A Review of the Nigerian Energy Industry

Power outage drains consumers’ purse

Power-outage06 February 2014, Lagos – November 1, 2013 was historic in Nigeria because it was the day the Federal Government handed over public utilities owned by the defunct Power Holding Company of Nigeria to private investors. Specifically, 11 distribution companies and four generation plants have since exchanged ownership hands.

With an installed power generation capacity of about 10,000megawatts and an available capacity of 6,668.6MW, only a fluctuating 3,400MW or thereabouts is actually generated daily to serve 40 per cent of the nation’s population said to be connected to the national grid.

As it is today, at least 60 per cent of Nigeria’s over 160 million people lack access to electricity, but for the remaining 40 per cent connected to the national grid, power supply has been very epileptic. The Minister of Power, Prof. Chinedu Nebo and the Chairman/Chief Executive, Nigeria Electricity Regulatory Commission, Dr. Sam Amadi, have both attributed this to shortage of gas, faults and maintenance works on power plants.

Generation statistics obtained from the Transmission Company of Nigeria showed that about 2,993.7MW of electricity is being lost everyday largely due to gas shortage, thus resulting in frequent power outages.

To show that the integrity of the country’s power infrastructure may be worse than people think, The PUNCH exclusively reported last week that 48 critical pieces of transmission equipment were out of service across the country due to varying faults, fire incidents and vandalism. The TCN said the pieces of equipment were responsible for massive transmission handling.

It was also exclusively reported on January 29, 2013, that seven power plants were down. These included two hydro and five gas-fired power plants and all of these problems have contributed to the country’s poor power supply situation.

But one undeniable fact about the private sector takeover of the PHCN companies was the high expectation of Nigerians, who had thought that power supply would immediately take a leap after the change in ownership.

Having woken up to the reality that the private investors have no magic wand to supply more than the country’s power generation capacity, electricity consumers are beginning to count their losses from frequent power outages.

Beyond being thrown into darkness, they averred that the socio-economic, health and household losses caused by the erratic power supply are huge.

“Excessive power outages rob people of personal finance that should have gone into savings,” a mathematician, Mr. Banji Oyedokun said.

“We have not been enjoying electricity supply since these new owners took over. I don’t know what is happening,” the Chief Executive Officer, Royale Prestige Properties, Mr. Seun Akinyele, who lives in Ikeja, decried.

The Principal Associate, Mobile Money Africa, Mr. Emmanuel Okoegwale, lamented that power supply had been very erratic after the private investors took over PHCN and added that this would have a negative impact on the balance sheets of small and medium scale enterprises as well as household finances.

Analysts say there are significant negative consequences of the erratic power supply on the consumers’ income, industrial output and commercial activities in Nigeria both in the short and the long run. This, they say, generally results in factory closure, health problems, lost of lives and property, among others.

 Increased spending on generators

To work around the inadequate power supply, Nigerians have resortedto generating electricity themselves using diesel and petrol – powered generators. The ministry of power estimated that the total electricity generated through this method accounts for about 6,000MW, more than the total commercial power generated and supplied to the national grid.

In view of this, the Global Business Intelligence estimated that Nigerians spent about $455m on generators in 2011 and industry analysts said this figure was most likely doubled in 2012 and 2013. They argued that acquiring generators, buying petrol and diesel for the generators, and periodical repairs and maintenance accounted for the lion’s share of the losses incurred by Nigerians from inadequate power supply.

Mrs. Sola Animasahun, who runs a cold room in Ikeja, Lagos, complained that she had been spending more on fuelling her generator to ensure that her cold room business does not go under.

Bringing this into perspective, a power sector consumer poll recently conducted by NOI Polls Limited, revealed that About 69 per cent of Nigerian adults have experienced increase in the amount they spend on alternative power supply, especially generators, compared to the situation a year ago.

NOI Polls said it introduced the Power Sector Polls Project in April 2013 in order to ascertain Nigerians’ perception of the power sector reforms, the hours of power supply received daily, and the expenditure on alternative sources of power.

It said the aim of the polls was to monitor power supply trends in the country and prepare quarterly reports on its findings.

About 47 per cent of Nigerian adults interviewed in the polls said electricity supply had gone from bad to worse.

