Nigeria: Exporting electricity amid stark darkness

When Nigeria became independent in 1960 and inherited the well-run Electricity Corporation of Nigeria (ECN), which was established in 1951 by the then colonial administrators, many probably, did envisaged that the country’s power sector would end up as an albatross. But this, indeed, is a mild description of what this vital sector has become, as it is currently an embodiment of what is called ‘all motion, no movement.’ Despite successive administrations’ projections, pledges and huge amount ploughed into the sector, there is practically nothing to show for it. The sector has continued to generate an abysmally low energy supply, which is hardly able to meet the rudimentary need of the nation.

Apparently in a bid to find an enduring solution to the seemingly thorny issue, the Federal Government, in 2013, took the bold step of privatising the sector. The idea was a departure from the sector’s hitherto disheartening state, which had gradually but steadily crippled the nation’s economy, while contributing in no small measure to the deteriorated standard of living. But after all said and done, there was still little or no improvement, as the sector is only able to generate a miserable 4,000 megawatts for a population of about 200 million people.

Interestingly, while Nigerians are yet to enjoy stable and meaningful supply of electricity, the country currently exports power to some neighbourng countries, especially the Republic of Benin, Niger and Togo.

Expectedly, this development has engendered criticism, especially as these countries don’t usually pay promptly for the supply. Consequently, stakeholders and many Nigerians are wondering why the government has continued to engage in this unfruitful venture, when the country’s power sector is facing serious financial crisis.

Why Nigeria May Continue To Supply Other Countries Despite Debt
OVER the years, it has become obvious that the motive behind Nigeria’s supply of electricity to these countries is more of international agreement or diplomatic treaties than business consideration. It is noteworthy that the current sources of electricity in the country are mainly hydro and gas. The hydro power plants derive their sources from River Niger.

Considered the river of West Africa, River Niger is about 4,180km, with drainage basin of 2,117,700 km2. And aside the natural resources in it, River Niger also services the power and agricultural sectors. Starting from the Guinea Highlands in southeastern Guinea, River Niger runs in a crescent through Mali, Niger, on the border with Benin and then through Nigeria, discharging through a massive delta, (the Niger Delta or the Oil Rivers) into the Gulf of Guinea in the Atlantic Ocean. The Niger is the third-longest river in Africa, exceeded only by the Nile and the Congo River (also known as the Zaire River).

As reported by Wikipedia, the water in the Niger River basin is partially regulated through dams. In Mali, the Sélingué Dam on Sankarani River is mainly used for hydropower, though it also permits irrigation. Two diversion dams, one at Sotuba just downstream of Bamako, and one at Markala, downstream of Ségou, are used to irrigate about 54,000 hectares. In Nigeria, the Kainji Dam, Shiroro Dam, newly built Zungeru Dam and Jebba Dam are used to generate hydropower.

The de-mining of River Niger by Nigeria reportedly prevented other countries in West Africa from generating power through the river and ensuring the development in Nile River among Ethiopia, Sudan and Egypt. The power exported to Niger, Benin and Togo is, therefore, based on Multilateral Energy Sales Agreement with Nigerian government.

The development had led to an initiative midwifed by the world between Nigeria and some of the countries, which compelled Nigeria to supply power to some international customers, since they were unable to dam the River Niger, where they would have generated electricity. The countries are, however, expected to pay accurately for the energy supplied.

How Power Privatisation Introduces New Twist
THE privatisation of the power sector in Nigeria in 2013 had brought in its trail a new development. Recall that supply of electricity under the government controlled system structured power supply as social amenity, rather than commercial. Government was, therefore, primarily concerned with meeting the citizens’ needs and would treat supply to other countries more as a diplomatic issue than commercial. To properly tackle the issue, a committee was set up, which addressed some of the prevailing challenges with international customers. Reportedly, power supply to these countries is now treated on the basis of willing seller willing buyer arrangement. It was on this note that the Transmission Company of Nigeria (TCN) had threatened to disconnect the countries from power supply over some legacy debt.

TCN’s Edmund Eje, who heads Market Operator (MO), told The Guardian that the new business model, ‘willing buyer, willing seller’ has been deployed in serving the countries, instead of a historic agreement, where the supply was treated as a diplomatic pact.

With the current arrangement, Eje explained that the West African countries mainly relate directly with some power generation companies in Nigeria, and the invoices are settled with the companies except for the legacy debt. A generation company, which serves one of the international customers, told The Guardian that the country has paid promptly under the new agreement.

While there have been frequent reports of indebtedness of up to about $81.48b by the international customers over exported electricity, Senior Special Assistant to the President on Media and Publicity, Garba Shehu, had clarified in a statement that the total amount owed by the three countries during the last review of their debts was only $69m.

Shehu disclosed that the affected countries later made some payments, thereby reducing their debts to an equivalent of N1.2b. Indeed, TCN had told The Guardian that the debts were mainly legacy and not necessarily new, and that the generation companies could opt out of supplying, since the countries owe them.

