PROF. BART NNAJI CON, NNOM CHAIRMAN, PRESIDENTIAL TASK FORCE ON POWER

THE  PRESIDENCYFEDERAL REPUBLIC OF NIGERIA

POWER SECTOR OUTLOOK IN NIGERIA:

Governments Renewed Priorities

SECURITIES AND EXCHANGE COMMISSION JUNE, 2011

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Background: Nigeria on the World Stage

Nigeria: •  Population is the seventh largest in the World, ~150 million

people •  The largest of any country in Africa (accounts for nearly half the

total population of West Africa and more than 15% of the total population of the entire African Continent).

•  Nigeria’s population is not just big but also growing at a very fast rate. On the current population estimates produced by the United Nations, Nigeria’s population will reach nearly 230 million within the next 20 years.

•  More than 40% of Nigeria’s population is less than 15 years old.

In a nutshell, Nigeria has a large and energy hungry population.

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Background: Nigeria on the World Stage

Country * Generation Capacity

(GW) Watts per capita S. Africa 40.498 826

Egypt 20.46 259 Nigeria 5.96 40 (25 available) Ghana 1.49 62 USA 977.06 3,180

Germany 120.83 1,468 UK 80.42 1,316

Brazil 96.64 486 China 623.56 466 India 143.77 124

Indonesia 24.62 102

Sources: • World Fact book - http://www.cia.gov/library/publications/the-world-factbook/index.html

* Energy Information Administration – www.eia.doe.gov

Funding To The Nigerian Power Industry

0

100

200

300

400

500

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Investment ('US$millions)

Source: Presidential Retreat On Power

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Background: Pattern of Investments in the Nigerian Power Industry

General:

•  Only 40% of the nation’s population have access to electricity supply

•  High operating costs (over N8bn / US$53m), more than 80% goes into staff salaries and welfare.

•  High energy losses (technical and non-technical losses)

•  Inadequate expertise

•  Distribution and Transmission network has to grow at the rate of at least 16% year on year to handle an equivalent of 13000MW by 2013

•  Current average growth rate per annum is less than 1% due to:

•  Limited investments

•  Available investments go into replacements of damaged equipment (transformers, switchgear, etc), instead of going into new constructions for expansion and upgrades

5 Background: Current Status of Power Supply

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Nigeria Before Power Sector Reform

Ø  Vertically integrated government-owned monopoly that was not

commercially viable

Ø  Significant managerial inefficiencies and leakages

Ø  Lack of efficient investment in generation, distribution, and

transmission

Ø  Continued increase in load demand vs. virtual static generation

level

Ø  High suppressed demand throughout Nigeria

•  Increasing Transmission capacity from 5800MW to over 13000MW by 2013 requires capital investments worth N200 Billion(US$1.4Bn) every year

•  Increasing Generation capacity from 4200MW to 13000MW by 2013 requires capital investments worth N520 Billion(US$3.5Bn) every year

* 2008-2010 Figures taken from Budget Office of the Federation website * 2011 total capital expenditure numbers are estimated

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Capital Investment Requirements

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2008 2009 2010 2011

Total Capital Expenditure (Billions of Naira)

Power Sector Capital Expenditure (Billions of Naira)

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The new drive of the Government q  Restructure the Industry

q  Disaggregate the industry into functional autonomous

components of generation, transmission and distribution

q  Market Development

q  Cost Reflective Tariff

q  Presence of a Strong Regulator

q  Privatisation

q  Active Participation of the Private Sector in the business of

the Industry

q  Outright Transfer of Assets to the Private Sector where

applicable

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New Framework and Renewed Priorities I

Restructuring of the power sector q  Electric Power Sector Reform Act enacted in 2005 to drive

reform process

q  Sector regulator (NERC) established October 2005

q  Power Holding Company of Nigeria unbundled into

Transmission Company of Nigeria (TCN), 6 GenCos and 11

DisCos

q  Private sector participation introduced with NERC licences

PHCN and IPPs

New Framework and Renewed Priorities II

q  New Power Sector Roadmap officially launched by Mr. President on

26th August, 2010

q  Outlines government’s plan to accelerate the pace of reforms and improve on short term service delivery

q  Presidential Action Committee on Power (PACP) created to remove “red-tape, ” achieve policy consistency and cut-through bureaucracy in decision making by key stakeholders in power

q  Presidential Task Force on Power (PTFP) created for day-to-day planning, developing and driving forward the Reform Plan for the Nigerian Power sector

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New Framework and Renewed Priorities III

q  The Reform of the Nigerian Electricity Supply Industry involves the

divestment of governments core interest ü  Power Generation; the privatization of all government owned thermal power plants

