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2012, Turning Point in Nigeria’s Power Sector

08 Jan 2013

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Transformers




With the successful implementation of the Electric Power Sector Reform Act, Ejiofor Alike writes that 2012 marked the turning point in Nigeria’s electricity sector

The year 2012 no doubt marked a turning point in the history of Nigeria’s power sector with the successful implementation of the reform and privatisation of the sector, whose legal framework was established with the passage of the Electric Power Sector Reform (EPSR) Act in 2005.
The implementation of the Act has progressed steadily since August 26, 2010, when President Goodluck Jonathan launched a roadmap for the sector and also resuscitated the reform, in line with the reform Act.
Former President Olusegun Obasanjo prepared the legislative groundwork for the reform, which was suspended by the late President Musa Yar’Adua. The reform peaked in 2012 when the whole process of privatisation was unfolded and implemented, after initial delays.

Buoyed by a transparent reform process packaged by the Bureau of Public Enterprises (BPE) and the huge potential of Nigeria’s power sector, local and foreign investors demonstrated great appetite for the assets of the Power Holding Company of Nigeria (PHCN) that were privatised.
After the unveiling of the roadmap, the process suffered initial hiccups due to labour issues, inefficient tariff and other enabling frameworks. Under the power roadmap, the complete winding up of PHCN was slated for December 2010, while the handover of the six generation companies of PHCN to the preferred bidders had been scheduled for April 2011.

Successful investors also ought to have taken over the 11 distribution companies by June 2011, while April 2011 was the deadline for the handover of the Transmission Company of Nigeria (TCN) to a management contractor.
However, these milestones could not be met within the timelines and were rescheduled for the first half of 2012. In the first half of 2012, the 15 of the 18 unbundled PHCN assets were successfully sold while PHCN’s headquarters was wound up.
However, the BPE had to reschedule the sale of the 17 successor companies from March 2012 to October 2012, being the third time the sale would be postponed.

Tariff Review

A major development in the country’s electricity industry in 2012 was the review of tariffs, which came into effect on June 1. Under the new tariff regime, lower categories of consumers pay between N4 and N22 per kilowatt hour, depending on the class, pending the introduction of cost-reflective tariff.
While making case for the new tariffs, the Nigerian Electricity Regulatory Commission (NERC) said the average cost of energy was N24 per kilowatt hour.  The new tariff was calculated based on the cost of maintenance of meters, replacement of transformers, expansion of facilities and the average cost of the total quantity of electricity to be consumed yearly for the next five years.
However, N50 billion subsidy would be provided yearly for the lowest-paying customers – Residential (R1), R2 and Commercial (C1) customers in 2012 and 2013.
“The idea is that if we move to cost-reflective tariff now, it will expose some people to hardship, especially as energy supply is not yet available,” said chairman of NERC, Dr. Sam Amadi.

The new tariff provides that R1 customers will pay N4 per kilowatt, as against N7 and N10, while the R2 customers, which constitute about 80 per cent of the consumers, will pay between N11.50 and N12.30, depending on their location. Commercial 1 (C1) customers, who are artisans and small and medium scale entrepreneurs, will also enjoy subsidy and pay between N15.64 and N17 per kilowatt hour. Since they contribute most of the household income, a huge energy bill will be a major challenge to them.
However, R3 and R4 customers, who have maximum demand meters and also take electricity supply direct from transformers, will pay slightly above the average cost of energy to cross-subsidise R1, R2 and C1 customers.

Electricity Supply

Electricity supply improved considerably at the beginning of 2012 before generation dropped due to low water levels at the hydro power stations and inadequate gas supply to fire the power plants. Former Minister of Power, Prof. Bart Nnaji, had told THISDAY that the maximum power delivered to the national grid within the first quarter of 2012 was 4,400MW.
“The maximum of delivered capacity is about 4, 400MW, which we attained in January. That is a record, all time. Unfortunately, we went down because of water and gas. The transmission network has been expanded significantly over this period. But the Privatisation process is scheduled and will complete this October. The bids will come this July, and Mr. President has given instruction that there should be no shaking in terms of the timeline. It must be completed,” he said.

Chairman of NERC, Dr. Sam Amadi had also told THISDAY that the worst time for a minister of power or a regulator of the power sector in Nigeria is the period around April and May when water recedes at the hydro stations, coupled with inadequate gas supply to run the gas-fired plants. He said these twin challenges would make it difficult for a minister or a regulator to explain and defend the epileptic power situation during this period.

Nnaji also described the situation as a cycle and natural phenomenon. “Every year, by March and April and part of May, you have low deep. Unfortunately for us this year, in ten years we have the lowest water level because of drought, especially since we have not been able yet to produce gas to support the thermal power plants so that we will be able to take up that slack when power goes down because of hydro.

