Time to solve Nigeria’s power problem ‘once and for all’, by NIG

0

In spite of spending over $20 billion in the last 20 years to fix its power challenges, Nigeria continues its harvest of darkness in return.
Only recently, electricity supply deteriorated as the system records threats of collapse in two days as low water levels at the hydro stations and challenges of gas supply hamper improvement in power generation.
This prompted the Nigerian Electricity Regulatory Commission (NERC) to outline six areas the regulatory agency would focus on going forward to revive the fortunes of the power sector which had brought the country to its knees and almost paralysed all economic activities.
The power sector in Nigeria has had eight ministers in five years and yet there is no end in sight to the perpetual darkness that Nigerians have been subjected to.
According to a report by the World Bank, Nigeria’s per capita electric consumption is 142 kWh which puts the country in the league of countries like Nepal (128kWh per capita), Sudan (159kWh), Togo (148kWh) and the Democratic Republic of Congo (110kWh).
These are countries with much smaller populations and smaller requirements than Nigeria.
In relation to countries with similar population figure, the story is essentially the same. Bangladesh (156M pop.) has per capita of 293 kWh, while Pakistan (182M pop.) has a per capita of 450 kWh.
Currently, Nigeria has an installed electricity generation capacity for supply to the national grid of 12,522MW, with available capacity of only approximately 4,500 MW which even dropped to as low as 1,200 MW at a time, to meet the needs of Nigeria’s population of more than 170 million and a country with a GDP growth rate of 7%.
In comparison, South Africa has an installed electricity generation capacity for supply to the national grid of approximately 50,000 MW with a population of only about one-third the size of Nigeria’s.

The effect of this is the systemic collapse of the Nigerian economy as a recent report of the Good Governance Initiative (GGI), a non-governmental organisation advocating uninterrupted power supply in the country, says Nigerians spend N3.5 trillion on fuelling their generators annually.

An intensive research conducted by the body to ascertain the negative multiplier effects of unsteady power supply showed that the manufacturing sector spends over N800billion yearly on generators.

The report added further that this is apart from about N2 trillion spent on running generators by over 17 million Small and Medium Scale Enterprises (SMEs), banks, other corporate entities and traders across the country.

“In the banking sector, each branch spends over N4million on diesel in a month. When you multiply that figure by the number of bank branches in Nigeria, it could be colossal. An average family man spends between 60,000 and N100, 000 in a month on fuel, apart from the maintenance.

“With over 6,133 bank branches and each expending N4million on diesel a month, N48million will go down the drain in a year, and this will amount to N294.4billion per annum across all the branches. This means that not less than N1.5 trillion must have gone into diesel purchase in the past five years. This is outside the amount spent on powering ATM points located outside banking premises and main­taining the generators, among other critical banking infra­structure”, the report stated
Big companies that were employing thousands of Nigerians and paying billions of naira in taxes have either left the country for neighbouring countries such as Ghana and Ivory Coast or have shut down their operations because of corruption in the power sector that has impacted the real sector negatively.

For instance, Dunlop Plc, a major tyre manufacturing company had to leave the country and relocate to Ghana due to the rising cost of production that was traceable to the energy crisis in the country.
Another major tyre major company that left the country as a result of the power crisis was Michelin. The company said it left the country because it could no longer generate enough electricity on its own to power its production. Although there are reports that Michelin has staged a comeback to the country, many of the companies that left the country are yet to return and the country is the worst for it.

When the Electricity Corporation of Nigeria (ECN) was formed in 1950, it was done in order to integrate electricity power development and make it effective. With this ordinance in place, the electricity department and all those undertakings which were controlled came under one body.

Subsequently, The ECN and the Niger Dam Authority (NDA) were merged to become the National Electric Power Authority (NEPA) with effect from 1 April 1972.

The statutory function of the authority is to develop and maintain an efficient co-ordinate and economical system of electricity supply throughout the Federation. The decree further states that the monopoly of all commercial electric supply shall be enjoyed by NEPA to the exclusion of all other organisations.

However, rather than serve the purpose for which it was formed, NEPA has over the years been faced with myriads of problem.

For several decades, despite consistent cash investment by the federal government, local and at times even nationwide power outages have been the norm instead of the exception.
Generally, the tariff has been criticised as being too low compared to the cost of generating power. The federal government of Nigeria has increased the tariff several times since July 2010 in order to meet the growing concern for foreign investors into the electricity sector.

Major issues within the Nigerian power sector, principally concerning power outages and unreliable service, compelled the Nigerian government to take radical action. It enacted the Electric Power Sector Reform Act of 2005, which called for unbundling of the national power utility company into a series of 18 successor companies: six generation companies, 12 distribution companies covering all 36 Nigerian states, and a national power transmission company.

The act stipulated that ownership of these companies be granted to the Bureau of Public Enterprises (the privatization arm of the federal government) and the Ministry of Finance Incorporated. This unbundling paved the way for an ambitious privatization program to be carried out by the Bureau of Public Enterprises in Nigeria.

