Nigeria flares gas because it doesn’t have infrastructure to take it to consumers — CEO, Symbion Power

Symbion Power is one of Africa’s leading power companies. In this interview with National Daily, the CEO, Paul Hinks, bears his mind on the obstacles militating against electricity generation on the continent as well as the prospect of the Power Africa Initiative. Excerps:

What propelled you to take Symbion into Nigeria?
Nigeria is a country of 173 million people, the largest in Africa 173 million people, a large majority of which don’t have access to affordable electricity basically. All over the country, people use diesel generators. The cost of producing power by burning diesel is something like $0.35 to $0.45 per kilowatt depending on location. But Nigeria has abundant natural resources coal, gas, renewables and of course solar. There is plenty of land where biomass can be planted, and there is hydro. They don’t have to import really expensive diesel that’s crazy and it’s happening right across the African continent. Liquid fuel importation is a major source of corruption. If countries focused on getting rid of diesel for power supplies, they would save an absolute fortune.
When you started, you invested in partnership with Transcorp.What happened with that investment?
When we took over, Ughelli was only producing 160 megawatts, although it has an installed capacity of 972 megawatts. So we started rehabilitation and have been working on that rehabilitation right up until today. Earlier this year, we got the plant up to 650 MW. Then, about three months ago Symbion decided that we had completed our role there. The partnership had created TranscorpUghelli Power, Ltd. We staffed it with our own people and with former employees of the Ughelli power plant and everything worked out fine.
So ours is an investment success story. In less than 18 months, we leveraged our expertise and we exited with a very acceptable multiple on our original investment in a country where many American companies are frightened to invest. It’s a good story, an important lesson, because a private equity investor is interested, not only in how to get into a deal and invest, but also how to get out and make good money. It’s a great story for Nigeria too.
Do you have other investments in Nigeria?
We have a good pipeline of mostly gas projects, and we are looking at some embedded projects in distribution companies. We are seeking to make new investments where we will have a majority, or larger stake. We would hope that by the end of this year that we are invested in another good Nigerian project.
Nigeria’s power sector privatization has received good marks, but earlier this year the power generation in the country reached a record low level. Does that worry you as an investor?
Yes, the results in megawatts connected to the grid around the country are not yet satisfactory or on the scale they should be. But things have been happening. And generation has been improving. Ughelli Power is one success story. Egbin Power, a plant owned by Sahara Power is another example of the successful rehabilitation of a power plant that wasn’t producing to capacity. . When these plants are fully rehabilitated, it’s not going to be helpful if they are not able to transmit their electricity to the towns and the cities across Nigeria where the power is needed. It all has to go hand in hand. I come from the power industry, and I understand what it means to do a privatization on the scale Nigeria has embarked upon. They did really well until probably early 2014, when things started slowing down.
Distribution is probably the most difficult and risky investment to make in the power sector in Nigeria. To appreciate how difficult it is, you only have to walk around Lagos and look up at the power lines around the city and imagine what it will take to fix them and to go around connecting all the houses and installing new meters. Prepayment metering was a condition that the Bureau of Public Enterprises set out for the privatization. I can’t imagine how difficult it’s going to be to get into some of those large blocks of condominiums to put prepayment meters in a place where many people have been used to not paying for electricity.
How serious is the shortage of available natural gas for generating companies like Ughelli?
I can tell you that Ughelli is already having gas shortage problems, and many of the other gas-powered plants are having problems too. Nigeria flares gas because it does not have the infrastructure to take the gas from where it is to the consumers. A lot of gas is stranded because the investment required for the gas infrastructure has not been made. There are complaints from investors in the gas supply and gas treatment plants who say they can’t get paid sufficient amounts of money to justify the investments. The tariff for gas in Nigeria is around $2.50 cents per MMBtu, compare this only to Tanzania, where gas coming from the south in Mtwara is likely going to be sold to Symbion for around $6 per MMBtu. Gas pricing is a huge subject all over Africa these days.
There are also incessant vandalism and terrorism problems. People are blowing up pipelines. I was told recently that the condensate lines running parallel to the arterial oil pipelines in the delta are being punctured because the condensate can be used for cooking oil. People are cooking with it.
What is your take on project ‘Power Africa Initiative’?
When Power Africa was announced, everybody in Africa seemed to think that there was a big pot of money, but that is no true. The program is coordinated by the United States Agency for International Development (USAID) from South Africa and in Washington, DC. Other U.S. government agencies the Overseas Private Investment Corporation (OPIC), the EX-IM Bank, the Trade and Development Agency (USTDA)- were tasked with supporting the power sector in Africa and the Millennium Challenge Corporation (MCC) are providing huge energy grants to African governments.
I think Power Africa, a bit like like Nigeria’s privatization, may have slowed down a bit this year as they wait for new projects to get funded, but I fully expect them to start to deliver and show results as we now move into its 3rd year. Power projects take years to get off the ground before they generate, transmit and distribute the power they are supposed to. It’s still too early to judge the results of many of the Power Africa Initiative efforts. Very little has been translated into real electricity and much has to be done to aim for the trebling of access to power in Sub Saharan Africa as President Obama promised 50 Africa Heads of State at the African Leaders Summit in Washington, DC in August 2015. The United States has to deliver on this promise. If we don’t we will lose all credibility.