Though transforming the power sector takes a long gestation period there are signs that a dramatic turn around is imminent
If you ask10 Nigerians on the streets their scale of priorities, eight may likely choose power above all others because of the overwhelming influence it has on business and living. Since 1999 when democracy made a cautious return to Nigeria, attempts and huge expenses by government have not resulted in corresponding increase in power supply. On assumption of office as president in 2010, one of the few sectors President Goodluck Jonathan hit the ground running was power. To emphasise his seriousness, he appointed Barth Nnaji, a professor with deep private sector understanding of the power dynamics, his special adviser on power to drive radical reforms in the power sector. Nnaji started work on June 10, 2010. After a thorough assessment of the problem, he stated that the sector needed structural reforms. “We have a situation where the people who generate electricity and sell electricity cannot collect money from those who actually distribute electricity. The generation companies selling to the distribution companies are not able to recoup their money because the distribution companies are not able to have structures that allow them to collect money and pay,” he regretted.
Indeed, power appears the most important infrastructure for the Jonathan administration Transformation Agenda. By the projections, for Nigeria to become one of the 20 largest world economies in 2020, in eight years’ time, the country needs 40,000 megawats, Mw, of electricity to power the economy and for increasing domestic needs. This requires investments of $100 billion during this period. Thirty-five per cent of this will go to generation alone. Government says the only way to finance this is to bring in the private sector due to the inadequacy of public funds amidst competing needs.
This made power reforms an imperative going forward. And this too needed relevant legal amendments. Former president, Olusegun Obasanjo initiated power reform in 2005 by enacting the Electric Power Sector Reform, EPSR, Act, which liberalised the environment and created the Nigerian Electricity Regulatory Commission, NERC. The Act broke the monopoly of the federal government in power generation and replaced National Electric Power Authority, NEPA, with the Power Holding Company of Nigeria. In search of efficiency, the government unbundled PHCN by creating 18 successor companies. By the Power Reform Act, 17 of the 18 successor companies were to be privatised; only the Transmission Company of Nigeria, TCN, would remain in the hands of the federal government. All the 18, including TCN, would be managed by the private sector to ensure efficiency and high productivity.
Jonathan’s government quickened the implementation of the Power Reform Act of 2005 to ensure full private sector buy-in into the promising Nigerian power market. With the co-operation of the National Assembly, he paid off N57 billion monetised benefits 0f 47,000 PHCN staff which they were owed since 2003. Next he set up the Presidential Action Committee on Power, PACP, which became the highest decision making organ for the electricity sector, with himself as the chairman, and ministers and heads of agencies whose offices deal directly and indirectly with power development as members. The Presidential Task Force on Power was also established to implement PACP decisions.
From the EPSR Act, the government developed the Road Map for Power Sector Reform. President Jonathan launched it in Lagos on August 26, 2010. It clearly mapped out the power sector development up to 2015 with definite timelines. Nnaji who was upgraded to the power minister in June 2011 has been dutifully implementing those milestones. According to him, “The targets have not been met as we would have liked, but the strategic objective remains incontestable, in fact, inviolate.” Nigerians can attest that this is so because of the intense activities forward despite counter advocacy by entrenched selfish labour interests. Nnaji confirms that the 17 successor companies of PHCN would definitely be privatised this year by the Bureau of Public Enterprises, BPE. As a prologue to this, Manitoba Hydro International of Canada just won the bid for the management of the 18-firm TCN. The Bulk Electricity trader, BET, has been set up, with the chief executive and board of directors appointed. The BET’s role is to provide guarantees to power generation companies to produce as much electricity as they can with the assurance that it will be paid for. In the marketing mix. The BET will continue to operate until the distribution firms become creditworthy; while World Bank is providing Partial Risk Guarantee to the BET.
The NERC leadership was reconstituted with Sam Amadi, lawyer and human rights activist as executive chairman, in conformity with the 2005 Reform Act. This has inspired international investor confidence in Nigeria, as a country governed by the rule of law and equally created synergy with the public who now see the regulator as the protector of their interests.
Because of the confidence so built, United States, US, Exim Bank, signed a Memorandum of Understanding, MoU, in 2011 with the Ministry of Power for a $1.5 billion credit to Nigerian firms operating in the power sector. This year, because of competent implementation of the milestones in the Power Reform Master Plan, the US bank is willing to review the facility to $2.5 billion. In 2010, the US Exim Bank facility to the whole of sub-Saharan Africa 2010 was $1.4 billion, out of which only $200 million came to Nigeria. Similarly, General Electric, GE, the world’s largest electricity company, has signed an MoU with the Federal Ministry of Power to help provide 10,000Mw and also take between 10 and 15 per cent equity in new generation companies. According to an excited Nnaji, “General Electric has for several years sold equipment and parts to Nigerian firms but it has never invested in our country. Therefore, the equity it is taking up represents a paradigm shift and a vote of confidence in the power reform.” Likewise, Siemens of Germany in April, 2012, signed an MoU with the Ministry of Power to assist provide another 10,000Mw and equally invest in equities in new power stations. In addition, it would build a service station in Nigeria within 18 months and lead a pilot study on the integration of renewable and traditional forms of energy. Furthermore, Daewoo Corporation of South Korea and Electrobras of Brazil are among the new world-class companies keenly interested in participating in the power sector following opportunities created by the reform.
