A Review of the Nigerian Energy Industry

Nigeria: Power sector stunted by sundry problems

*Power distribution transformer.
*Power distribution transformer.

09 October 2015, Abuja – From the records, Nigeria’s first public electricity utility company, the Nigerian Electricity Supply Company, NESCO, was established in 1929, some 30 years after electricity generation had started in the country in 1896.

After years of operation, NESCO reportedly handed over the management of the country’s public electricity utility to the Electric Corporation of Nigeria, ECN, established in 1951 to take over the assets and operations of NESCO.

However, 11 years after, a new partner for the ECN, the Nigeria Dams Authority, NDA, was established in 1962 to help the country develop and deploy her hydropower potentials.

Both ECN and NDA subsequently merged in 1972 to form the National Electric Power Authority (NEPA), which for long had a monopolistic influence over public power supply in the country.

NEPA later transmuted into the Power Holding Company of Nigeria (PHCN) following the enactment of the Electric Power Sector Reform Act of 2005 that unbundled PHCN for subsequent privatisation of the power sector.

Prior to the enactment of the Electric Power Sector Reform Act of 2005, the sector was governed by a number of legislations which included the Constitution of the Federal Republic of Nigeria; the Electricity Act, Cap 106, Laws of the Federation of Nigeria, LFN, 1990 (as amended) as well as other auxiliary legislations like the National Electric Power Authority Act, Cap 256, LFN 1990 (as amended). With these pieces of legislation, the federal ministry of power for years ran the power sector in Nigeria, serving as both the policymaker and regulator. The power ministry had regulated the sector mostly through one of its departments, the Electrical Inspectorate Services (EIS).

The ministry’s years of management of the sector yielded very little in terms of growth in capacity.

Due to inefficient management style, NEPA could not provide quality electricity to the country.

By the late 1990s, it became convincingly clear that Nigeria’s electricity system had failed to meet her power needs.

Lack of infrastructure and capacity growth The Bureau of Public Enterprises (BPE) had noted that before the National Electric Power Policy of 2001 kicked off the power sector reform in Nigeria, the power sector had reached the lowest point in its 100 years of history. According to BPE, out of the 79 generation units that the country had, only 19 units were operational with average daily generation at about 1,750 megawatts (MW).

The government, which ran the sector, had built no new electric power infrastructure between 1989 and 1999 as the youngest generation plant in the country was completed in 1990 and the last transmission line built in 1987. The country for years failed to upgrade the capacity of the electricity infrastructure to keep pace with population expansion and perhaps economic targets.

The result as explained by a one-time Director General of BPE, Bolanle Onagoruwa, was a docile public power system.

Additionally, an estimated 90 million people were without access to on-grid public electricity while accurate and reliable estimates of the industry’s technical and commercial losses were unavailable, though most of the industry operators had believed that it was in excess of 50 per cent.

Sweeping reform But after years of inactivity, the country started out well in an attempt to reform her public power supply sector.

Nigeria has in this regard recorded some giant strides, leveraging on a power sector privatisation that was reputed as one of the boldest public utility liberalisation initiatives in the globe in the last decade.

Reports indicate that with the about $3 billion PHCN deals, the government was able to jumpstart a market-driven electricity sector, led by the private sector. Although the government retains ownership of the transmission assets through a management contract, the generation and distribution sectors are now run by private business operators.

With the reform, Nigeria now has in operation, about 23 grid-connected generating plants, all with a total installed capacity of about 10,396MW and available generation capacity of 6,056MW.

The Nigerian Electricity Regulatory Commission (NERC) had issued about 70 generation licenses to Independent Power Producers (IPPs) to self-generate and improve the country’s power situation

The National Integrated Power Project (NIPP) was also set up as an integral part of the government’s efforts to curb the country’s power shortages.

The NIPPs was conceived in 2004 as a fast-track public sector funded initiative to add significant new generation capacity to Nigeria’s electricity supply system along with its transmission, distribution and natural gas supply infrastructure. NIPP was required to deliver this additional capacity to consumers throughout the country.

There are 10 brand new NIPP plants with combined capacity of 5,455MW in addition to the distribution, transmission and gas supply infrastructure.

