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Powering up in Port Harcourt

Interview - April 11, 2012
Electricity supply has yet to catch up to demand in Nigeria. Rotimi Onanuga, CEO of the Port Harcourt Electricity Distribution Co discusses the challenges the country’s energy sector has faced and his strategies for increasing efficiency and reducing costs
ROTIMI ONANUGA | CEO OF THE PORT HARCOURT ELECTRICITY DISTRIBUTION CO

Please could you give us a general introduction of the electricity power sector in Nigeria, the current challenges you are facing and your current projects?

The power sector in Nigeria has sadly been affected by the neglect of social development over time. From 1979 to 1999, there were no infrastructural developments in terms of funding in the power sector. If you look at the population in 1979 and the population level 20 years later, there is a huge difference. Power can be looked at in terms of demand and supply. Demand has almost doubled. Infrastructure in the power sector is really capital intensive. Over time, nothing has been done. Population growth and economic growth have come in, and demand has increased. In 1999 it was clear that there was a big gap between the supply and demand for power supply. The level of expectations was high.

Electricity determines the growth of the country. It affects everything and everyone. Over time, by 1999 the then government realised that power was an issue that had to be faced. A technical board was created which worked on the existing infrastructure and looked at the weaknesses to push power to a certain level. The then chairman of the technical board, Senator Liyel Imoke became the Minister of Power. It became very clear that we had to sustain investment in the power sector. The gap was already wide, so we needed serious investment to bridge the gap. Nigeria has a huge population and it is still in its infancy, and this implies that there is a lot of potential. So demand is not waiting for supply to catch up – demand is increasing. This means that even when you bridge the gap, you have to ensure that you continue to invest. Supply needs to be more than demand. We needed a project that would have an impact on the power situation in Nigeria.

A body called the Nigeria Delta Power Holding Company was created to drive National Integrated Power Project (NIPP), a whole approach to improving generation, transmission and distribution infrastructure. The funding for this project is to come from the revenue of the oil and gas industry. The three owners are the federal, state and local governments, which form a steering committee headed by the Vice President. Each of the geographical zone and state look up to their governors and the Minister of Power for adequate power allocation. We are presently working on the generation, transmission and distribution network infrastructure as well. That is why it is called integrated – that is looking at the whole chain of the industry, not just concentrating on generation. It adds a certain value when it reaches Nigerians and the population. You cannot leave anything undone.

The product has to be transported from the generation point through the transmission lines network to the distribution companies (retailer) who sell and collect revenue. We are a distributor. In power there is a solid link, and that is why we have to complete that chain. If not, we will not be able to add value. That is why the Minister was confident enough to say that by December we should have enough improvements in power. Going forward, by 2015 the issue of power will have been significantly addressed. As I said before, what we require is more than what we are getting now. The vision 20-20-20 concerns making Nigeria a top 20 economy by 2020 and power is the key to driving this. The federal government is doing a lot as far as power is concerned.

Gas is a key issue and that is why the World Bank is assisting us by providing support in terms of guarantees for gas to power. Gas has to be moved to areas where it is required for power generation. The two ministers of Power and Petroleum are working hand-in-hand.

Coming into the reforms, you need efficiency and funding. As I said earlier, there was a huge gap in power infrastructure development to a stage where it was a big embarrassment for everyone who has worked in the power sector. Nigerians are not getting the power, and expectations are very high. Talking about the reforms act in 2005, which was sent to be passed by the legislature and assented to by the President of Federal Republic of Nigeria and is being now implemented. It concerns bringing adequate funding into the power sector. As a result of high demand and the limited resources of the government, we need external funding. For us to be successful, we need to be on the same level as the rest of the world. By the grace of God, we have a government that is very determined, focused and that believes in the people and that is why that law was passed.

The reform has reached the advanced stages now. We have a vertically integrated company. We have about 18 successor companies – six in generation, one in generation, and 11 in distribution. Port Harcourt is one of them. The CEOs were appointed to run the affairs. You need to have a regulator, however, to say what the standards and expectations are. Recently the federal government established a board for the Nigerian Bulk Electricity Trading Company. What we are doing now is vesting contracts, because we do not have enough generation to reach everybody. For investors to come in, the tariff is an issue. They do not cover costs of operations. But a tariff increase has to follow a process which the regulator is dealing with at the moment. If an investor is going to come in, they are going to do their investor analysis, and they will work out that there is guaranteed return on their investment. If they buy from the Independent Power Producers (IPPs), the bulk trader is looking at that. The essence of this now concerns instilling confidence amongst investors in the power sector so they are sure of their return on investment. The Government is committed to ensuring that the power sector problem is resolved. 

