Exploring Investment Opportunities in the Power Sector
BY Uche Aneke
Let me begin this piece by recalling that government ceased to be the sole owner of all power assets in Nigeria following the privatization of the power sector in 2013, in line with the implementation of the Electricity Power Sector Reform Act of 2005. With privatization, private companies took over the responsibility of power generation and distribution.
Today, six generation companies (GenCos) are responsible for power generation while eleven distribution companies (DisCos) are now responsible for bringing power to people’s homes and industries. The only entity government kept is the Transmission Company of Nigeria (TCN) which is solely responsible for transporting all the power generated via the national grid. What this means is that government is now only a regulator through the National Electricity Regulatory Commission (NERC) which performs similar functions as the National Communications Commission which regulates telecommunications companies.
This transition came with new challenges of adaptation and responsibilities on the part of both the Nigerian public and the new investors in the power sector. Today, the private companies are making efforts to step into the shoes of the government in their new tasks of generating and distributing power supply. Unfortunately, some Nigerians still look up to the government as if it still has the responsibility for generating and distributing electricity.
At the moment, some are still sending proposals to government to supply electricity accessories. Reacting recently to this tendecy, the Minister of Power Works and Housing , Mr. Babatunde Raji Fashola , SAN said that such proposals should be properly directed to the GenCos and DisCos and not to the government.
The Minister continued: “What government does now through TCN is building transmission lines. For those who want to generate power, their proposal and license applications should be directed to NERC. We are now just supervising the architecture of power”.
Beyond these issues, the power sector privatization came with enormous investment potentials and investment friendly initiatives that allow investors to own 100% of investment in the sector. It also protects direct foreign investments as well as ensures repatriation of profits from the investments. Apart from being one of the highest returns on investment (ROI), it has generous tax incentives and a huge local market.
Recently, in a reaction to one of my articles on the power sector published in a national newspaper, an independent market and social researcher, from the Pan Atlantic University asked if I thought an investor who wants to partake in the metering master plan should undertake the venture now or wait to see where the industry will swing to. The answer is an emphatic yes, and the time to invest in the metering master plan is now.
Nigeria has a population of about 180 million people, while all the distribution companies combined have just about 6 million consumers in their database. The implication of this is that there are significant numbers of people who are using electricity that is not measured and that is not metered. It also shows that out of the 6 million consumers on the data base that were meant to be metered by the DisCos, there is still a huge gap of close to 50%, that need to be metered; hence the need for investment in this area which has its immense business benefits and potentials for growth.
Another potential area of investment is in the development of new dams and management of existing dams as well as small hydro power schemes for power generation. This is timely in view of government’s new thinking of diversifying and exploiting various sources of energy apart from gas fired and big hydro plants. This has become more urgent in the face of continuous vandalism of gas pipelines and power infrastructures across the country.
Currently, the Ministry of Water Resources in partnership with the Ministry of Power has set up a steering committee on how well the Ministry can concession the small hydro power schemes for adequate power generation. The committee is expected to come up with regulations and information that would attract would- be investors in the sector. Some already identified projects include the 30 MW Gurara1 hydropower plant in Kaduna, 10MW Tiga dam hydro power plant in Kano, 10MW Oyan dam hydro power plant in Ogun, 8MW Challawa dam hydro power plant in Kano and 6MW Ikere dam hydro power plant in Oyo State.
As part of the diversification efforts by the government towards alternative power generation, a new energy mix which encourages construction of solar farms, coal fired plants, renewable resources and investment in gas/gas pipeline infrastructures, is being pursued. This is another attractive area to invest in the power sector. Already, government has approved 14 different solar projects across the country. It has also mapped out an energy production plan which encourages the siting of power production facilities close to the source of power fuel.
This makes it easier for investors to know where to go for a specific investment in the new energy mix. For solar production, Jigawa and Kano states have been identified as the most prolific area of the North. North Central has also been identified as the most prolific area for coal production. In Niger state, the energy mix will be a combination of solar, hydro and coal. For the South South and South West, it will largely be gas. In the South East, it will be a combination of gas and coal.
Justifying this new initiative, the Minister of Power said that the move was to reduce the risk of over reliance on major hydro power generating systems and gas. He continued “We are working hard to stimulate the use of solar and we are accelerating plans to complete Zungeru hydro power plant, the Kashimbilla hydro plants, the Gurara hydro power plant and conclude the procurement plan to start the construction of the Mambilla hydro plant”.
Potential Investors can also key into the investment potentials in the power sector by buying equities in some of the existing DisCos and GenCos as well as engaging in the supply of electricity accessories. There is no doubt that investment in this area is viable and profitable.
There are still questions emanating from some quarters as to why President Mohammed Buhari’s Administration has not reversed the privatization of the national assets by his predecessor; arguing that the privatized sector has not performed better than when it was government controlled. However, in spite of the challenges being encountered in the Nigerian Electricity Supply Industry to date, the government’s stand is not only right but courageous and commendable. Without doubt, there are a lot of business opportunities in the Nigerian privatized power sector, which investors can take advantage of to improve their lives and contribute positively to the growth of national economy.
Uche Aneke is the General Manager Public Affair Nigerian Electricity Management Services Agency (Ucheaneke5@gmail.com)