“One thing I can promise you: next year you will never see this. We are making sure that by next year, you have enough gas to support additional capacity at the plants so that we have what we call spinning reserve, or reserve, so that they will be able to take over when the water level drops. So this is in the plan. Mr. President’s objectives are very clear in this,” he said.
Though there was sustainability in power supply in 2012 as generation stabilised at around 4,000MW, supply never exceeded the 4,400MW peak recorded at the beginning of the year. Indeed, the 4,356.9MW celebrated at the end of 2012 was not only below the 6,000MW target the federal government had envisaged at the beginning of the year but also below the 4,400MW generated early in the year.

Unveiling the Federal Government’s plans at the Nigeria Power Sector Retreat held in Abuja at the beginning of 2012, Nnaji had stated that power generation would hit over 6,000MW by the end of 2012. He however noted that the only challenge that could hinder the realisation of the target was non-availability of gas.

“If the gas is available we will be generating 5,600MW today.  And we expect to add at least a thousand megawatts to the grid. That brings us to over 6,000MW,” he said.
With the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Andrew Yakubu, claiming recently that the corporation had exceeded its target for gas-to-power aspirations, it was yet not clear why power generation hovered around 4,000MW throughout 2012.

Labour Issues

Despite repeated promises by the government that the privatisation would open enormous employment and business opportunities like in telecommunications following its liberalisation, trade unionists in the sector had insisted that it would lead to job losses.
To address the labour issues, which is one of the requirements of the EPSR Act of 2005, President Jonathan’s administration paid electricity workers all arrears of monetisation, which was denied them for seven years, even after their counterparts in other arms of the civil service were paid.

The government also appointed a chief negotiator in the person of former President of the Nigeria Labour Congress (NLC), Alhaji Hassan Sunmonu, to dialogue with the workers. The workers’ salaries was earlier increased by 50 per cent with effect from June 2011, while the process of regularisation of the appointment of nearly 10,000 casual workers had commenced. But the workers continued their agitation against the planned privatisation process.

The relationship between the government and the labour was so frosty that it became a supremacy battle between Nnaji and the Secretary of the junior workers, under the aegis of the National Union of Electricity Employees (NUEE), Mr. Joe Ajaero.

It was only in December 2012, after the privatisation process was almost concluded and about five months after Nnaji had left the scene that the Federal Government and the labour unions finally agreed to sheathe their swords. The truce was reached at a meeting hosted by Secretary to Government of the Federation (SGF), Mr. Anyim Pius Anyim. NUEE and the Senior Staff Association of Electricity and Allied Companies (SSAEAC) were represented at the negotiations.
Minister of Labour and Productivity, Mr. Emeka Wogu, read out what he described as the heads of agreements, which will be implemented by the federal government.

New Power Projects

On assumption of office, this administration not only resumed the execution of all suspended power projects, especially those under the National Integrated Power Projects (NIPP), but also initiated new ones, some of which were completed in 2012.
Some of the power plants under NIPP, which is independent of PHCN, are located in Geregu, Kogi State; Omotosho in Ondo State; Olorunsogo in Ogun State; Ihovbor in Edo State; Calabar in Cross River State; Gbarain-Ubie in Bayelsa State and Sapele in Delta State.
Others include, Alaoji in Abia State; Egbema in Imo State and Omoku in Rivers State and many of these plants were completed in 2012 and are undergoing test run.

Nnaji Takes a Bow

The power sector got a rude shock in August 2012, when Nnaji announced his resignation from the Federal Executive Council (FEC), the first of its kind in the history of the sector. Coming at a critical time in the life of the sector, his resignation expectedly sent panic through prospective investors and the country’s development partners.

Shortly after Nnaji tendered his resignation letter to President Jonathan, Nigeria’s foreign development partners sought concrete assurance from the federal government that the integrity of the reform process would be sustained. Led by the Country Representative of United Nations Industrial Development Organisation (UNIDO), Dr. Patrick Kormawa, the development partners reportedly besieged the Ministry of Power to extract government’s strong commitment that the gains recorded under the former minister would not be eroded but must be improved on.

The representatives of the Department for International Development (DFID), European Union (EU), World Bank, African Development Bank (AfDB), United Nations Development Programme (UNDP), United States Agency for International Development (USAID), and other reputable international agencies were also said to be part of the meeting.
The mood of these partners, which represented the international perception of the former minister, was clearly captured by EU’s Head of Cooperation, Mr. P. Philippe when he said: “When Brussels got the news, it was alarmed and expressed doubts about the continuity of the reforms in the sector,” he said.

Kormawa, who stated that UNIDO was working with other agencies for the rural electrification of the country, using renewable energy, however said: “We have no choice than to continue our support even though we were disappointed at the recent event.”
The World Bank representative at the meeting, Mr. Erik Feinstiom, said he attended a power summit in Asaba in Delta State, which was presided over by the former minister. “We were not left in any doubt that his focus, passion and direction for the sector were taking the country to the Promised Land,” he said.

