The completion of the Egbin Power Station in 1985 teaches the lesson that the successful construction of a power plant in Nigeria is possible if there is not much external interference. The second case, the Calabar Power Station, is just one part of a large project to build ten power plants in gas-producing states in Nigeria. After 13 years (instead of the planned 4), seven of the ten plants have been constructed, but they produce only a fraction of the foreseen power for the country. The systemic nature of power generation, distribution and sales was not taken into account, with very negative consequences.

8.1 Egbin Power Station, Ikorodu Lagos State: A Completed Project

8.1.1 Initiation and Completion

Egbin Power Station is the largest power-generating station in Nigeria, with an installed capacity of 1320 MW, consisting of six units of 220 MW each. The station is located at Ijede/Egbin, in Ikorodu, approximately 40 km north-east of Lagos.

The project was designed and decided under the Shagari government in June 1980, with construction work starting in 1982 by the Marubeni Consortium, which used the Hitachi Company of Japan for the electrical and mechanical work and Bouygues of France for the civil works. The budget was $250M and the targeted completion was May 1985. It was the first gas-fired plant in Africa, with six independent 220 MW-capacity boiler turbine units. It is still the largest power plant in Nigeria (Wikipedia, 2020).

Two military coups intervened, the first resulting in the military government of President Muhammadu Buhari in 1983. However, the new government continued with the plant, with the first unit being completed and commissioned on 13 May 1985 by the president. The other five units were commissioned at six-month intervals until May 1987 by President Ibrahim Babangida (who had taken over from Buhari in the summer of 1985 following another military coup).

Thus, the project was two years late overall (a 40% schedule delay), and the final cost ran to $690M, a budget overrun of 176%. So, the project had some challenges, but it can be called a success, in spite of two regime changes over its duration (Fig. 8.1).

Fig. 8.1
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The Egbin Power Station

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8.1.2 Success Conditions and Challenges

Why was Egbin successfully completed in the face of (painful) government turnovers, while other projects had succumbed to disappearing support and budgets when the political leadership changed? No official statements or press articles are available, as this project happened too long ago, but the authors were able to interview two government officials.

The project enjoyed overwhelming support from the government, as well as the population—it was obvious that (the capital at the time) Lagos needed a large amount of electric power. A town was resettled, without any protests, in contrast to the Zungeru Hydropower Plant, which we discuss in Chap. 10. The population supported both projects, but in 1982 it still trusted the government more than it did in 2015, when the dam was built. The government financed the project from its own budget, which was less strained in 1982 than later on. Thus, the subsequent governments continued to support the project. Finally, the command structures in the military governments were stricter, and the government held the monopoly on power generation and distribution—once there was a consensus at the top, the projects happened.

The project also benefited from good collaboration with the contractor, Marubeni. A former member of the Egbin management team commented that the contractor had good technology, “did what it took” and even came back after the project was finished to check whether things were going well. In addition, the design factored in significant robustness by oversizing both the boilers and the turbines.

The project had its challenges, as large projects often do. For example, the power lines over the lagoon into Lagos posed engineering challenges. The gas pipeline was not completed when the first unit was commissioned, delaying the actual start. Furthermore, the HPFO (high pour fuel unit), which enabled the plant to run on fuel as back-up when necessary, was delivered by ship from Port Harcourt in the South. However, the ship did not fit under a bridge in Lagos, so the unit had to be delivered on trucks via roads, which caused a long delay. Ultimately, the project was delivered with reasonable overruns (in the context of large government projects in Nigeria), enabled by functioning governance.

8.1.3 Privatization and Trouble

On 1 November 2013 the federal government (under the Jonathan Administration) privatized the power plant, following a World Bank/IMF-encouraged privatization programme of public companies that had begun under President Obasanjo. Egbin Power Station became a joint venture between Sahara Power Group and KEPCO, which purchased a 70% holding for $407M.

However, the plant then experienced losses, because the transmission grid was kept under government ownership and received no investment, rendering it unable to transport the electricity generated. Moreover, the distributors regularly did not pay the government’s wholesale energy trader, which in turn did not pay the power generators (The Economist , 2016)—in 2017 Egbin was owed $350M and could neither invest nor raise funds. It therefore shut down for a period and ran far below capacity for a long time before being refurbished (Power Links, 2017). These market failures have plagued all power plants in Nigeria, including the Calabar Power Station, which we will discuss next.

