Nigeria’s struggle to go beyond 4,000MW, decades after independence
Two years ago, the publisher of Cable newspaper, Simon Kolawole, recounted his experience of how he picked the May 30, 1988 edition of the Newswatch magazine with a story of how NEPA’s installed generation capacity stood at 4,000 megawatts in 1988. Over three decades after amidst different reforms, the country’s installed capacity can generate 12,522 megawatts (MW) of electric power from existing plants, but most days are only able to generate around 4,000 MW. Is there hope for the power sector with one year away from its 40,000MW target? Femi Adekoya and Kingsley Jeremiah write.
In his ‘memories of midnight’ article, Kolawole described the power situation of the country as a recurring cycle with little or no development.
He wrote: “I then made the mistake of my life: I picked the May 30, 1988 edition. I wish I hadn’t. I still believe it was the work of the devil. The cover design was completely black, but for the two big eyeballs in darkness as well as a slender white outline and a thick red border. It screamed: “NEPA — A Nation in Darkness.” It was a special focus on Nigeria’s power problems.
“This edition could have been reproduced 29 years after — I mean this year — with just little changes: the principal characters and the anecdotes. At the risk of exaggeration, I would say things were even better in those days than today, especially comparing the expenditure with the results.
“According to Newswatch of May 30, 1988, NEPA’s installed generation capacity as of 1988 was 4,000 megawatts. It wrote: “This is expected to increase to between 10,000 and 12,000 megawatts by the year 2000.” I’m not joking.
“A few days ago, some 29 years after, the ministry of power happily informed Nigerians that power generation has now hit 3,000-4,000mw again. I’m not joking. Between 1988 and 2017, we have spent at least $30 billion on the power sector to generate uninterrupted darkness.
“The excuses, or let me say the reasons, for epileptic power supply in 1988 are virtually the same excuses, I mean reasons, in 2017. Mr David Oyeleye, then NEPA’s general manager, told Newswatch that “we cannot run many of the machines at Egbin because gas is not there yet… the amount of high pour fuel oil, HPFO, which is needed, is not even produced in the country in sufficient quantity”.
“There was also the regular excuse, I mean reason: “Low level of water at Kainji and Jebba dams.” There were less than 80 million Nigerians in 1988; we are now well over 170 million. And we’re still celebrating 3,000mw. Another round of applause please”.
From the excerpts, it is apparent that over three decades after, Nigeria continues to grapple with the same challenges with a little solution in sight as players in the power value-chain continue to disagree on reforms.
Power generation in Nigeria
According to NERC, power generation in Nigeria dates back to 1886 when two generating sets were installed to serve the then Colony of Lagos. By an Act of Parliament in 1951, the Electricity Corporation of Nigeria (ECN) was established, and in 1962, the Niger Dams Authority (NDA) was also established for the development of hydroelectric power.
A merger of the two (2) organisations in 1972 resulted in the formation of the National Electric Power Authority (NEPA) which was saddled with the responsibility of generating, transmitting and distributing electricity for the whole country. In 2005, as a result of the power sector reform process, NEPA was unbundled and renamed the Power Holding Company of Nigeria (PHCN).
The Electric Power Sector Reform (EPSR) Act was signed into law on March 2005, enabling private companies to participate in electricity generation, transmission, and distribution. The government unbundled PHCN into eleven electricity distribution companies (DisCos), six generating companies (GenCos), and a transmission company (TCN). The Act also created the Nigerian Electricity Regulatory Commission (NERC) as an independent regulator for the sector.
At present, the Federal Government has fully divested its interest in the six GenCos while 60% of its shares in the eleven (11) DisCos have been sold to the private operators. The Transmission Company still remains under government ownership.
The generation sub-sector presently includes 23 grid-connected generating plants in operation with a total installed capacity of 10,396 MW (available capacity of 6,056 MW) with a thermal-based generation having an installed capacity of 8,457.6MW (available capacity of 4,996 MW) and hydropower having 1,938.4 MW of total installed capacity with an available capacity of 1,060 MW.
This comprises of the privatized GenCos, Independent Power Producers (IPPs) and the generating stations under the National Integrated Power Project (NIPP).
IPPs are power plants managed by the private sector prior to the privatisation process. These include Shell-operated – Afam VI (642MW), Agip operated – Okpai (480MW), Ibom Power, NESCO and AES Barges (270MW).
