted and

published the tariff methodology (copy attached as Annex V) prior to its

implementation. In order to permit the successor companies to achieve the

independence necessary for effective operation in the Sector and remove the

financial risk referred to above, NERC needs to introduce the new tariff regime

without further delay.

39

3.5.2.2 Securitization

With the recently gazetted MYTO, it is now certain that the tariff will not rise to

the level of:

a) being able to attract Private Sector investment; and,

b) provide the revenue need of the industry within the first few years of its

introduction.

Furthermore, the Distribution Companies are yet to demonstrate their ability to

collect revenues efficiently and regularly pay for the power purchased. These risks

faced by Generating Companies need to be addressed through effective

securitization, if the required investments are to be attracted to the Sector. The

stakeholders, especially the Ministry of Finance, NERC and BPE need to urgently

come up with a securitization package for the Sector. In doing so, it needs to be

stressed that the scheme should be applicable to all generators (other than

existing IPPs, whose risks are already accounted for in their PPAs) who are

exposed to the above-mentioned risks. A securitization scheme that discriminates

against some generators will introduce an uneven playing field, which will be

unhealthy for the market.

3.5.2.3 Market Structure and Trading Arrangements

The BPE has indicated its intention to review the market structure, with the

possibility of increasing the number of Distribution Companies. At the same time,

it has advertised the existing successor companies and received expressions of

interest towards their privatization. A stable market structure needs to be put in

place quickly in order to give clarity and confidence to those who may wish to

participate in the privatization process. In this regard, the three (3) stage market

structure design from transition through short to medium and long terms should

be retained.

In the same vein, 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 by NERC and BPE.

40

3.5.2.4. Residual Management Issues

A number of issues need to be resolved before one can conclude the winding up

processes of the PHCN Headquarters. Management restructuring of the

companies needs to be carried out (without prejudice to the privatization

programme) to ensure the introduction of the management style and

methodologies, staff orientation and skills required by the new market order.

Furthermore, full independence requires in particular, financial independence. The

degree to which the successor companies are free to take independent financial

decisions needs to be looked into.

The issues of common services, the Central Workshop and Stores, the Meter Test

Stations, Central Laboratories and Central Electric Energy Policy and Information

center need to be addressed, including the procurement of high capital goods and

equipment, and technology options that will also prevent proliferation.

Finally, it needs to be recognized that it is not practical to abruptly remove the

coordinating role of PHCN Headquarters in respect of the Business Units (now

Successor Companies). It is proposed that this role be wound down gradually in

a planned sequence so as to avoid disruptions in the operation of the power

supply. One of the committees headed by BPE is putting together a new structure

for the supervision of the sector that will address this issue.

This structure should have a Central Technical Committee and a Central Operation

Coordination Unit to oversee the day-to-day operations of all Successor

Companies in the transition stage.

3.6 RENEWABLE ENERGY AND ENERGY EFFICIENCY MEASURES

IMPROVEMENT

The country is blessed with renewable energy resources like flowing water such

as rivers, streams, waterfall, irrigation, canal and dams. Additionally, solar, wind,

biomass (solid and liquid waste) as well as other new energy technology sources

41

like ocean and tidal waves, geothermal and hydrogen fuels exist, can be exploited

using available and matured technology.

The estimated capacity of explored renewable resources in Nigeria is given in the

table below.

Table 3.1 Estimated Capacity of Explored Renewable Resources

Energy Source Capacity

Small Hydropower 3,500MW

Large Hydropower 11,500MW

Biomass - Fuel wood 13,071,464 hectres (Forest land, 1981)

Biomass - Animal Waste 61million tonnes/yr

Biomass - Crop Residue 83 million tonnes/yr

Solar Radiation 3.5 - 7.0 kWh/m2-day

Wind 2 - 4 m/s (annual average) at 10m

height

Source: Energy Commission of Nigeria

3.6.1 Renewable Energy

In order to harness these renewable energy resources, the following are recommended:

! Institutionalization of the National Energy Policy, the Renewable Energy Master

Plan and the National Energy Master Plan through an Act of the National

Assembly;

! Developing and siting of Small Hydro Plants and Solar-based village pilot

schemes;

! Establishing Renewable Electricity Generation Trust Fund under the auspices of

Energy Commission of Nigeria for pilot/demonstration projects;

! Providing adequate incentives to promote the demand, supply and local

manufacture of renewable energy components and systems; and,

! Intensifying Research, Development and Production in renewable energy

technologies, including especially, technology adaptations.