Nnaji says this “unprecedented international interest is not quite surprising”. It can be recalled that when BPE in 2010 called for Expressions of Interest, EoIs, in respect of the 17 PHCN successor companies slated for privatisation, no one expected more than 80 EoIs, but today as many as 331 EoIs have been received. The EoIs came from highly respected companies across the world. The BPE shortlisted 205 out of 331 EoIs; 152 made the prequalification list. The sum of $20,000 was paid for each of the 152 which eventually made the pre-qualification list.
According to Nnaji, the bids for the privatisation of 17 out of the 18 PHCN successor companies will be submitted in July 2012, the evaluation done in August and the result announced in September. The handover of the ownership and management of the companies will be performed later in October. “This will mark a turning point in the development of electricity in our country,” he enthuses. “In the same manner, I am pleased to state that one of the Independent Power Producers, IPPS, will start commercial operations from the third quarter of this year. It will really be a new day in Nigeria.” This is a visible success story. Meanwhile, government continues with radical expansion of existing capacity. When President Jonathan assumed office in 2010, Nigeria was generating about 2,800Mw.
In April 2011, it rose to 3,800Mw, a record 1,000Mw addition in one year. All 3,800Mw was put on the national grid. The first time Nigeria generated this quantity of power in 2008 an attempt to have it on the national grid resulted in a system failure because the transmission infrastructure was too fragile to wheel this quantum of power. Between August 2010 and April 2011, government carried out considerable repairs and general improvements in the system, as we had also done in the distribution network. Whereas between 2009 and 2011, Nigeria used to experience an average of four system failures every month, between December 2011 and February 2012, there was no system failure at all. System collapsed for the first time this year in March because of the present water and gas shortage problem developed. In the first week of January 2012 Nigeria achieved an all-time generation record of 4,400Mw and the transmission infrastructure was able to transport this quantum of power from the points of generation to areas of consumption”, said Nnaji.
In readiness for the impending dramatic increase in power generation, Jonathan has approved the building of a 765kv Super Grid, which will see more than a doubling of the present capacity of the transmission lines which currently consist of 132kv and 332kv lines. Construction work on this state-of-the-art infrastructure will start early next year. Similarly, the National Integrated Power Projects, NIPPs, are in various completion stages. By December 2012, it is expected to have added 4000Mw to the power supply in the country. And by 2014 when all its power plants, gas infrastructure and distribution lines are completed, it will bring the power supply in the country to about 14,000MW.
In a recent interview with TELL Jonathan advised Nigerians not to buy more generators; rather they should be ready to dispose existing ones as they may soon no longer be needed. Arguably, Nigeria is said to be highest importer of generators in the world because of the shortfall between increasing power demand and a receding power supply before Jonathan’s power reform. This notwithstanding, the government is not resting on its achievements yet. It is diversifying into new sources of power. According to Nnaji, “Nigeria is truly hungry for electric power. Our maximum output of 4,400Mw is grossly inadequate.” Comparatively, Nigeria is behind other big Third World economies in power. Nigeria now has an estimated population of 167 million people. South Africa, with 47 million people generates 47,000Mw, which interestingly has since 2008 proved insufficient. South Africa is the world’s 20th largest economy. Brazil, another emerging economy with a population of 194 million, generates about 135,000Mw. In terms of per capita power capacity measured in watts per person, Nigeria’s record is depressing at 29 watts per person.
Compare this figure with Brazil’s 490 watts per person or America’s 2,900 watts per person or India’s 110 watts per person. Even neighbouring Ghana has a superior record because it has 1,800Mw for its 21 million people which amounts to 85watts/person. Per capita power capacity is an indicator of a country’s economic performance. Nnaji says there is light at the end of the tunnel. The good news is that a number of power plants are being built across the country. So also are transmission substations, transmission lines and distribution facilities. The federal government alone is building 10 power plants plus transmission lines and substations under the NIPPs. Hydro stations are to be built at Zungeru, Mambilla and Gurara. State governments, which have now been permitted to generate and distribute power, are also building. Nigerian and foreign businesses are not left out. There are also a number of abandoned dams in the country, which the government hopes to generate electricity from some of them in small units ranging from 1Mw to 10Mw, domiciled in their respective localities, instead of being on the national grid.
