Interview for eBizguides, December 12th, 2003

You are in charge of two important sectors for the development of Nigeria. Especially power is a key for success, can you tell us what is the current installed capacity and output level in Nigeria?

The power sector in Nigeria is a sector where the president, Mr. Obasanjo, has put a lot of emphasis. Between 1999, when this administration was formed, and now there has been a 70 % improvement in the country’s generating capacity. Today we have 4200 MW capacity and we have an output of 3300 MW on a daily basis. Regarding distribution capacity there has been a 25% improvement. We have increased distribution capacity from 6000 MW to 8000 MW. The Government is still investing in the sector and there is an ongoing reform in the sector, this reform is designed to bring in private sector participation and private investment to the power sector. I believe that with these initiatives, we will be able to achieve even greater heights by the end of this administration in 2007.

What are the expectations then for the year 2007 in terms of power generation increase as well as improvement on the distribution efficiency?

We still haven’t met the national demand. The goal by 2007 is to meet the entire national demand and have some excess capacity, that is the objective of the current administration.

What are currently the main challenges Nigeria is facing in terms of power generation and distribution?

One of the big challenges is the funding of the sector; we believe that for the time being, the Government has to support the sector with budgetary funding. We believe that this is one of the constraints for meeting our own growth expectations. Beyond that we expect to create a conducive environment for private sector to come in and invest. We have been working on this, but it is one of the main challenges we face in the sense that the power sector is relatively underdeveloped. Those who are ready to invest would often demand commercial risk guarantees, which sometimes the Government is not in a position to provide. We are also faced with the challenge of getting the Electric Power Sector Reform Bill through the National Assembly. We believe once the bill is passed the opportunities will be much more apparent to prospective investors. Those are the main challenges beyond our routine day to day operational challenges relating to improvement in our service delivery, efficiency levels etc…

There are already several private companies active in the power sector in Nigeria. How are the liberalization and privatisation processes developing?

There are indeed a few independent companies operating in the sector. Recently, we have had a first with AES investing in the power sector in Nigeria; the investment is the region of USD 240 million. The sector is not yet completely liberalized, so AES has entered into power purchase agreements with the utility company, which is NEPA. We believe that we must liberalize the sector, as we reform the sector there will be more opportunities for IPP’s (Independent Power Producers) to come in, build power plants and sell the product to consumers in Nigeria. The sector reform program, on which we are working closely with the World Bank, has progressed considerably. From January onwards, we will start the process of unbundling the utility company into semi-autonomous business units. Right now we have a vertically integrated monolithic utility.

Where are the main investment possibilities in the power sector currently and what are the incentives accorded to companies in order to stimulate investment?

Initially, Government will continue to invest to strengthen the network. The grid is not yet completed, so Government is going to continue to invest in that sector. Government will also, for some time, make some investment in new generation capacity because of demand shortfalls. We expect the private sector to make investments particularly in the area of generation. We have Agip, which is building a 480 MW power plant in the Niger Delta. That project should come on stream by the end of 2004. The investment there is quite substantial. We believe Shell will be investing in new generating capacity in Rivers State. Beyond that we have also received a number of unsolicited expressions of interest from IPP’s who are quite keen on investing in generation in Nigeria. What we are trying to achieve now is to restructure the sector to create new businesses out of what used to be one big NEPA. We believe we could consider the option of concessions in the medium term with the distribution companies. We expect that the transmission company will remain in the hands of Government, but with the unbundling of the generating sector and the distribution sector, that will make the sector much more viable and more attractive to investors. So, we expect substantial investment to come in the area of distribution. All this, of course, will be driven by the passage of the power sector reform bill, which we expect to hopefully pass through the Assembly by the end of the first quarter of 2004. With the power sector reform bill in place and the regulator in place, certainly the Nigerian power sector will start looking much more attractive to investors.

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By 2007 the national demand is expected to be covered, are there also plans to generate excess and export it to neighbouring countries?

