Being the text of a keynote speech delivered by the Honourable Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, SAN, at the African Alliances 2016, Investor Day held at the Eko Hotel & Suites on Thursday 5th May, 2016
Distinguished Ladies and Gentlemen,
There are many ways to approach the discussion of how to renew finance and maintain our infrastructure.
However, at an Investor’s dinner, when we approach the first year anniversary of a new Government, I choose to approach the subject from opportunities rather than challenges.
Of course I will discuss challenges, but in doing so, it will be with a view to highlighting opportunities because that indeed is what investors are usually, if not always, looking for.
I believe that the critical word in my speech is the adjective “sustainable”. It comes from the verb “sustain” which means to “maintain” to “preserve” or to “perpetuate and continue” a thing or an activity.
We are at the point where we have built power plants without ensuring gas supply to them. Should we sustain that?
We are at the point where we promised ourselves:
6,000 Mw by 2009 (in 2008)
20,000 Mw by 2014 (in 2010)
15,000 Mw by 2015 (in 2011)
40,000 Mw by 2020 (in 2013)
Have we delivered on these targets as a nation?
Should we sustain these kind of practices?
This is the background against which I chose to outline my own views about a roadmap to sustainable infrastructure to deliver power, roads and housing, especially in the context of the need to change what did not work yesterday and develop something that will work today and endure for tomorrow.
My friend, colleague, and Honourable Minister for Trade and Investment, Okey Enelamah, who delivered the invitation for me to speak here and I, have been having a recurring discussion about a subject I simply refer to as “the rigor of planning.”
For me, planning is the key to sustainability and it is the area where our Ministry of Power, Works and Housing will seek to do things differently.
In the power sector for example, there are problems along the entire value chain; from distribution, to transmission, generation and gas supply including a cross-cutting liquidity problem.
I will, whilst being mindful of time, highlight some of the problems, and share with you some of our plans and in that way reveal some of the opportunities.
In this part of the value chain, there is a gap of meter supply that needs to be met and I am hopeful that it will be met by local production or at least a significant local content participation that helps SMEs especially participate in supplying the meters and developing capacity and jobs.
There are an estimated 3 million consumers who need to be metered.
Apart from metering, the distribution companies have aging assets: transformers, ring main units, poles, cables, breakers and so on, some of which are 20 to 30 years old.
For them it must be a period of running repairs. It is a problem on one hand and enormous opportunity on the other hand.
There is of course the financing challenge where distributors who own 60% of the undertaking need to raise capital; to buy and supply meters, replace aging assets.
The opportunities that I see for investors are enormous.
Why can DisCos, for example, not divest some of their shares in order to raise funds to finance the business?
Better still, why can DisCos not have strategic shares arrangement in exchange for goods like meters, cables, etc. with companies who make those products which the DisCos need to service their customers?
The Companies and Allied Matters Act clearly allows shares to be sold for cash and for kind.
While acknowledging that this is not the limit of possibilities here, let me quickly move to:
The major problem here is that the transmission capacity was not developed to cope with the generation capacity.
I liken the transmission part to a transport business; and every transporter must understand that there must be enough buses to move passengers, and he must bridge shortfalls by getting more buses.
A situation where power generation installed capacity is in the region of 7000 MW and the transport system is in the region of a 5000 MW carrying capacity is not sustainable.
So what are we doing you might ask?
We act through Transmission Company of Nigeria which is managed by Government. They have shared a plan to grow the transmission grid over five years from 5,000 to 7,000 to 10,000 to 13,000 to 16,000 to 20,000 MW.
With respect, such “statements” which are sometimes mistaken for “plans” have been made in the past and it left us with 126 or so transmission projects, many of which are caught up in court disputes over compensation payments, way leave and rights-of-way issues, (Alaoji 300 MW)
This is not sustainable.
Our plan is to identify about 47 that can be completed in 2016 which have been put in the 2016 budget which, if delivered, will give us 1000 MW more carrying capacity.
But that is not all. Sustainability now requires that the 5 year 20,000 MW plan must have an implementation program. That is the roadmap to sustainable transmission. We have resolved to, and we have started working on actual numbers of how many transmission towers will take us to 7,000, 10,000, 13,000, 16,000 and 20,000 in each growth plan.
How many kilometers of cables and wires will each stage require?
How many Transmission Transformers will they involve and how many breakers will be required?
How many tons of steel will be required?
Beyond that of course, we will secure the right of way, the way leave issues, compensation claims and build a programme that takes care of these issues to ensure that implementation is not frustrated by court cases or outright destruction of Transmission towers as we have experienced before (Enugu).
