REPORT OF THE PRESIDENTIAL COMMITTEE ON POWER SUPPLY IMPROVEMENT IN THE SHORT AND MEDIUM TERM

MAY 2007

CONTENTS Endorsement Sheet Executive Summary & Recommendations Outline of Report Membership of the Committee Terms of Reference 6 7 13 15 18

Chapter Four Medium Term Intervention Gas Portfolio Management Gas Supply Status Gas Supply Improvement Generation Improvement Potential Hydro Projects Alternative Energy Sources/Power Generation Potential from Coal

43 43 44 48 49 50 55

Chapter One Background/Overview of the Power Sector 19 State of the Power Sector Pre-1999 Post 1999 to Date Gas Supply Snapshots Power Supply Crisis Chapter Two Visitation to Ongoing and Existing Power Plants Summary of Visitation Recommendations from Visitation Chapter Three Short Term Interventions Gas Supply Improvement Generation Improvement Transmission Improvement Distribution Improvement Sector Reforms Issues & Regulation 19 21 24

Renewable Energy and Energy Efficiency 56 Human Asset Management Annexure 57

26 Annex I Reports of Visitation to Existing and Ongoing Power Plants 27 27 32 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 Committees Meetings Figures Fig 1.1 Pre-1999 Government Funding of the Nigerian Power Sector

35 35 36 37 37 38

Renewable Energy and Energy Efficiency Measures Improvement 40

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

Acronyms Bureau of Public Enterprises Capital Expenditure Economic Community of West African States Electric Power Sector Reform Electric Power Sector Reform Act Electricity Corporation of Nigeria Escravos Lagos Pipeline Systems Electric Power Research Institute Federal Government of Nigeria Generating Companies Giga Watt Hour Gross Domestic Product Gas Supply Purchase Agreement Independent Power Producers Joint Venture Kilo Volts Low Pour Fuel Oil Letter of Credit Million Standard Cubic Feet Mega Watt Mega Volt Ampere Multi-Year Tariff Order National Integrated Power Project National Electric Power Authority National Economic Empowerment and Development Strategy National Office for Technology Acquisition and Promotion Niger Dams Authority Nigerian Electricity Regulatory Commission Nigerian Gas Company Nigerian National Petroleum Corporation Nigerian Electricity Liability Management Company Nigerian Electricity Supply Industry Power Holding Company of Nigeria Power Sector Reform Act 4 BPE CAPEX ECOWAS EPSR EPSRA ECN ELPS EPRI FGN Gencos GWH GDP GSPA IPP JV KV LPFO LC MSCF MW MVA MYTO NIPP NEPA NEEDS NOTAP NDA NERC NGC NNPC NELMCO NESI PHCN PSRA

Power Purchase Agreement Public Private Partnership Rural Electrification Agency Shell Petroleum Development Company Turn Around Maintenance Trillion Cubic Feet West African Power Pool

PPA PPP REA SPDC TAM TCF WAPP

ENDORSEMENT

Nasir Ahmad el-Rufai (OFR) Hon. Minister, Federal Capital Territory

Peter Odili Executive Governor, Rivers State

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

Edmond Daukoru Hon. Minister, Energy

Frank Nweke Jr Hon. Minister, Information & Communication

Adamu Bello Hon. Minister, Agric & Water Resources

Turner Isoun Hon. Minister, Science & Technology

Elias N. Mbam Hon. Minister of State (Finance)