In 2007, the Bureau of Public Enterprises hired CPCS Transcom Limited, an international consulting firm based in Ottawa, Ontario, Canada to provide advice about the best ways to move forward with the privatization of the country’s 11 distribution companies and the 6 generation companies. In 2010, CPCS was consulted again in order to provide advice on the Nigerian government’s privatization program.

On 30 September 2013, following the privatization process initiated by the Goodluck Jonathan regime, PHCN ceased to exist. In its stead, the Nigerian Electricity Regulatory Commission (NERC) was formed. The independent regulatory agency, as provided in the Electric Power Sector Reform Act of 2005 was tasked with monitoring and regulating the Nigerian electricity industry, with issuing licenses to market participants, and with ensuring compliance with market rules and operating guidelines

With all the reforms supposedly put in place, one would have thought that Nigerians would be enjoying constant power supply, but that is not to be as erratic and most times no power supply is the order of the day.

Current electricity generation is primarily from either gas-fired or hydro power plants, with natural gas the main fuel source for power generation in Nigeria. According to McKinsey in 2013, the power generation potential from domestic gas reserves in Nigeria was greater than 10,000 MW, which is relatively higher than the potential from domestic gas reserves in other African jurisdictions, but still falls significantly short of meeting the levels referenced above.

How did we get to where we are? Perhaps it is pertinent to answer these questions succinctly in order to move forward.

The Power sector is made up of three mutually exclusive, but necessary parts – generation, transmission, and distribution.
In Nigeria, the generation (GENCOs) and distribution (DISCOs) companies have been privatized, while the transmission is still managed by the government. As earlier alluded to, corruption, as well as policy inconsistencies have been great banes of the power sector. The nepotism and cronyism that characterized the privatization of the unbundled structures has continued to hinder significant progress in the sector. Also, while the investors continue to push for more cash injection through increased tarrif, most Nigerians are of the opinion that they pay way too much for the level of darkness they get in return. The regulator, on its part, has been unable to resolve the contest for more consumer-oriented cash injection on the one hand, and the demand for commensurate service on the other, by enforcing the policy of prepaid metering. The benefits that come with estimated billing, especially in the light of poor service, is a disincentive for quality delivery of service.

Nigeria’s power strategy is based on the use of natural gas. It is abundantly available in Nigeria, is relatively cheaper than using diesel and other fuel oils, and it burns cleaner too. However, the ineffective security of the critical infrastructure for transmission, as well as questionable politics in the Niger-delta region, has exposed these critical infrastructure to sabotage.

All of Nigeria’s natural gas comes from the South-South region, and in order for it to get to power plants around the country, it must be transported in thousands of kilometers of pipelines that run from the South-South region to the power plants that utilize the gas. In the process, the gas pipelines get vandalized which often times result to blackout.
While the government will need to address the numerous challenges we have highlighted above by eliminating the wastage and corruption in the system and ensuring that competent hands rather than politicians manage the unbundled entities, there is equally the need to address issues that are, in our view, more fundamental.

Nigeria’s power sector, to a significant extent, mirrors the nation itself. It suffers from a glaring structural imbalance reflective of the type of politics that has brought the nation to its knees. There is therefore the necessity to deal in one breadth with the core issues, of which some of the ones earlier highlighted are symptoms.

To begin with, there is a need to open up the power sector for wider participation. There is no reason why multiple approaches should not be employed by different players to meet power challenges. States for instance, ought to be able to explore various alternatives on the economy of scales to generate power and distribute same under clearly stated regulations. That way, it will be easier to break down the power generation and distribution process into more manageable bits. A situation where the entire country, or most part of it experience prolonged outage because of disruption in the power chain at one or two points is unacceptable in this age. By liberalizing the sector further, it will help create cluster zones wherein a few contiguous communities benefit from specifically dedicated infrastructure. It is our view that the huge cost, as well as risk constituted to effective delivery by the current cost of transmission compels a change of approach. Power should be generated, transmitted and distributed from places proximate to the immediate end-users.

The broader point is that the challenges of the power sector cannot be divorced from other dysfunctional areas of Nigeria’s national life, which unfortunately are numerous. If the nation must make progress therefore, it will require conscious effort to combat corruption and prebendal politics, in addition to breaking the hold of the central government, whose decades of fruitless profligacy remains an eloquent testament to the lack of capacity for managing the sector. While such a critical sphere of national life cannot be taken off the regulatory radar of the government, it is important that the sector be opened up for efficient management, under arrangements that ensure good returns to the investors on the one hand, and offers quality service to end-users on the other.

A healthy, efficient power sector is critical to arresting growing unemployment, reducing crime rate, achieving economic diversification and rebounding the economy for sustainable development. If all of these are to be achieved, it will take more than the current efforts of the government, which, judging by results appear cosmetic at best.