A Review of the Nigerian Energy Industry

Nigeria’s power output declined to 3,400Mw in June

Power transmission tower07 July 2014, Lagos – A combination of persistent gas shortage and a regime of inadequate transmission infrastructure has continued to depress power generation and supply as power output from the national grid shed 10.52 per cent in June with an average of 3400 megawatts in period under review as against 3800 megawatts in May.

Industry sources attributed the downward trend to the problem of inadequate gas supply; the preponderance of a set of government controversial interim rules and inadequate infrastructure, among others. According to the July 2 edition of the Financial Derivatives Company Limited’s Monthly Economic News and Views presented at the Lagos Business School, power output is expected to hover around the current level (3400MW) for the most part of the second half of the year.

Explaining that the Transitional Electricity Market (TEM) declaration has been deferred to September 2014, the FDC report said the nation’s electricity market has continued to operate under a set of government controversial interim rules a development that is worsened by the problem of inadequate transmission infrastructure although the National Electricity Regulatory Council (NERC) is said to be finalising plans on the modus operandi of the Transitional Electricity Market (TEM). The FDC report said plans were also ongoing to take advantage of the sale of $3.3 billion worth Power Holding Company of Nigeria (PHCN) assets.

Another issue raised by the report is the quest of the regulatory authorities to increase power generation to 5,000 MW in the second half of the year. Meanwhile the above scenario is said to be taking toll on the operations of the distribution companies which the report said had continued to record losses. According to the report, tariffs being set by NERC are not cost-reflective and on the other hand, supply is low and the number of customers also low.

FDC reports believed the delayed NIPP privatisation process may dent investors’ confidence in the power sector, noting that investors and financiers are already reluctant to release funds because there is no TEM. The report warned that power and electricity situation may worsen in the short term before the gains kick in. It listed factors impeding the energy reforms to include continuous security deterioration in northern Nigeria and the non-passage of the Petroleum Industry Bill (PIB).

Meanwhile, the NERC has said it is pursuing an early end to the interim rules established for the management of trading activities within Nigeria’s Electricity Supply Industry (NESI) before the declaration of the Transitional Electricity Market (TEM). NERC stated that an early exit of the electricity market from the interim rules will as a matter of fact sustain the new operational curve of the electricity market from being eroded with inconsistencies, hence, its decision to seek a declaration of TEM by the ministry of power latest by September 2014.

Chairman of NERC, Dr. Sam Amadi, explained in a recent interview in Abuja that the commission had worked measures to ensure that a good number of operators in the power sector were ready and willing to move into TEM within its yet to be determined period. Amadi however added that NERC plans to ensure that the electricity market moves into TEM strong enough to confront possible extant challenges that could threaten its efficiency.

“TEM is a big elephant in the room, some people don’t want it now, others want it now and if TEM comes now, some will lose while some will gain but the NERC’s approach to TEM is not driven by rhetoric or politics, it simply means that we have to unlock the market and contracts and if there are shortfalls, people have to carry their can,” Amadi said.

He further explained: “But the danger is that if we bring TEM when we are not ready, the shortage will be huge and it might really take a framework for those who are going to carry those risks to be legally able to carry them or penalised and this might undermine the market.But we believe that with the work we have done and the success of the interim rules, TEM should come soon, we are going to strongly lean towards early exit from the interim rules arrangement into TEM.”
*Festus Akanbi – Thisday

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