J. O. Makoju Special Adviser to the President (Electric Power)

Funsho Kupolokun GMD, Nigerian National Petroleum Corporation

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

Abubakar S. Sambo Director General, Energy Commission of Nigeria

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

Ransome Owan Chairman, Nigerian Electricity Regulatory Commission

Irene Chigbue Director-General, Bureau of Public Enterprises

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-Rufai, 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 Shells 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 1.6 1.7 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. There is need to supplement the funding of the existing Power Plants, Transmission and Distribution infrastructure. Maintenance programs were not undertaken as and when due in the PHCN System due to poor funding as it appeared that the existing infrastructure,

which are old and fragile were compromised with the funding of new infrastructure. 1.8 There is need to further explore gas development for the Power Sector and other sectors. Although natural gas exists in abundance, the production for power generation is inadequate. 1.9 The residual PHCN issues with respect to its successor companies need to be reviewed. It is obvious that the unbundling left some gaps in the coordination of activities. 1.10 The Power Sector requires continuous funding especially when the tariff system does not allow for economic return on investment. While the unbundling activities went on, the funds for the continuous operation of PHCN infrastructure was compromised. This has resulted in a situation where several power and distribution transformers failed and cannot be replaced. Generation and Transmission infrastructure have the same problem. 1.12 Practically all senior positions in this technology-intense Sector are manned by Nigerians and this should be noted and encouraged. However, as a result of years of inadequate funding, manpower development and capacity building in the Power Sector were neglected. Consequently, the Sector is witnessing shortage of requisite skills in adequate quantity and quality. 1.11 Timely completion of NIPP and FGN Power Projects is being hampered by delays in the provision and processing of funds for the projects and by lingering community issues. 2.0 RECOMMENDATIONS 2.1 2.1.1 SHORT TERM Ongoing effort, following access to the vandalized Escravos Gas Pipeline, should be sustained and completion of the repair work as scheduled in June 2007 ensured. Completion of the work will also minimize the presence of condensate leading to pigging. 2.1.2 Discussions with Shell on the upgrade of the Utorogu Gas Plant must commence immediately. The choice of appropriate well selection to limit liquid production should also be explored.

2.1.3 2.1.4

The expansion process of the ELPS capacity should be expedited. The contract should be awarded immediately. 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 2.1.7

The FGN should sustain funding for PHCN Headquarters to cover common industry liabilities (gas supply, laboratory, etc) during transition. 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. 9

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 2.2.1 MEDIUM TERM 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 NNPCs proposed legislative intervention, which makes it mandatory for gas operators to meet domestic demand before export. 2.2.4 2.2.5 Adequate measure to ensure improvement and protection of gas supply to existing and on-going Power Plants must be fully entrenched. 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). 10

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 nations 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. 11

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.

12

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 13

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.

14

MEMBERSHIP OF THE COMMITTEE

1.

Nasir Ahmad el-Rufai OFR Minister of Federal Capital Territory

Chairman

2.

Peter Odili Executive Governor, Rivers State

Member

3.

Edmond Daukoru Minister of Energy

Member

4.

Frank Nweke Jr. Minister of Information & Communication

Member

5.

Bala M. Borodo Minister of Mines & Steel Development

Member

6.

Adamu Bello Minister of Agric & Water Resources

Member

7.

Elias N. Mbam Minister of State (Finance)

Member

8.

J. O. Makoju Special Adviser to the President (Electric Power)

Member

9.

F. A. Somolu

Member

Senior Special Assistant to the President (Power Reform) 10. A. O. Adegbulugbe Special Adviser to the President (Energy) Member

15

11.

Funsho Kupolokun Group Managing Director Nigerian National Petroleum Corporation

Member

12.

Ransome Owan

Member

Chairman, Nig. Electricity Regulatory Commission 13. Irene Chigbue Director-General, Bureau of Public Enterprises 14. Abubakar S. Sambo Director General, Energy Commission of Nigeria 15. J. O. Ayodele Power Holding Company of Nigeria 16. Hauwa Yabani Special Assistant to the FCT Minister Secretariat Secretary Member Member

TECHNICAL TEAM 17. 18. 19. S. Maigida M. A. Ganiyu J. A. Akinola Power Holding Company of Nigeria (PHCN) PHCN Federal Ministry of Agriculture and Water Resources 20. 21. H. Nggada Sam J. Agbogun Federal Ministry of Energy Bureau of Public Enterprises

16

22. 23. 24.

