Quest Gas And Power Intervention In Midstream Sector Will Deepen Gas Market Penetration- Dele Taiwo

In this interview with YEMISI IZUORA, the Chief Operating Officer Quest Gas & Power, Dele Taiwo, says the company is making investment that will deepen Nigeria’s gas market.

What is your investment consideration in the gas sector?

We are making steady progress in our gas business portfolio. We believe that the Compressed Natural Gas, CNG is cheaper than diesel and is mainly deployed for power generation and has a significant foreign exchange component. LNG (Liquified Natural Gas) is cheaper and not significantly impacted by the foreign exchange but requires significantly higher investment in storage and distribution infrastructure.  Investors with gas-producing fields harvest natural gas which is processed to CNG in a complex configuration. The value chain from gas field to power plant is highly capital intensive with a huge component of foreign dollars.

Our Gas space strategy involves significant backward integration, and we are working with some high profile international and local partners that can attract significant long-term patient investment to drive these projects

Issues such as cost recovery and pricing mismatch, are increasingly hampering the growth of the power sector. How is Quest Gas & Power coping with these challenges?

Cost under-recovery results from issues led by the falling value of the Naira against other foreign currencies (exchange rate). Spare parts and consumables to run the engines and turbines are imported. Therefore, a more than 20% devaluation of the exchange rate will translate to a big hit on your numbers. We have seen higher levels of devaluation in recent months. It has been tough striking a balance between running a profitable business and keeping your customers delighted.

Does Quest Gas & Power have any major projects in the pipeline?

Quest Gas & Power is highly ambitious, aggressive with a high level of discontent. We are engaged in several active projects. In the Captive and Distributed power space, we carry an aggregate portfolio in excess of 22 MW.  In the Gas sector, we are planning to build a Gas Storage Facility with a capacity of 10,000 MT scalable to 15,000MT in Delta State, a Composite Cylinder Manufacturing Plant with an LPG Bottling Plant to leverage the gas value chain.

Nigeria is gearing up its gas utilization owing to its vast natural gas reserves and more importantly because of the revenue shortfalls occasioned by oil price volatility.

Do you think the government’s strategy is working?

The strategy to expand gas utilization is a no-brainer. We are approaching a cul-de-sac.  Rising oil prices and our inability to refine for our local consumption have put us in this situation of massive importation of petrol from swap crude with its massive local price under-recovery and waste called subsidy.

Shale gas in the USA has changed the narrative.  I hope that the government is committed to pushing and expanding gas utilization at least for power generation which in my view is the low-hanging fruit.

The power sector, though fraught with its issues has been starved of sufficient gas for power production which if adequately harnessed will close the energy access gap. What is your take on this?

Our country has always been richly blessed with abundant gas reserves so it’s a self-inflicted pain not to have gas to generate cheaper power to galvanize production in our economy. It’s a whole lot of issues even where gas is available- slow development of gas infrastructure, vandalism, inappropriate pricing, our preference for export to earn dollars to local development of our industrial base -all are there to be dealt with.  Several gas-fired plants built under the NIPP during Chief Olusegun Obasanjo’s tenure are largely idle for more reasons than just a shortage of gas.

All these assets should be harnessed to drive our industrial growth and quickly too to avoid value erosion. If the government cannot bring them to life they should be privatized or sold off to the private sector transparently and credibly.

Recently, the Federal Government announced a projected $3.2 billion expenditure on the conversion of petrol vehicles to natural gas. However, Stakeholders worry that the bureaucratic nature of Government in Nigeria may defeat the intent of the project. What is your take on this?

In itself, the plan will drive the utilization of abundant and cheap gas reserves lying beneath us. It has also huge economic benefits for our economy by shifting consumption away from expensive highly subsidized petrol. Imagine if we could convert half the number of cars and generators in our country from petrol to cheaper, cleaner and more eco-friendly gas, that would be huge savings on our huge petrol import bill, the subsidy waste and reduce our carbon footprint   The government has set up NGEP- National Gas Expansion Program, a private sector-led program amongst others to drive this initiative and I think the program has the full support of those of us in the private sector.

However, it is still a long way to the realization of this dream.   Government can demonstrate commitment by drawing an actionable road map to galvanize the conversion kit installation technology to train people who will install fuel conversation kits. Without a good number of vehicles/trucks converted to run on LPG or CNG, investment in CNG/LPG fueling stations would lay idle.

This is the first major step to run the race on Autogas policy.  We hope that government understands the mindset of the private sector we need to work together on this to make it happen.   The conversion kit market can potentially employ thousands of youths as we have seen from the various roadshows of NGEP.   How much do you intend to inject in the sector as an investor in your short, medium- and long-term plan.

Our ongoing gas-to-power and gas storage projects are estimated to cost over 35 Billion Naira. These projects are planned to be delivered over the next 20 months by Q2 2023. Beyond this, other projects in our pipeline are estimated to cost another 15 Billion Naira to be delivered by Q2 2024

What can be done to stabilize the power sector?

Urgent, critical, and focused investment to unlock the low-hanging fruits is the way forward. There is a need for investments in infrastructure to enhance transmission and distribution segments, investments in new methods and technology to drive efficiencies within the system. Improved metering to increase revenue collection and reduce losses in grid power are some of the several ways to stabilize the sector.

 

Do you see our privatization model as a panacea to some of the perceived challenges?

I believe that the government has done its own bit in terms of providing some incentives and a platform for the private sector to thrive. However, in developed climes, the government has no business running businesses. That should be left to the private sector that is wired to do that. Government should focus on providing an enabling environment with supportive regulations. Privatization allows the government to focus on its core mandate. If well carried out, privatization will help free up resources otherwise tied up in poorly run government enterprises as was the case with NEPA.

