Nigeria: Chiedu Ugbo - Apart From Transmission and Gas Constraints, Revenue Shortfall Is Power Sector's Biggest Challenge

15 December 2019

The quantum of power that a nation has determines its growth potentials. For a country like Nigeria that has grappled with power outages for decades despite the billions of dollars invested in the sector, transmission remains a problem. However, the appointment of Mr. Chiedu Ugbo as Managing Director of Niger-Delta Power Holding Company (as acting and later substantive) was received with excitement. Ugbo is not just a passive energy industry player, he understands Nigeria's energy ecosystem. 

An Illustrious Career in Energy Sector

In terms of experience, exposure and education, Chiedu Ugbo, the Managing Director of Niger-Delta Power Holding Company, is streets ahead of his peers when it comes to the in-depth understanding of Nigeria's energy sector. Though a trained lawyer who also earned his Master's in Law from the University of Lagos and was called to the Nigerian Bar in 1991, Ugbo's incursion into the energy sector began in 1999 with a review of the Lagos Enron Independent Power Project (IPP), which later moved to AES, one of the world's leading power companies.

He was practising at George Ikoli & Okagbue when the brief to consult for the defunct National Electric Power Authority came. At that time, NEPA was a monopoly. In 1999, there was an amendment to the law, which allowed the private sector - the independent power producers to generate power.

Ugbo said, "We negotiated several PPAs (Power Purchase Agreement) for IPPs like Ibom Power, Agip (Okpai) and Shell Afam VI (Power Plant in Rivers State) among others."

By 2005, Ugboh was involved with the Bureau of Public Enterprises to provide external counsel support under a DFID-funded Senior Legal Support project, which was at the heart of the electric power sector reform and several other reforms. He reckoned that any lawyer that fancies working in a specialised industry, the best thing to do is to study the industry well.

He said, "I have taken non-law related courses. In 2006, I went to study the basics of electricity in Canada; I was at the Canadian Energy Research Institute where I studied the fundamentals of electricity industry restructuring, which gave me sufficient insights and knowledge of the electricity supply industry.

"That helped when I was embedded at BPE by the UK/DFID. I was there between 2005 and 2009. So, we were dealing with the issues coming out of the reform. Incidentally, the project manager of the power sector reform at the time, Mr. Chudi Ojukwu, is also a lawyer; he came from law school as a lecturer with a strong interest in electric power sector reforms. He did a good job. So, right now, one has historical, institutional and of course, professional experience, as well."

Round Peg in Round Hole

By 2010, there was a renewed interest in privatization, but he had returned to his private practice at Benchmac & Ince, a law firm he co-founded with a colleague in 2003.

"I had gone off to do the port concession of Sierra Leone in Freetown. So when I came back, the then-new DG of the BPE, Ms. Bolanle Onagoruwa, got me a DFID contract again when they wanted to start the full privatisation. So, I stayed to anchor the legal. But before then, I had joined a consortium to bid for transaction advisory services for the privatisation. So when the consortium won and wanted to start the project, I had to move over to the consortium as part of the privatisation transaction advisory legal team.

"I coordinated the legal workstream which was a multi-discipline team consisting of financial and investment advisers, technical advisers and other relevant professionals; but I did this while interfacing with Herbert Smith Freehills (an international law firm in London and other parts of the world). We did that all through the time the privatisation exercise lasted. I was also subsequently invited by Nexant of USA to work with them in providing technical support to the BPE under the USAID Fund in the privatisation of Omotosho 1 and Olorunsogo 1 PHCN power plants.

"These two plants were built under a Chinese loan that they needed to convert to equity. So we had to advise on the privatization with purchase consideration largely paid by debt-to-equity conversion; I worked with Nexant of USA on the very successful transaction and those plants are now run by Pacific Energy. The power plants are both in grid commercial operations," Ugbo recalled.

Thereafter, he was invited to support the Nigeria Bulk Electricity Trading Plc, otherwise known as NBET still under the USAID funding. The NBET, set up by the federal government during the reforms as a credit enhancement measure, came in handy in the realisation that distribution would not be creditworthy considering that there was the need to quickly increase generation.

So, NBET, set up to help mobilise investment in generation, Ugbo asserted, was put in the middle so that lenders will see government-backed off-takers that will encourage them to put money into generation. Thus, NBET signed the power purchase agreements (PPA) with the PHCN successor generation companies - they signed PPA with the Omotosho I and Olorunsogo I power companies and for a new IPP-Azura in Benin. Several solar PPAs currently awaiting completion were also negotiated.

"I assisted in the processes under the USAID Africa Infrastructure Program and subsequently under the USAID Power Africa Transaction and Reform Program," Ugbo stated.

When the administration of President Muhammadu Buhari assumed power in 2015, Ugbo was invited to join the Advisory Power Team in the Office of the Vice-President and subsequently made a senior special assistant to the President on Power Privatisation. He doubled as acting head of the Advisory Power Team until June 2016 when he was appointed as the acting managing director of the Niger-Delta Power Holding Company Limited. By August 25, 2016, he became the substantive director. And since then, he said, "God has been helping us."

A Career Trajectory in Private, Public Sector

For someone who was used to the structured environment of the private sector, transitioning to the public service was, however, seamless for Ugbo. He has been able to navigate the landmines of public service with aplomb and élan.