Gabby Meheux A. A. Esan O. C. Iloeje

Nigerian National Petroleum Corporation UNIDO Regional Centre Nigerian Electricity Regulatory Commission (NERC)

25. 26. 27. 28. 29.

Usman Abba Arabi C. O. Ukabiala O. N. Ekpenyong I. J. Dioha Christian C. Okeke

NERC NERC Energy Commission of Nigeria (ECN) ECN Federal Capital Territory Administration

17

TERMS OF REFERENCE

1. 2. 3. 4. 5. 6.

Review the current electric power situation in the country. Proffer short term interventions to improve the situation. Review the ongoing power sector reforms and comment as appropriate. Identify other energy sources and energy efficiency measures. Make recommendations for medium term interventions. Identification of asset management & infrastructure needs and suggestions on human resource transformation and sector funding.

7.

Conclusions and recommendations.

18

CHAPTER ONE
1.1 BACKGROUND/OVERVIEW 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.

1.1.1 Evolution of the Power Sector

Government Funding of the Nigerian Power Sector (1974 2001)

Millions $
500 450 400 350 300 250 200 150 100 50 0 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

Period of poor Funding & Neglect of the Nigerian Power sector

Fig. 1.1
19

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 70s, 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
9000

8000

Low Income Countries

Middle Income Countries

High Income Countries

Singapore

P e r C a p ita E lec tric it C o n s u m p tio n (k W h /C a p )

7000

6000

Saudi Arabia

5000

S/ Africa
4000

3000

Malaysia Libya

Chile

2000

China
1000

Brazil Algeria

Nigeria
0 0.00

India
5000.00

10000.00

15000.00

20000.00

25000.00

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

Fig 1.2 20

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).

21

Electric Power Sector Funding 1999 to 2007

Electric Power Sector Funding from 1999 to 2007
2000 1800 1600 1400 1200 1000 800 600 400 200 0 1999 2000 2001 2002 2003 2004 2005 2006 2007

Millio n Do llars

Year

Fig 1.3
These have led to substantial improvements in generation capacity, transmission and distribution networks. A phenomenal increase in PHCNs 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)

!"#$%&'( )((%#'$*%+,%-,)..&%/"0,1)234,5666,7 899: )((%#'$*%+,%-,)..&%/"0,1)234,5666,7

40,000.0 35,000.0 30,000.0 25,000.0 20,000.0 15,000.0 10,000.0 5,000.0 1999 2000 2001 2002
Gener ati on

2003

2004
Tr ansm ssi on i

2005

2006
Di str i buti on

Year

38

Fig 1.4 22

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

Network )einforcement /2000 2 20064

2000
Installed Available Capacity (MW) Highest Daily Peak (MW) Bulk Energy Delivered (GWH) Transmission Capacity (MVA) Distribution Capacity (MVA) 2,753 2,500 21.0 11,000 7,500

2006
4,090 3,776 36.0 15,000 12,250

% Change
48.5 85.0 71.5 36.4 63.3

Annual Gas Consumption

350.00 300.00

x 1000mscf

250.00 200.00 150.00 100.00 50.00 0.00 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Fig. 1.5 Annual energy generation increased from 22,000GWh to above 35,000GWh between 2000 and 2006 (See Fig. 1.6) 23

Energy Generation (GWH), 2000 2006

40,000 35,000 30,000

GWH

25,000 20,000 15,000 10,000 5,000 2000 2001 2002 2003 2004 2005 2006

Year

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. 24

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 25

supplies from Chevron in turn resulted in the SPDC supplies being the only gas supply source to the Egbin Power Plant. Historically, SPDCs 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.

