3. The Nigerian Electricity Sector
The Nigerian Electricity Sector has been one of the talked about sectors in Nigeria for the past 50 years, it has been underperforming over a number of years to date. With the way the world is today, there should be constant electricity to ensure a more stable economy and also, for a better social life.
3.1.History of the Power Sector
According to Niger Power Review (1985), the history of the Nigeria electricity sector can be dated back to 1896; this was when electricity was first produced in the colony of Lagos (the capital of Nigeria at the time), fifteen after its introduction in England. At the time, the nations demand for electricity was less than 60KW with the total capacity of generators being 60KW. The Nigerian government electricity undertaking was established in 1946, under the jurisdiction of the public work department (PWD) to take over the responsibility of electricity supply in Lagos State. The legislative council established a central body in 1950, which transferred electricity supply and development to the care of the central body known as the Electricity Corporation of Nigeria (ECN), and at that same time, other bodies like the Native Authorities and the Nigerian Electricity Supply Company (NESCO) had licenses to produce electricity in some locations in Nigeria.
According to Manafa (1995), there was a body established by an act of parliament known as the Niger Dams Authority (NDA), this was in 1962 and it was responsible for the construction and maintenance of dams and other works on the River Niger and elsewhere, generating electricity by means of water power, improving navigation and promoting fish brines and irrigation. The electricity that was produced by the NDA was then sold to ECN for distribution and sales at utility voltages.
In 1972, the National Electric Power Authority (NEPA) was formed; it came from the merging of the ECN and the NDA. Since the NDA was responsible for the building and running of generating stations and transmission lines and the ECN responsible for the distribution and sales, the primary reasons according to Niger Power Review (1989) for the merging of both organizations were:
· It would result in the vesting of the production and the distribution of electricity power supply throughout the country in one organization, which would assume responsibility for the financial obligations.
· The integration of the ECN and NDA should result in the more effective utilization of the human, financial and other resources available to the electricity supply industry throughout the country.
NEPA was the only electricity utility body that was charged with the responsibility of generation, transmission, distribution and sale of electricity to customers in Nigeria without competition from anyone, this made the utility body relaxed and lazy; also, they depended solely on the government for their financial need. They had a torrid time then with the need to properly earnest their resources and improve their facility to meet future demand ignored. NEPA’s inability to projects development and industrialisation was first the Nigerian electricity problem, which was compounded with NEPA poor maintenance of the electricity generation/distribution facilities (Agboola, 2011). NEPA had a low connection rate which was 75% - 80%, had high energy losses which was 30% - 35% from generation to billing and also, a low access to electricity by the population being only 26% of the population. Because of these inefficiencies, there has been insufficient cash generation and thus, consequently reliant on fuel subsidies and funding of capital projects by the government.
In 2005, as a result of the Electric Power Sector Reform, NEPA was unbundled to form Power Holding Company of Nigeria (PHCN), it was characterised by its vertical integration to generate, transmit and distribute electricity to entirety of Nigeria. The PHCN is made up of 18 (eighteen) companies made up of 11 (eleven) distribution companies, 6 (six) generation companies and a single transmission companies. Although the aim of the reform was to privatize the PHCN, till date, this has not been met. Till date, the PHCN controls the electricity sector in Nigeria with talks of full privatization going to occur soon in Nigeria but no one knows when.
3.2.The Previous Reform done in the Power Sector
After the creation of NEPA in 1972 as the sole authority over the Nigerian electricity sector, it was seen that they couldn’t handle the ever-increasing demand for electricity and with electricity being very important in a nation’s economy and social well being, something had to be done. A reform had to be done on the electricity sector with the constant insufficient supply of electricity to meet the nation’s population.
So, in 1988, the first type of reform was attempted when the Commercialization and Privatization Decree No 25 came about. This decree created an avenue where there would be commercialization of Nigeria Public Enterprises with NEPA being inclusive in the act, and it provided for both full and partial commercialization with NEPA falling into the public enterprises to be partially commercialized. The Decree defined commercialization as “the reorganization of enterprises wholly and partly owned by the government in which such commercialized enterprises shall operate as profit-making ventures and without subvention from government” (Adeyemo and Adeleke, 2008). This kind of reform was aimed at using the private sector to sustain themselves as public enterprises but it didn’t get to the heights it was meant to achieve. So, this led to another kind of reform, which was the unbundling and privatizing the electricity sector.