42

3.6.2 Energy Efficiency and Conservation Measures

Energy is wasted in all sectors of the nation’s economy. Hence, huge savings can be

achieved through the following recommended measures:

! Encouraging National Energy Assessment programmes like Energy Auditing in

Industries, Households, Transport, public buildings, institutions, etc;

! Creating the enabling environment through economic and fiscal incentives to

attract investors;

! Promoting Human Capacity Building on Energy Efficiency and conservation in the

nation’s Energy Sector; and,

! Promotion of the use of energy efficient appliances in generation, transmission,

distribution and usage/consumption.

43

CHAPTER FOUR

4.0 MEDIUM TERM INTERVENTION

The Committee has also come up with measures for improvement in the Medium

Term (beyond ninety days and up three years). These were guided by the

following issues:

! Low power generation and constant power interruptions resulting from poor

maintenance and lack of rehabilitation;

! Constant disruption due to lack of spare units;

! Gas supply issues (availability and quality of gas supply to Power Stations);

! Vandalization of gas pipelines;

! Low levels of water resource at dams for hydro power during the dry season;

! Matters relating to staffing and manpower development;

! Consideration of renewable energy options, provision of incentives for

investors and an overall investor friendly environment;

! Securitization; and,

! Delay in completion of NIPP projects.

4.1. GAS PORTFOLIO MANAGEMENT

NNPC is championing major portfolio interventions to manage gas supply to Power

Plants. Presidential consent was secured to rationalize current export projects resulting

in the freezing of Nigeria LNG Limited’s Train 7 and ExxonMobil LNG projects with

immediate effect. Accordingly, NNPC is to engage the NERC on aligning the licensing of

new Power Plants with gas availability.

The Corporation is managing the growth of future export projects with the

recommendation that the execution of such projects be contingent on exploration

success whilst capacity of future projects will also be aligned with size of exploration

find. It has been proposed that future commitments to export now be contingent on

exploration activities.

44

In addition, it has become necessary to manage the phasing of domestic projects such

as fertilizer, methanol and other similar projects. Current supply plans are limited to only

initial Greenfield plant of the respective investors. All immediate plans for expansion

have to be delayed until post 2015 when additional gas supplies are anticipated.

NNPC is also undertaking medium-term legislative interventions. The Corporation is

concluding a gas supply and pricing regulation which stipulates that all operators in the

country make a mandatory reserves allocation for the domestic sector. Compliance with

domestic obligation will be a pre-requisite for export supply. This will mitigate the

preferential focus on export and alleviate the medium to longer term supply challenge.

NNPC is also developing a Gas Infrastructure Blueprint which proposes pipeline linkage

between the east and west network, links the South to the North via Abuja to Kaduna

and opens up the eastern axis. In addition, it proposes Central Processing Facilities as a

standard, which will strip liquids off Natural Gas and produce dry gas as a standard into

the gas grid. The proposal also envisions strategic redundancy to mitigate sabotage.

4.2 GAS SUPPLY STATUS

Irrespective of the challenges to meet gas requirements for power, a number of gas

supply projects have been initiated to supply gas to the under listed power projects in

the country (Tables 4.1, 4.2 & 4.3 and Fig 4.3).

Table 4.1 Gas Supply to GOPA Power Plants

Power

Plant

Power

Capacity

(MW)

Gas

Requirement

(MMscf/d)

Status

Geregu 414 138 Gas supplied in December 2006; Phase 2

Pipeline ready by December 2007.