By implementing reforms, Nigeria targets 40,000MW generating capacity by 2020 and will need to spend approximately $10bn per annum on the power sector for the next 10 years to achieve this. In the post-privatized power sector, the Nigerian Bulk Electricity Trading PLC (NBET) purchases power generated by the GenCos and IPPs at agreed prices stated in Power Purchase Agreements (PPA) and resells to the DisCos who deliver the power to the end consumer.
Why is there no electricity despite reforms?
When former Minister of Power, Works and Housing, Babatunde Fashola, was appointed to head the ministry, he promised to ensure incremental, steady and uninterrupted supply by completing projects dismounting bottlenecks. All these objectives have remained elusive.
While the government is still in charge of transmission, the Electric Power Sector Reform Act of 2005, unbundled the national power company into a series of 18 successor companies; six generation companies and 12 distribution companies covering all 36 states. But the objectives of the reform have since remained elusive five years on.
Instead of progress, the power sector has been described as being stagnant or worse than the days when the control was in the hand of the government. In the last six years after privatization, the inefficiency in the sector has caused as much as 5,300 interruptions as well as about 100 systems collapse.
The Guardian gathered that the country’s power sector may soon collapse. No thanks to the N4 trillion financial crisis that has pushed it to the brink of bankruptcy. Details obtained from different players in the sector, including invoices published by the Nigeria Bulk Electricity Plc., (NBET), documents made available by power generation companies (GenCos), as well as distribution companies (DisCos) all mirror worsening financial state of the sector.
The debt profile in the sector has hit a record high. For instance, power generation companies’ outstanding for power supply currently stands at N1.2trillion (between 2015 to October 2018); shortfall of 20 per cent on gas guarantee payment of N701.9b for 24 months; unpaid available capacities of GenCos from February 2015 till date, deemed capacity payments accruing from the ramp-up and down instructions from the systems operations after nominated capacity; interests payment on all outstanding, and payments on impacts of free governor mode operations due to operation outside grid specifications and grid collapses.
Others include associated costs due to NBET’s efficiency model implemented on GenCos on a volatile grid of about $4.262b (about N1.549t), funding for new transformers, and injection substations.
Industry statistics showed that N2.9t worth of investment has been brought into the sector. Losses caused by water, gas and transmission line constraints alone, however, cost the sector about N1.5b monthly. The figure is estimated to be about N90b in the past five years.
Similarly, the sector has received bailout fund from several bodies, including Barack Obama’s Power Africa, and the USAID-Federal Government, through the Central Bank of Nigeria (CBN), provided the sum of N213b as Power Sector Market Stabilisation Fund at a concessionary single digit interest rate, and another N701b as gas assurance guarantee.
The Japanese government reportedly provided about $11m, the World Bank issued about $5.6b, as well as other funds from the African Development Bank.
While the $5.4b liability left after the selling off of power assets was described as a critical burden for the sector, last year, the GenCos dragged the Federal Government to court over debts in excess of N1trillion.
President Muhammadu Buhari had recently anchored witnessed the signing of Electricity Road Map agreement between the Federal Government of Nigeria and Germany-based company, Siemens. The move, an indication of the poor supply intends to achieve 7,000 megawatts of reliable power supply by 2021, and 11,000 megawatts by 2023.
Past administrations, including former President Obasanjo administration, had been accused of spending $16bn on power. Though, Obasanjo had stated in a reply to the allegation that the power is in the seven National Integrated Power Projects and 18 gas turbines that Obasanjo’s successor, who originally made the allegation of $16bn did not clear from the ports for over a year, and the civil works done on the sites.”
Economic and Financial Crimes Commission (EFCC) reportedly began the probe of the $16 billion power project. The commission had allegedly detained two officials of the Niger Delta Power Holding Company (NDPHC) in connection with the probe.
Just recently, in the face of the erratic power supply in the country, Vice President Yemi Osinbajo said the federal government has injected about N1.5 trillion-intervention fund into the power sector in the last two years.
Earlier this year, indications emerged that the Federal Government was considering repossession of 10 electricity distribution firms as one of the options to rescue the nation’s beleaguered electricity industry. The move came at a time when the scheduled final performance review of the sector is due.
As noted by most stakeholders, current challenges facing the sector include lack of technical and financial capacity by those, who bought over the sector. Infrastructural challenges, which had affected the sector in the days when government-controlled the sector remain. Nigeria reportedly needs a minimum of 60,000MW to be self-sufficient.
While the Distribution Companies have been described as the weakest link in the sector, French Agency for Development (AFD) in May, said the 11 electricity Distribution Companies (DisCos) would require about $10 billion in investments involving new investors, to deliver quality electricity services over a five-year period.
