ENERGY

The entrepreneural revolution in the power sector: prospects and challenges

Rome was not built in a day, so the saying goes but the “Rome” of the power sector (with its attendant life giving stimulus to the economy and its importance to the well-being of the people) needed to have being built more than several decades ago. The realities are not good enough but there are signs for positive development. However, the public wants more and getting is impatient. The stakeholders and key operators are ready and there is a political will but the resources are limited.

The trajectory of Nigeria power situation before 1999 was summarily pathetic. At the onset of the democratically elected civilian administration in 1999, the Nigerian electric power sector had reached, perhaps, the lowest point in its 100 year history. Of the 79 generation units in the country, only 19 units were operational. Average daily generation was 1,750MW and an estimated 90million people were without access to grid electricity. Even the available electricity capacity is insufficient to meet existing power needs of the less than 40% who have access to the national grid. This in large part explained why development is slow and unemployment is huge among the work force that is supposed to drive the economy.

However the situation began to change when the Federal Government and other stakeholders joined forces to make this critical element of modern life available to Nigerians. With the advent of the current administration, hope has been rekindled and a new leaf is being turned with the public experiencing gradually restoration of hope in the energy supply.

One of the bold steps towards revitalizing the power sector commenced in 2005 when the Federal Government, in a focused attempt to position the nation’s Power Sector to play the role it is supposed to play – powering the nation’s economy- formulated the Electric Power Sector Reform (EPSR) Act of 2005 and also came up with the Roadmap for Power Sector Reform in August 2010. With the Power Sector Reforms, the baton to salvage Nigeria from darkness to light is now largely in the hands of the private sector as it is obtainable in countries that provide enough energy for their people.

The Reforms Act framework was meant to unbundle the state owned power entity, the then omnibus Power Holding Company of Nigeria (PHCN), into generation, transmission and distribution segments. Consequently in November 2005, 18 new successor Companies comprising of 6 generation companies, 1 transmission company and 11 distribution companies were incorporated from the ashes of PHCN via a privatization route.

The Objectives of the Reform Act were to:

  •  To reduce the cost of doing business in Nigeria so as to attract new investment through provision of quality and dependable power supply to the economy for industrial, commercial and socio-domestic activities
  •  To improve the efficiency of the distribution, generation and transmission network in the country
  •  To provide people with basic and affordable infrastructure to enable them create employment for themselves
  •  Creation of an electricity market that is private sector driven
  •  Attract massive investment across the value chain Privatization of Power was expected to offer the following benefits:
  • Fundamental engine for job creation leading to significant reduction in youth restiveness
  • Lowers production cost and makes Nigeria’s manufacturing sector more competitive internationally
  • Rapid growth in power while at the same time significant reduction in FGN’s expenditure
  • Taking power availability for granted as it is obtainable in telecoms’ sector today
  • Empowering other economic and social service activities such as tele-centres, healthcare delivery systems, educational institutions
  • Empowering SMEs: welders, hair-dressers/ barbers, printing presses, tailors, smallscale food processors, etc. Rescuing Power, Rescuing Economy

As it is obtainable in other climes, the privatization process of energy sector is always a complex project, trailed by some challenges, most of which may not be envisaged at the onset but have to be managed as they unfold. Nigeria is not an exception, especially where labour unions in the sector were some of the most powerful groups in the country.

Before privatisation, “most transformers that have distribution equipment were obsolete, or outrightly unavailable. So, for anybody to imagine that we would have an Eldorado in infrastructure upgrade within two years, it is a dream, and I think Nigerians deserve to know the truth. Nobody. So, for anybody to imagine that we would have an Eldorado in infrastructure upgrade within two years, it is a dream, and I think Nigerians deserve to know the truth. promised that in the course of privatisation, all the losses in the system would be addressed. Nobody made that promise, it is a process. So, everyone needs to be patient, and a lot of challenges have emerged in the course of the process. These challenges are man-made and are surmountable, and it requires everybody to play its role” said Mr Vincent Akpotaire, the then Acting Director General, Bureau for Public Enterprises (BPE).

He disclosed then that “the second challenge we faced was labour. It was really a huge challenge, and it took political intervention with labour for all issues relating to labour to be resolved. Essentially, a good chunk of the money paid for these facilities by these investors, went into settling labour liabilities. That is an information that ought to be in the public space. Labour liability took a substantial chunk or the larger percentage of the revenue that came from the sale of these assets from the private sector”.