This seems to me to be the road to sustainability.
As we plan this, we are constantly receiving expression of interests from people who want to invest in transmission grid expansion on a PPP basis. (Build Operate and Transfer.)
We are open to it. But we recognize the need for assurances of recovery.
The current grid is presently hundred percent owned by government.
We have challenged our experts to come up with proposals about how expansions can be done modularly while still being interconnected to the main grid.
In this way we can have state expansions, or regional expansions that though connected to the main grid can be ring-fenced for recovery and accounting purposes.
Ladies and gentlemen, the best news is that this work is not now being done by consultants, it is being done by our civil servants.
The message I am getting from them, inspires me that the Nigerian public service is capable of taking us to the roadmap to sustainability.
And so I must now go on to:
As I have pointed out, we have not met previous targets. So I have refrained from setting any target except to announce when we reached a milestone such as when we hit 5000 MW, which is our all-time national high since 1950 when ECN (Electricity Corporation of Nigeria) the predecessor of NEPA and PHCN was formed.
For me, and members of our Ministry, 5000 MW is insufficient and we must get incremental power on a regular basis.
The road to incremental power is first to solve existing problems, and to plan the delivery of immediate and future additional power.
Zungeru Power Plant in Niger state was conceived to deliver 700 MW of power around now. Work had stopped on the project for almost 3 years because of court cases which we have now resolved. 800 workers are back on site with a new proposed delivery time of 2019.
Azura Power Plant in Edo state was conceived to deliver 450 MW. It could not take off because necessary paper work and assurances from Government were not given. President Buhari, and Vice President Osinbajo drove this to conclusion even before ministers were appointed. Work has now started 442 workers are back on site and delivery date is expected to be December 2018.
Aba Power/Enugu DisCo was the story where the government issued conflicting contracts in respect of the same asset and business area. The parties had been in court until recently when the Vice President mandated the ministry to intervene and broker a truce. After several meetings a compromise was reached, losses have been stopped. The project should be completed soon enough to bring 140 MW to the grid. One Government caused the problem but this Government has solved the problem.
Mambila will perhaps be the most defining in the road to incremental power. It gives potentially 3,000 MW of power in Taraba state. It had been on the table since about 1982. There have been court cases even without any construction work yet to be done. The acquisition of the land for the site has not been done. However, help is now on the way because Governor Ishaku, the governor of Taraba has promised to acquire the land and handover to us. Mr. President has pursued this on his China trip.
These initiatives, the 215 MW plant in Kaduna, the 40 MW plant in Kasimbilla, the 10 MW solar plant in Katsina, the 222 Gbarain in Bayelsa all of which can be completed this year subject to budget, or latest next year are the roadmaps to incremental power supply.
For investors, the biggest news I bring is our energy mix and the best part of it again is that it has been developed in house by our civil servants and public officers.
Since the vision 20 20 20 plan was launched, there have been statements of the need to use all the possible sources of energy available, gas, power, Hydro, Solar, wind, bio mass, nuclear, coal, etc
But beyond those statements, no sustained steps have been taken, to the best of my knowledge, to organize how we will harness these energy sources.
I am aware of gas to power initiatives in the Niger Delta and South-South area, but how did we come to build a gas power plant in Kaduna, several hundreds of kilometers away from our most prolific gas sources?
Why are we investing extensive solar projects the rain forest area of Nigeria instead of in Jigawa, Kano, Borno and other places where there is abundant sunlight and irradiation as well as the required land space?
This is what our energy mix Will do. We will unveil it soon enough for investors guidance.
Two things to expect will be that:
A) Closeness of our plants to fuel source, such as solar, wind, gas, coal or Hydro means there that the power will be likely more affordable
B) It also means the work of the transporter transmission is easy to plan because all the passengers are in one location, evacuation is easier and more efficient.
This now takes us to:
For now, this is our most reliable source of power ahead of Hydro (water) because 22 out of 25 power plants depend on gas.
The pricing issue with the domestic market price has been reviewed upwards from $1.30 to $3.xx and this has generated interest in the domestic gas aggregation, processing and supply business.
What must happen next and very quickly is the licensing of many of the non-associated gas fields and where already licensed, the facilitation of 3rd party operators for local gas supply only.
This is a huge market that requires investment, because the price is now assured, it is passed through tariff and therefore recoverable, and the Bulk Electricity Trading co, NBET is authorized by the Ministry to raise funding to Guarantee and secure payments across the value chain.