Indeed, the challenges with infrastructure frequently lead to rejection of load while the country’s national grid has struggled to stay on over persistent collapse. Huge megawatts of electricity have been reported stranded and others wasting since the weak infrastructure has been unable to deliver power to consumers.
Challenges facing the Nigerian Electricity Supply Industry (NESI), led to the wastage of about 42,160.87 megawatts (MW) of electricity out of the 88,566.43MW generated by power generation companies (GenCOs) last year.
Statistics made available to The Guardian by the Association of Power Generation Companies (APGC) revealed that almost half of Nigeria’s generated power was stranded. Indeed, only about 46,405.56MW was used across the country due to weak distribution capacity and transmission infrastructure, including the national grid.
Executive Secretary of APGC, Joy Ogaji had said the Gencos face many challenges in the current electricity market including constrained power dispatch, which is caused by transmission.
“A well-known principle of the global electricity market is that the capacity of the transmission should nearly double that of the generation capacity while distribution capacity should also be much greater than transmission capacity. This makes for adequate redundancies in the overall system. In Nigeria, the reverse is the case.
“Currently, we have a generation available capacity of about 8, 000mw and a wheeling or transmission capacity that’s not more than 6, 000mw. The distribution system, on the other hand, cannot take more than 4,500 megawatts. There’s a disjoint! The Nigerian Government needs to urgently improve the distribution and transmission network if it is really serious in resolving electricity issues,” she said.
Ogaji equally decried gas challenges, stating that there were no effective contracts in the market, thereby leading to a supply based on the best endeavour.
In tracing the challenges that have bedeviled the sector, particularly after privatization, former chairman of Nigerian Electricity Regulatory Commission (NERC), Sam Amadi said the privatisation model was unrealistic because it postulated too much on the private sector without a holistic government reform.
“For example, we expect that if we sell these assets, the private sector would come in. But challenges such as metering that would secure revenue was not dealt with. So, you expect them to come in, build a power plant for you, build distribution networks, provide all the meters for everybody and then wait till they make their money in the next 10 to 20 years? Clearly, some of the models were not realistic,” he said.
Partner, Nextier Power, Okpukpara said high incidences of energy theft, coupled with consumer apathy in electricity bill payment left the sector stuck with eye-popping market shortfalls of nearly N2t ($5b).
According to him, the sector currently lacks effective contract management, compliance to industry regulations and governance codes, which is within the overall co-ordination of an independent regulator – NERC.
Leading energy expert Dan Kunle had equally noted that privatisation of the power sector was not completed before the new government came on board, just as he alleged that in the last three years, the APC-led administration has done nothing about the sector, thereby escalating loopholes in the privatised entities.
He maintained that the government’s inability to allow the market mechanisms to drive tariff would continue to worsen the sector’s financial crisis, saying “while paying subsidy for petrol, the government has refused to pay the deficits for electricity tariff that it has disallowed from being reflected in daily charges.”
Without a cost-reflective tariff, addressing power theft and blatant estimated billing, Wonodi fears that the sector could collapse if nothing is urgently done.
Like Kunle, pioneer Managing Director of the Nigerian Bulk Electricity Trading (NBET) Plc, Rumundaka Wonodi, claimed that the current administration was compounding challenges in the sector, especially in the area of leadership, stressing that some power agencies were currently without boards, or have cloned their boards. This is coming to light at a time when investigations have indicted heads of some of the agencies for violating extant laws, by awarding contracts for personal gains.
“I think the leadership of the sector has not been consistent and steady, especially after the change of administration. The fact that most of the boards of the agencies like TCN, Nigerian Bulk Electricity Trader (NBET), were never constituted is not good enough, as the government is not talking as one. We found out that different arms or agencies were not aligned under the power sector recovery programme of the government, therefore implementation has been elusive,” Wonodi said.
In addressing poor electricity issues, most stakeholders had called for a total review of the privatization contracts.
According to the Lagos Chamber of Commerce and Industry (LCCI), the Power situation remains a major burden on business.
It’s Director-General, Muda Yusuf said: “It is one area in which the trend since independence has been that of progressive decline. The power supply has consistently lagged behind the pace of economic activities and population growth. This development impacted negatively on investment over the past few decades with increased expenditure on diesel and petrol by enterprises. This also comes with the consequences of declining productivity and competitiveness.
To this end, the LCCI urged that economic managers develop new strategies to attract private sector capital to the infrastructure space, adding that this should cover the broad spectrum of infrastructure provision – roads, railways, airports, waterways, electricity and other forms of energy.