Mr. Oti Ikomi, is the Executive Vice Chairman/Chief Executive Officer, Proton Energy. Last week, the company signed a deal with Nigerian National Petroleum Company Limited (NNPC), Shell Petroleum Development Company (SPDC), TotalEnergies, the Nigerian Agip Oil Company Limited and the Gas Aggregation Company Nigeria Limited for the long-term supply of gas for the production of 500mw of power valued at over $250 million.
In this interview, apart from the expectations from the deal, Ikomi speaks on how the incoming administration can transform Nigeria’s energy sector.
What led to the signing of this agreement?
The promoters of Proton Energy identified that to have an efficient cost-effective power plant, we should use gas as our fuel and recognising that we have nearness to gas feedstock in the Niger Delta area, it also influenced the location of the plant. So, Proton Energy over several years, went through negotiations to buy natural gas, either from a willing-buyer, willing-seller basis, where you find a direct gas supplier and buy from them, or you can also buy via the Domestic Supply Obligation (DSO), which is managed by the Gas Aggregation Company of Nigeria (GACN). We went through a process with GACN and as we mentioned, we eventually completed the agreement, but by the time we were doing the event, we were dealing with the fourth Managing Director of GACN. It has been a long process that required a lot of due diligence. But we wanted to be sure we would get the gas in the right quantities and at an optimal price and from an international supply source. That was why we went into the agreement with Shell SPDC JV, with Shell as the operator.
What are the expected benefits from the agreement?
The expected benefits of this deal firstly is that there would be environmental benefits. That is because greenhouse gas emission would be lower. Being that this is a combined cycle plant, we are using less gas significantly, so we are using about 30 per cent less gas. Additionally, the exhaust from the single cycle gas turbines are now passed through the heat exchangers into a combined cycle state turbine. So, environmental benefit is one. Secondly, gas is almost 30 to 40 per cent the running cost of the project. When you are able to get an optimised gas supplier, it means that you are able to give a better win-win tariff with your offtake, which is the Nigerian Bulk Electricity Trading Company (NBET), or any other off-taker, on behalf of the citizens of Nigeria. Eventually, we the consumers would get the benefits because if the natural gas price is optimised, the eventual power pricing, which we sell to the off-taker is optimised, then there are benefits in the long-run for the citizens of Nigeria. Also, most importantly is employment.
From May 29th, a new administration would take over, what are your expectations from the incoming government for the energy sector?
There are expectations in the energy sector around gasoline and subsidy, which is being addressed, so I will not dwell on that. I want to focus on the power side. The key expectation from the government firstly is that they must improve the quantum of power supply to our citizens and make sure it is supplied at a reasonable and affordable price. There has been a long stream of initiatives, but they have not been implemented. The main weakness we have is execution and implementation. Specifically, in terms of evacuation, the Presidential Power Initiative must be speedily reconfigured and it might have to be leadership changes, so that project, the Siemens Initiative, can be implemented. Secondly, there is shortage of meters nationwide. The National Mass Metering Programme phase zero produced one million meters; there was supposed to be a phase one for four million meters. The initial tenders and processes was done; it has not been implemented. If you are unable to adequately collect and meter the customers, they would not pay and that creates a deficiency in the value chain. So, we must commence the four million metering in the phase one and any other metering initiative, so that every Nigerian that has electricity, if it is through the Distribution Companies (Discos), you must be metered. The third point is around the wholesale generation space, which is where Proton Energy exists. The new government is encouraged to speedily conclude Power Purchase Agreements (PPAs), and execute it with credible developers. There are the developers that already have the financial capability, the gas supply arrangement and others to implement the power project and get it to the national grid. Within the implementation of the PPAs are what we refer to as commercially bankable power structures with the off-takers, which is very important. It would be recommended that the incoming administration does this within 60 days of coming in.
There have also been discussions around guarantees in the sector, which the present government has been criticised for not showing enough commitment, what is your advice to the incoming government regarding that?
In fact, there is a huge misnomer here. The analogy I will give is that it is like a bank. A bank has what is called a loan-to-deposit ratio. There are international banks in the world who sometimes give 10 times are even 100 times their capital. We have an erroneous believe in Nigeria that once a government gives guarantee, it is conditioned or constrained by the amount of foreign reserves that you have. But what is actually required is to do a proper analysis so that the likelihood of a project, or a guarantee being called on is minimised. Unlike this current administration that has had a very negative and poor view around guarantees, what I encourage the incoming administration is for them to take a broader, more progressive and more international project finance approach, so that they can give the necessary guarantees. We are not saying you should sell the birth right of Nigerians or mortgage the rights of Nigerians, but there are ways to structure it in a win-win basis. The key guarantee for instance, like they had on a project like Azura, which was a Partial Risk Guarantee (PRG), in our own project, we don’t need that anymore. So, we are going to save the nation the involvement of a PRG because we don’t need it. But there are other kinds of agreements that are called termination payment and other kinds of arrangements to give some support. That is because when you have a project that is costing hundreds of millions of dollars, the banks need to have the guarantee that in the unlikely case if something goes wrong, they would have some recovery process. Those are the things that we need to put in place for project financing. I believe that with the kind of individuals in the incoming government, they would work with credible developers to quickly reach a win-win solution for Nigeria.
Just as we have seen with the petroleum ministry where the current president is the Petroleum Minister, some have said the next president should assume the position of the Power Minister to drive affairs in that sector, what is your take on that?
The issue is not necessarily in the title, it is the interest and availability. The example I like to give is that of Abdel Fattah El-Sisi, President of Egypt, he met every week with his power team when the Siemens and GE, both did 10 gigawatts of power in few years for Egypt. I was told he used to meet with them every Saturday, until the project was realised. I recall sometimes back, even though eventually everything didn’t manifest as planned, former President Goodluck Jonathan used to meet every Tuesday on power issue. You need to be involved and you may not necessarily wear the toga of a Minister, but it is very important to put very capable people to lead the strategic ministries. The Minister of Power, Minister of Petroleum Resources and in fact, I am advocating that we have somebody like a Czar or a Chief Adviser to the president to specifically manage gas and power. We need it for power and we also need it for gas because the challenge for gas now is that international finance institutions are moving away from fossil fuel financing and we need to be able to re-orient the thinking and make sure we get the right support internationally. So, you need somebody to drive gas and at same time drive power. So, we need a very senior adviser that would be reporting directly to the president on gas to power. We have the Decade of Gas initiative, but as you know, we have lost three years already. Yes, we’ve got talks and we have papers, but all the documents are there and they are implementable, it is just a matter of implementation. Drive the Decade of Gas and drive the power initiative for the country to make progress. But at same time, as a nation, we must recognise that as a nation, we must still continue to support our net-zero and climate initiative, to support issues around preventing further emissions and support renewables. But the quantum of energy required in Nigeria is not what only solar and renewable power can handle. We have gas and we must utilise it for the benefit of Nigerians.
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