Africa Energy Nigeria Energy – #lightupnigeria Siemens Is The One Handling Geregu Contract That Is Being Renegotiated

#lightupnigeria

Source: Compassnews, February – 1 – 2010

What are the antecedents of these companies that are constructing the plants in terms of other plants they had constructed outside Nigeria?

Marubeni Japan has built power plants across the globe and in consortium with Bouygues of France, built the 1,320 mega watts power plant at

Egbin, which is the flagship of the Nigerian power industry. Rockson Engineering Company is another company. It had partnered with American Burns and Mcdonald originally, before the Niger Delta violence caused the American firm to declare force-majure. Burns and Mcdonald has built power plants in several continents, while Rockson Engineering built the Rivers State Power plant at Omoku and is currently building another plant for Rivers State in Trans-Amadi, Port Harcourt.

SEPCO III has been involved in building power plants in China and elsewhere and is the builder of the PHCN first phase of the Olorunsogo (Papalanto) Power Station in Ogun State, which has a capacity of 335 MW. CMEC has also built power plants in China and elsewhere in the world and also built the PHCN first phase of Omotosho Power Plant in Ondo State. Siemens is known world-wide as a manufacturer of gas turbines and has built power plants across the globe. Siemens was responsible for building Afam V and Geregu Phase 1 Power Plants under PHCN.

When did the Federal Government start constructing each of the power plants?
Although Omoku Power Plant began the story of NIPP, its contract negotiations started in 2005 by PHCN, but was signed by NIPP in late 2006. Construction works started in 2007. The other five contracts – Calabar, Egbema, Ihovbor, Gbarain and Sapele – were signed between February and March 2006 and works started later in the year. Olorunsogo (Papalanto) contracts were signed in March 2007 and construction work started in 2008. Omotosho contract was alsosigned in March 2007. Although advance payment was made to CMEC, the accompanying Letter of Credit was not opened due to withdrawal of the Federal Government’s funding in July 2007, thereby stalling the contract works. Geregu contract could not be signed, although all negotiations had been concluded because of the withholding of funding.

What was the cost of each of the power plants as at the time the idea was conceived?
In the original NIPP stable, Omoku, was the single contract that was a turn-key project costing $161 million, which is for original contract and addendum. The others were split into direct supply of 18 gas turbines at a cost of $404 million and Engineering, procurement and construction (EPC) contracts, which varied from station to station according to the terrain and number of gas turbines installed. The EPC contract values are Calabar for $150.7 million, Egbema for $120.795 million, Ihovbor for $114.4 million, Gbarain for $ 131.246 million and Sapele for $120.7 million. Subsequent contracts which were all turn-key projects included 1074 mega watts= Alaoji for $744.143 million, 750 mega watts-Olorunsogo ( Papalanto) for $449 million and 750 mega watts-Omotosho for $450 million.

What is the present estimated cost of the plant, taking into consideration the inflationary trend?

Estimates for the cost of each power plant cannot be made as NIPP and project consultants (PCs) are working with the EPCs to establish the level of variation and escalation costs.

What were the major setbacks of each of the power plants since the Federal Government started constructing them?

Each power plant has had its unique challenges which we can enumerate but the first challenge for all was that the contracts for the power plants were to have been signed before November 2005 so that the dry season of 2005 could be a spring board for early site preparation before the programmed arrival of the gas turbines could start in June 2006. Unfortunately the fast-track exercise of appointment of project consultants (PC) and Engineering, Procurement and Construction (EPC) contractors were mired in Due Process Office, such that the EPC contracts could not be signed until February and March 2006. The first dry season was lost, the heavy rains in the Niger Delta limited work before the gas turbines started arriving in September 2006, despite concessions granted by General Electric to delay delivery. So, no site was ready. The second challenge was the cessation of funding in July 2007. It stopped all progress payments and made it impossible for variation orders to be raised.

Specifically, for Calabar Power Station, massive subsoil rock was encountered at project site necessitating the use of explosives to achieve meaningful site preparation and this was coupled with inability to reach sustainable water table even after going beyond 200 meters. Up till date Federal Ministry of Works has refused to grant approval for heavy lift items to cross Akpe Ekpong Bridge, for fear that the bridge might fail. The request for approval to build a bye-pass road at the bridge’s side is still awaiting approval. This will enable these items to cross during the dry season. Heavy lift items are made up of the gas turbine, generator transformer and inter-bus transformer. The deplorable state of the Calabar-Itu Road has been a major source of concern for the implementation of this major project in Cross River State, causing protracted waste of man-hour for project staff.

For Egbema Power Station, community related restiveness had to compel deployment of soldiers at site, because the Mobile Police Unit could not enforce order, while in Ihovbor Power Station, heavy lift items for the site had to be left in Koko Port, without the necessary preservation of the equipment, on account of Federal Ministry of Works’ non approval for the crossing of Ikpoba Bridge, completed in 2007. It took the intervention of the Vice President and Chairman of the NIPP Steering Council to get the Ministry to give the nod after two years of the items being left to rot in Koko.

Gbarain power station is the one nearest to the Atlantic Ocean, so it is about at sea level and to build the power plant on the site required site level to be raised four meters to prevent flood water over running the plant during the heavy rainy season. Sand filling of site has proved a daunting task, as the site is located between a Nun River and Kolo Creek. This site has also had the lion’s share of community restiveness, causing several months of work stoppages. For Sapele Power Station, site work could not take-off as expected because final site soil test result demanded that 45 meters piles will be required to offer the stable foundation to erect the plant. The plant had to be relocated into the existing PHCN power plant and at the relocated area, pit was found near the Ethiope River front. Two different types of piles have to be designed for the area. The variation order to enable continuation of work got stuck by the withdrawal of government funding for two years.

