ENERGY MATTERS WITH ENGR. MUIDEEN

 NIGERIAN POWER SECTOR: A BIRD’S EYE VIEW

 

In the Beginning

Nigeria’s power sector has a dynamic industry. Over its 120-year-old history, it has evolved from producing 60 kW of electricity, through several stages of government ownership to its privatisation in 2013. Privatisation was introduced to enable the private sector to provide efficient services to meet the needs of electricity consumers.

Presently, the power sector is working through the challenges of creating a competitive electricity market.

 

 History of Electricity in Nigeria

England’s Electric Lighting Act was introduced in 1892; only four years before Nigeria’s first power plant was built in Lagos in 1896. The total capacity of the generation plant was 60 kilowatts (kW). The first electricity utility company known as the Nigerian Electricity Supply Company was established in 1929. Between 1928 to 1939, eight more power plants were built across Nigeria, including Port Harcourt (1928), Kaduna (1929), Enugu (1933), Maiduguri (1934), Yola (1937), Zaria (1938), Warri (1938) and Calabar (1939). The Public Works Department managed the pioneer Lagos power plant, while several native authorities independently managed the other power plants in their respective towns.

 

The Electricity Corporation of Nigeria (ECN) was established in 1950 and assumed responsibility for electricity generation and distribution for the country in 1951. The central government consolidated and managed all the revenue from electricity supply operations into a single account. This mode of operation persisted for the next 21 years. Meanwhile, the Niger Dams Authority (NDA) was formed in 1962 to construct and maintain dams in the River Niger, improve navigation, promote irrigation and oversee hydropower generation.

 

National Electric Power Authority (NEPA)

There was a major restructure in the sector in 1972.

All electricity generation, transmission, distribution and utilisation responsibilities were assigned to one organisation. The rationale for this reform was to improve effectiveness, minimise operational risks, and share financial obligations.

As such, the ECN and NDA were merged to become the National Electric Power Authority (NEPA). Although the term “NEPA” remains popular, its era never really lived up to the hype.

 

The NEPA era was synonymous with a government monopoly, high transmission and distribution losses, low electricity supply, low revenues, high-level losses, power theft, under-investments, meagre infra-structure and an overall poor organisational structure. By 1999, only 19 out of the 79 existing generation plants were operational, and an average of 28 percent of the installed capacity (6,200 MW) was generated daily. There were barely any investments in electricity infrastructure between 1991 and 1999, leaving over 90 million Nigerians in total darkness. Electricity was considered to be a social service to be provided to all whether they could pay for it or not. This thought was not only accustomed to Nigeria but occurred in most developing countries at the time, and even today.

 

Power Sector Reform

Challenges faced in the NEPA era called for a reform of the power sector. This proposed reform coincided with Nigeria’s return to democracy in 1999 and provided an opportunity to review the power sector.

 

The approval of the National Electric Power Policy (NEPP) was the first significant move towards power sector reform. The policy which was approved by the Federal Executive Council in 2001, intended to establish a long-standing market structure where the private sector will provide efficient services in a competitive and regulated environment. NEPP commenced the unbundling of NEPA into 18 successor companies, including 6 generation companies (GenCos), one transmission company (TCN) and 11 distribution companies (DisCos).

In 2005, the assets and liabilities of these companies were transferred to the Power Holding Company of Nigeria (PHCN) to attract investors in preparation for privatisation. During the same period, the Electric Power Sector Reform Act (EPSRA) was established to address issues concerning tariffs, policies, value chain operating standards, market rules and stages, electricity trading, and metering. The EPSRA enabled the incorporation of the Nigerian Electricity Regulatory Commission (NERC) to regulate the power sector. NERC was initially tasked to regulate tariffs, but it was envisaged that over time, more responsibilities were to be assigned to the Commission. Some of these additional responsibilities include protecting consumers’ interests, issuing licenses to operators or investors, settling market disputes, penalising defaulters, and above all, creating a competitive electricity market in the power sector. NERC was expected to find its

feet in the coming years.

 

Privatisation till Date

By 2010, electricity supply in Nigeria had improved to an average of about 3,825 MW. With this and otherincentives in place, the Federal Government set up the power sector reform committee to direct a strategic plan for the privatisation process. Active steps were taken to guarantee real improvements in the power sector while also planning on future investments. Setting the wheels in motion, the Presidential Action Committee on Power (PACP) and the Presidential Task Force on Power (PTFP) were both established. PACP was expected to eliminate excessive bureaucracy in government rules and formalities; PTFP were the developers, enforcers and overseers of the

roadmap.

November 2013 witnessed the closure of the privatisation transaction and formal conferral to private investors. All the successor generation and distribution companies were sold. TCN was retained by the government to protect national

security, and avoid creating a natural monopoly for the buyers.

 

 

Post-Privatisation

The expectation that the privatised power sector would attract investment, increase electricity generation and supply, and improve efficiency has not materialised. The industry is still operating in a sub-optimal state because the eventual owners of the utility companies lacked the technical and financial capabilities required to transform the sector. Similarly, the government failed to deliver on its promises of cost-reflective tariffs and other policy and regulatory requirements.

 

As a result, Nigeria's electricity market has been unable to provide a stable and uninterrupted power supply for many years. The current state of the electricity market is not sustainable and manifests in accumulated market debts.

 

These debts are driven by the failure of the Distribution Companies (DisCos) to remit collections back up the value chain. On average, the DisCos pay about 30 percent of their electricity invoices to the Nigeria Bulk Electricity Trader (NBET). These regular underpayments have created an adverse chain reaction where the Generation Companies (GenCos) are unable to pay their invoices to the gas suppliers, and the Transmission Company of Nigeria (TCN) is unable to maintain or expand its network.

 

On a brighter note, transitioning from a government-owned power sector to one that is privatised and market-driven resulted in significant changes. Although there isn’t a

functional electricity market, existing power sector institutions were restructured, and some new institutions were created. Some of these restructured and established institutions include the Federal Ministry of Power, NERC, NBET, Rural Electrification Agency (REA), Nigerian Electricity Liability Management Company (NELMCO),

 

Nigeria Electricity Management Services Agency (NEMSA) and National Power Training Institute (NAPTIN).

 

Conclusion: What Does the Future Hold?

The power sector’s century-old journey to create a competitive and sustainable electricity market continues. The challenges facing this journey will remain until the government is willing to implement cost-reflective tariffs and turn-around the situation of the electricity market through policy and regulatory oversight. As we advance, the sector may need to be supported through government interventions, electrification programmes, regular tariff reviews and other

power sector initiatives.

While the power sector reform process between 2005 to 2013 cannot be reversed, there is an opportunity for a post-reform act to address the current market problems. Nigeria’s power sector may be due for a Post-Reform Act in the future.

Such an act could be a turning point in the power sector's learning curve, perhaps.

 

 ENGINEER MUIDEEN OLADAPO Writes from Lagos, Nigeria