The immediate burden that the inheritors of the PHCN unbundling faced were manifold while the public expectedly was in a hurry to get results. Some of the problems that had bedevilled the power agency over the years then included: replete of obsolete equipment, unpaid huge bill, low funding, corruption, vandalism, lack of political will and transparency in the running of the power sector, low power generation, faulty transmission, distribution and poor reputation and unviable work force with militarized union. All these breed hatred and public low confidence on the company and by extension relegated its impact.

Other challenges which the 18 successor companies also faced include:

  1. Monitoring Investors’ Business Plans/ Investments – One of the biggest challenges in any privatisation is ensuring that necessary investments are made by the private sector. The power sector would require several billion dollars over the next five years and this money is needed in order to achieve the goals of the power reform program.
  2. Transmission – Transmission is seen by some private sector participants as the “weak link” between Generation and Distribution. The transmission sector needs to be supported by the government through funding so that it can make the investments to be able to wheel the increased generation capacity. Basically, the integrity of the infrastructure in TCN has been a major challenge before during and even after privatisation. So, one of the things that came after the privatisation exercise of which the investors in the value chain were sceptical was the capacity of TCN to really move power from where they are generated to the discos that will distribute them, and that is largely due to the vandalism of the power infrastructure. Hence for decades, there were no investments in transmission lines, but for the recent intervention by the Niger Delta Power Holding Company, in developing some new transmission lines.
  3. So, going forward, up to 40, 50 up to 60 per cent of generated power is lost in transmission. Another good percentage is lost in the distribution. This is what is happening when it is still in the government’s hand prior to the privatisation era.
  4. Skilled Manpower – The paucity of skilled manpower in the power sector following the exit of large pool of PHCN workforce was and is still a challenge.
  5. Gas – The large portion of electricity generated in Nigeria is done through gas-fired plants. Though Nigeria is blessed with one of the largest reserves of natural gas in the world, investments are needed to be made to ensure accessibility and production and curtail also to curtail and contain vandalization.
    Managing public expectation from the Sector is a difficult job as investments in the sector and construction of new generation capacity will take years to bring result and remarkable power availability.
  6. Rapidly Changing Market/Unpredictability – Over the next few years, the market will be moving through a period of rapid transformation. Capacity will increase and large investments being made in the sector will present challenges to the regulator, the government, the private sector and the public. All stakeholders need to develop adaptive capacity to confront issues as they arise.
  7. Managing public expectation – As expected Nigerians want much in a hurry from the power sector especially the DISCOS. This has made them to be touchy when it comes to energy cost that many believed cannot be justified especially as power supply is still below expectations. This has resulted into protest.
    The issue of energy theft and unpaid bill especially by government institutions is still not healthy for a private driven sector if we must expect and experience quality service.
  8. Low capacity by Discos – The Federal government has realised that its huge investment in the power sector is not translating into improved power supply in the country because the power distributing companies, DISCOs, have no capacity for effective distribution of electricity generated by transmission companies. The Power Distribution Companies are not investing to improve their distribution capacity such that they are able to send out generated power to the end users. This is making Nigerians not to appreciate and feel the impact of the large volume of money being invested in power generation.

THE FUTURE IS BRIGHT
The Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, has expressed optimism that given the various plans undertaken by the present administration, power generation would increase with additional 2000MW by the last quarter of 2016. According to the Minister, the Ministry’s budget now focuses more on the transmission, completion of on-going projects, refurbishing power plants and tackling gas supply issues. If all these are well addressed, the expected projection would boost electricity generation in the country.

Since the commencement of the privatisation of the power, noticeable achievements have been recorded. The privatisation process was completed in November 2013 following the handover of the 18 successor companies to the private sector investors. Post privatisation, the Federal Government has focused much more on policy formulation and regulation, which are done in consultation with the investors before decisions are taken in an attempt to balance profit and public interest. This is an approach that is being deployed in advanced countries.