Political influences have almost always tainted our privatization outcomes.

 

Some people have called for a review or outright cancellation of the exercise, what’s your opinion?

I believe the regulatory commission saddled with supervising the players in the power sector should be allowed to carry out its functions without interference. Let’s build strong institutions especially those with oversight on public amenities.  An outright cancellation will send a negative signal to other would-be investors in other sectors of the economy. It is unwise to carry on with the toga of a country of policy somersaults which we have been known for.  The sector is highly capital intensive and has taken huge loans from banks for the acquisition fraught with problems it has now become a struggle to survive for these investors.  Unfortunately, consumers have little or no sympathy for undelivered promises.

Conservatively how much do you think can be injected to revive the sector?

The Federal government has recently signed an agreement with the government of Germany through Siemens AG to improve the grid performance and expand capacity for future needs. We do not know the final numbers involved as Siemens will galvanize financing for the project and this will have a huge impact in terms of rehabilitation and modernization of transmission and distribution infrastructure and improve power generation

There are claims that current owners of the DisCos do not have the required capital to rejuvenate the obsolete equipment, and some lack the technical competence, how true is this?

I do not think the government injected cash at the time of privatization, but it owned most of the assets pledged. New owners borrowed from the banks to acquire the utilities with little left to inject into developing the decaying power infrastructure. Discos soon became burdened by inefficiencies in metering and collection, underpricing, distribution failures, pressure from lending banks, default in payment to bulk power suppliers, and more.

I do know that the Discos absorbed some of the best hands available, very competent Engineers and Administrators and they also brought in very good private sector people.

The owners need to galvanize new investment to upgrade infrastructure and deploy new technology in distribution, replace obsolete equipment and ensure every customer is metered

 

Do you think 40 per cent FG equity in the DisCos have had a positive impact on their operations?

The government may hold non-controlling share participation in the running of a Public Utility. The private sector is better wired to run such entities. However, coming from a 100% government-controlled public Utility and the security and social impact of electricity value-chain in a country as ours, one may make an exception for government holding up to 40% stake at this time.

What are the business interests of Quest Gas & Power?

At Quest Gas and Power- our core business is to provide affordable, clean, renewable, and sustainable energy for the Commercial and Industrial sectors. We provide reliable and efficient power and gas infrastructure development to meet customer power needs. We deploy our technical expertise to support our client companies in the procurement and installation of Natural gas generators and Boilers, as well as heaters for their operations.

We design, install and operate embedded power solutions (IPPs) with CHP capabilities to meet clients’ needs by deploying gas-fired generators. Often customers require hybrid solutions -usually Solar and Gas power to meet its shifting and varied power needs.

Quest Gas & Power recently marked a decade of providing services for top industrial giants such as Nigerian Bottling Company. How significant is this milestone?

Working with Nigerian Bottling Company has been quite exciting. Our foot in the door with NBC is our excellent record of preventive maintenance. Starting with the sales depot, Quest quickly became a dominant service provider for Operations & Maintenance, Sales, Leasing, and Rental of Diesel Generators and currently providing Gas-fired IPP solution in one of the 9 plants

Our partnership with NBC has been rewarding for both companies. NBC got the best out of us- with its strict standards and policies, competent people, and a push to innovate. As a company, we grew our flying wings with the company and its people. We continue to give our very best to not just NBC but all our customers. Our quest with NBC has been a strong partnership, fueled by the desire to provide excellent service and go beyond expectations.

The race for renewable and cleaner energy is gaining momentum by the day. How is Quest Gas & Power repositioning to take advantage of this global transitioning?

According to Bloomberg NEF forecasts, solar and wind will power half the globe by 2050. This means that non-renewable energy would be forced out by cheaper renewables and cleaner natural gas. Our goal is to provide clean, affordable, reliable, and sustainable energy to our customers in line with the United Nations sustainable development goal 7.

In a few years, we intend to migrate our customers who have fossil-fuel power assets that are almost expiring and nearing the end of their life to move to renewables by offering a wide range of distributed energy solutions. This would involve a mix of renewables; solar, steam and zero-emission hydrogen-fueled generators and energy storage systems to provide lean and low-cost energy solutions. Deliberately, most of our new installations are powered by cleaner natural gas and renewable solar power. Hydrogen-fueled generators although expensive offer zero-emission renewable power sources that can be deployed to support existing grid power

 

Do you think Quest Gas & Power as an investor, has what it takes to bring a turnaround in the power sector?

The government is not wired to be the sole driver or provider of power to this complex economy.  In my view, after the issue experienced with ECN/NEPA and handing over to the Discos, the inefficiencies, inadequacies, and lack of vision of the past came to haunt us. Increasingly more people have turned to generators to provide power to their homes and businesses.

The growth in the captive power generation space has been largely fueled by these inefficiencies and unreliability. As a player in this space, we provide cost-efficient, tailored-to-budget IPP solutions for several customers in the commercial & industrial sectors.

 

Public-private partnership is one of the ways of achieving sustainable development in the power sector. Is there any ongoing partnership between Quest Gas & Power and the government?

 

We are exploring opportunities in the Public-private space but as we all know this is fraught with many challenges and potential land mines.  Policy somersaults and reversals could potentially wipe off your investment. I am not saying this cannot happen, but a critical element of such alignment is the ability of the off-taker to pay for the service- whether it’s the government on behalf of the consumer, the consumer directly and another public utility company. We are presently working with a state government in its street lighting program providing operations and maintenance as a service. We are projecting to kick off a 5MW Solar Power Solution with one of the Discos as a co-off taker.

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