Engr Lamu Audu is the Managing Director, Mainstream Energy Solutions Limited (MESL), the concessionaire of Kainji and Jebba Hydro Power Plants (HPP). In this interview with some reporters, he disclosed some challenges and the progress made three years after the concessioning of the plants.
What was the power generation capacity when Mainstream took over Kainji and Jebba plants?
Before I go into that, I need to highlight the fact that these power plants, starting from Kainji, were commissioned in 1968 and it may interest you to know that up till the time we took over in November 2013 no unit in Kainji Power Plant had been overhauled. What we mean by overhaul is that basically, after the commissioning of a unit, the unit, with or without defect, should be shut down between 5 and 10 years to do a statutory overhaul. This is not rehabilitation, rehabilitation is when you have issues, but for overhaul we mean that even if a unit is running, you shut it down for overhaul. That is a basic thing to be done, laid down by the manufacturer.
Now, for over 40 years, that has not been done here and that was at the point at which we took over the power plant. The same thing at Jebba. Jebba started commercial operations in 1983 and no unit was taken out for statutory overhaul. That was the state we met the plants.
Coming to your question. When we took over, Kainji was literally zero. No unit was running out of the 760mw installed capacity. As at today, we have recovered 440mw. Three units are running while one is undergoing some maintenance which is the 100mw unit, unit 12. To answer your question, we have recovered 440mw from Kainji. At Jebba, when we took over, we took over with five units, they were on the grid, yes, but considering the fact that they had gone through so many defects, but due to the ingenuity of the engineers on site, we have managed them over the years. With only one unit that was taken out completely in 2009 and it is still down. Procurement process for the rehabilitation of that unit is still on-going. It got burnt down completely out of some issues we had with the grid transmission. We have been able to ensure the availability and reliability of the units. For example, unit 2G 4 was completely overhauled and commissioned last year. Up till when it was taken out, it was the least reliable because it had issues with the generators so we took it out and overhauled it to be able to predict its character. So in Jebba, we haven't added capacity but we have improved reliability and availability.
Are you saying that since the plants were installed, they have never been overhauled?
No turnaround maintenance at all. I repeat that in Kainji, there was no single unit that underwent overhaul.
That means that no power was generated from there at all?
Yes. When we took over, no power was being generated from Kainji. In fact the day we came here, this place was even running on a generator. We were in fact importing power from the grid to make sure that the station was not flooded, because we had run our auxiliaries, all the pumps, just to ensure that we evacuated the water.
Sir, we know that due to the issues of vandalism of gas pipelines in the South-South, at a point the nation had to depend on electricity generated from only hydro power plants. What has been the input of Jebba and Kainji?
Let me give you another overview of how important hydro power operation is to a grid and the importance of having energy mix and energy security for a nation. The nation did not plan very well by investing more in thermal plants than hydro despite the fact that we have the potential to develop huge hydro power generation in Nigeria. To the extent that what you see is that we have only three hydro power plants which are Kainji, Jebba and Shiroro delivering power to the grid. At the point which we had this serious issue of gas pipeline vandalism and non-availability, the grid was sustained by particularly Kainji and Jebba power plants because during that period, Shiroro had issues of water. Fortunately for Nigeria, we had water, so we were generating at a point above 45 percent on the grid just from these two power plants. There was actually nothing on the grid for up to 3 months. So the importance of these power plants to the national grid cannot be overemphasised because by their nature, for instance, hydro power plants are the cheapest of electricity you can get compared to gas. So long as God Almighty gives us water, we have the fuel to run. The operational cost is much less. The only huge financial part is the initial cost, which is the capital cost implication. It is the cheapest and the cleanest energy source. It is also the most reliable source of energy.
Currently, even the frequency management by the National Control Center in Oshogbo, we run a grid system, the generators here in Kainji are designed to regulate the frequency of the grid. We also have a black-start capability whereby if the system goes bad completely, not every generator can go to a dead-grid but these generators can start from zero to bring up the grid so that other power plants can come in. This is how strategic Kainji is, not only to the nation but to the West African region. You may know also that we supply energy to Niger Republic.
What are your challenges?