Do you agree with the CEO of the Nigerian Electricity Regulatory Commission’s assumption that the second multi-tariff order will be addressed by the end of the year, which will make operators more efficient and more profitable?

Yes I do, absolutely. We have realised now that there is a big gap between the cost of energy and the retail price (the weighted average). You do not want to lose money in business. Mind you, that is the cost per capita. As I said, power is a highly capital-intensive business. Investors have to go to banks to search for funding. They must also make sure that they are able to pay it back to the bank. They have to send a bankable report that the bank has to assess and ensure that it is a safe place to invest the funds. What determines that? Is it the retail cost of the product? I have gone to NERC myself to defend my rates. You need the cost reflective price of electricity.

The regulator has to take the customer into account as well. There are certain expenditures that you cannot pass onto the customer. By the grace of God, they are planning that by the end of this year they can look at all the submissions and come up with the right pricing to address all the issues. Once that has been completed, it is going to increase efficiency. The unit cost of energy is going to cover the cost of production.

What has been accomplished in recent years and what have you done as CEO in order to make this company one of the most important electricity distribution companies here in Nigeria?

I came here in 2008. The environment and understanding the environment and people and staff is a key issue. When I came here in 2008, even then paying salaries during the month was very difficult. I sat down and realised it was a big challenge that I could not deal with alone. I needed to work with the psyche of my workforce so they could believe that they are champions. I came up with three key issues. We had to make a U-turn. I said that you needed to see yourself as somebody who wants to travel to the UK but finds that your plane is going to South Africa. You are not on the right track, so you need to decide to make a U-turn. I went everywhere. We went round and spoke to everyone and asked them if they were ready to make a U-turn and if they were ready to make sacrifices. For you to be able to move from where you are to the next level, you must be able to make sacrifices.

The second scenario was about a beverage producing company that collects only 50% monthly revenue from product sales. These elicited the responses from the work force that the company will quickly fold up; I told them that it was our situation if they allow this to happen. It therefore became imperative that we must make a U-turn.

I used the example of somebody who is trying to go up stairs from the ground floor without using the elevator – you have to use the stairs. You get a bit tired on the second floor, but you are focused on your destination on the fifth floor. It is a sacrifice you have to make. You have to remain focused no matter what the challenges or crises are. We do not have the time to experiment any longer. Once I knew I could work beside my staff, I knew it was just a matter of time before I would get there. Those are the three key issues I worked on. I wanted them to see me as someone who was determined and ready to do those things. I am very accessible and I talk to anyone.

There is an impression that after Lagos and Abuja, Port Harcourt should come next in terms of socio economic activities. Why then should we in the power sector not be part of that? Electricity is not paid for by the government because it is about service – there is no free lunch for anyone. We had consultative council meetings with business managers and we talked to community leaders, etc, to enlighten them on our operations. We brought everyone on board.

I told people that we all celebrate success. We have our own particular challenges, because the environment dictates what you can do. It is a lot more challenging here. At the same time, the electricity sector is facing a lot of reforms and the expectations of Nigerians and the whole world are very high. You must move from zero to level one, to level two to level three. That is why we were able to get to where we are today. But we are not there yet. There is still room for a lot of improvement.

We talked to the staff again a few weeks ago, and we evaluated and reviewed where we were, where we are and how we have to move forward, and where we think we should be. I think that by the grace of God they still believe in me. People are more determined, more committed and more resourceful.

What is your vision for the years to come to take the country to a whole new level?

The power sector now is going through an era where you have to be a going concern. As we speak right now, you are on your own. You collect money realised for sales of energy received from the power station, and you meet your financial obligations etc. The federal government will not give us any capital vote again, which implies that we must be able to develop infrastructure on our own. In order to achieve this, we have to work harder. We have to be sure that even when you have an idea, you discuss things and work out your own idea and objective. We started this some time ago. From the way we are going now, very soon, there is not going to be any subventions for capital projects. You can get a tariff increase if your level of efficiency is still low and you find that your losses will increase. So we have told every member of staff that they are going to be made accountable for their actions and activities to make sure we cascade performance down to individuals.

We have many service centres and service engineers as heads of teams. They are not more important than the marketers, but they have different roles to play. They are part of the whole unit. We are also going to leverage IT. We have to think outside of the box – it is about people and IT now. We have realised that the integrity of some electricity metres have been compromised, so we are going to read them remotely from the office using IT. We are trying to look at these issues right from now henceforth.

What achievements are you particularly proud of?

When you are in business, the bottom line is being able to meet your financial obligations. That is what business is all about. The challenge I have is to make this place commercially viable over the next two to three years. We are on track.

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