Nigeria’s Power Sector: 58 Years of Falling Behind Expectations

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In the last 58 years, Nigeria’s electricity sector has performed below expectation as evident in the more than 80 million Nigerians who don’t have any form of electricity in their homes, writes Chineme Okafor

Irrespective of the conclusion of the early stages of reforms in Nigeria’s electricity sector, reports suggest that so far, not much progress has been made.
For reasons including poor execution of projects, market liquidity challenges; capacity shortages and government’s laid-back attitudes to taking critical decisions on the sector, the power sector has failed to significantly improve in the last 58 years of the country’s independence.

As it is, developments in the power sector have over the years taken both negative and positive variations, and in 2018, it was not different for the market in terms of its operations, regulations, policy development and enforcements, as well as its commercials.

Market history and reforms
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 back in 1896.

After years of operation, NESCO reportedly had to handover the management of the country’s public electricity utility to the Electric Corporation of Nigeria (ECN), a successor that was established in 1951 to take over its assets and operations.
But, 11 years after, a new partner for the ECN, the Nigeria Dams Authority (NDA) was established precisely 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 an unchallenged control over public power supply in the country.

NEPA later transmuted into the Power Holding Company of Nigeria (PHCN) towards the end of 1999 when the government decided to create a holding company for its then imminent unbundling and subsequent privatisation of the sector.

In 2005, the Electric Power Sector Reform Act (EPSRA) was enacted by the National Assembly, and that formed the basis for the government’s reform of the sector.

Before the EPSRA 2005, Nigeria’s electricity market 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 relevant legislations like the National Electric Power Authority Act, Cap 256, LFN 1990 (as amended).

The EPSRA 2005, however put to rest these pieces of legislation, and handed over parts of the sector to private investors, thus leaving the federal ministry of power which had for years solely managed the sector, with just the task of policy implementation.

The job of regulation then shifted to a new regulator – the Nigerian Electricity Regulatory Commission (NERC), 11 distribution companies (Discos) were created and 60 per cent of their shares divested to private investors just as the government concessioned its hydro Gencos and sold its gas Gencos. The government however retained the transmission network.

Before the privatisation, reports indicated that out of the 79 generation units that the country had, only 19 were operational and average daily generation peaked at 1,750MW. The government which ran the sector reportedly built no new electric power infrastructure between 1989 and 1999, indicating that the latest generation plant in the country was completed in 1990.

As explained by a one-time Director General of BPE, Bolanle Onagoruwa, Nigeria at that time had a docile public power system, which the 2013 reforms sought to change by enthroning a market-driven electricity sector led by the private sector.

Post Reform Era
Following the conclusion of the 2013 reforms in the sector, upgrading the capacity of Nigeria’s electricity market to guarantee stability for the country has faced various challenges.

Even though the reform was initiated to reposition the sector, it has yet to lead Nigeria out of unstable public electricity supply.
Reports from various agencies associated with the sector indicate that up to 60 per cent of the country’s citizens are yet to be connected to the national grid, while the percentage on the grid manages an average 3500MW generated and transmitted daily to the grid.

For a country of almost 170 million to still have more than half of its citizens unconnected to the grid and without electricity in 57 years of its formal existence, means that it has done very little to take the right decisions and strategies to close the huge electrification gap.

2018 Performance

Between October 1, 2017 and October 1, 2018, a lot of developments have been recorded in the country’s power sector – both positive and negative.
For instance, in terms of the negative incidence, insufficient gas supply to some thermal Gencos especially those of the National Integrated Power Projects (NIPPs) has remained an issue yet to be solved by the country.

Also, chronic illiquidity which impacts heavily on capacity expansion, as well as government’s silence on key regulatory and market decisions, have also helped to ensure that the sector achieved a measured progress so far.

Financially, the sector is not doing well at all, and the buck-passing that dominated the sector in 2017 have not moved away.
The Discos reportedly still do not have the capacity to take all that is generated by the Gencos every day, yet they turn around to blame the transmission network for channelling loads to undesirable centres.

Also, over this period, operators have struggled with refinancing the cost of acquiring their assets, as well as making critical investments for expansion.
Revenue collection in the system have also remained largely poor, while technical and commercial losses are still quite high.

The industry has also continued to record huge accident rates – the Nigerian Electricity Management Services Agency (NEMSA) in January reported that 146 electricity accidents were recorded in the sector, from which 113 deaths and 77 injuries were observed in 2017.
The NIPP which was set up in 2004 as an integral part of efforts to bridge the country’s power shortages, has also had its share of the sector’s challenges along with its transmission, distribution and natural gas supply infrastructure.

