Major marketers better equipped for fuel importation — Akinfemiwa

With your company being a key player in the Nigerian oil and gas sector, especially in the downstream segment where you are major oil marketer, what is your take on the current fuel supply challenge in the country?

Before now, we were in a subsidy regime up until we had the modulated price template, which has sort of taken us out of the subsidy regime. Now, with respect to the problems, the country has had to grapple with the issue of foreign exchange and that has sort of limited the ability or the capacity of the marketers to import. 

Now, removing that obstacle means that we are able to provide those supplies to the populace. So, we (major marketers) have been given special or preferential treatment by the Nigerian National Petroleum Corporation in the allocation of foreign exchange. We had a meeting with the minister a few days ago, and he is living up to his promises to provide adequate foreign exchange and also increase the level of imports to the major marketers who have the distribution infrastructure across Nigeria. So, that is the problem of the supply situation.

In addition, restructuring the participation when it comes to fuel imports under the PSF (Petroleum Support Fund) Scheme in Nigeria means that major marketers should be given the opportunity to participate on a larger scale. Reason being that major marketers are the ones who have the spread of outlets across every nook and cranny of Nigeria, and they are the ones that are able to deliver fuel to the common man in the most remote places in Nigeria.

You were recently appointed as the chairman of the Major Oil Marketers Association of Nigeria. What would MOMAN do differently, going forward?

What I am going to do as the chairman of MOMAN is to champion the course of major marketers to work directly with the government to ensure that we reform the downstream sector. So, providing uninterrupted supplies of petroleum products is a given, and something that we must do as part of our roles and responsibilities as major marketers. But my chairmanship will ensure that, first of all, we actively engaged in the formulation and implementation of policies that have to do with taking the downstream sector out of the doldrums, and setting it on a solid foundation.

Your company participated in the privatisation of the power sector with the acquisition of Geregu power plant. Now three years into the privatisation of the sector, it seems nothing has really changed. Why is this so?

There are a lot of issues. First of all, we should have had the Transitional Electricity Market come into full effect almost three months after the take-over of the assets. What that meant was that each plant would operate at least optimally and have a positive impact on the national grid. So, first of all, we would have had each power plant have adequate capacity to put on the national grid if all the conditions of the TEM had been put in place.

TEM not being put in place also didn’t give the comfort to the distribution companies to upgrade their systems and infrastructure. Now, the TEM would have meant the right tariff being put in place, and the tariff would actually provide a basis for additional investment.

So, TEM not being put in place has affected the chain of power supply in the country. We don’t have the Discos meeting their obligations; the transmission company does not have the capacity to take everything that is put on the power grid, and of course, the generating companies can also not put enough on the grid.

In addition, TEM also meant that companies like NBET (Nigerian Bulk Electricity Trading Plc) should have been empowered for them to serve as bulk buyers irrespective of what you generate or what you distribute, to have standby letters of credit being put in place and give that comfort to generating companies. Again, that did not kick in. But some of us, particularly Geregu Power Plc, have taken that dive – that risk – that someday these things will be put in place. Now, there is an agitation against the new tariff. Tariffs have been put in place, and we expect the Discos to do something. But if we are waiting for everything to be in place before we invest, then we won’t be rightly positioned when all those things come in.

What lessons do you think have been learnt?

In my own view, first of all, that the private sector can make it happen. The private sector remains a very strong engine for economic growth and development. If you look at the kinds of investment that have been made by a few players in the last three years, I think it is highly commendable, considering the fact that the economic climate remains very cloudy.

Number two, we also need to look at the quality of participants or investors in future acquisitions, particularly when it comes to future acquisition of government assets in Nigeria. It is not only about people bringing in money, but it is also the ability of those you have attracted to bring in additional investments to grow the sector. Growth is also important.

What other lessons do I see?

Creating a favourable environment will definitely increase foreign direct investment.

Number four is that there is a lot of room to empower Nigerians in the privatisation of government assets. If you look at most of the power companies in Nigeria, you find that they are being backed by Nigerians. It is important for us to enhance transfer of technology, transfer of knowledge and so on between our people and the expertise that we have brought in. And ultimately, that will help in growing or develop our economy beyond what it is today.

How have you fared since you acquired the Geregu plant?

We acquired that plant in November 2013. When we acquired it, it was one of the newest plants that were up for bid at the time. However, it was due for a major overhaul because most of the turbines had attained the extended hours of operations, of 40,000 hours as prescribed by the engine manufacturers. So, we knew that we had to embark on a major overhaul. But I think what is most interesting about it is that at the time we were going on that major overhaul, the conditions precedent or the conditions that the government should have fulfilled for maximum efficiency of the plant had not been, and has still not been, completely put in place.