Omotosho 335 120 Pipeline and Station Facilities completed; Hot

tie-in completed in March 2007; Gas supply

commenced in March 2007.

45

Olorunsogo

/ Papalanto

335 120 Pipeline tested and civil works completed;

Metering System has been cleared at Lagos

Port; Gas supply commenced in April 2007.

Alaoji 504 140 Design and procurement in progress;

Completion scheduled for October 2007; Gas

supply to come from Imo River Supply

System.

Table 4.2 Gas Supply to NIPP Projects

Power

Plant

State Power

Capacity

(MW)

Gas

Requirement

(MMscf/d)

Status

Calabar Cross

River

500 140 Pipeline and Station design &

procurement in progress with

completion planned for August 2008.

Egbema Imo 350 100 Pipeline and Station Facilities design &


completion planned for August 2007.

40 MMscf/d to be available in Q3 2007

& 60 MMscf thereafter.

Gbarain Bayelsa 250 70 Pipeline and Station Facilities design &


completion planned for September

2007.

Ikot Abasi

Ibom 1 & 2

Akwa

Ibom

188/500 60/140 Gas is available for supply.

Ihovbor /

Eyaen

Edo 500 140 Pipeline and Station Facilities design &



2007. 65 MMscf/d from PANOCO in

December 2007; 45 MMscf/d from

NPDC in October 2007; 30 MMscf/d

from Chevron in Q2 2008.

46

Power

Plant

State Power

Capacity

(MW)

Gas

Requirement

(MMscf/d)

Status

Sapele Delta 500 140 Pipeline and Station Facilities design &



2007. Gas supply from ELP System.

Omoku Rivers 120/150 24/70 Phase 1 operational & gas fully

available; Phase 2 to be available from

Amenam Field.

TOTAL 3,208 760

Table 4.3 Gas Supply to JV Power Plants

Power

Plant

Location State Power

Capacity

(MW)

Gas

Requirement

(MMscf/d)

Status

NAOC 1 Okpai Delta 480 70 Now in operation

NAOC 2 Okpai Delta 450 70 To be operational by mid-

2009. PPA negotiation in

progress.

Chevron Agura Lagos 780 120 Site works to commence

soon. Operational by mid-

2009.

ExxonMobil Qua Iboe Akwa

Ibom

500 150 Start-up by mid-2009. PPA

negotiation to commence

soon.

Shell 1 Afam V Rivers 650 120 Takeover yet to be

concluded. PHCN staff final

benefits yet to be resolved.

Shell 2 Afam VI Rivers 400 60 Completion of Unit 1

initially scheduled for

March 2007 impeded by

security situation now

47

Power

Plant

Location State Power

Capacity

(MW)

Gas

Requirement

(MMscf/d)

Status

rescheduled for July 31

2007.

Total Obite Rivers Completion planned for

mid-2009. PPA negotiation

to commence soon.

TOTAL 3,636 660

Fig 4.1 Overview of Gas Supply Plan

Finally, the continued management of the Niger Delta situation is imperative to enable

uninterrupted supply and development of new supplies. Based on the proposed strategic

interventions, it is anticipated that the shortfall in gas supply to power will be mitigated

in the future to realize the full generating potential of the power plants.

48

4.3 GAS SUPPLY IMPROVEMENTS

Gas supply issues which form a major cause of the crises in power supply from

the beginning of the year requires intervention in the medium term to ensure

continued and improved supply of gas to the thermal stations. While it was

important to note that condensate build up in gas pipeline caused short term loss

of over 50% in power generation from the thermal stations, pipeline vandalization

brought about between 55% and 85% in supply restriction in the western and

eastern gas plants especially in the ELPS. The total gas requirement of about

920mmscf/d for domestic use dropped to 400mmscf/d.

Medium term interventions recommended include:

4.3.1 Integrated Resource Planning

! There is the need to embark on integrated resource planning taking into

consideration demand and supply in the Power Sector. A 25-year study has

been done on power demand projection and generation expansion

planning in the country. Reports have been generated from this, which

identity power requirement for year 2005 to 2030 as well as clear resource

allocations for integrated resource planning to determine the order of

magnitude estimates and ways to close the gap between supply and

demand of electricity across the country.