The next type of reform started in 2000 when the Electric Power Implementation Committee (EPIC) was formed. The Committee prepared the National Electric Power Policy (NEPP) in 2001 and also, the Electric Power Sector Reform Act (EPSRA) in 2005, which was the legal backing for the reform, removing operational and regulatory responsibilities of the electricity sector from the federal government. This reform had two main components, which were restructuring and privatisation. According to Chigbue (2006), the two prolonged approach adopted for sector revitalisation were:
i. Priority action to address technical & commercial problems
· Rehabilitation if existing plants and undertaking essential investments.
· Reinforcement and upgrading operations and transmission facilities etc.
ii. Holistic reform aimed at addressing structural, organisational and institutional issues.
· Appropriate industry structure & decentralisation of sector to foster choice and competition
· Clear delineation of roles and responsibilities – FG (Policy, direction and monitoring & evaluation of implementation and performance), Private Sector (operations), Regulatory Commission (licensing, technical & economic regulation)
The aim and objective of this reform was: to improve the performance and operation of the utility through increased private sector participation; to promote private sector investments; to meet the current and future demand for electricity; to establish new market structures/rules and trading arrangement; to set up an independent regulator to oversee the affairs of the sector; and to promote competition, transparency and efficiency (Maduekwe, 2010).
The reform eventually kicked off in 2005 with the unbundling of NEPA into 6 (six) generation companies, 11 (eleven) distribution companies and a single transmission company, all under the umbrella of the PHCN. The county’s transmission sector would still continue to be controlled by a single subsidiary while, the six generation companies would compete with various independent power producers (IPPs) that have already been developed or are to be developed in the country. So, the transition would be, the generation companies selling their electricity to the transmission operator, which is for sale to the 11 distribution companies, which are created from the PHCN’s assets and who also, control the supply electricity within designated geographical areas (Anonymous, 2006).
The various significant stakeholders for the reform are: The Federal Government; The National Council on Privatisation; The Bureau of Public Enterprise; The Ministry of Energy; and the most important, The Nigerian Electricity Regulatory Commission (NERC). The NERC was provided under the ESPRA as the main regulatory body for the Nigerian Electricity sector in March 2005, it was established as an independent and self-funding regulator. NERC then effectively took off on October 31, 2005, after the inauguration of its seven full time commissioners. According to Adoghe, NERC were expected to perform the following primary functions:
· Ensure orderly development of a competitive power market.
· Ensure efficient, safe and adequate production of electricity.
· Promote competitive and private sector participation.
· Protect consumers and the public interest.
· Evolve standard and codes that measure with international best practice.
· Evolve stable and equitable rates thereby ensuring reasonable profit.
· License and regulate persons engaged in Electricity business
· Settle disputes amongst industry participants
· Ensure expansion of access to rural and urban dwellers.
· Establish and administer the power consumer Assistance fund for subsiding under privileged consumers.
3.3.The Overview of the Power Sector
The Nigerian Power sector currently being run by the PHCN has been plagued with blackouts throughout the country, lack of constant electricity. PHCN has not fulfilled its mandate of supplying constant electricity to the nation. At the end of 2009, the government promised the Nigerian people a supply of 6,000MW but currently, the generation capacity of the nation is a measly 3,600MW that is below the proposed promise. Even a further 400MW generation capacity would be lost due to maintenance work of some gas pipelines. The largest generating station in Nigeria is located at Egbin, it was supposed to generate 1,320MW but due to under-supply of gas, partly as a result of the unrest in Niger Delta region and some maintenance issues, it is operating below capacity.
The installed capacity of electricity in Nigeria was about 6,000MW, with rumours suggesting that its has dropped even further to 1,750MW. With all these rumours flying around, it is quite evident that the people of Nigeria do not know where they stand in constant electricity supply but they know for a fact that something must be done to improve the ailing situation. Also, it has been discovered that only 19 (nineteen) out of the seventy-nine installed generating units are still operating.