ü  Power Transmission; Government retains core ownership but private sector

management

ü  Power Distribution; the transfer of ownership of the distribution companies to the

private sector

All these are in accordance with the Electricity Power Sector Reform Act

2005

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Turning Words into Action I 12

q  Strong, market-oriented Industry Regulator- NERC (constituted)

q  Cost reflective tariff to be introduced by NERC

q  Incentivizing tariff for gas introduced for 2010, 2011, 2012, and 2013 plus (now in place)

q  Nigerian Electricity Liability Management Company (NELMCO) to

take over PHCN stranded assets and liabilities

q  Bulk Trader (NBET) established as a broker between the power producers and DisCo’s. It is a creditworthy counterparty to execute PPAs for at least 5000MW, backed by World Bank PRGs

Reform and the Bulk Trader The sale of the Gencos and Discos is dependent on the operationalisation of the Bulk Trader. Investors will not sign a Sale and Purchase Agreement until they have a counterparty with whom they can contract. At this stage in the evolution of the electricity market, bilateral contracts between power producers and distribution companies are not possible. Only a bulk trader (with the ability to sign PPAs backed by bankable guarantees) can bridge this gap.

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Turning Words into Action II 14

q  Presidential Will to progress Power Reform (samples): Ø  President’s launch of Power Reform Roadmap with clear policy

Ø  N57bn paid for monetized benefit arrears of PHCN workers – (Aug. 2010)

Ø  Appropriation of further $900 million to pay severance upon privatisation

Ø  Focused Weekly meeting on Tuesdays at 11am chaired by the President

Ø  Empowerment of National Council on Privatisation to progress power sector reform

Ø  Very successful Presidential Retreat for Power Sector Investors (Oct.2010) Ø  Very successful power investor road show in selected cities of the world

Ø  Strong interest from financiers and operators all around the world

Turning Words into Action III

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q  Privatisation of successor companies now underway : Procurement of Transaction Advisers completed, EOI’s have been received, evaluated and shortlisted.

q  TCN to have management contract in place by end of Quarter 3, 2011

q  And there’s more…. To further incentivize the private sector

Ø  700kV Super Grid given go ahead and will be implemented by the new TCN management

Ø  Central Bank of Nigeria N300bn Aviation and Power Sector Fund

Ø  Ministry of Finance is providing credit support through the World Bank’s PRG scheme to support Bulk Trader power purchase transactions

Partial Risk Guarantee Scheme across the Power Sector Value Chain

NERC

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CONSUMERS

GAS PRODUCER

GENCO TRANSMISSION DISCO

Opportunities in Generation: •  Opportunities for investment is gas production and transportation •  Coal deposit development and mining opportunities •  Ongoing privatisation of generation stations

•  Core Investor Sale of Thermal (gas-fired) Power stations •  Concessioning of Hydro Power Stations

•  New Independent Power Producers •  Gas fired plants •  Coal fired plants (NERC has developed preliminary coal plant tariff)

•  Renewable energy (Commission developing feed in tariff and regulation on renewable energy standards)

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Map 4: Existing NEPA Transmission Line System

ONITSHA

KAINJI

JEBBA/GS

JEBBA/TS

SHIRORO

AJAOKUTA

Abeokuta

Ikeja

Akure

Benin City

Asaba

PortHarcourt

Owerri

Uyo

ALAGBADO

BirninKebbi

Minna

Kaduna

Abuja

Jos

Bauchi

Gombe

Damaturu

MaiduguriKano

IIorin

AdoEkiti

Lokoja

Lafia

Makurdi

MAKURDI

EnuguAkwa

Umuahia

Ibadan

AFAMPOWER ST.

Sokoto

Gusau

Katsina

Hadejia

Jalingo

Yola

Abakaliki

Calabar

JIGAWA

KANO

KATSINA

SOKOTO

ZAMFARA

KEBBI

KWARA

KADUNA

ABUJA

NIGER

NASSARAWA

TARABA

YOBE

PLATEAU

BENUE

EBONYI

CROSSRIVER

AN AMBRA

OSUN

BAYELSA

KOGI

EDO

ABIA

RIVERS

DELTA

ONDO

OYO

ENUGU

IMO

ADAMAWA

BORNO

GOMBE

BAUCHI

EKITI

LAGOS

AKWAIBOM

ATLANTIC OCEAN

NIGER

REPUBLICOF BENIN

REPUBLICOF CAMEROON

REPUBLICOFCHAD

TRANSMISSION LINE LEGEND132 KVLINES - EXISTING

132KV LINES - AWARDED132KV LINES - APPROVED

132KV LINES - UNDER CONSTRUCTION330KV LINES - EXISTING

330KV LINES - AWARDED330KV LINES - APPROVED

330KV LINES - UNDER CONSTRUCTION

BULK SUPPLY - EXISTING

BULK SUPPLY - UNDER CONSTRUCTION BULK SUPPLY - APPROVED / AWARDED

HYDROELECTRIC POWER SUPPLY

THERMAL POWER STATIONS

132 KV 330 KV

H

SAPELEP/ST.