8.2 The Calabar Odukpani Power Station: Completed but with Little Delivery

8.2.1 Project Initiation

The Odukpani power plant near Calabar City (from now on referred to as Calabar Power Station) was to be one of ten power plants that would comprise the Nigerian National Integrated Power Project (NIPP). The NIPP initiative was conceived in 2004 under the administration of President Obasanjo, with the aim of addressing the issues of insufficient electric power generation and excessive gas flaring from oil exploration in the Niger Delta region. The concept of NIPP was to add a medium-sized gas-using power station to each gas-producing state in the Niger Delta (using the otherwise flared gas), resulting by 2008 in an addition of 10,000 MW to the national grid’s 1500 MW in 2000 (Power Sector Nigeria, 2012). The original NIPP concept foresaw seven plants, which was reduced to six because one state was already far advanced with one (where the government had promised to invest half). However, then four other plants were added, on which construction had begun, so the final NIPP initiative included ten plants (personal interview with a power ministry executive). Calabar Power Station was one of the ten.

A new organization, the Niger Delta Power Holding Company (NDPHC ), was created as a special-purpose vehicle to manage this project. The funding plan for the NIPP was to source a foreign loan and afterwards sell an 80% stake of the completed power plants to private investors, who would operate them efficiently and profitably, in order to recover the investment. In August 2005 the National Council of State and the National Assembly approved an initial $2.5B for the NIPP from the “Excess Crude Oil Account”. The power plants were originally estimated to cost around $200M each (around $2.2B for the ten plants, plus the additional one, where the government would add financing) and were planned to be completed by 2008.

By 2007 (when the government changed), approximately $2.8B had been spent on advance payments (Okedu et al., 2018), including $1.78B in funded letters of credit, which allowed some of the projects to continue despite the funding interruption that was about to strike.

The change in administration after the election in 2007 (to the government of President Yar’Adua) interrupted funding for more than two years as the new administration subjected the project to rigorous legal, financial and political reviews.

8.2.2 Project Complications and Delays

At the outset, seven plants were planned to be built with simple cycle designs (of lower efficiency), but they had provisions for future extension to a (more efficient) combined cycle operation. Together, the seven plants were to operate 22 GE 9E gas turbines, with a nominal rating of 126 MW, which delivered a net capacity of 112.5 MW after adjustment for site conditions (the Calabar Power Station was to house 5 of the 22 turbines). The Calabar project was given to the Marubeni Corporation (Japan) and Gitto Group (Nigeria) contractors.

After the two-year interruption resulting from the new government’s scrutiny, additional delays accumulated. The project was expanded to include power transmission lines and sub-stations, as well as gas pipelines from the sources to the plants. However, the NDPHC stated that the pipelines had been disrupted by vandalism in the Niger Delta, in addition to wider community hostility. The minister of power told the media about a host community in Delta State, which demanded a huge sum of money—far more than the cost of the power project—for the community in order to appease their ancestral deities before cutting down a tree that was standing on the right of way of the power plant near the deities’ shrine (Power Sector Nigeria, 2012). Also, there were delays arising from engineering equipment being ordered from abroad and delivered much later.

In late 2009 President Yar’Adua fell severely ill and left the country for treatment, but he died upon his return in February 2010. Vice President Jonathan, who had been the chairman of NDPHC, ex officio, became acting president and then—after winning the election in 2011—president, so the NDPHC changed leadership. By 2012 the emerging picture was that as a result of the added scope (transmission and gas pipelines) and the various delays suffered by the projects, they had consumed over $8B, with only 4774 MW of the planned 10,000 MW being built (Advisory Power Team , 2015).

On the other hand, there was optimism in 2012 because the Nigerian Electricity Regulatory Commission (NERC) authorized state and local governments, as well as communities in the country, to generate and distribute their own electricity. With this authorization, the Cross Rivers State Government (where Calabar was situated) started a move to generate and distribute electricity in its domain, with an N30B (around $80M) investment plan. The state’s commissioner for power, Augustine Nwokocha, told the press: “The state will generate enough capacity, have a robust transmission infrastructure that will take the power to the people and have a solid distribution infrastructure that will take it to their routes.”

8.2.3 Delivery of the Calabar Power Station in 2015

The source of gas for the Odukpani power station was planned to be the Addax Adanga oil and gas field, approximately 100 km offshore from Oron. The Calabar project included the engineering, procurement and construction of a pipeline from Ikot Nyong to Oron to Adanga. However, when the project was revived in 2011, following the federal government’s suspension and investigation, it was discovered that Addax had no plan to develop the gas resources of the Adanga field. The planned gas supply evaporated and had to be replaced.