He explained, "The difference in the environment is just the bureaucracy associated with the public sector. The NDPHC was set up as a fast-track company to do electric power projects. It is a private limited liability company to be governed by the rules of company law but it must also bear in mind that it is owned 100 per cent by the governments of the Federation: the Federal Government holds 47 per cent of the shares, states holding for themselves and the local governments in their territories hold 53per cent.

"So, the money belongs to Nigeria and the shares are held by Nigerian governments. What that tells you is that you must balance speed with the process. You are supposed to run very fast but again, you must not ignore the bureaucracy that comes with public service, which is meant for accountability. You must go through the processes. You must go through the Bureau of Public Procurement in your procurements; you must get all the necessary approvals for your activities."

NDPHC's Astute Team, Board

Ugbo disclosed that the challenges of running the NDPHC have been dealt with head-long as a result of having a wonderful, selfless management team of reliable go-getters.

"When you have Engr. Ife Oyedele and Babayo Shehu in your team and you are passionate about results, running an agency like the NDPHC becomes seamless to a large extent. So, I will attribute the achievements so far recorded to the formidable management team we have in place," he said.

Ugbo also acknowledged the importance of the board which has made his job easier with their efficiency and responsiveness. The board comprises bureaucrats and political leaders: six governors, each representing the geo-political zones; and four ministers, including the nation's attorney general, ministers of finance, power, petroleum resources; and the Vice President.

He said, "The board sits every month because I have to bring my procurement activities requiring board approvals in accordance with the procurement rules - the CEO does not have the sole authority to approve every procurement. He has a limited threshold beyond which tenders' board approval is required up to a particular limit and, thereafter, the approval of the company's board.

"Remember, our activities involve operation and maintenance of electric power stations and construction of transmission and distribution stations often involving procurement of expensive equipment which must necessarily go to BPP for 'no objection' and the necessary authorities for approvals. So, even though you want to get things done as fast as a private company would, creating that balance is key."

However, there is the challenging situation of the Federal Character rule.

"You just have to ensure that you carry everybody along, especially in the NDPHC that is owned by everybody. The challenge might come where, for instance, you need a finance person and the qualified person might not come from the state that has the quota. State A may have a qualified person but it has used up its quota while the person who applied from that state with quota may not qualify in the vacant field, so you have to restart the search. But then, I always tell my colleagues that the federal character is meant to give everybody a sense of belonging, and it is good to forge that sense of unity too," Ugbo admitted.

Nigeria's History of Epileptic Power Supply

Nigeria, according to Ugbo, has 10 power generation projects - eight are already connected to the grid, which will give about 4000mw installed capacity. Associated with the generation projects, he said, are gas transportation infrastructure projects ensuring that gas flows to the station, which he also said have been completed. As of today, he disclosed, the nation does an average of 700mw out of 4000mw because of transmission limitations.

Ugbo added, "Transmission is what determines the generation. Unlike other products, electricity generated is not what you can store and keep somewhere. You have to generate at about the same time the distribution companies are ready for them. If not, the transmission system will collapse. Transmission determines whether we should generate or not. When a certain amount of megawatt is generated, it has to be transmitted.

"The constraint has to do with the transmission lines based on off-take from distribution companies. Transmission controls us to generate or not; it will not call you up in the morning to generate or call every one hour to either come down or go up, it is a whole process. The argument is that there is no demand and by that, I mean bulk demand at the distribution end. And the argument is impacting on generation companies. So, you can see why I said about the average of 700mw compared to 4000mw installed capacity."

Speaking about the situation, he said, "We have about 2000mw in the western axis from Olorunsogo in Ogun State to Omotosho in Ondo State to Benin to Sapele to Geregu. I need about 400mmscf (abbreviation for million standard cubic feet, a common measure for volume of gas) of gas to run them but only have been able to mobilise 100mmscf, which is barely enough to run 400mw out of 2000mw in the West.

"But in our power plant in the East, we have excess gas. We have full gas for Calabar and Alaoji power plants. We have full gas for Gbarain Power Plant. These are the three operational ones in the East. So our transmission constraint is well over our gas constraint; but there is a gas constraint, no doubt."

He said that a 60 mmscf gas agreement has just been signed with Chevron Nigeria for the Olorunsogo Power Plant among other contracts in that regard.

"But there's the gas challenge and the evacuation challenge while the biggest challenge in the industry is the revenue shortfall. Picture it this way: we have 4000MW, we don't get dispatched; we don't get more than 700MW daily because there's no enough evacuation capability due to distribution constraints.

"Even that 700mw we do," said Ugbo, "when we put in our invoice, we get paid an average of 25 per cent monthly because NBET remits exactly the percentage they get from the distribution companies who claim that what NBET charges are way above what they approve for them to collect from customers. That is the tariff shortfall. But in addition to that, there is also what they call the market shortfall, which is what distribution companies on their own are not able to meet, so these are the challenges."

To get around the challenges again, the former Minister of Power, Babatunde Fashola, did what is called 'Eligible Customer Declaration' under the Electric Power Sector Reform Act, which allows the NDPHC to seek high net-worth consumers and supply directly to them and collect their money, which he said is helping to improve revenue.

Ugbo noted further, "We are also working with distribution companies to mitigate that and to also do end-to-end... like from our power plant to the end-users. We are looking at the arrangement with our power plant in Ogun State. We hope to work with the Lagos State Government to start with certain areas on how to supply 24/7 electricity end to end where all the issues are cleared; and supply directly, get the payment directly. But we must carry the distribution companies along."

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