The results of the series of power sector polls also indicated that about eight in every 10 of those interviewed generated their own power through alternative sources to compensate for irregular power supply.

The polls also showed that 46 per cent of Nigerians saw a drastic increase in spending on alternative power generation in the past year.

The Lead Strategist, Reputation Raise Limited, Mr. Tobiloba Olusesi, observed that nothing had changed since the polls were carried out and affirmative that subsequent polls would reveal that more Nigerians have spent more on powering their generators.

He said, “For me, the last three months have been frustrating because I have had to spend so much on running generators. This is definitely a big challenge for most Nigerians and the situation is capable of impoverishing them the more if it is not addressed.”

 Industrial losses

Inadequate power supply is undoubtedly Nigerian industry’s albatross and it has done a greater havoc in the country’s manufacturing sector.  With about 5,480 units of diesel/gas-powered generators spread across the country, industrialists, under the aegis of the Manufacturers Association of Nigeria, said they had spent over N42bn on fuel as of August 2013.

The President, MAN, Chief Kola Jamodu, who gave this indication at the 2013 World Stage National Electricity Conference in Lagos, said public power supply had remained inadequate for smooth operations in the manufacturing sector.

As a result, he explained that over N42bn had been committed to powering the manufacturing concerns in the country between January 2012 and August 2013.

Jamodu, who was represented by the Chairman, Standing Committee on Infrastructure, MAN, Mr. Reginald Odiah, said a 2012 electricity power audit conducted by the association revealed that over N2bn was being spent to fuel generators monthly.

He explained that members of MAN owned and installed over 5,480 units of diesel/gas-powered turbines and generating plants, adding that these were gulping over N2bn on the average in running and maintenance costs on a monthly basis.

From this calculation, another N10bn would have been spent on fuelling generators by the manufacturers, many of who are already in a dire state and struggling to survive.

Jamodu said that the electricity power audit conducted on 2,500 members nationwide put the average peak power demand by manufacturers at 4,850 megawatts, and the peak power supply from the Discos at 1,018MW.

The in-house installed power generating capacity of members, he added, remained 5,150MW.

He said, “It is sad to note that 40 per cent of our production cost goes into the provision of electricity as against five per cent to 10 per cent in other developed economies. As a result of this and other infrastructural deficiencies, the cost of manufacturing in Nigeria is about two times that of Ghana, four times that of South Africa and approximately nine times that of China.”

According to him, poor power supply has resulted in low production capacity and inability of the manufactures to compete effectively with their foreign counterparts; inability to contribute optimally to the Gross National Product; poor return on investment; closure of factories and migration to greener fields by manufacturers as well as uncertainty on investment in Nigeria.

The cost of providing alternative power by corporate organisations and manufacturers, according to the Chief Executive Officer, MainOne, Ms. Funke Opeke, has made Nigeria a difficult place to do business.

She said, “Let’s talk about power for example and the cost of utility. Someone mentioned that South Africa has 90 per cent of data centres in Africa. This is because of the availability of stable power supply among other requirements. But the story is different here. However, if power supply challenges are resolved, doing business will be a lot easier for all of us.

“We have had to invest in 1.5 megavolt generators. If we had adequate public power supply, we would have invested less in generators because we would probably have more supply from the public utility and might need only one back-up generator. We would probably be able to reduce spending on generators by 60 per cent and invest less in UPS systems.”

Similarly, inadequate power supply is said to pose a serious impediment to efficient Information Communications Technology service provisioning in the country.

A former President, Association of Telecommunications Companies of Nigeria, Mr. Titi Omo-Ettu, had said, “What the telecoms sector needs now is a radically improved public power supply. If the problems of the telecoms sector are weighted, energy takes 70 per cent.”

He had also said that about 45 per cent of the indigenous telecoms licensees, who commenced business when the telecoms industry was liberalised in 1993, had collapsed now due to the harsh economic environment, with inadequate power supply being a major problem.

“Unknown to the public, 40 per cent of telecoms licensees, who commenced business at the turn of liberalisation in 1993, had shut up shop because of the erratic power supply,” he said.