DELTAPOWER ST.

2 Circuits

OGUN

Osogbo

2 Circuits

3 Circuits

Notes:1. Multi-circuits are not indicated for the 132KV system.

2 Circuits

2 Circuits

2 Circuits

EGBINP/ST.

NIGERIA

Report Maps 7-24-00

Opportunities in Transmission: Existing Transmission Network

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TRANSMISSION GRID STRUCTURE WITH THE SUPER GRID IN PLACE

ONITSHA

KAINJI

JEBBA/GS

JEBBA/TS

SHIRORO

AJAOKUTA

Abeokuta

Ikeja

Akure

Benin

Asaba

Port Harcourt

Owerri

Uyo

ALAGBADO

Birnin Kebbi

Minna

Kaduna

Abuja

Jos

Bauchi

Gombe

Damaturu

Maiduguri Kano

IIorin

Ado Ekiti

Lokoja

Lafia

Makurdi

MAKURDI

Enugu Akwa

Umuahia

Ibadan

Sokoto

Gusau

Katsina

Hadejia

Jalingo

Yola

Abakaliki

Calabar

JIGAWA

KANO

KATSINA

SOKOTO

ZAMFARA

KEBBI

KWARA

KADUNA

ABUJA

NIGER

NASSARAWA

TARABA

YOBE

PLATEAU

BENUE

EBONYI

CROSS RIVER

AN AMBRA

OSUN

BAYELSA

KOGI

EDO

ABIA

RIVERS DELTA

ONDO

OYO

ENUGU

IMO

ADAMAWA

BORNO

GOMBE

BAUCHI

EKITI

LAGOS

AKWA IBOM

ATLANTIC OCEAN

NIGER

REPUBLIC OF BENIN

REPUBLIC OF CAMEROON

REPUBLIC OF

CHAD

TRANSMISSION LINE LEGEND

BULK SUPPLY POINT

HYDROELECTRIC POWER STATION

THERMAL POWER STATIONS

330 KV H

SAPELE P/ST.

DELTA POWER ST.

OGUN

Osogbo

EGBIN P/ST.

NIGERIA

Potiskum

Niamey

132 kV

2

3

2

3

4

2

2

Aliade

Mambila

Bali

2

AFAM POWER ST.

2

2

330KV LINES – MULTIPLE CIRCUITS

330KV LINES - EXISTING

2

2

2005 : new

2

2015 : new

2015 : new

2015 : new

2015 : 3rd Circuit

2010 : new

2015 : new

2010: new

2

2

4 2015 : new

SAPELE P/ST.

Okitipupa

Geregu

2015 : 2nd Circuit

Agip

Zaria

2015 : new

2015 : new

2015 : new

2015 : new

700KV LINES – SUPER GRID

700 / 330KV SUBSTATION

Mambila Hydro

Some 330kV lines especially in Lagos and Delta areas could not be indicated on this geographical Map. See attached single diagram for Details.

NOTE:

Opportunities in Transmission: Proposed SuperGrid Network

Opportunities in Distribution Companies: Market Statistics 20

BENIN_ZONE BENIN_DISCO

ABUJA_ZONE ABUJA_ DISCO

ENUGU_ZONE ENUGU_ DISCO

P/H_ZONE P/H_ DISCO

IKEJA_ DISCO

IBADAN_ZONE IBADAN_DISCO

JOS_ZONE JOS_ DISCO

KANO_ZONE KANO_ DISCO KADUNA_ZONE KADUNA_ DISCO

YOLA_ZONE YOLA_ DISCO

SOKOTO

KADUNA

KOGI

ANAMBRA EDO ENUGU

EKITI

F.C.T NASSARAWA

IMO ABIA

AKWA IBOM

CROSS RIVER

RIVERS DELTA

EBONYI

ADAMAWA

BENUE

NIGER

PLATEAU

ONDO

OSUN

LAGOS

OYO

OGUN

KWARA

JIGAWA

BAUCHI

KATSINA ZAMFARA

YOBE BORNO

KEBBI

RIVER SAKIN PAWA RIVER DUNIYA

KADUNA

KAFANCHA

LOKOJA EKPOMA

BENIN (UGBOWO / AKPAPAVA)