The investors in generation and distribution firms have also committed substantial funds into the power assets. They have carried out massive upgrade and expansion and increased the integrity of such assets. For instance, the Egbin power station that has had a dysfunctional unit for about a decade, with other units working below capacities, has been turned around. The six units of the power station are currently working with output nearing the installed capacity of 1320 megawatts (MW).

Power stations such as Geregu, Ughelli (Transcorp Ughelli power), among others have substantially increased generation outputs. Transcorp Ughelli Power has increased the generating capacity of the asset. The management of Egbin power has concluded plans to build another power plant that will increase its out output. As at August this year, the power generation peaked at 7,000 megawatts, which was a feat. With regard to power, the present progress are power generation improved from 4000 MW to 7000 MW, transmission from 5000 MW to 7000 MW and distribution from 2690 MW to 5,222 MW as November 2018. The Minister added that ‘The report of our survey and feedback mechanism confirm that many now have public power for longer hours compared to 2015, and now run generators for shorter periods compared to 2015 and now spend less money on diesel to power your generators’.

The distribution companies have injected new transformers, prepaid meters and other equipment to boost supply. Apart from the transmission section of the power supply value chain, which is still government owned, other segments have tremendously improved, hence the transmission remains the weakest link of the chain.

With privatisation, the spirit of enterprise now drives the Sector. Operational laxity, poor customer relations, staff redundancy and financial recklessness are being tackled and people expect that by now, there will be total attitudinal change to customer service delivery. The fault clearing period has drastically reduced and customers are promptly attended to in most cases. Other innovations which stakeholders, especially DISCOs have brought into their operations include business culture, process automation, convenient bills payment options, customer education on energy saving and safety tips, transparency, good corporate social investment and improved Turnaround time (TAT).

The Privatisation has also engendered competition; every Distribution or Generation Company sees itself as a competitor and tries to be the best in terms of value service and being customer- centric. Certainly, the country is moving toward developing a market driven and competitive electricity market, and with time the competition will move to rural electrification as companies tend to secure more market share like it happened in the telecom sector.

With increased regulatory approvals for the investors to pump more money into the sector, there would be a long-term development and stable power supply to drive industrial growth because there would be increased access to electricity services; improved efficiency, affordability, reliability and quality of services; and adequate investment in the sector to stimulate economic growth.

With privatisation, the fight against technical, commercial and collection losses are gradually being won. With card payments and increased installation of prepaid and smart meters, more customers are being captured and transit energy loss is being curtailed. More international and local investors are showing interest in investing in the power sector. What is delaying massive investment in the power sector now is the absence of cost-reflective and market forces determined tariff, which is being opposed largely by consumers and the National Assembly.

The Privatisation of the Sector is gradually solving the problem of cost of doing business in Nigeria and with the right electricity tariff many foreign and local investors that are waiting on the flanks will come in. This will naturally boost industrial, commercial and socio-domestic activities drastically.

Also, Distribution and Generation companies are employing and training young engineers and other ancillary workers to operate in the sector. It is obvious that the power sector holds the ace as the engine for job and wealth creation and to create sustainable, reliable and stable power supply that will aid to achieve these, management of the sector should be in the hands of the private sector.

Over the years, goods coming out of Nigeria’s manufacturing sector were not competitive and affordable because of cost of power. But with the advent of privatisation of the sector, on-going investments and operational restructuring big manufacturers and small scale enterprises such as welders, hairdressers/barbers, printing presses, tailors, small-scale food processors, among others will be able to compete on all fronts.

Within a short time and by the time the investments and commitment of various stakeholders begin to yield results, the problems of incessant power cuts, high electricity bills, obsolete power distribution and transmission equipment, power fluctuations and low voltage for will be history.

THE WAY FORWARD FOR THE POWER SECTOR
One of the ways to make the future bright for the operators is to ensure they continue to operate efficiently and effectively. They can achieve this by working to reduce the cost of doing business, which will lead to tariff reduction by working on economy of scale. Also, they will need to broaden their customer base by capturing more energy users through audit exercise and prevent energy theft. They also need to work on leakages or energy loss that accompanies technical faults.

A monthly Meeting of Stakeholders initiated by the Minister of Power, Works and Housing, Mr. Babatunde Fashola, to identify, discuss and find practicable solutions to issues facing the Nigerian Electricity Supply Industry (NESI) is now in place. The Minister of Information also recently cited pipeline vandalism, sabotage and inadequate gas supply to power plants as some of the reasons that have militated against power supply.