Yes, currently we already export power to Niger Republic. We supply around 93% of the demand of Niger Republic. You might also be familiar with the West African Power Pool Project. Of all the countries within the pool, Nigeria has the most advanced interconnections with Niger Republic. We have three interconnections between Nigeria and Niger Republic and we are working on an additional interconnection. There is also an interconnection project between Lagos and Sakate in Benin Republic. That project is partly funded by the ADB and we expect it to commence early in 2004. There is also the West African Gas Pipeline Project. We expect that substantial economic development opportunities will follow from the completion of the project.

When it comes to steel production, your government is doing great efforts to revitalize the steel industry in the country. Can you tell us what is the current status in this sector and what you want to achieve in terms of steel production?

Government is determined to produce steel in Nigeria. Over the last 40 years, Government has invested close to USD 10 billion in the steel industry and steel plants. It is a sector that has not been very productive. We have two steel plants with a substantial production capacity. Together they have a capacity of 1.85 million metric tons. We have three inland rolling mills and the rest of the related facilities like the iron ore project and a few others. Government has invested substantially in those areas and the reform program of the Administration will eventually see those facilities being privatised or put under concession. The Ajaokuta plant already has been concessioned to an American company called SOLGAS Energy. We expect the second plant will be privatised by the end of the first quarter of 2004. We are trying to put in place the necessary infrastructure like the rail lines and the port facilities that would facilitate the manufacture and trading of steel.

What is the position of Nigerian steel and its competitive advantages in front of the heavily subsidized productions of American and Europeans steel mills?

I don’t believe that if we try to export our steel towards those regions it would be profitable, but the local demand is quite substantial. It is estimated to be above 2 million metric tons and this is where we want to focus on. Everything that is produced locally can be consumed locally. It would only be after meeting that demand that we would start considering competing in a market that currently is not very lucrative.

The Aluminium industry is also under your wing, can you tell us how this industry is evolving in Nigeria?

Our aluminium smelter facility has a huge capacity, around 150,000 metric tons. Unfortunately it is not in production and hasn’t been for several years. It is also slated for privatisation under the current reform program. There has been considerable keen interest from investors in that facility. We expect that by the end of the first quarter, that facility will also be privatised. Besides the smelter in Ghana and the one in Cameroon, there is no other smelter in West Africa. It is a viable facility and once it is privatised, it should start producing aluminium within a very short period. We are currently concluding the exit agreements with the developers of the facility. Once we conclude those exit agreements, then that facility will become a much more attractive investment. We have received expressions of interest from ALCOA and Russia Aluminium, the big players in the industry.

Can you tell us about your professional background?

I am a lawyer by profession. I was trained outside Nigeria in the United States and the United Kingdom. I came back to Nigeria where I started my own small law practice. I got into politics 11 years ago. In 1992 I was elected into the Senate I served until Abacha sent us all home. In 1997 I went again into politics. In 1999 I was appointed Special Adviser to the President on Public Utilities. In 1999 as well, I was seconded to what is now the NDDC (Niger Delta Development Corporation). In 2000 I was asked by the President to chair NEPA in an executive capacity until the end of 2001, after that I went back to my post of Special Adviser and in 2003 I was appointed Minister.

What would be your final message for investors interested into the sectors your Ministry represents?

Nigeria has a population of 133 million people, less than 40% of these people have access to electricity. If you start from that perspective, you can imagine what the demand is. Our current levels of generation, transmission and distribution are not meeting the current demand, so we do have a shortfall in supply. The power sector is being reformed and the opportunities are the most attractive in Nigeria today. The power sector is far bigger than the telecommunications sector and you have seen what has happened with the deregulation of that sector. I believe it will look like a child’s play when the deregulation of the power sector takes place. There is a huge demand for energy in Nigeria and that demand is not being met. I would believe the opportunities for investment for foreign investors in the power sector is just phenomenal. The returns on investment are going to be quite reasonable. I don’t believe any sector of the economy offers the opportunity the power sector offers. With concerns like the steel and aluminium industry, anybody producing steel here will find sufficient incentives and a huge domestic and regional market.