The quality of telecoms services in the country is still not good and experts had stopped at nothing in blaming non-availability of electricity at the over 22,000 base station locations that are powered by generators nationwide for this.

 SMEs groan over power outage

By virtue of their size, Small and Medium Size Enterprises are at the receiving end with regards to power outages. The Chief Executive Officers, Qumo Auto Wheels, Mr. Quadri Moradeyo and SMJ Integrated Services, Ms. Omoshalewa Johnson, foresee a tough time for SMEs with the current epileptic power situation.

They wondered how artisans running businesses such as welding, steel fabrication, aluminium, hair dressing salon and frozen food businesses would survive without adequate power supply. For them, these are not the best of times for the SMEs.

 Household impact

Being thrown into darkness has also had a greater impact on households in the country. Perishable goods are wasting and combating this has meant spending more on generators.

With disposable income drying up as a result of the country’s economic situation, Mrs. Florensce Oseni, who works as a manager with a Quick Service Restaurant in Lagos, said spending so much on generators would push the common man deeper into poverty.

“Running generators and repairing them are additional expenses for an average household and this will affect us. Imagine spending about N10,000 to buy petrol in January because I was trying to prevent food items from spoiling,” she said.

Mrs. Monalisa Azu, a businesswoman in Lagos, said, “Our food stuffs get spoilt due to poor power supply and this is not economically good for us. As mothers, it is not cost effective for us because we plan our housekeeping budget and we go to the market to buy food stuffs in bulk, which is cheaper. But because of the lack of electricity supply, you have to be going to the market almost every two to three days to buy your perishables. When you factor in the cost of transportation, your monthly upkeep will be more than double.”

Joseph Ibikunle and Emmanuel Adebayo of the Department of Economics, Ajayi Crowther University, Oyo and Bowen University, Iwo, respectively, published a paper entitled, ‘An Econometric Analysis of the Impacts of Power Outage on Consumers in Nigeria’ in the Journal of Business and Organisational Development in June 2012.

They said, “Power failure impacts on the household in various ways. Its impact varies from the experience of dark nights to a lot of damage being caused to household equipment. Many households have their fridge, television sets, video sets and a host of household equipment damaged due to frequent power outages. Also, what the household would have purchased in bulk (perishable goods) and kept in refrigerators is bought in bits.

“Thus, households pay more for what they would have bought cheaply, if purchased in bulk. Also, some richer households buy generators which they operate when there is a power outage. This is an additional burden to such households; apart from the cost of the generator, they buy diesel or petrol to operate it. Poorer households that cannot afford the cost of a generator buy lanterns and candles.

“All these forms of spending lead to additional expenses for the households. Apart from this, the use of this back-up exposes the households to threats like fire outbreaks and health hazards. As power outages increase, the level of household productivity falls and when power outages reduce, GDP rises. Power outages affect household productivity inversely as high power outage reduces the productivity of the household, leading to a fall in the level of economic development.”

 More hurdles ahead

It will be recalled that the NERC Chairman, Amadi, recently lamented that over $10bn NIPP stations were currently operating sub-optimally with some of them totally out due to gas supply shortage.

The National Control Centre, Oshogbo, last week, said the Kainji Hydro Power Plant with an installed capacity of 760MW and an available capacity of 100MW, was shut as a result of multiple faults affecting eight of its units.

According to the NCC, varying degrees of rehabilitation and faults are responsible for the shutdown of Kanji’s 1G5, 1G7, 1G8, 1G9 and 1G10 units.

Also, the Sapele NIPP was as of last week totally out due to gas constraints, loading problems and civil work on its basement. Despite its 507.6MW installed capacity, the plant can only account for 250MW available capacity.

Also, the 1,131.4MW Alaoji NIPP has been shut. Its GT1 unit was shut following a water injection test, while the GT2 unit was shut after a 72-hour performance test.

Specifically, the NCC also said the 500MW Olorunsogo NIPP plant was similarly out due to gas constraints and maintenance routine after a commissioning test.

This, coupled with very weak transmission infrastructure that cannot be fixed over night, simply points to the stark reality that power outages may not be reduced in the short term. It is a long journey, according to analysts, and consumers will have to bear the losses.


– Dayo Oketola, The Punch

In this article

Join the Conversation