Shehu said: “The actual cost of electricity generated between 2018 and 2019 by all the electricity generation companies in Nigeria was about N1.2tr ($4b). Over 90 per cent of the electricity generated was distributed and consumed by customers across the 11 electricity distribution companies in the country.

“Power exported to Niger, Benin and Togo, based on Multilateral Energy Sales Agreement with the Government of Nigeria, is on the basis that they would not dam the waters that feed our major power plants in Kainji, Shiroro and Jebba.

“As of the last review in 2019, the amount of indebtedness to all three customers stood at $69m, subsequent upon which several payments were made to the Nigerian Bulk Electricity Trading (NBET). Much of this has been repaid by the debtor nations. As of today, Niger owes only $16m and Benin, $4m, adding up to the Naira equivalent of about N1.2b.”

Between Stranded Electricity Supply In Nigeria And Export Potential
WHILE Nigeria has been left in darkness, the power generation companies (GenCos) reported that in the past five years, they have lost a whopping N1.2tr to poor capacity utilisation and the country’s inability to transport over 21,184.62 megawatts of electricity to end users. The implication is that while the electricity is generated, Nigeria has no infrastructure to send the energy to homes. It, therefore, becomes a waste in the absence of storage system.

With a peak suppressed load of 25,790MW on the grid, while peak generation hovers around 5,375MW (indicating that about 21 per cent of the suppressed grid load is met), Nigeria’s power generation capacity might substantially remain stranded in the face of load rejection by electricity distribution companies (DisCos), due to infrastructure and collection problems.

Statistics obtained from the GenCos showed that since the power sector was handed over to private owners, the average distribution capacity in the country has stagnated at around 4000MW, though available generation capacity went from about 4000MW in 2013 to above 7000MW in 2019.

In 2015, while available generation capacity was 6,616.28MW, the average generation stood at 3,606.05MW, even as stranded generation was 3,010.24MW, bringing losses to N214.93b. Available generation capacity as at 2016 settled at 7183.59MW. Average generation stood at 3,266.79MW, while stranded generation was 3,916.80MW, thus creating a loss of N279.66b.

While available generation capacity was 6,995.37MW in 2017, the average generation stood at 3,622.64MW and stranded generation was 3,372.72, creating a loss of N240.81b. In 2018, available generation stood at 7,384.37MW, while the average generation hovered around 3,864.15MW. A figure of 3,520.12MW was declared stranded, while the loss stood at N251.34b.

Sadly, the demand for energy, both in Nigeria and other West African countries is huge. Some West African countries recently wrote to Nigeria, demanding supply of electricity. Though from a nationalist standpoint, it could be unpatriotic to prioritises export of electricity to other countries, when epileptic supply persists in Nigeria, but the opinion of some business minded individuals were that, while Nigeria is dabbling with whether to move to service reflective tariff or not, neighbouring countries are lurking around as the destination for power export, since about 4000 Megawatts remain stranded in Nigeria.

There have been comments by stakeholders in the power sector suggesting that challenges confronting Nigeria’s power sector are mainly in providing or upgrading the infrastructure that will wheel electricity from generating companies to homes.

With a willing seller, willing buyer agreement in place, some stakeholders noted that the generating companies could take advantage of the export market and indeed earn foreign exchange for the nation’s ailing economy, instead of wasting the current resources. While as much as 600 million people do not have access to electricity and around 900 million people lack access to clean cooking in Africa, Nigeria has competitive edge with energy sources, especially its rich hydrocarbon, when compared with others in West Africa. This development, therefore, makes the export market a great potential for the country.

However, the nation’s electricity generation companies have signed a Power purchase Agreement (PPA) with the Nigerian Bulk Electricity Trading (NBET), meaning that they are compelled to supply certain quantity of power under the Multi-Year Tariff Order (MYTO).

Executive Secretary of the Association of Power Generation Companies (APGC), Joy Ogaji, said with right policies in place, the neigbouring countries are viable destination for the power firms. He disclosed that the current quantity of energy supplied to the international customers might not be up to 500MW, while quantity of stranded electricity still remains very high in the country.

For export potential to work, Ogaji said: “We need to segregate the market into two: MYTO regulated and bilateral. Since the MYTO is based on 4000MW, the difference should be liberated from NBET and sold through bilateral. This could be off-taken by international or local customers, who are able to meet the bilateral requirements.”

On his part, Habeeb Jaiyeola, PricewaterhouseCoopers’ Associate Director, Energy, Utilities and Resources, sees a lot of business sense in making electricity a foreign exchange earner for the country. He was of the belief that the electricity sector could serve as a major way to diversify the economy, if the huge resources in the country are properly harnessed.

He said: “With the existence of hydro and thermal power plants, the ability to expand the capacity of these, build more plants from abundance of the feedstock i.e. water and gas, and diversify into other generating sources, such as solar, wind and bio fuels, Nigeria will continue to be seen as a major potential power generating source for neighbouring countries.

“The west African power pool also alludes to this, as Nigeria is seen mostly from its generating prowess and ability to expand this. This is definitely a great business potential for the country, via expansion of G2G agreements and existence of bilateral agreements with local GenCos.”Jaiyeola, however, feared that the existence of the business potential might be undermined, if appropriate cash collection strategies are not adopted.