The challenges are enormous. The greatest challenge is the commercial issue. This is seriously militating our ability to continue to recover capacity and in fact to sustain what we even have today. We have serious liquidity issues in the Nigerian electricity market, to the extent that our invoices are not settled as at when due and completely. The percentage payment of invoices is between 19 to 25%. When we issue our invoice, only 19 to 25% of that invoice is paid.
Leaving you with 75% deficit?
As we speak now, we have outstanding receivable of N44 billion between these two power plants since we took over. We generated and it has been consumed. When we took over, part of the concession agreement with the government was that we should recover the capacity and bring the power plants to their nameplate capacity of 760mw and 574mw at Kainji and Jebba, respectively.
You can now imagine the challenge we have been trying to meet up with that agreement when the other party is not living up to the spirit of that agreement. We are not getting our invoices paid and so we can't have funds and with the situation, one cannot attract external funding because nobody will want to borrow you money in such a situation.
Another challenge is that we have serious foreign exchange issues. Sometimes, when our invoices are paid and we have the naira, 99% of the operational input into the plants are external, that is they are from offshore. That means we need forex to be able to buy spare parts, pay for services which we need offshore. What we expected from government is that we should be given priority considering the priority given to power by the government, we expect that priority should be given to us in obtaining forex. This is one serious challenge facing our ability to recover operate properly.
The government actually shifted position since we took over. At the beginning, instead of implementing the Power Purchasing Agreement (PPA), there was an interim market rule that was put in place, putting aside the issue of PPA. All those issues came in, thereby limiting our ability to actually meet up with the requirements in the concession agreement. In order words, we cannot, as we speak today, meet up with the requirements in the agreement. We cannot recover the nameplate capacity of these plants with the present situation. This we have to tell you. We thought the government will leave up to its responsibilities or the market, but this is the situation we have found ourselves. There is no way we can continue as it is. With 19-25% of payments, we hardly can meet up with salary payments. If nothing is urgently done to solve this liquidity issue, we may have no choice than to do the unthinkable. We may have to shut down.
When you talk about the government giving you a concession on forex, I thought that has been taken care of by CBN in the Power Stabilisation Fund. Did you not benefit from that fund?
We need to understand that the fund, as long as generating companies are concerned, was supposed to be a settlement for our invoices, for energy sold and consumed. It wasn't a facility, it wasn't a loan, it was part of the outstanding invoices from 2013 that accumulated which the government now felt that they needed to come in to cushion the effects of the cash flow situation in the market. That was what that fund was to us. It was our money. Ordinarily, if the invoices are being paid fully, that issue would not have arisen at all. But on the Discos’ side, what they did was to give them loan because, the invoice payment is supposed to come from the discos end to pay us. So what the government did was to give the Discos loan to pay us.
On the forex, so far, we haven't benefitted from any concessionary arrangement in terms of forex. Today we have a demand of close to $22 million with CBN. $11 million request has been there for close to four months yet we have not received one dollar. The requests were made through GTB, our bankers and we have not got any forex through that channel. Don’t also forget the fact that we also have acquisition loans that are in dollars which we took from banks. You can imagine the impact on us because we earn naira but we pay the facility in dollars and we have to source that dollar in the open market.
During the concession agreement, BPE insisted they wanted dollar and we paid $337 million dollars for this plant upfront and money was paid in dollars as a concession fee. Most of the equipment we import, in the last five months, we have sat down to renegotiate invoices to purchase orders we had issued more than seven times. We have issued purchase orders for people to import things for us, they went and came back about two months later to say, dollar has moved against me, so I am not able to make the purchase. We have no option but to renegotiate and increase it. Jebba plant was almost going down at some point because of the heat exchanger equipments, there was none. We had given the guy money since last year to purchase it. We went through the banks, it didn’t work, because the thing was so expensive for us, then the guy said pay me in naira, we agreed to pay, after he went, he came back to say that it had moved against him, we still had to renegotiate and pay more. More than seven times. At some point, we were mad with people and we said we won't do it again but these are critical equipment, so the dollar issue is very critical.
To put it in perspective, in January, the exchange rate was $1/N460, at a point it was $1/N485. Purchase Orders that were issued from December last year have had to be renegotiated several times.
-Daily Trust
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