The failure of huge capital investments and reforms to improve the situation in Nigeria’s power sector has necessitated a change in strategy by the federal government, writes Peter Uzoho
Worried by the continuous dismal state of the Nigerian power sector despite huge investments and reforms, the federal government has been compelled to look for new approach to change the narrative.
The Vice President, Prof. Yemi Osinbajo, had last week, while inaugurating power sub-stations and transmission lines in Abeokuta, Ogun State, declared that it was evident that the current structure of the power sector could not deliver on government’s promises to provide electricity for domestic and industrial use, thus, necessitating a change of strategy.
Osinbajo noted that resolving the nation’s power problem had been top priority of the present administration in the past few years, revealing that a lot of policies were in the pipeline to address the issues around electricity in Nigeria.
“Now, it is evident that despite all the efforts that have been put into trying to expand the grid, the structure of the market today cannot deliver on the government’s promises to provide power for domestic and industrial use.
“A substantial change of strategy is necessary; there is clearly a need for a change of strategy. What we have done in the past has taken us to a point where there is clearly a need for a change of strategy.”
Discos’ Poor Performance
The vice president said the country currently has 13,427MW of installed capacity, and an available capacity of 8,342MW, while the national grid has the capacity to transmit about 7,000MW, an increase from about 5,000MW in 2015.
He, however, added that the distribution capacity of the 11 Discos were significantly low, hovering at around 4,000MW on average, with a peak of about 5,400. The VP pointed out that despite the availability of about 8, 000MW of generation and about 7, 000MW of transmission capacity, the lack of Disco infrastructure to absorb and deliver grid power to end users has largely restricted generation to an average of about 4,000MW.
The distribution companies came on board in November 2013, through a privatisation arrangement that replaced the Power Holding Company of Nigeria (PHCN). The Discos acquired the assets of the defunct PHCN and were to take charge of distribution of electricity to consumers in their respective franchise areas.
However, since the takeover, Nigerians have not been any better with respect to power supply, leading to barrage of complaints against the Discos. The lack of electricity in homes and industrial areas has remained unabated. Due to unavailability of electricity meters, the Discos resulted to billing their customers using the controversial estimated billing system, with customers being charged outrageous bills, even when they never used any electricity.
Industry watchers and commentators have accused the Discos of not having the wherewithal to play in the country’s electricity distribution market. They argued that operators of the Discos had little or no experience in the sector and had inadequate capital to operate.
But the Discos on their part have been arguing that the structure of the market does not allow them to deliver on their mandate, sighting over-regulation and unfavourable tariff as part of their defence. They said the electricity tariff was not commensurate with the cost of providing electricity to customers.
They argued that for them to provide electricity to all homes and businesses, the government should allow market forces determine what should be charged for electricity rather than telling them what to charge. This, they said, would enable them make money, invest in infrastructure and guarantee Nigerians regular and uninterrupted power supply.
However, the vice president announced that the federal government was creating policies that would open up the nation’s electricity market to new investors in generation, transmission, and distribution infrastructure.
He stated that at the heart of that strategy was the Nigeria Electrification Road map aimed at deploying financing and technology on commercial terms agreed with transmission and distribution companies in partnership with the German government and Siemens AG.
The federal government and Siemens, a German company, had in July signed a deal to raise Nigeria’s power supply to 25, 000MW by 2025.
Under the agreement, Siemens would help Nigeria improve power supply from the grid in three phases of 7,000MW by 2021, 11,000MW by 2023, and 25,000MW by 2025 –a six-year long project.
“Second is the opening up of the market to new investors in generation, transmission and distribution infrastructure, transacting directly with each other to serve willing customers including deploying off-grid power and using micro-grids, especially for deployment of solar power,” Osinbajo said.
He recalled that some policies and regulations meant to empower customers to get the services they wanted at prices they agree to, had been put in place by the federal government.
These, according to him, included the Independent Electricity Distribution Networks 2012; the Mini-Grid Regulation 2016; and the Eligible Customer Regulation, issued on November 1, 2017.
He further said: “The Electricity Distribution Franchising Regulation, which is still in public consultation preparatory to its issuance within a short period of time, sets out the rules for a distribution company to appoint or be compelled to cede consumers connected to a 33KV or 11KV feeder or a designated area to an agent or third party willing to make investments in lines, metering, transformers, other equipment and operations to serve the customers better at a mutually agreed tariff.”
