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We take the biggest risk in power industry — GE boss

By BusinessNews Staff on April 28, 2014

The President and Chief Executive Officer, GE Nigeria, an Original Equipment Manufacturer investing $1bn in Nigeria over a four-year period, Dr. Lazarus Angbazo, says huge repair works are needed in the country’s power plants to unlock generation capacity. He spoke with some journalists and DAYO OKETOLA was there

How would you evaluate the Nigerian power sector with regard to the investment General Electric has committed and will commit into the country?

We said we were going to invest and support the development of 10,000 megawatts of power over 10 years. So, what was the state of the sector at the time? All together the country has got about 10,000MW of installed power generation capacity.

Out of that 10,000MW connected to the grid, only 4,000MW is generated and less than that is being delivered to us in our different homes and hence we all have generators.

So, what has happened since then? Honestly, the reform programme has been underway since 2005. It took some time to create the regulator, the bulk trader, the gas aggregator and the licensing of new Independent Power Projects and then the privatisation. It took us about 18 to 24 months to get that privatisation underway and the phase one is done with power plants handed over to the private sector.

The phase two is in the process of being completed; preferred bidders have been named and it is anticipated that the handover will occur by the end of this year.

So, what is your strategy of achieving the 10,000MW?

Our strategy around the 10,000MW is how to get these new IPP projects off the ground; and also getting them to a state where they can actually be executed. That was our first real challenge.

Secondly, on the privatisation, there were basically six generation plants and 11 distribution companies in the phase one and then an additional 10 generation companies in the phase two. So, we have 16 generation companies that now have new owners and will have to spend a lot of money, limited capacity and a lot of repair works that need to happen to unlock the generating capacity on those sites.

The IPP is the bucket number one. Privatisation is the bucket number two and the third bucket is the off-grid distributed power needs of people in the rural areas, captive industries like the consumer industry, cement companies, food and beverage companies, and large residential estates; as well as electricity distribution companies that can actually create embedded generation.

To achieve the 10,000MW, we have kind of segmented all these projects in such a way that we will be able to actually address them.

So, how do you intend to support the new IPPs?

We made a commitment that we would help to provide equity, development expertise, equipment, operations and maintenance and long term service. Believe me, if you understand the level of lack of capacity in the industry, you will appreciate the huge challenge that the country was facing.

So, we had to build a whole new team to first of all provide the capacity to develop projects from ideas to completion. For instance, all of the 50 companies that have got licences to build IPPs don’t have the capacity to take the ideas and develop projects that can actually be built.

So, GE has actually invested in the resources whereby we now have experts that are working at our own expense to help owners of these IPPs develop projects. So far, we’ve got about eight projects that are in various stages on the drawing board and these eight projects will add additional 6,000MW of power at the point of completion.

Now, the natural phase even in the most sophisticated market is that an IPP takes between five and seven years to be completed. That is the untold story. Most Nigerians expect power immediately. That is, you make an announcement today, tomorrow, you switch on the power. It never works like that because I am telling you that the biggest gap in Nigeria today is the expertise to actually take a licence and then make it into a project that is bankable; bankable in the sense that it can attract financing and then can be executed.

Who is going to do the Environmental Impact Assessment study? Who is going to help negotiate the GPA? Who is going to do the gas aggregation? Who is going to do the loading and evacuation? These take a lot of expertise and most of these people do not have those expertise.

We are not positioning ourselves to be an operator but as an enabler so that private Nigerian–owned companies will partner with us to develop the industry from virtually zero. So, what we are looking at is the emergence of a new industry from what was initially government controlled, that was already dead and barely producing and it’s going to take some time. That naturally is taking a little longer because we are starting from a blank sheet of paper. In some cases, these people don’t even have land sites for the projects.

I am excited because what GE has done is to catalyse the development of that sector by saying we are not just going to bring the expertise; we are bringing the development capital and the long time equity. And because we have the connection with all of the funding agencies in the world, we are also going to finance a long term debt.

How are you partnering with the new owners of the privatised generation companies?

At the point of transfer of Ughelli Power Plant to Transcorp, it could only generate 80MW because all of the machines were broken down; not because they were bad but because there was no maintenance. Now, a private investor takes over and has put in a lot of money; it needs to pay back loans but it has a greater incentive to make it commercial.

So we went into partnership with Transcorp to do all of the repair works on that site and four months after the asset has been taken over, they have doubled production from Ughelli. Now, they are able to actually do that profitably because they are operating under the old Power Purchase Agreement and the government is actually paying them. So they are making money and they are investing in the repairs.

As such, we have signed an additional joint development arrangement to develop additional 1,000MW. So, coming out of Ughelli, you are going to have a power plant that is going to be one of the largest in one location anywhere in the world; close to 2,000MW of power. That is one example.

Sapele is another example that has followed the same sort of process. These two have the benefit of having gas, having connectivity to the grid and all that remains is to put an executable business plans to refurbish what is on the ground and to expand the capacity and the footprint. So, you can take the story one after the other in all of these sites and there are different situations in every site.

On top of that is a different management team, a different vision and a different strategy. But we are working with all of them in order to understand their strategies and how we can accelerate it. If it is a technical solution, we are going to be there; if it is a human capacity solution, we are going to be there.

So, how much has GE invested in Nigeria in the past two years?

The headline investment is the Calabar investment and our commitment there is that we are going to spend about $50m just for the factory and the training institute. In fact, I have signed the first contract for the early works in Calabar awarded to Julius Berger.

So, $250m will be invested. The balance of the $1bn, in our views, will be created by working with Nigerian companies that will become our suppliers and we are developing the suppliers from both the point of view of technical capacity as well as commercial capacity.

We did supplier fairs in Lagos, Calabar, Port Harcourt and Abuja and then we did it in Houston, Amsterdam, China, and Korea with the intention of getting the best Nigerian companies and our best existing international companies and facilitate a joint venture so that they can come and co-invest in the country.

All these companies are going to put down some money and invest but for them to get business from GE in the future, they have to localise. They will localise not just their people but their capacity as well.

We interviewed about 300 Nigerian companies to qualify as our network of suppliers and we settled on eight. It was a very rigorous process and these companies are going to get an immediate guaranteed off-take of about $800m worth of stuffs that GE is going to buy from them and all of that have to be localised.

So, think about the catalytic effect this will have on the companies because they are going to hire people and they will also have their own suppliers. So you can imagine the whole snowball effect and the whole cottage industry that Calabar is going to become.

I talked to you about the IPP projects; we see a lot of them. In our Memorandum of Understanding; we said if a project is eligible, we will invest up to five to 10 per cent of the equity. Now, you can do your back of the envelop calculation and see how much this will cost. A 500MW project is anywhere between $600m and $750m. Five per cent of the equity of that is a huge sum of money multiplied by the number of projects that we are looking at. So, the potential is great but that is not even the real story.

The real story is the pull through investment that is coming from our partners around the world because if they hear that GE is going to put in not just equipment but we will put in some development capital and some permanent capital, they want to jump at it and I have talked to many of our partners from the rest of the world; from Korea, from China and they say for them to come into the game, you have to put some risk in the game. The biggest risk taker in the Nigerian power sector today is GE and that alone gives them confidence that the profit is going to get down.

[Punch]

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