Ladies and Gentlemen, there is still a lot to say because there is a lot going on in the Power sector in terms of changing the way things were done before. I hope that whatever I may not have discussed can be taken up as I move quickly to Roads.
Some of the things we have done in the past are as follows:
A) We don’t pay enough for road use and maintenance
B) We overload our roads axle load
C) We did not grow the network as the population grew; and we did not fund Road contracts properly.
I do not think that there can be any fair debate that these habits of yesterday cannot be sustained.
The first step is budget to finance infrastructure. So when Nigeria was earning $100 per barrel of crude oil, the infrastructure budget was barely 15%.
Today with less resources from oil, the capital budget is 30% of a bigger budget. This is the first step to sustainability.
But it is not enough to budget. It is important to implement the budget and use the finances properly.
Today, with about 206 road contracts already awarded in the past and not completed, it does not make sense to start any new roads when the amount needed to complete is about N1.7 Trillion and the budget for the 3 (Three) ministries is N433 Billion , as proposed by the Executive.
Therefore, new roads and alignments provide a huge opportunity for investors who want to walk their talk.
For our ministry, our priority is to FINISH as many roads as is possible.
To do this, we planned in budget 2016 to depart from the practice of yesterday, of giving every road the same amount of money irrespective of whether it is just starting or nearing completion.
The Ministry of Works was to get N268 Billion, Power N99 Billion and Housing N66 billion.
So instead of splitting N268 Billion over 206 roads in 2016 and not finishing any road, we plan to phase 206 roads over 3 years and ensure that we complete or substantially progress the completion of existing roads in each of the 6 (SIX) geo-political zones.
We have prioritized the roads that get attention to those with the heaviest traffic and economic strategic significance; the roads that evacuate farm produce, airport cargo and passengers, seaport cargo and tank farm petroleum produce.
We are working on the final details of road sector reform legislation that strengthens maintenance capacity, accelerates the negotiations and approvals of road concessions and provides legislative support for tolling for recovery of investment and reforms the Federal Highways Act which is 60 years old.
The Ministry of Transportation is aggressively pursuing the rail program which in the fullness of time will bring a lot of axle load relief to our roads and ensure that they reach their design life utility. This is the road to sustainability in Road infrastructure.
Finally, I will quickly talk about what is happening in the Housing sector.
It is not disputed that there is a deficit.
What is disputed is the size of the deficit.
It is not disputed that we have had a few initiatives by President Shagari and Governor Jakande in the 2nd Republic, and a few starts and stops.
What is missing is the keyword in this dinner speech topic – sustainability.
Some of the records I have seen suggest that the Federal Housing Authority has delivered less than 40,000 homes in about 40 years.
Apart from the fact that this number was not delivered on a consistent basis of 1000 homes per year, the long gaps between starts and stops clearly indicate the need to change how things have been done.
There is also the quest for what is affordable, or social housing, or housing for the poor as they have been variously defined.
The question to ask therefore is whether anything can be sustained without an agreed common purpose.
Have we agreed on the parameters of affordable housing?
Have we agreed on who qualifies?
Have we agreed on a housing design that has national acceptability, taking into consideration our cultural differences?
Have we asked these questions before, and have we answer them truthfully and honestly?
It seems to me that we cannot sustain a thing unless our purpose about it is united, so that our actions about the thing are united.
Ladies and gentlemen, I am asking these questions and I do not intend to start a housing policy without some indicative if not very clear answers.
We cannot bridge or dent our deficit in housing unless we industrialize housing delivery.
We cannot do that if we do not make the production process uniform in terms of door sizes, window sizes, roof sizes, standards of design, sanitary and electrical fittings and so on and so forth.
I have news for you. We are close, we are working on a Nigerian housing model that has an answer for Geo political cultural differences while still looking the same.
This is a joint effort of experts in the private sector who worked for the ministry as volunteers and also from the civil servants in the Housing ministry who represent our cultural diversity.
We are close to concluding on design, cost and other parameters before we move to financing.
This is the rigor of planning implementation that gives life to statements that we sometimes erroneously call plans.
This is the road to sustainability. This is the road I know. We walked this road on the Lekki Free Trade Zone. We walked it on the Eko Atlantic project. We walked it on the Lagos HOMS project that delivered 200 homes monthly during my tenure of service as Governor.
I know that we are in the results business.
I know that sustainable results take time to plan, and I hope that I have demonstrated to you that we are on the right path.
The ship of state is now on the right course and I’m confident that it will berth safely.
Thank you for listening.
Babatunde Raji Fashola, SAN
Honourable Minister of Power, Works and Housing.