Indeed government is going beyond the traditional sources of generating power in Nigeria, which are hydro and thermal sources. It is leading the effort to build three coal-fired stations to be located in Enugu, Gombe and Kogi states, with each producing 1,000Mw. A 10Mw wind farm is about to be completed in Katsina State. Studies are already being conducted on how to make greater use of renewable energy, especially with the initial cost of building solar power facilities declining from 400 per cent above the cost of building a gas-fired power facility of the same size to 150 per cent.
For the gains of power reform to be sustainable, there has to be a price component for the investors to break even as they offer efficient services. Accordingly, starting from June 1, there will be a tariff review in accordance with the Multi Year Tariff Order, MYTO, as contained in the EPSR 2005 Act of 2005. According to Amadi, NERC chairman, this review does not necessarily imply a tariff increase. The urban poor and rural dwellers called R1 will not have to pay higher. Indeed, they will be paying less in one or two areas. Instead of N7 per kilowatt/hour, they will be paying N4. They will no longer pay meter maintenance charge. The RI customers are those who consume 50-kilowatt/hour or less. R2 customers, who belong to the middle class, will be paying only an additional 11 per cent increase, and not 88 per cent higher as was wrongly reported earlier in the year.
The government has equally provided for N60 billion subsidy in 2012 budget and a N50 billion subsidy in 2013 budget. There will be cross subsidy from 2014. According to Nnaji, “This administration and, indeed, every government in the world have a moral responsibility to protect the weak and poor in our midst. It is important to clarify here the difference between subsidy on petroleum products and subsidy on electricity usage. While that of electricity is production which is designed to enhance socio-economic progress that of petroleum products is consumption subsidy. It is also important to point out that unlike the petroleum subsidy; there is no cash involvement in electricity subsidy. The latter subsidy merely shields the poor from high payment.” The R3 customers who are rich consumers will notice a substantial increase in tariff. “Different studies have shown that Nigerians are willing to pay a little higher if only they are assured of regular and quality power. Paying a little higher for electricity is far cheaper than the cost of self generation, to say nothing about noise pollution and emission of carbon monoxide which has led to whole families being wiped out in their sleep,” says Nnaji.
However, this story of hope is not without its challenges as a combination of forces battle to abort the power reforms. Electricity supply which had been on the ascent from the last quarter of last year dipped in the first week of March this year. The government attributes this sudden change to two reasons. One, the low levels of water in the dams supplying water to the hydro stations at Kainji, Jebba and Shiroro and the non availability of gas to fire the thermal stations at Egbin, Omotoso, Geregu, Sapele, Ughelli and Olorunsogo. “It is our tough luck that we are having the lowest water levels in the dams in 10 years,” regrets Nnaji. There was a poor rainy season last year in neighbouring West African countries. There are two flood seasons in Nigeria during which water is harvested for the hydro stations. One is called black flood, and it refers to water from neighbouring countries like Mali. This flood gets to its zenith in November every year. White flood, on the other hand, refers to water derived from the Nigerian territory, and it reaches its peak in July. Hydro plants account for 30 per cent of our power output. It is expected that with the rainy season now setting in there will soon be capacity recoveries at the plants which generate about 1,200Mw.
The major cause of the ongoing power crisis is, of course, gas non-availability. The gas issues arose principally from poor coordination in the past between the Ministry of Power and the Ministry of Petroleum Resources and the agencies under them.
Power stations were built without pipelines. There is, in addition, the question of pipelines being available but no molecules in them. To worsen the situation, gas was for long supplied to the PHCN at the incredibly low price of four cents per standard cubic feet, scf. The gas price has now been increased to $1 per scf in order to incentivise investment in the gas sector. Paying for gas and power supplies, however, has remained a herculean task for the PHCN because it has been charging electricity consumers a commercially sustainable tariff. The PHCN is currently owing Agip N60 billion, Shell $78 million, Nigerian Gas Company N10 billion, NIPPs N6 billion and Ibom Power N300 million. With a new tariff coming into force on June 1, the PHCN should now be able to pay for gas and power supplies promptly. (The NNPC is owed N110 billion by various customers, including governments and their agencies which account for 20 per cent of the debt. Nnaji says government has this nearly wrapped up, “I am glad to announce that with effect from this month, the NGC, an NNPC subsidiary will start to increase gas supply to the thermal stations.
By December, it will rise to three times the quantity of gas currently made available to the plants. This will mean a tremendous improvement in electricity supplied to the Nigerian people.” But he regrets that even this will not be enough for the technical capacity already developed for the power sector; rather, it will be reminiscent of the situation in January this year when there was capacity to generate 5,500Mw but only 4,400Mw could be supplied because of gas constraints. He, however, assures Nigerians that once power supply begins to pick up this time, “it will not be reversible. The tremendous work done by the Jonathan administration in the power sector has not manifested well because the gestation period in the sector is fairly long. Put succinctly, things can only get better. Far-sighted Nigerian and international businesses recognise the revolution about to occur and are taking far-reaching steps to take advantage of the unfolding policy and developments. A new day is about to break out for all the Nigerian people.”