Its 10 brand new plants which have a combined capacity of 5,455MW and are slated for privatisation, have not been privatised for sundry reasons. Other projects under the NIPPs have also stalled with the company struggling to keep up with its operations on account of poor revenue generation.

While the country faced challenges with its conventional power source and expected to have in 2016 adopted renewable energy sources into its mix, the government has however pull back on the bold steps it took when it signed power purchase agreements for 14 pioneer solar power plants to cumulatively generate 1250MW of solar electricity to the grid. It failed to again sign off the projects to move to construction.

Meanwhile, with regards to specific developments in the sector, a performance trend data obtained from the office of the Vice President, Prof. Yemi Osinbajo, by THISDAY showed that the sector has struggled to sustain an average daily power production of 3,761 megawatts (MW) within the nine months in 2018 – that is between January and September.

The report disclosed that after the sector achieved a peak power generation of 5,222MW on December 18, 2017, it however largely struggled to keep up with the trend, and so far in 2018 managed to generate and supply up to 4000MW for only 72 out of the 263 days that had been spent in the year.

For a most parts of the year, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, and electricity distribution companies (Discos) through their umbrella association – the Association of Electricity Distributors of Nigeria (ANED) have disagreed on the sector’s power generation and distribution figures, with Fashola, insisting that the Muhammadu Buhari administration has been making steady progress in electricity generation and distribution.

The minister had in August, stated that power distribution had risen to 5,222MW. He also said it was an all-time national high.
But based on THISDAY’s summation of the production and supply figures in the power supply trend, the highest generation and supply mark attained so far in 2018 was 4419.6MW achieved on March 28. The data analysed also showed that high frequency resulting from unavailability of distribution infrastructure; poor gas supplies to generation companies; and water management constraints were the major challenges of the sector.
It was further discovered that on the average, the sector could not supply up to 2914MW of electricity to homes and offices in the country due to these constraints.

Equally, under the period under consideration, the market had not earned a whooping sum of N381.798 billion, due to the various operational constraints it encountered.
According to it, in January, the sector managed to produce and supply an average of 3697MW daily; in February, it did 3937MW; in March, it supplied 4029MW; as well as 3985MW in April.

Continuing, in May, 3780MW was the average daily energy level the sector could afford to produce and supply, while 3588MW was produced averagely in June. For July, it was 3619MW; 3660MW in August, and then 3,486MW so far in September which has about seven days left to come to an end.

For the unearned revenue, January accounted for N40.419 billion; February was N35.522 billion; March was N36.399 billion; April was N33.175 billion; while June had N48.759 billion. The month of July saw the sector failing to earn N50.082 billion, while August saw it lose the most as N59.976 billion could not be earned. So far in September, it has lost N36.439 billion.

The trend report also indicated that for the period, a total of 182,741 metric million standard cubic feet (mmscuf) of gas was supplied to power generation plants in the sector, thus indicating an average of 20,304mmscuf per month and 654.985mmscuf per day.
On the average, the data also showed that four power plants were shutdown mostly on account of gas constraint.

Some noteworthy developments
However, the sector has over the years recorded some positive developments.
For instance, the government approved N701 billion loan sought by the Nigerian Bulk Electricity Trading Plc (NBET) from the Central Bank of Nigeria (CBN) to guarantee payments to gas suppliers and Gencos eventually took off and had continued to run smoothly, while the new 459MW Azura-Edo power plant began production to increase the country’s generation capacity.

Additionally, the NERC has since presented for approval by the government, the eligible consumer regulation which now grants Gencos rights to directly sell excess capacities to consumers and set it off for operation.

It also passed a regulation to support investments in mini grid, as well as, set in motion plans to ensure smooth reviews of the sector’s tariff.
On metering which has remained a big challenge to the sector, the NERC approved the Meter Assets Provider (MAP) regulation and shortlisted eligible operators in the scheme who would now partner the Discos to install meter at service points of consumers.

To further revive the sector, the government in partnership with the World Bank, initiated and signed off a Power Sector Recovery Programme (PSRP) in which funds are expected to flow in to support the sector through the Bank, while nothing significant has been achieved within the programme in terms of financial support to the market, the government has however made plans to invest about N72 billion to upgrade the Discos’ networks.

Additionally, the revived and retooled Rural Electrification Agency (REA), has continued to take up new and priority task of getting power mostly through renewable energy sources to Nigerians through a suite of programmes in the forms of Energising Education Programme (EEP) and Energising Economy Initiative (EEI).