How Government Can Ensure Steady Power in Nigeria –Okeke, MD, Azura IPP

How govt can ensure steady power in Nigeria –Okeke, MD, Azura IPPHow govt can ensure steady power in Nigeria –Okeke, MD, Azura IPPMr. Edu Okeke is the managing director of Azura Power West Africa Limited.

Okeke joined Azura in 2014 as its chief operating officer before becoming deputy managing director in 2016. Prior to joining Azura, Okeke had already charted a stellar career path through a succession of blue-chip companies.

In this interview, he highlights the challenges facing the Nigerian power sector, as well as preferred solutions.

The Nigerian power sector has been a problematic one for decades. How has the journey been since you became the managing director of the Azura Edo Independent Power Plant? 

I must state that while the journey has not been easy, I am conscious that running a capital-intensive business in the power sector requires deep reserves of patience, no matter where you are in the world. Nigeria just happens to be a little bit more challenging than other countries. We only privatized the industry a few years back and training the right personnel to pilot the affairs of the sector takes time. Add to this a government that’s in a hurry to show progress to Nigerians and you understand the frustration lots of people feel. But the key is to be steadfast, adhere to the contracts we signed and,  with time things will normalize. Mistakes are normally made when people get tempted into jettisoning long-established contractual norms in a hasty bid to “fast-track” things. Under those circumstances, people usually make more mistakes that then delay the progress at the end.

What have been the major challenges of operating the Edo power plant?

The plant on its own has been fantastic. It has the best availability in the country and you should note that, recently, based on evaluation by peers and the supervising ministry, Azura-Edo IPP was named the best thermal power generating plant in Nigeria. Our counterparties have also been fantastic in delivering on their contracts. With all the challenges with gas in the country, the Azura-Edo IPP has not suffered any issue with our gas supplier, Seplat/NPDC. This is also the same with the transport of that gas to us by the Nigeria Gas Company (NGC). They have been steadfast in ensuring that gas gets to us at the right temperature and pressure; and the power we generate is also constantly being evacuated by the Transmission Company, which meant that our load factor clocked in at a staggering 91 per cent in 2022. So, it is right to use this opportunity to say kudos to all our technical counterparties. On the negative side, the key challenge we have, which I know is also being suffered by all the power generating countries, is the lack of timely payment of invoices by the bulk trader NBET. Of course, we understand the challenges with the DISCOs remitting their collections to NBET but we should understand that NBET was principally set up to ensure that the DISCO delinquency doesn’t flow to the GENCOs. Unfortunately, they have not been meeting this basic expectation and it is our hope that this changes soon and we all go back to the promises we made both as government and investors – as this is the only thing that will attract more investors to the sector to increase the capacity we desperately need as a country.

Why do energy experts believe that Nigeria’s power problems will persist despite the efforts that are being made?

Fundamentally, because of the way the government is going about trying to fix the problem. If we go back in history, to the period between 2009 and 2011, the government recognized that it didn’t have the resources to make the required investments needed to make the sector world class and abolish intermittent power outages. It, therefore, solicited help from the private sector. On its part, it made some promises, most of which had to do with the policy directions and respect to contracts signed by the government and investors. Ever since then, what we have seen is a reluctance to respect those contracts and a temptation to jettison what was agreed. Also, government policies were being changed with such alacrity that it became very difficult to keep up. So, you can now understand why investments by the private sector dried up. Government is now trying to step in to fix the problem but gaining the trust of investors takes time once it is broken. And the other side of it is that, while the private sector is still evaluating a proposal, the government, being in a hurry, tries to tinker with it again, believing that it can encourage investors to rush in. But it doesn’t work like that. Rather, it means those investors starting afresh to evaluate the new policy, thereby incurring some unplanned costs and also delaying investments further. So, my advice to the government is simply to go back to their original template and see if anything has changed. Stable policy direction and respect to contracts are the only conditions that can bring back investors. It is never rocket science.

How far have you gone in realizing this dream of providing affordable and reliable energy in Nigeria and beyond?

Nigeria’s needs in terms of reliable electricity are far too big for one company to solve. Even the government cannot assure the citizens of that. However, with concerted effort by government and by providing a conducive atmosphere, the private sector can help achieve that aim. This promise of a conducive atmosphere was what the Nigerian government offered between 2010 and 2013 when they went round the world organizing road shows and setting out the plan they had for the creation of the Nigerian Bulk Electricity Trading Plc (NBET) as the recognized government entity that would assure investors of the security of their investments. The government also raised a $500 million Eurobond to support this. Investors, including those who funded the Azura project, harkened to this call and took the government up on their rhetoric. That’s why, in 2014, we had more than 10 companies actively carrying out feasibility studies on the establishment of different sizes of power plants in the country, besides those that participated in the very ambitious privatization programme of the government. In fact, at that point, the investors in Azura were planning to develop a 1,500MW facility to be executed in three consecutive phases. But after the realization of phase 1, the lack of a coherent government policy towards the power sector has meant that these investors have had to put the brakes on the funding of new projects. Of course, in the meantime, the nationwide gap between electricity demand and electricity supply has continued to grow. So, whenever the government finally gets back on the right track, we should see a resurgence of this suppressed investment appetite.