26

CHAPTER TWO
2.0
S/No

SUMMARY OF REPORTS ON VISITATION TO POWER PLANTS

Station/ Capacity (MW) Gbarain, Bayelsa State (225) Contractor/ Consultant Rockson Engineering Observed Problems/Findings Financial Delay in Letter of Credit (LC). Reimbursement by NIPP awaited. Workers wages demand above FGN minimum wage. US $25m bridge facility (Phase I). CBN refusal on foreign exchange payments to Contractors. Marubeni Engineering NOTAP non-approval Form A. Letter of Credit in operation hence minimal problem. Technical Withdrawal of Experts due to kidnappings and militant activities. Environmental Site closures due to youth restiveness. Flooded location as site sand filling. Youth restiveness. Power evacuation facilities could delay delivery of equipment. Remarks Youth disturbances may elongate target.

Table 2.1

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

PB Power (Group 5)

Eket-Uyo-Itu 132KV line (Phase I) outstanding. Ikot-Abasi-Ikot Ekpene Transmission (trx) line (Phase II) also outstanding. Lack of adequate surface water Combined cycle. Delay in gas pipeline award.

Odukpani, Calabar, Cross River (561MW)

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

Delay in delivery of power/

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.

27

S/No

Station/ Capacity (MW) Olorunsogo, Ogun State (335)

Contractor/ Consultant SEPCO and Construction Corporation, China

Observed Problems/Findings Financial Non-opening of LC for 330KV Trx lines. Delayed payments. Non-signing of PLC contract. Technical 33KV Trx line at Ewekoro still awaited. 330KV Trx line delay. Gas yet to be supplied on site. 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. Gas pipeline construction yet to Start. Trx line construction yet to commence. Environmental Community related issues still outstanding. Remarks

Omotosho, Ondo State (335)

China Machinery and Equipment (ImportExport) Corporation (CMEC)

Outstanding community related issues.

Phase I commissioned 17th April, 2007.

Omoku (Rivers State) (230)

Rockson Engineering, Steag

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

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

Egbema (Imo State) (338)

Rockson Engineering, Steag

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

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

Community problems caused work stoppages.

28

S/No

Station/ Capacity (MW)

Contractor/ Consultant

Observed Problems/Findings Financial Various payments to Contractor outstanding. Outstanding liabilities of PHCN on the project not yet taken over by NIPP. Technical Environmental Militant activities hindering presence of Technical Assistants (Foreigners). Outstanding decision on request for 5km road by community. Gas pipeline construction yet to commence. Contract for the 330KV evacuation line yet to be awarded. Militant activities hindering presence of Technical Assistants (Foreigners). Remarks

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. Contractors loan for land compensation not repaid. Various payments to Contractor outstanding. Outstanding liabilities of PHCN on the project not yet taken over by NIPP.

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.

29

S/No

Station/ Capacity (MW)

Contractor/ Consultant

Observed Problems/Findings Financial Technical 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. Environmental Remarks

11

Kainji (Niger State)

Owned by Federal Government of Nigeria

Indebtedness (N200.7m) for incurred expenditure and staff salary arrears (12%).

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

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

12

Jebba (Niger State) (540)

Owned by Federal Government of Nigeria

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.

30

S/No

Station/ Capacity (MW) Geregu (Kogi State) 414MW

Contractor/ Consultant Siemens

Observed Problems/Findings Financial Technical Inadequate supply of gas for the third turbine. Insufficient water for generator cooling. Environmental Remarks Shortage of accommodation for operational staff.

14

31

2.1

RECOMMENDATIONS FROM VISITATION TO POWER PLANTS

2.1.1 General Recommendations on Thermal Plants: (a) (b) (c) (d) (e) (f) (g) (h) Prompt payment of approved invoices to contractors; Strengthen relations between host communities through continuous dialogue and corporate social responsibility; Improve security of project sites; Site studies and soil tests to be carried out before handing over to contractors; Provision of emergency fund for urgent maintenance and upgrade of equipment in existing plants; Outstanding letters of credit, as per contract schedule, should be issued immediately by NIPP to contractor; Plant concept and site should be firmly established before award of contract to avoid major mid-stream changes; 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) (j) To curb community restiveness, there is need for the involvement of state and local authorities at the conceptualization stage; 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) (l) Ensure Turn Around Maintenance (TAM) activities are carried out as and when due; and, 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. 32

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) Contractors 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.

