Wednesday, 2 October 2013

Power Sector: Slowly, Nigeria on the path of recovery

In the beginning

Electricity in Nigeria predates the amalgamation of the Northern and Southern Protectorates in 1914. As most utilities, the initial purpose of electricity was to cater for the growing interest of the colonial administration in Nigeria.
 The first step towards establishing electricity in the country was the in 1898 when the first electricity generating plant was established in Lagos.  There was no coordinated central plan for the development of the utility but individual generating plants were established to cater for several parts of the country.
 The first coordinated approach towards electricity development in the country was in 1950 when the colonial government passed the Electricity Corporation of Nigeria Ordinance 15. The ordinance established the ECN which took over the work of the electricity department as well as the generating plants that had been established in different parts of Nigeria.

 National Electric Power Authority
 For many Nigerians, no organisation captures the progress as well as the frustration of the citizenry with electricity better than the defunct National Electric Power Authority.
NEPA was an amalgam of the Niger Dam Authority and the Electricity Corporation of Nigeria.
 Although the authority was proclaimed by the Military Administration of General Yakubu Gowon on April 1, 1972, it started operation in January 1973 when the first General Manager was appointed.
With NEPA and the process of galvanisation of power resources, the nation experienced a boost in electricity supply. However, this was not for a long period of time. Some of the power generation stations that NEPA had to manage include the Ugheli Power Station constructed between 1966 and 1975 and the Kainji Dam constructed in 1968.

 Others include the Sapele Power Station constructed between 1978 and 1981, the Jebba Power Station constructed in 1985, the Egbin Thermal Power Station constructed between 1985 and 1986 and the Shiroro Dam constructed in 1990.
 As the population of the country was growing, there was no commensurate investment in power plants. According to the Presidential Taskforce on Power, by May 1999 when the country returned to democratic rule, the total power production in the country stood at 1,850 Megawatts.
 The inefficiency of the electricity monopoly had become so apparent that Nigerians had to dub NEPA Never Expect Power Always.

Power Holding Company of Nigeria
 There was no doubt that one of the issues that rattled the government of Chief Olusegun Obasanjo when he assumed office in 1999 was the epileptic power situation in the country. This showed in the nature of the appointments and the magnitude of expenditure in the power sector.
 The liberalisation of the telecommunications sector embarked upon by the administration so much exposed the inadequacy of the power sector that the new service providers that rolled Global System for mobile communications networks had to roll out their own power system.
 It was therefore apparent that the state had to do something differently if the power sector was to be rescued from the ‘powers of darkness’ that was holding it captive.
 The Electric Power Sector Reform Implementation Committee was set up in 2000 with the key mandate to proffer an appropriate legal and regulatory framework for the sector.
This gave birth to the National Electric Power Policy which was approved by the Federal Executive Council in September 2001; followed by the passage of the Electric Power Sector Reform Act of 2005.
The passage of the Act gave the National Council on Privatisation and the Bureau of Public Enterprises the legal impetus to set up the Nigerian Electricity Regulatory Commission, according to Director General of BPE, Mr. Benjamin Dikki.
 The passage of the Electric Power Sector Reform Act of 2005 specified the vertical unbundling of NEPA into transmission, generating and distribution facilities. This also led to the transformation of NEPA into a transition organisation now known as the Power Holding Company of Nigeria (to be declared defunct soon).

 National Integrated Power Projects
 As the electricity sector was being transformed from a monopoly utility, attempts were also made by the government to increase the generation capacity through massive investment in gas generation plants.
The exact expenditure on the NIPP plants had been shrouded in controversies. The NERC, on its own, started licensing independent power producers. Although many had been licensed, most had been unable to take off as a result of poor pricing of power. This was another area of reform that the NERC had to undertake.
 Following the assumption of office by President Umaru Yar’Adua, the reform of the power sector suffered two setbacks. The governors of the 36 states of the federation contended that it was wrong for money to be taken from the federation account and invest in the power plants without due consultation with the units of the federation.
 The second setback was the bias of the administration for the power monopoly. This put the unbundling of the PHCN on a reverse gear.
 The first setback was resolved when the federating units agreed to be part of the integrated power projects as shareholders and a structure was worked out for their investment.

Presidential roadmap on reform
 To recover the reform, President Goodluck Jonathan in August 2010 inaugurated the Presidential Roadmap on Power Reform with two key advisory organs, namely, the Presidential Action Committee on Power and the Presidential Taskforce on Power.
 The presidential roadmap is a comprehensive plan aimed at the reform and restructuring of the power sector to achieve stable electricity supply.

 With the inauguration of the Presidential Roadmap on Power Reform, the unbundling of the PHCN proceeded unhindered. A total of 18 companies were carved out – the Transmission Company of Nigeria (one transmission company to serve the entire nation), six generation companies and 11 distribution  companies based on contingent geographical areas of coverage.
 While the Transmission Company of Nigeria has been handed over to Manitoba Hydropower of Canada to manage for the country for a period of three years in the first instance, four generation companies and 10 distribution companies have been successfully sold to private sector investors.
 A total of $2, 525,824,534 has so far been realised as proceeds from the ongoing privatisation process. Out of the amount, $1,256,000,000.00 came from the distribution companies while the generation companies raked in $1, 269,824,534. The Federal Government has equally set aside about N384bn to settle labour liabilities.

 After privatisation; what next?
 For ardent believers in privatisation, the handover of the power firms to private sector investors signifies a great milestone that would usher in light as had never been seen before. This expectation is logical but can also be exaggerated.

 The view of some experts is that Nigerians need to moderate their expectations.
 Although Nigeria’s generation capacity will soon increase tremendously as a result of the 10 NIPP plants that are scheduled to be completed and handed over to private sector operators by June 2014, there is the issue of availability of gas. The 10 new power plants are to be fired by gas and there is shortage of gas for the power plants.
 Dikkii agrees that the issue of gas needs to be resolved. Otherwise, it has the potential of reducing the much expected higher generation capacity.
 The contracts for some hydropower plants including Zungeru and Mambilla have been awarded. These are renewable sources of energy. However, these power plants are not going to be completed in the next three years.
 Even when the generation capacity has been raised (as it would be), there is also the problem of transmission. There is the need to invest massively on transmission and the government has not been keen on putting much money in the power sector recently. Poor transmission capacity has the tendency to moderate what power gets to the people.
 Another factor that can moderate what happens in the power sector is the capacity of the new operators. Most of the investors are new consortia that were formed to buy into the successor companies. The implication is that they need to learn and some will have problem to get funds to expand their facilities.
 Given these scenario, Chairman of Electricity Distribution Roundtable, Mr. Ransome Owan, asked Nigerians not to be expect rapid results immediately.
 Owan said, “Everybody that is buying into this business is buying into a business that has not been performing in the past. So you cannot immediately be expecting results.
 “And because there was a lack of shadow management for six months, people don’t actually know what they are buying. So, six months to one year will largely be used to understand the business and also to re balance their plans.
 “So the first one year, understand the business and see you can recast your plans. In the midterm, I will say, in the next 24 to 36 months; you will now begin to see marked improvements. By then, what the core investors had implemented will begin to take shape. That is the midpoint of this process.
 “Thereafter, according to the contract, everybody is expected to meet the obligations within the next five years. There is a contract signed and it is what they are going to be measured against. In that horizon, we shouldn't have any issue at that point.”
The nation has put so much money into power sector reform. The dividends have not been coming speedily. But they will surely come, all things being equal.


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