Now, in terms of affordability, I have to correct the first assumption being made that energy should be cheap. Power is never cheap anywhere in the world. That’s why you hear in the news today about energy crises in the West. As for most households, after housing cost, energy is the next big cost item. This is also an area where the government has not done well to educate the citizens on the real cost of power. Most households that use generators actually spend two or three times the cost of grid power; but when you hear from officials of government (be they executive or legislature), they give the impression that power should be free. Nigeria has the lowest tariff for electricity in the West African region, which says a lot about our tariff. For us at Azura, we have also done our best by optimising all our processes such that when you compare our wholesale tariff to those of similar plants built in the region in the last five years, you will also see that we are the cheapest. But that does not take away the fact that electricity needs to be paid for and, if the government is not ready to put the tariff at the right level, it would have to find the money itself to make it up. Where none of those is happening, investors would run away as there is no path for the recovery of their investments.

In terms of investments, how much has been invested in the last five years?

Before we discuss the amount, it is very important to understand that there are direct investments by Azura as well indirect ones by the principal stakeholders in the project. To start with, Seplat had to raise $300 million to be able to develop the Oben field from which they contracted to supply Azura gas for the duration of the contract. Besides building the power plant, Azura also had to build the gas receiving and metering facility as well as the spur line that connects it to the country’s main trunk gas line, the Escravos-Lagos Gas Pipeline System (ELPS), which we transferred to NGC at no cost. We also expanded the Benin North Substation, as well as the switchyard through which the power plant’s output is evacuated to the national grid. These facilities were also donated to TCN at no cost. All these projects as well as the power plant itself and the financing costs came to about $879 million. It should be noted that Azura has also spent considerable resources implementing the Resettlement Action Plan by which all the people that were displaced by the project were given land and foundations for their houses in a new estate with all utilities provided. We have also constructed roads for our host communities and have carried out numerous corporate social responsibility projects across the country through our Power-To-Change programme, which we devote about $1 million to every year.

What efforts are you making to meet the projected energy demand by 2050?

As I previously stated, our original plan was to build out 1,500MW at our site in Benin. That plan is still live and we believe that we will accomplish that goal once the challenges undermining the sector are tackled by the government in a commercially realistic and honest fashion. We also have a 100MW solar power plant in Katsina that is already at an advanced development stage. We only need the issues in the sector, especially the remittances by the DISCOs, to be resolved for all these plans to be realized. As the only power company in Nigeria with a bankable PPA, we believe that all finance parties know our capacities and capabilities and will be ready to join us to bridge the electricity gap in the country.

Would you say that investors in Azura are getting good returns on their investments?

This is a question that I have to be mindful of how it is answered. Was the project designed with a tariff that guaranteed an acceptable return on investment for the shareholders? The answer is, yes. Has the project’s technical performance been good? Yes, it’s been excellent. As for our financial performance, we have not missed any payment to the lenders and we get paid 100 per cent of our invoices, even if we do suffer some intermittent payment delays. For a capital investment of this nature, shareholders don’t make anything in the first few years of the project because attention is focused on the repayment of loans borrowed to execute the project. That’s still where we are and we are busy paying down on the debt. But we also can’t deny some of the challenges we have faced, like delayed payments and forex inconvenience. The fact that we have weathered these stresses (thanks to the tightly structured nature of our contracts) doesn’t make these stresses any less aggravating. But, if I’m honest, much of the frustration comes from a realization that these stresses can be easily removed, if the government adopts a clear, coherent and commercially realistic set of power sector policies. As we move forward into 2023 and beyond, we hope that the government will recognize that regulatory certainty and payment predictability are essential keys to unlocking more private sector investment.

Are there things that are expected of the government to improve electricity supply in the country that are yet to be done?

As you must have heard from various industry experts, the weakest part of the power value chain today is the collection of tariffs at the distribution end of the chain. Government has not allowed distribution companies to run like private enterprises, which has put a lot of stress on them. And that delinquency at the distribution end, which NBET was set up to cure, has been allowed to fester and envelop the whole industry. That should not be allowed to continue and the government should either allow NBET to do what it was originally set up to do or allow distribution companies to work as the private companies that they are. One cannot eat his cake and have it back. Without taking such an action, I am afraid that we will continue where we are without progress on any front.

How do private sector people like you come into this mix to ensure clean and sustainable energy for Nigeria? 

The need for sustainable and clean energy is one that no one in today’s world, whether working for the government or private sector, should ignore. But I am one of those that believe we should throw into the mix the need for energy security. While there is a need for the world to focus on clean energy to reduce our footprint and the rising temperatures, the reality is that Africa contributes very little to that and still harbours a large percentage of its citizens without access to electricity. This should not be happening in this century. For us at Azura, we believe that, for clean energy like solar and wind to proliferate, there is a need to have a stable and robust grid. This we can only achieve by using natural gas, which Nigeria is fortunately blessed with, to build out our capacity. Let’s also understand that natural gas is the cleanest of all fossil fuels. So, we see ourselves as a clean energy enabler for the African continent. That doesn’t change the fact that, where possible, we also complement it with a core clean energy solution as our solar project in Katsina attests to. But I will still maintain that Africa needs to expand its grid and take electricity to all its citizens so that burning wood for fuel should be a thing of the past. Energy sustainability with energy security, that is the way forward.

What do you suggest should be the roles of all and sundry towards providing sustainable energy that works for all?

I believe that every hand should be on deck, as the world is for us all. We are already seeing the effects of climate change; and though the poor bear more of the brunt, the reality is that no one is spared. Governments should bring out policies that encourage businesses to join them in providing sustainable energy to all, while investors should understand that only companies that invest in sustainable energy will be able to survive in the long run.


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