Muhammadu Buhari won the Nigerian Presidential elections in March 2015 on the platform of ‘change’ and Nigerians are eager to see that change in virtually every area of the country’s national life. One of those areas that Nigerians want to see change is the electricity supply industry. Before leaving office, the outgone Minister of Power – Chinedu Nebo, warned the new Buhari administration not to go back on the reforms in the power sector which the administration of former President Goodluck Jonathan started. That statement immediately hinted that change could come to the power sector.
In other to put things in perspective, let’s see a highlight of the reforms in the power sector undertaken by the former administration. We can then deduce whether change need come to the power sector and if need be, and in what direction the change should be going.
Some of the highlights are:
- the unbundling of the previously monopolistic and vertically integrated Power Holding Company of Nigeria resulting in 18 generation companies (Gencos), 11 distribution companies and one Transmission Company of Nigeria (TCN);
- formulation of a Power Sector Road Map to be implemented by a Presidential Taskforce on Power;
- the subsequent privatisation of the unbundled entities except the TCN;
- the outsourcing of the management of the TCN to a managememt contractor as the TCN comprises of three horizontally integrated entities;
- the establishment of an effective regulator for electricity supply industry – Nigerian Electricity Regulatory Commission;
- the establishment of a creditworthy bulk electricity trader – Nigerian Bulk Electricity Trading Co. (NBET) – to guarantee certainty of purchase of the power to be generated by the privatised Gencos and new Independent Power Producers (IPPs);
- formation of a National Gas Masterplan, Policy and Pricing Framework;
- formulation of Multi-Year Tariff Orders (MYTOs 1, 2, and 2.1) to ensure certainty of electricity prices and to ensure cost reflective electricity tariff; and
- completion of 10 National Integrated Power Projects (NIPPs) generation plants.
These are basically what the power sector reforms have been all about under the former administration. I have excluded the passing of the Electric Power Sector Reform Act of 2005, because the Act was spurred on by the Olusegun Obasanjo’s administration. In the same vein NERC was established under that administration but it had no Commissioners at the time, so it was largely ineffective. So do we need ‘change’ in the power sector?
Image credit- Newswatchng.com
The power sector reforms have not taken Nigeria to where we would want to be but it has definitely taken us out of the proverbial dunghill of a power sector bedevilled by lack of investment and decay in critical infrastructure. Today, Nigeria can raise its head and project into the future of a viable power market in the next decade. Though, aggregate electricity generation in the country still hovers between 4500MW to 5000MW, there are very bright and realistic prospects that, all things being equal, we will see an increase to about 8000MW (if not more) in the next 3 to 4 years. This, I believe, remains so despite the huge challenges already facing the sector.
But the reality today is that the sector continues to be faced with enormous challenges. In the generation subsector of the power industry for example, reliable access to fuel is still a major cause of concern. Most power plants in the country are gas-fired turbines and though Nigeria has enormous gas reserves, taking gas reserves from their fields and stations to the plants where they are needed by power plants require secured high-pressure pipelines. Yes, there are several gas pipelines and we even export gas (through the West African Gas Pipeline Project and the LNG Projects) but most of the existing lines were not specifically built to take gas to our power plants. Building these gas pipelines are huge investments that are almost untenable to finance from corporate and sometimes soverign budgets due to competiting expenditures or limited capital. This is one area we are still hoping for significant ‘change’. We would want government to invest more in gas for power infrastructure. It remains to be seen whether the ‘change’ government can ‘put some money where their mouth is’.
Of course continuous efforts to protect the existing pipelines are an imperative. Pipeline vandalisation has to be tackled creatively – in a multi-pronged manner. Though my views may evolve, I do not see it as being wrong for government to award pipeline surveillance contracts to indigenes of the Niger Delta where these installations are located. It produced some results in the past, why change it?
Another dimension to the gas on problem is that of commercial viability. Private investors were not fully committed to investing in gas-to-power infrastructure because the gas pricing was not attractive to private investors who will look to make reasonable returns on investment to commit to domestic supply obligations. The Jonathan administration upwardly reviewed gas prices in 2014.
The increase was welcomed as it made gas prices to near cost reflective and even close to what was obtainable in the North American markets. The increase was still seen as conservative and behind investors expectation. In fact, Chevron had advocated for a price increase to $7 USD rather than $3.30USD. I expect ‘change’ to come to gas for power pricing, but not in the immediate future. That said, there are some dangers with overpricing gas. One is that in a typical gas-to-power project, the price of gas (fuel cost) has an impact on the tariff to be paid to the generator. The higher the gas price, the higher the tariff to be borne by the purchaser of power-the end user. The second, which is less of a concern for now, is that assuming gas for power is priced far above gas for other purposes or industries, the latter may begin to experience shortage as there may be investment flight. So while there may be enough gas to fire our power plants, there may not be enough for our cookers and industries.
On the distribution side, liquidity of the power market has been greatly affected by the distribution companies’ (discos) inability to curtail technical and collection losses. These losses have lingered due to dearth of proper metering, transmission losses, lack of proper enumeration of end users and low power allocations received by the discos. The current government is boosting liquidity by freeing up some of the sum of the #213bn intervention fund created by the Central Bank of Nigeria (under the past administration) for the distribution companies who meet certain conditions precedent. Change has not got to the area of metering of end users as the discos still rely largely on estimated billing in many areas of the country. We will like to see change getting to the consumer metering with more penetration of prepaid meters. Nigerians definitely want to see the end of estimated bills. Also the ‘change’ administration must commit more capital investments in transmission infrastructures – upgrade of existing t-lines and construction of more substations. The Minister of Power, Works and Housing stated earlier this year that 46 projects were captured in the 2016 budget to be financed by the government. Given the current structure of the sector, I expect these projects to be focused on the transmission side of things and perhaps the Manbilla Hydroelectric project.
Change had positively impacted on the Aba ring-fence dispute between Geometric Power and Interstate Electrics. The two companies has been in a fight since 2013 when Enugu Discos was given out to investors with the city of Aba as one of its coverage areas. Despite the fact that the FGN initially had a concession agreement with Geometric Power, to generate and distribute power in the manufacturing hub of Eastern Nigeria. Interstate Electrics agreed to pull out of Aba city and its environs, in accordance with the Federal Government’s agreement with Geometric Power since 2005 and revised the following year for the latter to build a power station in Aba and supply power to the area. Geometric Power accepted to compensate Interstate Electrics. This is a huge feat for a manufacturing hub like Aba. I hope this will be a model to other cities like Port Harcourt, Onitsha and the still born Lagos Atlantic City.
I think that the Nigerian Electricity Supply Industry does not need a paradigm shift like areversal the reforms of the past administration nor like the upturning of the tariff increase approved by NERC by a Federal High Court in Lagos. The kind of change the industry needs is a headlong confrontation of the very thorny issues that privatisation of the industry has thrown up. (Like the resolution of the issues around the concession over distribution of power in Aba). From gas-supply constraints to transmission-infrastructure deficiency to commercial and collection losses and importantly consumer protection.
* I’ve not exhausted all the issues affecting the power sector. But I believe I’ve highlighted the major issues that are crucial to any significant, progressive change and growth in the sector.
**This post was initially published in May 2015 with the topic “Will Change Come to the Power Sector. It was updated on the 2nd August 2016 to “Has Change Come to the Nigerian Power Sector”. It is worthy of note that the update captures the recent good work in resolving issues around the Aba ring fence, the freeing up of more of the CBN intervention fund and the tariff reversal judgment.
Y. D. Amakiri is a lawyer who currently advises on projects in the Nigerian power sector.