In his view, one of the major issues plaguing the Nigeria electricity sector has to do with receivable collection, due to the largely social interpretation of power supply locally. He said international supply must be strict business transaction and adoption of various liquidity management schemes, such as prepaid supply, letters of credit, and other cash management schemes.

“Overall, local and international power supply has to be looked at from a purely business perspective to enable the private sector to thrive,” he explained. “With increasing investments in local transmission and distribution capacity, Nigeria will be able to harness the full extent of current installed generating capacity, for local use. This will boost further investment in generation for increased local supply, and foreign exchange earnings via international customers.”

Exporting Electricity Out Of Nigeria A Misplaced Priority?
EDO State Attorney-General and Commissioner for Justice, Professor Yinka Omorogbe, who is also the President of Nigerian Association for Energy Economics (NAEE), said though Nigeria has to honour the international agreement on supply of electricity, priority export of electricity in a country that is deficient in power supply leaves much to desire.To her, the country needs to look for ways to dispatch the stranded electricity, and that there was need to use the excess power in serving the economy.

Omorogbe said: “We have a huge energy deficit. It makes no sense to put our energy together and now supply some countries around us, unless the stranded power is right at the border and it is not economical. We should have declared an energy emergency long ago, and we should be working to ensure that every of our generated electricity is utilitised for our good.”

With the epileptic state of the grid in the country, Omorogbe also noted that there was need to work decentralised grids, stressing that having one large national grid may not create desired objectives.

The NAEE President explained that instead of buying into the commercial outlook, which makes it better to sell energy to countries, where generation companies could easily cash out, there was need to make the country’s energy sector attractive to investors.

Although different committees, both at the legislative and executive arms, have been trying to address the challenges in the power sector, Omorogbe was not sure those move would bring in desired result.

“Do I see light at the end of the tunnel? I cannot see,” she stated. “I am always an optimist, but right now, I cannot see. We need to recognise the magnitude of the problem. If we do, we won’t have problem of uneconomic tariff, unconducive environment or where renewable is not prioritised. We need an environment that would allow money to come in; that will allow the right capacity; encourage investors and entrepreneurs and guarantee returns.”

Corroborating Omorogbe’s stand, Madaki Ameh, an energy lawyer, insisted that provision of electricity to other countries, despite poor supply in the country, is not so proper.

“I think the practice of selling electricity to neighbouring countries, when we are grossly underserved in Nigeria is grossly irresponsible. With the huge gap between generation and demand, there is absolutely no basis to play ‘Father Christmas’ with a product as key to the nation’s economy as power,” he stated.

A Professor of Petroleum Economics and Management, Wunmi Iledare, said though bilateral agreements between nations are critical to global peace, privatisation, if properly done, would have resolved most of the power issues confronting the country. He said: “Implications of power sector failure is the high misery index growth over the last decades in terms of high unemployment rate, negative growth rate of the economy in aggregate sense, high inflation rate, relatively high exchange rate, extremely high interest rate and growth in Esau’s syndrome from one generation to the order. To a large extent, stable, accessible and affordably power can certainly ameliorate misery index growth among the energetic Nigeria youth.”

Finding Sustainable Solution To Revenue Collection In Sector
ASIDE the fundamental challenges confronting the power sector in Nigeria, both for international and local customers, revenue collection remains a critical challenge, a development that has drastically affected the liquidity crisis in the sector. For instance, while there are criticisms over the amount of money being owed by international customers, in the first quarter of this year, the DisCos couldn’t remit about N123.1b of the N156.9b worth of energy supplied to them by NBET.

In January, while the total invoices of the energy consumed stood at N52.2b, the DisCos only remitted N14.9b, a paltry 29 per cent of the energy supplied to them for the month.The problem was worse in February, as the DisCos only paid N13.1b of the N52.1b worth of energy received. Only 25 per cent of the remittance was met for the month under review.

March was pathetic, as the companies remitted only 11 per cent, being N5.8b of the N52.6b worth of electricity supplied to them. Last year, the Association of Nigerian Electricity Distributors (ANED) disclosed that the Federal Government’s tariff indebtedness to the DisCos was N1.728tr as at December 2019. Thus, the total debt owed the utilities by ministries, departments and agencies (MDAs), as at December 31, 2019, was N116.487b.

Amid the liquidity crisis, the NERC said consumers owe at least N65.9b in energy debts in the first three months of 2019 alone.This development is not only affecting the market, but also creating additional burden for government, as the Federal Government had spent about N2tr to subsidise electricity consumption in the last five years. Now that the economy with over N10.8tr approved for borrowing in the last one year alone, most stakeholders insisted that a holistic approach to revenue collection would address inherent challenges and drive investment into the power sector.

“Right now, there is a huge collection challenge across the DisCos. This has to be the main solution that needs to be looked into. The collection challenge is having a spiral effect across the industry. If DisCos can’t collect, NBET won’t be able to pay TCN and GenCos, as well as gas suppliers,” Jaiyeola said, while decrying government agencies’ inability to pay electricity bills.