Fig 1: The installed capacity of Electricity from 1980 t0 2008. [Source: http://www.eia.gov/countries/img/charts_png/NI_elecap_img.png]
According to Okoye (2007), from the Nigerian Energy Policy report in 2003, it was estimated that the population connected to the grid system was short of power supply over 60% of the time, with less than 40% of the population not connected to the grid. This simply means that, the amount of electricity generated cannot support the entire population of the country. The tables below show the present generation profiles of hydro and thermal power generating stations in Nigeria.
For a nation as populated as Nigeria with more than 150 million people, the figures in the table above shows the poor nature of the power sector, it can be seen that less than half of the installed capacity of 5676MW is what is being used, making only 2589MW of electricity to be used by 150 million Nigerians. So, it can be seen that the Nigerian power sector is in dire need for a proper reform with all the stakeholders coming together to make it successful.
According to Obadote (2009), he outlined various technical issues and challenges that the electricity sector face and he also differentiated them in terms of the different branches in electricity production. In the generation branch, Nigeria mainly use hydropower and thermal generation process and the problems associated with them are:
i. Hydropower
· The current infrastructure of the hydro plants is in dire need of rehabilitation and the actual energy output of the plants is far below their projected capacity.
· No overhaul of the plants.
· The output of the hydro plants in highly oscillatory according to the seasonal droughts.
· The trends of the climate change have led to a continual loss of water. Since the power output of hydro plants in depended upon the flow of the river, with less water, there is less potential energy to harness.
ii. Thermal
· Lack of gas supply
· Maintenance of gas pipelines
· Low gas pressure
· Political tensions (Niger Delta problem)
From the outlined issues outlined by Obadote (2009) on generation, the evidence is there with news all over the papers on the unrest in the Niger Delta region and judging with by the table above as well, looking at most of the ages of the plants, its appalling that those generators are still in existence with the rise in demand of electricity.
The other challenges outlined by Obadote (2009) are in terms of the transmission and the distribution aspects of the electricity industry. For the transmission, he stated that “the grid structure is unstable and vulnerable to sabotage” and the outline of the challenges were:
· Vandalisation of Power Towers
· Huge Transmission Losses (about 30-35%)
· Power Evacuation problems
For the distribution also, the challenges outlined were:
· Network problems (especially during raining season)
· Illegal electricity connections either to the national grid or the existing residential/industrial electricity outfit
· Overloaded Transformers (results in very low voltages)
· Over/under billing and payment via unscrupulous business collusion
· Cash collection problems
· Illegal manipulation of installed metres
· Corrupt practices of distribution staff (e.g. illegal sales of electricity metres to prospective consumers, vandalisation of equipment, resold in most cases to public/private electricity institutions, etc)
The challenges/problems attached to both the transmission and distribution channels of electricity can be associated with the corruption in the country, lack of maintenance and also, thoroughly assessing the equipment associated with the electricity sector. With all these on-going to date, the cry for a proper reform can be seen.
Other Challenges that face the Nigeria power sector are: The Market Structure; Political Issues; Technical issues; Environmental Issues; Corruption etc. The problem of the market structure is such that, Nigeria doesn’t have a convincible electric market, where the price of electricity is so cheap, cheaper than what is required for generation. This is a turn-off for private investors as, they will want to invest in a market where they can make profit and with this in the country, it would prove difficult to attract them. For the problem of political uncertainty, there are various turn-offs in the country at the moment, with the unrest in the Niger-Delta regions whom amongst other things, cut the gas supply to power plants and now, the new terror marauding the nation, the emergence of the sect Boko Haram, who have been bombing various parts of northern Nigeria, especially the capital, Abuja. All these make investors loss interest in coming into the country unless; the government deal with them, to provide a level playing field for these investors and for proper reform to occur in the country. The technical issues are associated with all the branches of electricity channel, the generation, transmission, distribution and supply, as explained above. The major problem is corruption in the country that branches into the electricity industry. Public funds are embezzled and used for private activities; projects started are not completed as the funds for the completion are spent on other things other than the job. Corruption eats into the core of the nation, affecting almost everything and has to be dealt with. With corruption being in the mix, the electricity reform will not see the light of day as, there are top government officials that imports generating sets for domestic and commercial use, which in turn, puts more money on their laps, so, with the electricity reform being successful, these private funds will not be as frequent or even not there anymore.
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