Under the reform, the Transmission Company of Nigeria (TCN) is now being run by a management contractor, Manitoba Hydro International to revamp its fortunes and help it achieve technical and financial adequacy.

TCN is expected to provide stability in electricity transmission across the country without system failure.

Its current assets include about 5,523.8 kilometres of 330 kV lines and 6,801.49 kilometre of 132 kV lines.

On electricity distribution, 11 electricity distribution companies (Discos) have the franchise to sell electricity to consumers who are classified into five groups – residential, commercial, industrial, special and street lighting across the country, using specific cost- reflective tariff methodologies that were developed by NERC.

Other related developments include: the establishment of a regulator-NERC; a special purpose bulk electricity trader-the Nigerian Bulk Electricity Trading Plc; and the creation of the Rural Electrification Agency (REA) to promote, support and provide access to electricity in rural and semi-urban areas of the country as well as administers a fund, the Rural Electrification Fund (REF).

Others include: the Gas Aggregation Company Nigeria Limited (GACN) to stimulate growth of natural gas utilisation in the Nigerian domestic market especially the power sector; Nigeria Electricity Liability Management Company Limited (NELMCO) to assume and manage the non-core assets, liabilities and other obligations that would not be taken over by the successor companies of PHCN; as well as the National Power Training Institute of Nigeria (NAPTIN) to serve as a focal point for human resource development and workforce capacity building.

NAPTIN is also expected to design, develop and deliver a wide variety of training courses to plug obvious technical and non-technical skills and capacity gaps in the sector.

Power supply still epileptic Regardless of the conclusion of the early stages of the reform, initial reports on the progress of the sector suggest that the conditions are yet to significantly improve due to reasons described by the Chief Executive Officer (CEO) of the International Institute for Petroleum, Energy Law and Policy (IIPELP) Group, Dr. Timothy Okon as a part of the outcomes of poor policy follow-up.

Upgrading the country’s capacity in electricity supply and guaranteeing its stability have remained the challenges caused largely by inadequate gas supply to thermal generation plants as a result of government’s price cap on domestic gas supply. Other challenges include: chronic illiquidity which has impacted heavily on capacity expansion; and the huge gap in the sector’s manpower pool.

On gas supply, producers of gas have under the current regime, an obligation to supply certain quota to the country’s domestic market at a fixed non-commercial price.

With this development, most producers have no incentive to invest in costly gas infrastructure owing to the fact that they would not recoup their investment at the current price regime.

To feed the power sector with enough gas, the Nigerian National Petroleum Corporation (NNPC) is saddled with the supply task,

The situation was worsened by the delays in concluding projects on critical gas supply infrastructure across the country.

The paucity of skilled manpower in the power sector has also contributed to the poor showing of the reformed market.

Over the years, NEPA had failed to make sufficient investment in the training of adequate manpower for its operations.

This has had a boomerang impact on the sector’s deliverables and the huge skills gap would have to be bridged to guarantee some positive impact.

Financially, the sector has also struggled with the refinancing of the cost of assets acquired by the operators who were largely aided by local financial institutions in their acquisition efforts.

On this, Okon stressed the need for the sector to play down its emphasis on pricing, and concentrate on capacity growth through IPPs and embedded power initiatives. Potentially, the transmission system is still considered by the sector as its weakest link. Overtime, inadequate transmission infrastructure has been underlined as being responsible for stranded capacity.

Significant investment is needed to upgrade the transmission system and keep it at pace with the expected growth in the generation capacity and consumers’ expectations of improved power supply.

Chairman of NERC, Dr. Sam Amadi also referred to this when he recently set up a task force to observe the execution of projects by the TCN and other stakeholders in the sector.

Also, extensive expansion of the distribution networks to accommodate the demand for power from consumers has not gained the required momentum. This has in addition to the rather slow deployment of meters to consumers to enable proper metering and billing system, and cut revenue leakages for the Discos, contributed immensely to keeping substantial electricity out of the reach of many Nigerians even after 55 years of independence.
*Chineme Okafor – Thisday

In this article

Join the Conversation