Osinbajo, added that full implementation of these polices would enable the opening up of the power market to new investors.
Also, part of the measures to be deployed by the federal government, according to Osinbajo, was recapitalisation of the Discos. By this, it means the Transmission Company of Nigeria (TCN) and the Senate have secured the backing of the government on the need to recapitalise the existing Discos.
“At the heart of that strategy, is first of all, recapitalisation of the discos. For the discos, they have to pull up enough resources one way or the other,” Osinbajo noted.
The Senate President, Ahmed Lawan, had assured the Managing Director of the TCN, Mr. Usman Mohammed, of the upper chamber’s support on the move by the company to recapitalise the Discos to enable them surmount the liquidity crisis confronting them.
The Discos have however, expressed dissatisfaction with the push to have them recapitalised.
Reacting to the move, the Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED), Mr. Sunday Oduntan, described it as, “misleading, unrealistic and mischievous.”
“The references to recapitalisation are misleading and unrealistic without taking into consideration the ability to recover the capital injection. In the absence of appropriate pricing of the product, you can’t recapitalise because any capital you put, there must be cost recovery.
“When you are underselling the product, how do you recover your cost? So, it is more of a misleading, unrealistic and mischievous narration by the TCN boss,” Oduntan said.
The ANED spokesman instead called for the realignment of all the value chain of power sector in the country, pointing out that two types of alignment –technical and commercial, should be done to address the challenges in the sector.
He said: “By alignment, I mean there should be effort to ensure that the value chain is aligned, which simply means that if you are generating 10,000MW, you must be able to transmit and distribute same.
“There are two types of alignments –commercial and technical. By technical alignment, I mean, if you are generating 10,000MW, you must be able to have a transmission grid that would take distribution network that will distribute same.
“Commercial alignment means that you must be able to have the appropriate pricing of the product using other indices like foreign exchange, lending rate, inflation rate and with a view to making the sector commercially viable”.
Meanwhile, Ogun State Governor, Prince Dapo Abiodun, while delivering his opening address at the inauguration sub-station and transmission lines in Abeokuta, stated that despite the annual capital injections, averaging $2 billion into the power sector, the available capacity of Nigeria’s state-owned electricity utility had been stuck at about less than 5,000MW, adding that that only happened when the Buhari’s government came to power.
“By my own cursory assessment, the attendant cost – in terms of lost GDP – is many times greater than all the waste and leakage which have attended these capital budgets. This is the inescapable link between electricity supply and our economic development and social reality.
There is no gainsaying the fact that rebuilding the energy sector to meet both domestic and industrial needs is vital,” Abiodun said.
He noted that as part of the efforts to improve on the system, the federal government deregulated the energy sector, stressing, however, that the unbundling had not totally dealt with the crisis in the energy sector.
He said: “It will be recalled that in the recent decades, past regimes have put in billions of dollars to reverse the neglect and mismanagement, which characterised the sector without much success.
“In 2005, the government launched an ambitious capital investment programme under the title of the National Integrated Power Project (NIPP). The NIPP projects comprise both gas fired-power plants and transmission lines.
“At conception, it was envisaged that when completed, the NIPP projects would add nearly 5,000MW to the country’s generating capacity within the next three years.
“But this is 2019 and 14 years after and the NIPP’s contribution is still a drop in the ocean compared to the investments that would be required for the country to meet the generating target then set for 2020, that is 40,000 MW”.
According to the governor, if this target of 40,000 MW were to be met, Nigeria’s power capacity per head of population in 2020 would still be less than a quarter of what countries with similar status, especially the BRICS economies –Brazil, Russia, India, China and South Africa currently enjoy.
“Nevertheless, I understand that to reach this relatively modest ambition (of 40,000 MW) will require investments in power generating capacity alone of at least $ 3.5 billion per annum for the next 10 years. Correspondingly large investments will also have to be made in the other parts of the supply chain (i.e. the fuel-to-power infrastructure and the power transmission and distribution networks).
“In summary, a total $10 billion per annum would represent a conservative estimate of the sums that will need to be spent on the whole supply chain over the next 10 years in order to reach the modest target required for us to have stable and uninterrupted power supply,” Abiodun added.