For Alaoji Power Station, for two years Federal Ministry of Works refused the heavy lift items crossing the Imo River bridge and the then Federal Ministry of Energy (Power) refused to grant approval for bye-pass ramps to be constructed to ferry across the items. It was at the instance of the Vice President, Dr. Goodluck Jonathan, Chairman NIPP Steering Council in 2009, that a contract was awarded to construct the ramps to enable the items be moved to site. The American foreign partners to the EPC contractor withdrew, on account of the violence in the Niger Delta. Community restiveness has also taken its toll on the site.

For Olorunsogo (Papalanto) Power Station, the state machinery has at one time or the other played detrimental role in project execution, at the least instant, the Presidency had to intervene to restore normalcy.

For Omotosho Power station, the contract awarded in March 2007 had the down payment made in July 2007 without the concomitant letter of credit being opened prevented the EPC from placing orders for the major heavy lift equipment. NIPP having defaulted in the contract, on account of the withdrawal of government funding in July 2007, it has become necessary to renegotiate the contract and prune down the scope from 750MW to 500MW. Up till now the Bureau for Public Procurement has not issued the necessary ‘No Objection’ certificate. The Geregu power plant contract negotiated in 2007 could not be signed because government withdrew funding in July 2007. It is now being renegotiated and may also have to be revalued.

How much has the Federal Government earmarked for the annual maintenance and rehabilitation of each of the power plants?
The original five plants under NIPP – Calabar, Egbema, Ihovbor, Gbarain and Sapele – have a long term service agreement signed with General Electric at $117 million to maintain and supply spares for the major equipment for six years. A similar agreement will be needed, to take care of Alaoji, Omoku, Olorunsogo (Papalanto) and Omotosho and Geregu.

When will each of the plants come on stream?

All plants are at different stages of completion, with the exception of Omotosho and Geregu Power Station Phase 2. Each of the power plants will run in 2010 and the last units of Alaoji and Olorunsogo (Papalanto) will be completed in 2011. The power plants are to contribute about 5,014 mega watts as part of the 10,000 mega watts promised by the President in 2011.

Is there any room for the expansion of each of the power plants?

Originally, five power plants were designed as simple cycle gas turbine power plants, with provision for future conversion to combined cycle. Also the PHCN power plants being implemented as Phase 2 contracts were to be Combined Cycle Power Plants. The exception is Sapele Power Plant, which had to be relocated into the existing PHCN plant, although designed as others, with a possibility of expansion this power plant cannot be further expanded by the restriction imposed on it – its location at the waterfront.

What are the challenges confronting each of the power plants?

Between 2005 and 2007, the three tiers of government committed about $3.07 billion and the present budget for completion of the NIPP stands at $5.075b. Some states have not given their approval to the Accountant General of the Federation to commit their funds to the NIPP. This will pose a great obstacle to project realisation. The restiveness of the Niger Delta has abated, but pockets of incidences are still noticeable and the international community is yet to respond to this improved security situation, by allowing their nationals to move into the region to assist at this crucial stage of installation and commissioning of the plants.

Originally, government intension was for the power plants to be concessioned at commissioning of the NIPP, in its avowed commitment to Public Private Partnership, which will create a haven for the investing public, both foreign and indigenous. Three months to the beginning of commercial operation of the first plant, nothing has been done to either concession, sell or run the power plants. At the moment, overseas vendors and EPC contractors are pushing forward programmes to train hands for maintenance and operation of the plants, according to the contract and world-wide practice. Niger Delta Power Holding Company Limited has neither staff to be so trained nor are there concessionaires staff, who will under-go this training to run and maintain the power plants. The dilemma is that, where the EPC contractors do not acquire hands, they will commission the plants and hand them over without the plants running further. On the other hand, where the EPC contractors raise hands to continue operation and maintenance, the nation will pay through the nose.

The first 18 sets of GE equipment were arranged to arrive Nigeria in 2006 and programmed to move to their foundations, the maximum storage envisaged was 6 months. The packaging was so designed. Now these units have stayed in inclement weather for over three years and their warranty will lapse in December 2010, if they were installed and running on arrival. The fact that they were not installed, calls for inspection of these 18 units by the original equipment manufacturer. The Bureau for Public Procurement has refused to issue “No-Objection Certificate” for GE to carry out the inspection and do remedial work where necessary. The BPE has pitched its recommendation to the EPC contractor to carry out this inspection for which they have neither expertise nor can do the remedial work. The fact remains that, if the EPC contractors accept to carry out this inspection, they will without any iota doubt, contract the manufacturer to do the work, while the NIPP is made to pay a higher price – paying both Manufacturer and EPC. No one can attempt to run an equipment that has been hardly stored and has been idle for over three years expect if the individual intends to ruin the equipment completely.

What do you think the Federal Government should do to address these problems?

The three-tier governments should encouraged, all states that have not made commitments, to expedite action to conclude approvals to Accountant General to the Federation, to contribute their quota to the realisation of this laudable project, considered to be the boldest effort by any government in this country. To lay a solid foundation to solve the endemic problem of power shortages in Africa’s most populous nation.
The Federal Government should be lauded for the show of statesmanship in handling the Niger Delta problem, the sustenance of peace in the region, will enable the NIPP sites to be completed and the power plants will begin to contribute to national development and renewal of failed hopes. Immediate decision should be taken on what to do with the power plants at commissioning, which will ensure a smooth hand over from EPC contractor to Operator, being the most important transition in project implementation.

Bureau for Public Procurement should see the wisdom of allowing the manufacturer to inspect the turbines instead of the circuitous use of EPC contractors at a higher cost, who will subsequently bring in the manufacturer to do the work.

Africa Energy Nigeria Energy