33

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 plants 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.

34

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. b. c. Gas Supply challenges and availability in the right quantities and quality. Power Generation, Transmission, Distribution and Power Sector Reform related issues. 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

35

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.

36

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. 3.3.1 Financial Implications 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. 3.4.1 Financial Implications 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).

37

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.

38

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.

39

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 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 ENERGY AND ENERGY EFFICIENCY MEASURES

40

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 Capacity 3,500MW 11,500MW 13,071,464 hectres (Forest land, 1981) 61million tonnes/yr 83 million tonnes/yr 3.5 - 7.0 kWh/m2-day 2 - 4 m/s (annual average) at 10m height
Source: Energy Commission of Nigeria

Energy Source Small Hydropower Large Hydropower Biomass - Fuel wood Biomass - Animal Waste Biomass - Crop Residue Solar Radiation Wind

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. 41

3.6.2

Energy Efficiency and Conservation Measures

Energy is wasted in all sectors of the nations 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 nations Energy Sector; and, Promotion of the use of energy efficient appliances in generation, transmission, distribution and usage/consumption.

42

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: ! ! ! ! ! ! ! ! ! 4.1. 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.

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 Limiteds 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.

43

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 Power Plant Geregu Omotosho Gas Supply to GOPA Power Plants Power (MW) 414 335 Gas (MMscf/d) 138 120 Gas supplied in December 2006; Phase 2 Pipeline ready by December 2007. Pipeline and Station Facilities completed; Hot tie-in completed in March 2007; Gas supply commenced in March 2007. 44 Status

Capacity Requirement

Olorunsogo / Papalanto Alaoji

335

120

Pipeline tested and civil works completed; Metering System has been cleared at Lagos Port; Gas supply commenced in April 2007.

504

140

Design and procurement in progress; Completion scheduled for October 2007; Gas supply to come from Imo River Supply System.

Table 4.2
Power Plant Calabar

Gas Supply to NIPP Projects

State Power Capacity (MW) Cross River 500 Gas Requirement (MMscf/d) 140 Pipeline and Station design & procurement in progress with completion planned for August 2008. 350 100 Pipeline and Station Facilities design & procurement in progress with completion planned for August 2007. 40 MMscf/d to be available in Q3 2007 & 60 MMscf thereafter. Status

Egbema

Imo

Gbarain

Bayelsa

250

70

Pipeline and Station Facilities design & procurement in progress with completion planned for September 2007.

Ikot Abasi Ibom 1 & 2 Ihovbor / Eyaen

Akwa Ibom Edo

188/500 500

60/140 140

Gas is available for supply. Pipeline and Station Facilities design & procurement in progress with completion planned for September 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.

45

Power Plant Sapele

State

Power Capacity (MW)

Gas Requirement (MMscf/d) 140

Status

Delta

500

Pipeline and Station Facilities design & procurement in progress with completion planned for September 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
Table 4.3
Power Plant NAOC 1 NAOC 2 Okpai Okpai

3,208

760

Gas Supply to JV Power Plants

Location State Power Capacity (MW) Delta Delta 480 450 Gas Requirement (MMscf/d) 70 70 Now in operation To be operational by mid2009. PPA negotiation in progress. Status

Chevron

Agura

Lagos

780

120

Site works to commence soon. Operational by mid2009.

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

46

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
Fig 4.1

3,636
Overview of Gas Supply Plan

660

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. 47

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 48 necessitates the

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. ! ! 4.4 Future gas plant operators to consider floating power plants near gas reserves. Incorporate Natural Gas Storage facilities for strategic reserves.

