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News & Press Releases

NIPP: As House of Representatives Begins Debate

THE GUARDIAN, February 24th 2009, Nigeria

Late last year, many Nigerians sat in the comfort of their homes to watch the drama as the House of Representatives Committee on Energy commenced the probing of the power sector, especially the National Integrated Power Projects (NIPP). Nigerians watched in trepidation as the exercise was almost turned into a huge circus.

As members of the Hon. Ndudi Elumelu led Committee traversed the length and breath of the country to see things for themselves, Nigerians were astonished at some of their discoveries, whether right or wrong, exaggerated or not, as well as the undercurrents. It was however not long before the Committee was rocked by yet another scandal, and the probing committee was now under probe by another committee in the National Assembly.

Before the end of 2008, the Committee submitted its reports to the House. This week, the House of Representatives will begin the debate on the report in order to reposition the country’s power sector even as Nigeria groan under darkness and the Power Holding Company of Nigeria (PHCN) is incapable of generating and supplying adequate electricity.

As a keen observer of the sector, one cannot but comment on some of the miss-information in the power sector, especially on the NIPP, which needs to be highlighted for record purposes and posterity. Anyone who is conversant with modern electric power generating plants will admit that projects do not take anything less than three to seven years to be realized, from the signing of the agreement to the time of the first firing.

One recent example is the Nigerian Agip Oil Company plant at Okpai. The agreement was signed in 2001 but the plant came on stream in 2004/2005. Of course, the project was financed by the company as such there was no report of delay because there were no funding difficulties. Another one is the Egbin Thermal Power Plant. The agreement was signed in 1981, while the first machine was activated in 1985, and the sixth and last machine in 1987 and was financed by the Japanese government.

One fact that should not be ignored despite the hoopla the probe has created is that at one time or the other, all the NIPP contracts went through the necessary processes before they were awarded to different contractors. It must also be stated that no contractor participated in the drafting of any contract as is being speculated. Engineering and procurement constitute the lion share of any EPC contract. In some cases, they account for up to 80 per cent of the total contract.

Those who know how some turbine power plants work would know that procurement of the machines and equipment is not done at the project site and there may be little signs of major activities at a project site yet the project has progressed up to 70 per cent. It may be a wasteful exercise to clear a project site too long before the completion of procurement. The exercise may have to be repeated several times before actual construction can start. In this case, construction is the actual installation of materials and erection of the equipment and once the engineering and procurement are completed, and the materials or equipment are delivered to site, construction will proceed very quickly, if there are no encumbrances.

Therefore, actual work on an EPC contract cannot be fully appreciated by simply visiting the site and looking at the structures, but by reviewing documents that show evidence of the extent of each of the component segments of the EPC. It must be stressed that EPC contracts do not expire until contract is completed or the contract is terminated by the client or by the contractor.

Contrary to public belief or perception, NIPP payment procedures are made within a specific period after award of contract, on presentation of a bond from a first class bank, an advance payment of 25 per cent is made to contractors. The 25 per cent portion enables the contractor to place orders for long lead items and hedge against escalation of prices of items as well as help the contractor to mobilize to site and carry out preliminary works like site survey, soil test, site office and accommodation, procurement of vehicles and equipment as well as overhead cost amongst others.

While I share the apprehension of many Nigerians over funds so far spent or committed to the power projects, it is important to note that the funds have not been wasted. For instance, Papalanto, Omotosho, Geregu and the Alaoji projects have either been completed, or are at the very advanced stages of completion. Non-completion of gas supply infrastructure is what is preventing Nigerians from reaping the full benefits of the plants. The sum of $3.147 billion so far committed to the NIPP since inception was used genuinely for what was projected.

This is not to say that some bad eggs may not have tried to cut corners. Thus, most of the funds are in projects that are yet to be completed and the benefit from the projects can only be reaped if/when the projects are completed. It should be noted also that PHCN’s internally generated revenue, which was used by the parastatal for salaries and overhead was included as funds spent to develop the power sector. It will be more logical to group this kind of expenditure separately in order to get a true picture of funds deployed for the development of the power sector. Also, monies allocated to the Energy Commission of Nigeria, which were not even part of the power ministry at the time, were added to amounts used to develop the power sector.

There is also no denying the fact that several problems had been encountered in the execution of the various NIPP projects across the country and some of these problems contributed in no small measure to the delays in the projects’ implementation. Some of the encumbrances include delay in contract downpayment to various contractors, delay in establishing letters of credit, some of the letters of credit are not operable, site acquisition problems arising from delay in the payment of compensation to host communities, some sites could not be handed over to some of the contractors, while other sites had to be relocated a number of times.

Others were transportation difficulties especially in moving major equipment to the various sites. Some difficulties were encountered in discussions with the Federal Government’s Ministry of Transportation on the issue. There were also delays in receiving due process certification. For example, it took four months before due process certification was received for OEM – Original Equipment Manufacturers.

In as much as the House begins to look into the report this week, it should note that efforts to build new power stations started in 1999 and by 2007, five new power plants had been built and seven more are being built under NIPP. The House should therefore make it a point of duty to see to the completion of all NIPP projects, including all gas supply projects in order to guarantee the improvement of power supply in the country. As at now, about 600 containers of materials are wasting away at the ports, while another 600 are waiting to come in.

The members of the House owe it as a national duty to look at all the allegations objectively and apportion blames appropriately without sweeping facts under the carpet. Since their assignment is of national importance, the legislators should deal with issues so that work will resume in the power sector as the economy will be better off.