An alternative gas supply from Frontier Oil’s Uquo gas-processing plant was contracted. Following all due process, a new, shorter pipeline was contracted for the supply of 131M cubic feet of gas per year. The supplier Accugas claimed to have invested $600M in building gas-production, processing and transportation infrastructure, with third-party financing to supply gas to the Odukpani power station.

At the end of May 2015 (outgoing) President Goodluck Jonathan inaugurated—with much fanfare—three new gas-fired power plants, including the 560 MW Calabar project, out of the ten projects fast-tracked by the NIPP framework (Patel, 2015). However, in the end the gas supply at Calabar was not ready. Not only had there been the aforementioned gas pipeline vandalism prior to the April 2015 elections, but the Accugas (formerly “Frontier Oil”) pipeline was simply not finished. The Calabar plant had all the equipment installed, but it could not operate because of a lack of gas to burn (Fig. 8.2).

Fig. 8.2
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The Calabar Power Plant in 2021

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A provisional gas supply from Obigbo/Imo River was arranged and delivered through the completed segment of the pipeline. The supply could only sustain two units—not the five that had been installed. It was put into service in 2015 but could deliver only 220 MW.

(In parallel, the Cross Rivers State Government attempted to build a smaller plant of 23 MW of electricity for the supply of the City of Calabar. However, this power plant was shut down one day after the power station was commissioned in 2019 because of fears over its reliability.)

8.2.4 What Has Been Delivered? Lessons from the Project

For the 10 NIPP power plants, the original cost estimates were approximately $2.2B, including pipelines, switchyards and connections to the grid. However, the estimate is that more than $8B have been spent. The result of this investment consists of the following (in January 2021): seven completed and functional power plants (including Calabar); one completed but with a design downgrading from combined cycle operation to the simpler and less efficient open cycle; and two that are close to completion but not finished.

This project is evidently heavily over budget (not untypical for very large projects) but nevertheless complete! The problem is that delivery outcomes have been severely below the design plans: the 7.5 “completed” plants deliver—instead of a capacity generation of 3000 MW (which is already a reduction by half in terms of the goals announced by Obasanjo in 2004)—only 1300 MW, around 30–40%, to the grid. The reasons for this lie in a combination of both problematic supply and delivery capacity (Ali, 2016).

At Calabar Power Station, these limitations take the following two forms (interview with a senior power ministry official). The first problem exists on the demand/distribution side. Calabar’s parent NDPHC sells the electricity to the Nigeria Bulk Electricity Trader (NBET), which sells to various (privatized) distribution companies. However, the distribution companies have not paid their bills—they cover only about 40% of the price that Calabar Power Station officially charges—arguing that they need to invest capital to upgrade their equipment, that the tariffs they are allowed to charge are too low and that Nigerian electricity customers do not pay their bills (The Economist , 2016). Therefore, the government is forced to subsidize all electricity generated by Calabar to the tune of 60%, which is paid from the annual budget and represents a significant drain. In addition, the decrepit national power grid, which leaks power to a high degree, cannot receive the full output from the Calabar plant and therefore limits the operation of the plant to a maximum of 337 MW, corresponding to only three of the five units ever being in operation at the same time.

The second problem exists on the supply side. The Gas Sales Agreement (GSA) with Accugas has a feature that, in hindsight, was an error—it has a fixed “take or pay” piece that requires the power plant to pay at least for the gas volume that would run four of the five generation units, even if the amount really taken up is smaller. In other words, although Calabar Power Station never has more than three generation units in operation, it always pays for an amount of gas corresponding to four units. This causes a significant additional loss. The GSA with Accugas is backed by a World Bank Partial Risk Guarantee (an insurance scheme that was introduced by the World Bank to Nigeria), which obliges the federal government to make up for supply losses. The problem is that this risk guarantee was designed for extraordinary situations (occasional and catastrophic risks), but it is used here for a systemic constantly operating loss. This second steady loss is payable by the federal government and draining nationwide public resources.

In summary, Calabar Power Station produces electricity but at a huge loss to the government, which begs the question about whether this generation has any positive productivity for the electricity grid (and this is also the case in light of the very large investment that was made to get the plant operating in the first place).

The final assessment of this project acknowledges that a power plant has been built (one of 7.5), but without taking into account that this plant is a component of a larger system, namely, the grid and the players generating, trading and distributing electric power. The component within this system, first, contributes only weakly to the system, at a fraction of its theoretical capacity (because the system is so flawed that it cannot even use the capacity of the plant); and, second, it is causing a large and systemic loss to the government. The national funds used here produced an asset, but they nevertheless ended up being squandered.