! The draft Energy Master Plan developed for the country should be adopted

and implemented to prevent further crises in the power sector.

! The Ministry of Energy should coordinate construction of Power Plants with

the construction of gas pipelines at the same time. The Ministry should in

coordinating construction ensure that rural electrification programmes are

integrated into demand projections to ensure that power is available while

embarking on or authorizing rural electrification projects.

4.3.2 Other Recommendations

! Sustained maintenance (Pigging) of pipelines to prevent power interruption

and damage caused by the quality of gas supply arising from the

condensate from the gas supply industry. Improvement of gas quality to

minimize condensate ingress to the power station necessitates the

49

increasing of capacity for liquids stripping at plants and upgrading of the

Shell (Utorogu) Gas Plant to limit the production of condensate in the

pipeline (discussion with SPDC is required).

! Policies should be put in place to make it mandatory to satisfy domestic

consumption of gas before export. This will ensure that enough gas is

obtained locally to feed the Power Plants and for other domestic uses.

! Increase security surveillance of pipelines and installation of high-tech

electronic monitoring devices and sensors. The involvement of the

community along the route of the pipeline in the surveillance and

monitoring of pipeline will be of added advantage. To obtain the

cooperation of the communities, developmental programmes (i.e. provision

of electricity, water, hospitals, schools, etc) for host communities by

NGC/NNPC/JV/Gencos partners should be put in place.

! NGC/NNPC should synchronize its pipeline expansion programs and other

related gas infrastructural development programme to meet up with the

gas thermal plant expansion programmes of the FGN and Licensed IPPs so

that gas will be available to the plant upon completion.

! New export projects to be conditional on exploration success.

! Ensure that correct supply plans are indeed delivered taking into account

the Niger Delta situation.

! Encourage integrated Gas gathering and exploration.

! FGN should fast track planned expansion of gas network in the country

through specific legislation and financial backing (which could include the

bond market). The passage of the Bill on gas issues with the House of

Assembly should be expatiated to encourage private participation.

! Future gas plant operators to consider floating power plants near gas

reserves.

! Incorporate Natural Gas Storage facilities for strategic reserves.

4.4 GENERATION IMPROVEMENT

4.4.1 Overhaul and Remedial Works in Existing Power Stations

Overhauls on units and remedial works in existing Power Plants should be carried

out to address the problem of power shortage and frequent system collapses

50

witnessed in the power supply. Table 4.4 below shows that about 2,784MW will

be added to the system if the overhaul and remedial works are done in the listed

Stations. These will also restore the functionality of the Stations.

Table 4.4

Station Unit Problem Power

Improvement

(MW)

Remark

Kainji 1G5

1G9-10

Damaged and

requiring complete

overhaul.

Limited to 50MW due

to age of the machine,

requiring overhaul.

120

180

7 out of the 8 units in

the Station have not

been overhauled since

commissioning from

1969-1972.

Water Management

needed.

Egbin Unit 3

Unit 6

Unit 2

Unit1,2,3

Out on boiler fault

Out on boiler fault

Major Overhaul

required

Remedial work

220

220

Gas limitations.

Sapele All units Complete overhaul of

gas and stream

turbines

950

Ughelli GT3-5

GT16,19

Faulty transformer

Awaiting Rehabilitation

45

200

Afam Major Overhaul 849

Total 2,784

4.4.2 Potential Hydro Projects

4.4.2.1 Installation of Turbines in Completed Dams

! Dadin Kowa - 34MW

! Oyan - 9MW

! Ikere Gorge - 6MW

51

! Bakolori - 3.4MW

! Gurara - 30MW

Total - 82.4MW

4.4.2.2 Potential Hydropower Sites

Lokoja (1,950MW), Onitsha (750MW), Makurdi (600MW), Yola (350MW), Gembu

(130MW), Sarki Danko (45MW), Gudo (40MW), Kiri (40MW), Richa I (35MW),

Richa II (25MW), Kombo (45MW), Gwaran (30MW), Ifon (30MW), Mistakuku

(20MW), Zurubu (20MW), Kurra I (15MW), Kurra II (25MW), Isom (10MW),

Kafanchan (5MW), Zungeru (950MW). Total Capacity: 5,115MW.