GENERATION IMPROVEMENT 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 49

4.4.1 Overhaul and Remedial Works in Existing Power Stations

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) Kainji 1G5 1G9-10 Damaged and requiring complete overhaul. Limited to 50MW due to age of the machine, requiring overhaul. Egbin Unit 3 Unit 6 Unit 2 Unit1,2,3 Sapele All units Out on boiler fault Out on boiler fault Major Overhaul required Remedial work Complete overhaul of gas and stream turbines Ughelli Afam Total 4.4.2 Potential Hydro Projects 4.4.2.1 ! ! ! Oyan Ikere Gorge Installation of Turbines in Completed Dams 34MW 9MW 6MW 50 Dadin Kowa GT3-5 GT16,19 Faulty transformer Awaiting Rehabilitation Major Overhaul 45 200 849 2,784 950 220 220 180 120 7 out of the 8 units in the Station have not been overhauled since commissioning from 1969-1972. Water Management needed. Gas limitations. Remark

! !

Bakolori Gurara Total

3.4MW 30MW 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] 3.0 6.0 6.0 Status

1 2 3

*Bakolori *Tiga *Ikere Gorge, Iseyin *Oyan Dadinkowa Dam Challawa Gorge Dam

Kano Kano Oyo

Operated for a short while and packed up since 1993. Dam construction completed but Electromechanical equipment never installed. Dam construction completed but Electromechanical equipment never installed. Dam construction completed but Electromechanical equipment never installed. Dam construction completed but Hydropower Component yet to be awarded. Dam construction completed but Electromechanical equipment never installed.

4 5

Ogun Gombe

9.0 34

Kano

7.0

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 51

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.

52

Table 4.6 List of IPPs Licensed by NERC

S/NO

NAME OF LICENCEE

ISSUED DATE

EXPIRY DATE

TYPE OF SITE LICENCE LOCATION

STATE

PHASES (MW)

1 2 3 4 5 6 7

Ethiope Energy Ltd. Farm Electricity Supply Ltd. ICS Power Supertek Nigeria Ltd.

24/8/2006 24/8/2006 24/8/2006 24/8/2006

23/8/2016 23/8/2016 23/8/2016 23/8/2016 6/12/2016 6/12/2016 6/12/2016

Ikorodu Ind. Power 7/12/2006 Ltd. Ewekoro Power Ltd. Mabon Limited 7/12/2006 7/12/2006

Electricity Generation Electricity Generation Electricity Generation Electricity Generation Embedded Electricity Generation Off-Grid Electricity Generation Electricity Generation

Ogorode, Spele Ota Alaoji Akwete Ikorodu Ewekoro Dadin Kowa

Delta Ogun Abia Abia Lagos Ogun Gombe

PHASE I 1,390 150 120 480 39 12.5 39

PHASE II 1,410

PHASE III -

504 204 -

316 -

53

S/NO

NAME LICENCEE

OF ISSUED DATE

EXPIRY DATE

TYPE OF SITE LICENCE LOCATION

STATE

PHASES (MW) PHASE I PHASE II PHASE III

8 9

Geometric Aba Ltd.

Power 7/12/2006 23/2/2007

7/12/2016 22/2/2017

10

11 12

Westcom Technologies & Energy Services Ltd. Westcom Technologies & Energy Services Ltd. Anita Energy Ltd Bresson Energy Nig Ltd. Total:

Embedded Electricity Generation Generation (Grid) Generation (Off-Grid) Generation (Grid) Generation (Grid)

Aba Shagamu

Abia Ogun

140 1000

23/2/2007

22/2/2008

Lekki

Lagos

50

12/4/2007 12/4/2007

11/4/2017 11/4/2017

Agbara Magboro

Ogun Ogun

90 60 2,118 3,420.5 316

Grand Total 5,854.5

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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. 4.4.4.1 Alternative Energy Sources and Energy Efficiency Measures 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

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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 nations 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) (2) Reactivation of Oji River coal fired Power Plant; and, 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) (2) (3) Provision of gainful employment; Improvement in the countrys energy mix; 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 subhydrological area basins to determine small and medium hydropower potential in Nigeria. 56

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 o Phase II o Phase III Total 6,006 workers 3,000 workers 3,660 workers 12,666workers

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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 countrys 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

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! ! ! ! ! ! !

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.

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