Nigerian Gas and power company Sahelian Energy is a member of the consortium that acquired the Kaduna and Kano Electricity Distribution companies when the Power Holding Company of Nigeria (PHCN) was unbundled and privatized. Sahelian Energy also bidded for the Olorunsogo II and Calabar plants, part of the Nigerian Integrated Power Project hoping to expand in the power sector.
The bidding process for PHCN assets supported by the World Bank and other nternational agencies is elaborate. The process is rigorous in that the bidders were required to demonstrate a very high level of technical competence with strong technical partners or technical service agreements. Companies need 75percent of the bid value before being pre-qualified to move to the next stage of commercial bidding. Companies demonstrated that by showing strong financial net worth. You need to show that you have the financial resources to implement the expansion needed. The financial structure required at least 30percent equity and 70percent debt. The maximum debt is 70percent with the ability to secure from local and international banks. To date, Nigerian banks have demonstrated capacity and commitment. For example, Sahelian Energy through the consortium paid for the Electricity Distribution Company and all the money came from local banks. Companies must also have a technical partner that has demonstrated technical and operational capacity in managing an electricity distribution company in a developing economy. Those are the key areas required for pre-qualification on the next stage.
What is the current status of the Kano and Kaduna distribution areas? How much do you anticipate power generation capacity to grow?
Located in one the largest states in Nigeria, the Kano Electricity Distribution Company serves three states: Kano, Jigawa and Katsina. Together, they have close to 20million people. Kaduna Distribution Company serves the Zamfara, Kaduna, Sokoto and Kebbi states. We have elected all the distribution networks in North-western Nigeria where about 25percent of Nigeria’s population live. Kano is a strong commercial area, and Kaduna has a solid industrial base. In terms of power consumption, we should use 20-25percent of the power produced in Nigeria. The country’s generation capacity is very low 4-5GW. Because of independent power plants and the reform within the power sector, we expect capacity to be ramped up to about 10GW by 2017.
To improve power evacuation and delivery, the Nigerian government is making additional investments in the transmission network which is retained by the government but managed by a competent management company. We believe that the network will help distribution companies develop. Distribution companies should in turn strengthen the existing network to accommodate the power supply. Presently, the transmission networks need more investment to increase the level of efficiency and deliver the power we need.
How will the Kaduna and Kano distribution areas be turned into viable businesses?
We have a five year timeline. This is currently a partiall y regulated market and the governing of the tariff structure is complicated. A business plan must be submitted to the Nigerian Electricity Regulatory Agency and they will approve a financing model. We are expected to reduce the inefficiency in the system by reducing aggregate, technical, commercial and collection losses. We started the baseline studies within the distribution network. We will provide 100percent metering of our customers and provide prepaid meters in some areas especially residential areas. We are going to use an automated meter reading system where there is the highest demand and a lot of consumption such as in commercial or industrial areas. We are going to use different kinds of meters depending on customer type.
What sort of differentiation in metering will be necessary in order to recoup payments for the electricity that has already been delivered?
There are lower tariffs for residential consumers and core consumes. We provide industrial and commercial customers with a lot of power and we intend to give them electronic metres which are not prepaid but rather billed later. We intend to bill and meter every megawatt of power we supply. We haven’t started yet because we are in the process of taking over our assets and conducting baseline studies. The first thing we will do is start the implementation of this programme. There’s a lot of back and forth in terms of studies, agreements with our suppliers and vendors and determination of what the right kind of technology is.
What investment will be necessary to rehabilitate Nigeria’s existing infrastructure? What do you regard as some of the particular challenges involved in doing this process?
Large scale investment is needed because some of the designs currently in use have issues. Equipment such as transformers, cables and the instrument that the network runs on is ageing. The company will change a lot in terms of the technology. We plan to introduce modern technology and a geographic information system to monitor all the equipment and customers. This would make the response time for any failure almost instantaneous. We are going to invest in customer relations so that our clients get the power they need. We very much want to be a customer centric company and make obvious our concern about the availability of power.
The availability and supply of the technology and equipment is not a major problem. The big issue is our workforce. The agreement with the Bureau of Public Enterprises about the existing PHCN electricity distribution is cost reflective s o our margins are almost guaranteed. Beyond the margin, it depends on how quickly you can improve your efficiency. About 50percent of the workers have been laid off because the companies were being run like civil service organizations and not like commercial firms. We will bring in new people; train them and retrain current employees.
Does Sahelian Energy intend to widen its distribution network to the undeserved regions of the country? How would that impact profitability?
We intend first and foremost to provide our existing communities with service and from there we can expand into other areas. For example, the company would like to expand to the rural areas where inhabitants produce a lot of agricultural products. Locals need energy help them process and preserve their commodities. Therefore, those are important areas for us. The beauty of the undertaking is that the savings will be shared with the customers.