Table 4.5 Operable Small Hydro that can be Utilized in the Medium Term

S/No. River State Installed Capacity

[MW]

Status

1 *Bakolori Kano 3.0 Operated for a short while and packed up since 1993.

2 *Tiga Kano 6.0 Dam construction completed but Electro-mechanical equipment never installed.

3 *Ikere Gorge, Iseyin

Oyo 6.0 Dam construction completed but Electro-mechanical equipment never installed.

4 *Oyan Ogun 9.0 Dam construction completed but Electro-mechanical equipment never installed.

5 Dadinkowa Dam

Gombe 34 Dam construction completed but Hydropower Component yet to be awarded.

6 Challawa Gorge Dam

Kano 7.0 Dam construction completed but Electro-mechanical equipment never installed.

4.4.3 On-going Power Projects

The timely completion of the on-going projects embarked upon by the Government

will boost the generation capacity of the country. The projects are expected to be

completed between 2007 and 2008 and will add about 3,270MW to the system. The

conversion of some of the units from single combustion gas turbines to the combine

52

cycle gas turbines will contribute additional generation to grid beyond 2008. To

actualize the time lines for these projects, payments (due and pending) should be

effected to avoid delay in the project completion. Also, the problems of the

restiveness in the Niger Delta Region should be addressed by the Government.

4.4.4 Licensed IPP

Table 4.2 below is the list of IPPs licensed by NERC to engage in the business of

power generation. The Power Plants are expected to become operational within

four (4) years from the date of issue of licenses and about 5,854.5MW will be

added to the grid by year 2010 when completed.

53

Table 4.6 List of IPPs Licensed by NERC

S/NO NAME OF LICENCEE ISSUED DATE

EXPIRY DATE

TYPE OF LICENCE

SITE LOCATION

STATE PHASES (MW)

PHASE I

PHASE II

PHASE III

1 Ethiope Energy Ltd. 24/8/2006 23/8/2016 Electricity Generation

Ogorode, Spele

Delta 1,390 1,410 -

2 Farm Electricity Supply Ltd.

24/8/2006 23/8/2016 Electricity Generation

Ota Ogun 150

-

3 ICS Power 24/8/2006 23/8/2016 Electricity Generation

Alaoji Abia 120 504 -

4 Supertek Nigeria Ltd. 24/8/2006 23/8/2016 Electricity Generation

Akwete Abia 480 204 316

5 Ikorodu Ind. Power Ltd.

7/12/2006 6/12/2016 Embedded Electricity Generation

Ikorodu Lagos 39 - -

6 Ewekoro Power Ltd. 7/12/2006 6/12/2016 Off-Grid Electricity Generation

Ewekoro Ogun 12.5 - -

7 Mabon Limited 7/12/2006 6/12/2016 Electricity Generation

Dadin Kowa Gombe 39 - -

54

S/NO NAME OF LICENCEE

ISSUED DATE

EXPIRY DATE

TYPE OF LICENCE

SITE LOCATION

STATE PHASES (MW)

PHASE I

PHASE II

PHASE III

8 Geometric Power Aba Ltd.

7/12/2006 7/12/2016 Embedded Electricity Generation

Aba Abia 140 - -

9 Westcom Technologies & Energy Services Ltd.

23/2/2007 22/2/2017 Generation (Grid)

Shagamu Ogun 1000

10 Westcom Technologies & Energy Services Ltd.

23/2/2007 22/2/2008 Generation (Off-Grid)