AWKA NNEWI EKWULOBIA ONITSHA

ORLU UYO

PORT HARCOURT (BORO KIRI / DIOUBO)

ABAKALIKI

YENOGOA

ASABA

MUBI MINNA

SULEJA ABUJA

IKORODU

IBADAN (DUGBE / MOLETE)

ISLANDS

OGBOMOSO

SAGAMU IKEJA

OSHODI

YAURI / YELWA

NASSARAWA / DALA (KANO TOWN)

KANO

TARABA

BAYELSA

GOMBE

MAIDUGURI

YOLA JALINGO

EKO_DISCO

LAGOS ALIMOSHO

OSHODI FESTAC IKORODU SHOMULU

IKEJA IJORA

ISLANDS

KOGI

Kaduna DISCO CP = 354,563 ALA = 185.3MW EPL = 520MW ARC = N.609bn DC = 344MW

BENIN DISCO CP = 509,129 ALA = 307.4MW EPL = 1000MW ARC = N1.1bn DC = 392MW

CP – Customer Population ALA – Average Load Allocated (For July & August) EPL – Estimated Peak Load ARC – Average Revenue Collected DC – Distribution Capability

Residential = 65% Commercial = 20% Industrial = 10% Expert = 5%

KEY LOAD DISTRIBUTION

Kano DISCO CP = 441,126 ALA = 121.7MW EPL = 590MW ARC = N.555bn DC = 365MW

Yola DISCO CP = 178,289 ALA = 51.4MW EPL = 176MW ARC = N.189bn DC = 138MW

JOS DISCO CP = 242,852 ALA = 125.3MW EPL = 507MW ARC = N.465bn DC = 378MW

ABUJA DISCO CP = 279,270

ALA = 279.5MW EPL = 835MW ARC = N1.2bn

DC = 515MW

ENUGU DISCO CP = 520,864 ALA = 270.7MW EPL = 1017MW ARC = N1.036bn DC = 612MW

P/H DISCO CP = 344,133 ALA = 155.3MW EPL = 773MW ARC = N .591bn DC = 486MW

EKO DISCO CP = 286,758 ALA = 253.8MW EPL;1105MW ARC;N1.6bn DC = 796MW

IKEJA DISCO CP = 658,701 ALA = 396.9MW EPL = 1335MW ARC = N2,1bn DC = 854MW

Ibadan DISCO CP = 787,899 ALA = 313.9MW EPL = 1193 ARC = N1.5bn DC = 878MW

Other Opportunities:

•  Local manufacturing of power equipment: switch gears, transformers, cables, etc. •  Technical services

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Trajectories  for  FGN  Capital  Investments  in  the  NESI  over  the  next  5  years    

q  Generation: Significant reduction over the next 5 years:

Ø  No more FGN only commitments to new gas-fired power plants;

Ø  All new gas-fired power plants to be private sector driven;

Ø  But possibility for continued FGN capital investments (via PPP participation) in coal and/or hydro power plants as well as renewable technologies

q  Transmission: Hill-shaped over the next 5 years: Ø  Increase in direct FGN investments over the next 2 years;

Ø  Declining sharply thereafter through shift through funding from wheeling charge.

q  Distribution: Sharp decline (to zero) over the next 2 years:

Ø  Via divestment of all unbundled distribution companies.

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Government Investment Trend: Generation

Government exits funding gas-fired plants by itself after completing current NIPP phase

Government continues PPP investment in Hydro, Coal and Renewables

Presidential Task Force on Power

23 23

Government Investment Trend: Transmission

Government initially increases investment in transmission but subsequently commercial wheeling charges will sustain increases under private sector management

Presidential Task Force on Power

24 24

Investment Trend: Distribution Government exits funding of the distribution sector after privatization of DisCos

Presidential Task Force on Power

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Summary I

Government’s role in the process:

q  Development and Deployment of Effective Policy

q  Government is asserting its Will to carry-through government policy

Ø  Effective Manager(s) of process implementation

Ø  Backing managers in decisions that may be unpopular but good for the economy and the populace

Ø  Educating the public about the benefits of the Policy

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Summary II

Private Investors – Exciting opportunities for investment all the way along the value chain:

Ø  gas production

Ø  gas transportation

Ø  power generation

Ø  transmission sector

Ø  Distribution Ø  Support services throughout the value-chain

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Thank You

Visit:

www.nigeriapowerreform.org

for further information.

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