But as investors and people with a vision, what we then did was to go ahead with the major overhaul at a cost of approximately $90m. We signed that contract in June 2015 with Siemens AG, the original manufacturers of the plant. What does the major overhaul entails? It involves a complete overhaul of all the turbines. We have three turbines of 128 megawatts each. The whole idea is to remove the turbines, the rotors, the blades, and carry out a complete service; remove the cracks; change all the spares, and first of all, ensure that there is a capacity of 414MW, which is the maximum capacity of the plant. But then, the interesting thing again is that there will be an added 21MW. So, the total capacity of Geregu will be 435MW at the end of the major overhaul. So, we shall be contributing 435MW to the national grid, as opposed to the 138MW. Moving from 138MW to 435MW is a demonstration of our objective of providing Nigerians with stable power supply.

That is the whole idea of the major overhaul. It is coming at a time when things are quite tough economically, but because we are a people with a vision and we believe in Nigeria, we decided to invest that amount of money to bridge the power gap that we have in Nigeria. So, that is essentially what is driving the investment.

Some of the core investors who acquired the power assets have complained about lack of finance, how were you able to get the investment you have made in the plant?

We got it right the first time. First of all, we have taken a long-term view that power generation will be one of our core businesses as a group. So, what we then did was that before we even acquired the asset, we put a formidable consortium in place. That consortium has the largest utility company in the world, which is the Shangai Municipal Electric Power Corporation. We assembled Forte, SMEPC, and some of our Israeli investors. So, right from day one, the consortium was, first of all, able to bring in a combination of equity to the table for the banks to take on the level of debt they took in the acquisition.

We got it right at the foundation. Now, because of the technical expertise that we had, and because we also had a long-term view, we retained Siemens with respect to the maintenance of the plant. We never for one day asked Siemens to leave the plant. It comes at a cost, but it also has its advantages. It gives us the assurance that this plant will always generate because we are in partnership with one of the best. Having done that and the need for a major overhaul, the consortium in place, the technical expertise being in place, the partnership with Siemens, all give us enough confidence to raise the money for the major overhaul.  So, your ability to attract investors and also get the level of finance needed for investment in your power generation is as a result of who you are, your track record and what your intentions are with respect to bridging the power gap in Nigeria. That is my own personal belief.

Gas constraint is one of the major issues hampering power generation in the country; what has your experience been so far?

We are one of the lucky ones that have a dedicated gas supply system right from Delta State, from Oben. 

The only thing that has been stopping us from taking enough gas is the TEM that has not been fully in place; all the conditions precedent as per the TEM have not kicked into full effect. So, we are not able to take the gas on a ‘take or pay’ basis. But that is being resolved now. If we have the 435MW operative, we will have enough gas to operate. I don’t think gas should be a problem, except there is damage to the infrastructure. 

But if it is in terms of gas supply agreements, we shouldn’t have any problem in having enough gas to fire our plant. On the other hand, we also have a dedicated grid to Abuja, a dedicated transmission line, that will take everything that we generate. So, by and large, we don’t really foresee any externalities that will impede the generation of 435MW.

The major overhaul has started. I was at the plant last week. I take routine visit to the plant to inspect the major overhaul from time to time. It is a large-scale operation. It is large-scale instrumentation and engineering going on there. Like I said earlier, it involves checking the cracks on the rotors and on the blades; overhauling the entire turbine system. It is a gas-fired station and the turbine which uses the gas to generate the energy that is converted to electrical power is being overhauled. Give or take, by July 1, we should have everything in place, and the plant would generate 435MW.

Where do you see the nation’s power sector in the next five years?

I think the increase in tariff is a major step into the development of the power sector. I think that will attract, first of all, the investment needed to grow the power sector. It is a first major step in boosting the power sector because we will attract a lot of investors and a lot of expertise to bridge the gap in supply. And as the tariff becomes more attractive, what will then happen is that you will have expansion in the sector. I think there should be a lot of education on the side of the consumers. A lot of people are paying more than the tariff that has been put in place now with the use of their generators, whether they are diesel- or petrol-fired. 

There needs to be a lot of education to let them know that the increase in the tariff is for an improved and more efficient power sector in Nigeria. I foresee a situation where the power sector will be fully robust and would be able to meet the needs of the average Nigerian within the next five years. And I think it will also be able to remove that obstacle with respect to infrastructure that is being used or termed as a barrier for additional foreign direct investment in Nigeria. So, it will provide a fertile ground for economic development in Nigeria within the next five years.

After attaining 435MW in Geregu, what else does your company plan to do in the power sector?

We are carving a niche for ourselves in power generation, like I said earlier. So, after achieving the 435MW, we are going to look at other opportunities that we are still keeping close to our chest. Definitely, if we are carving a niche for ourselves in power generation, it means that we are going to grow exponentially in terms of our generation capacity. Today, we are on 435MW and we are saying that in the next three years, we want to probably be at about 2,500MW to 3,000MW either through the acquisition of existing assets or the development of new ones. So, in four years’ time, maybe we should be at about 2,500MW to 3,000MW as a company. And what that then means is that we would have contributed a significant amount of energy to the national grid.