Lekki Lagos 50

11 Anita Energy Ltd 12/4/2007 11/4/2017 Generation (Grid)

Agbara Ogun 90

12 Bresson Energy Nig Ltd.

12/4/2007 11/4/2017 Generation (Grid)

Magboro Ogun 60

Total:

3,420.5

2,118 316

Grand Total

5,854.5

55

In order to ensure the speedy implementation (construction) of the Plants by the

licensees and to guarantee healthy operating environment, NERC and other relevant

agencies should intervene in the short to medium term to:

! Identify incentives for IPPs;

! Finalise the Multi-Year Tariff Order;

! Develop vesting contracts and securitization in conjunction with BPE;

! Encourage long term buy-out of JV IPPs so as to free them to concentrate on

their core business of oil exploration;

! Encourage the exploration and utilization of coal for power plant utilization;

! Encourage the use of power infrastructure bonds as incentives/asset class so

as to source funds and use these bonds as instruments to raise capital for

construction of Power Pants;

! Encourage the development of Zungeru project as another source of Hydro

Power supply to the system;

! Setup Risk Management Unit at Debt Management Office/Ministry of Finance

to deal with contingent liabilities; and,

! Support Central Bank of Nigeria Bill to put foreign reserve of 5% as loans for

power infrastructure to target of up to 50MW new generation capacity as a

guarantee fund. This will serve as project finance assistance.

4.4.4. Alternative Energy Sources and Energy Efficiency Measures

4.4.4.1 Power Generation Potentials from Coal

The country is blessed with abundant coal resource. The proven coal reserve in the

country stands at 6.39 million metric tons while the inferred reserve could be as high as

2.75billion metric tons. Following the preliminary report on potential coal resources and

power generation development opportunities in the country by Behre Bolbear and

Company (USA)-Inc of February 2006, it was found that there is a good probability that

the reserve can support coal-fired power generation in the range of 7,000MW to

8,000MW. The report also remarked that the coal resource on the east side of

Anambra Basin could support 10,000MW to 15,000MW of power generation. It was

further remarked by the report that coal situation in the country presents excellent

opportunity for a company, or consortium of companies with expertise in coal mining

56

and power generation to develop a business with a life cycle of forty (40) to sixty (60)

years with excellent growth opportunities.

4.4.4.2 National Energy Policy on Coal Utilization

Part of the provisions of National Energy Policy is to pursue vigorously a comprehensive

program of resuscitating the coal industry and engage in extensive exploration activity

to maintain high level of coal reserves. The objective of the policy, which is relevant to

power generation, is the promotion of effective utilization of coal for complementing

the nation’s energy needs and as industrial feedstock.

The activities recommended by the Policy for the re-introduction of the use of coal for

power generation are:

(1) Reactivation of Oji River coal fired Power Plant; and,

(2) Establishment of other coal fired Power Plants in the country.

It is thus recommended that the FGN should commence the utilization of the abundant

coal reserve in the country for power generation and other uses as it is done in other

countries of the world which have high level of coal reserve. The justification for power

generation from coal is numerous and includes the following:

(1) Provision of gainful employment;

(2) Improvement in the country’s energy mix;

(3) Provision of better electric power supply system which is free from the

vagaries associated with gas supply and seasonal variations in the water

inflow to the hydro stations occasionally worsened by drought; and,

(4) Provision of additional base load generation system required in the country.

4.5. RENEWABLE ENERGY AND ENERGY EFFICIENCY MEASURES

In the light of availability of renewable energy resources and energy efficiency and

conservation measures, the following interventions are recommended:

4.5.1 Renewable energy

! Conduct comprehensive survey/mapping and feasibility studies on 90 sub-

hydrological area basins to determine small and medium hydropower potential in

Nigeria.

57

! Refurbish the abandoned small and medium scale hydropower projects (Oyan Dam

(9 MW) and Tiga (6MW)) initiated by the Federal Ministry of Agriculture and Water

Resources.

4.5.2 Energy Efficiency & Conservation Measures

! Establish Energy Labeling, Standards and Codes for Appliances;

! Develop parameters for energy saving/efficiency appliances; and,

! Promote the use of energy efficient appliances in generation, transmission,

distribution and usage/consumption.