Despite assurances by the then Minister of State for Power, Mr. Darius Ishaku, who had earlier acknowledged that Nigerians were also alarmed at the sudden exit of the former minister, the foreign partners were still skeptical about proceeding with the reform process over integrity issues.

“We are part of the immense contributions Prof. Bart Nnaji had made and the structures he put in place. He took us along all the way. I want to reassure you that this government would continue to build on and nurture all the institutions he had put in place. Privatisation is ongoing with all the timelines. Continue to give us all your usual maximum support as we have no choice but to continue from where he (Nnaji) left off,” Ishaku said.
Ishaku, who had worked with Nnaji as minister of state, tried to keep the reforms on track until later in the year when Mrs. Zainab Kuchi took over, after swapping position with him.
Hiccups Here and There

Despite government promises, the reform programme showed early signs of distress, few days after Nnaji’s exit. The National Council on Privatisation (NCP) had cancelled the initial bids for Afam Power Station in Rivers State, over Nnaji’s alleged link with one of the three bidders.

Nnaji’s company, Geometric Power Limited also had interest in Enugu Distribution Company
A fresh bid was started with the results expected to have been ready at the meeting of NCP initially scheduled for September 11, 2012. The meeting was the second after that of Friday August 24, at which Nnaji’s interest in two firms bidding for both the Afam and Enugu Disco was discussed.

However, a worrisome development was that the fresh evaluation which was handled by a large team of 15, allegedly appointed solely by the office of the vice president, who was the chairman of NCP.
This was alleged to be in disregard of recommendations by the BPE after consultations with the Chairman of the Technical Committee on Privatisation (TCP), Mr. Atedo Peterside. It was reported that the Deputy Chief of Staff to Vice President Namadi Sambo, one Alhaji M.A.K Abdullahi, single-handedly nominated the team.

He also allegedly excluded the only two independent bodies, the Nigeria Infrastructure Advisory Facility (NIAF), a technical advisory facility funded by the UK’s DFID and the NEXANT, whose representatives were reduced to observer status. This circumvention of the privatisation rules also jolted Nigeria’s development partners, who feared the reform process might have been hijacked by politicians.
To worsen matters, the deputy chief of staff to the vice president was also alleged to have appointed one Yusuf Fwankat, an engineer in the Ministry of Power as chairman of the hand picked team, instead of an official of the BPE. However, despite these initial hitches, the privatisation process was concluded, as investors were incentivised by the transparent reform process earlier initiated by Nnaji, in collaboration with the BPE, and reputable international consultants.

In addition, the Manitoba Hydro contract to manage the Transmission Company of Nigeria for three years was threatened when the Director General of the Bureau of Public Procurement, Mr. Emeka Eze, tried to get it cancelled. In fact, he had succeeded in getting the president to cancel the contract, but for the timely intervention of Peterside who stepped in to reverse the decision.

Privatisation Proceeds

The privatisation process was 80 per cent concluded by November 2012, after the BPE received bank guarantees worth $335,854,986 from the preferred bidders for both generation (Gencos) and distribution (Discos) firms.
It follows the expiration of the 15-business-day of notification from the BPE for successful investors to submit a "Preferred Bidder's Bank Guarantee."

BPE said in a statement that $188,476,306.00 worth of bank guarantee was received from preferred bidders for the Discos, while $147,378,680.15 was submitted by investors for the Gencos.
A breakdown of the receipts showed that for the Abuja Disco: Kann Consortium Utility Company Ltd provided $24,600,000, while for the Benin Disco, Vigeo Power Consortium provided $19,350,000.00.
West Power and Gas provided $20,250,000.00 for the Eko Disco, while Enugu Disco, which was won by Interstate Electrics Ltd submitted bank guarantee worth $18,900,000.00.

Integrated Energy Distribution and Marketing Ltd provided $25,350,000 for Ibadan Disco while the Ikeja Disco, received $19,650,000 courtesy of NEDC/KEPCO Consortium. Moreover, Aura Energy Ltd submitted $12,300,000.00 for Jos Disco.
Others are Kano Disco in which Sahelian Power Ltd submitted $20,550,000.00; Port Harcourt Disco raked in $18,636,306 courtesy of 4Power Consortium, while Integrated Energy Distribution and Marketing Ltd submitted $8,890,000.00 for Yola Disco.
For Shiroro Hydro Power Plc, North-South Power Ltd submitted bank guarantee worth $16,748,180.00 while Mainstream Energy Solutions submitted $35,680,500 for the Kainji Hydro Power Plc.

CMEC/EURAFRIC Energy Ltd submitted $30,150,000.00 in bank guarantee for Sapele Power Plc: Amperion Power Distribution Limited provided $19,800,000.15 for Geregu Power Plc. In addition, the $45,000,000.00 was submitted by Transcorp/Woodrock/Sumbion/Medea/PSL/Thomassen for Ughelli Power Plc.
With all these development, the year 2012 was no doubt an eventful year in the history of Nigeria’s power sector.

Tags: Business, Nigeria, Featured, Power Sector

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