4.6 HUMAN ASSET MANAGEMENT

The Power Sector is currently overstaffed with unskilled workforce whilst skilled

personnel and competencies are lacking in the core operational areas. This imbalance is

as a result of years of inadequate funding of manpower development programmes and

embargo on employment in PHCN. Recommendations on improvement of Human

Resources in the Sector are discussed below.

4.6.1 Restructuring of PHCN

The implementation strategy recommended comprises:

! Phase retrenchment exercise to align with the privatization programme

! Provide pre-disengagement training to the affected staff.

! Allow voluntary retirement subject to acceptance by management.

! Make funds available before embarking on the rightsizing exercise and be mindful

of core-staff required to sustain smooth operations.

! Involve all stakeholders, particularly labour unions.

! A three-phased retrenchment plan is proposed below:

o Phase I - 6,006 workers

o Phase II - 3,000 workers

o Phase III - 3,660 workers

Total - 12,666workers

58

Current staff strength is 45,906 comprising of 36,834 permanent staff and 9,082

temporary/contract staff. The phase 1, with a total number of staff of 6,006 will require

a sum of N22.3 billion as severance package.

4.6.2 Skills Gap Analysis

A couple of studies have shown that NEPA, when it existed, was overstaffed. In fact,

the National Economic Empowerment and Development Strategy (NEEDS) envisaged

that staffing in PHCN would be reduced by 15% as labour productivity was adjudged

very low.

There is no doubt that the increase in generation capacity to the over 150,000MW

required to make Nigeria an industrializing country implies a massive requirement of

adequate and differing skills to manage the transition and cope with the growth. Across

the entire Power Sector, a mix of skills is required including Engineers, Technicians, etc.

This is currently a major challenge for the Power Sector and the country. It seems to

be a paradox, as while on the one hand there is excess labour in the PHCN which

requires some right-sizing, there is also the need to increase appropriate manpower to

meet the rapid expansion expected in the Sector.

The above implies that there is a need for a skills gap analysis in view of the

requirements for meeting the country’s power supply projection. Accordingly, there is a

need to undertake the following:

! Take an inventory of existing skills and competencies, and the requirements for power

generation, distribution and transmission;

! Highlight the areas for capacity building initiatives;

! Develop a structured approach to obtain relevant skills; and,

! Establish a framework for continuous assessment and addressing of manpower needs.

A skills gap analysis was conducted in 2004 in relation to a pilot project and the

following areas for intervention were identified:

! Engineering

! System Operations

! Protection

! Customer Service

! SCADA System Operations

! Transmission System Operations

! General Management

59

! Transmission Management

Planning

! General Safety

! Load Planning and Estimation

! Demand Planning and Estimation

! Economic Operations

! Network Performance Analysis

! Regulatory Compliance

! Utility Management Financing

and Accounting

! Project Management

! Network Design and

Maintenance

! Metering

! Community Relation

However, it is imperative to carry out a more comprehensive skills gap analysis to

reflect current competency status and recommend appropriate interventions.

4.6.3 Training and Capacity Development

4.6.3.1 Competent and Qualified Manpower

It is recommend that the process of rightsizing in the Power Sector should also be

accompanied by active search and recruitment of highly qualified and well trained

Nigerians from all over the world. While Nigeria has its peculiarities, the input-output

ratios and quality indicators in the Power Sector should as much as possible be

comparable to best standards across the globe.

4.6.3.2 Training Institutions

A two-pronged approach is hereby recommended. The first is to strengthen existing

training institutions in the country. Secondly, a Public Private Partnership should be

initiated whereby the Government can partner with the Private Sector to establish a

world class training institute. A good example is the Electric Power Research Institute

(EPRI) in the USA, which is a consortium of utilities.

There is also a need for the establishment of a National Power Institute that will

coordinate, train and develop skilled personnel necessary to adequately support the

electricity industry.