The Minister of Power expressed optimism that the problems affecting the sector were not insurmountable. In his words “I am optimistic that problems affecting the sector can be solved if everyone understands how his action or inaction affects the system”.

The meeting of the operators in the power sector in the last three months may not have solved the challenge of epileptic power supply, yet there are positive signals emerging from the monthly meetings. For the first time, the issue of safety in the NESI has been elevated to the front seat. At the Lagos meeting, it was agreed that the Nigerian Electricity Management Services Agency (NEMSA) shall start ranking the Distribution Companies (DISCOs) for safety compliance and accident reduction as well as applying sanctions for noncompliance.

Before now, there had been cases of electrical accidents and electrocution across the countries which were mostly on account of negligence on the part of the Discos. In line with the resolution, NEMSA has commenced the safety and performance ranking of Discos.

Sometimes ago, Discos were ranked in health and safety issues by NEMSA as the top three performing Discos. This procedure will surely encourage and continue to improve safety standards on the part of Discos and their contractors. A clear cut data of who is doing what will not only reduce electrical accident but enable NEMSA to apply appropriate sanctions.

Again, in furtherance to the decision of the meeting on public engagement, the Discos were made to give their commitment towards metering of electricity consumers across the country. They have been mandated to improve customer service delivery by strengthening the operations of their customer centers and providing dedicated phone numbers to ensure consumers’ complaints within their areas are promptly responded to. As a way of deepening this commitment, Discos have also been mandated to ensure that all customers under Credited Advance Payment for Metering Implementation (CAPMI) are metered as quickly as possible. Going forward , a gradual wind down of the CAPMI has also commenced by ensuring that all those who have paid for meters are given and Discos will now bear the cost of supplying meters in line with the new tariff.

In line with this, the Discos signed an agreement to install prepaid meters and modest progress has been made on this. The issue of estimated billing is a reoccurring issue in NESI and it is worrisome. There is no doubt that when electricity consumers are fully metered, estimated billings will be a thing of the past.

Another positive signal from the monthly meeting is that of ensuring that the Nigerian Electricity Trading PLC (NBET) came up with a solution of floating a sector bond as a way of resolving the electricity sector liquidity issues. This solution which covers validated present and future liquidity gaps until 2018 ensures that operators in the entire NESI value chain have access to finance.

The Central Bank of Nigeria (CBN) is to resume disbursement of the balance of N213 billion CBN Nigerian Electricity Market Stabilization Facility (NEMSF) upon finalizing the structure and payment model with the Nigerian Electricity Regulatory Commission (NERC) and other stakeholders. Before now, the disbursement of this fund to operators in the industry was suspended but with the intervention of the Minister at the monthly meeting, CBN agreed to commence further disbursement to shore up the liquidity ratio of the operators.

These are giant strides that will surely assist in fixing the nation and making power supply available. Those who do not see the positive signs will choose to assess progress in electricity supply in terms of what I call the ‘tangible’ which is the availability of actual light. The fact remains that before achieving adequate power supply, there are basic fundamentals that must be addressed and these are what I call the ‘intangibles’ which the Minister through the monthly meeting is attending to.

There is a general consensus among operators that the monthly meetings have helped in resolving pressing issues and added value to their businesses and that of stakeholders in the power sector. All that is required now to achieve adequate power supply is for all hands to be on deck to translate these efforts into meeting the power needs of Nigerians.

ALTERNATIVE ENERGY SOURCES – – – THE NEW THINKING
It has being variously canvassed that there is need to develop and exploit other alternative energy sources available in the Country to meet its Vision 20: 2020 MW target of 40MW. This is rational way to go as it is the most feasible and sustainable approach being adopted in developed world. Therefore, it has become a matter of necessity for exploitation and promotion of other energy resources to complement and supplement the limited power generation and supply available in Nigeria in Nigeria today.

Alternative and renewable energy sources in Nigeria comprise – Hydro, Wind, Sun and Gas.

Correspondingly, large scale investments will also have to be made to fully exploit these energy sources. It is expected that these cannot and will not be funded directly by the Federal Government. Rather, incentives will have to be provided to the private sector and communities to partner with government in this endeavour.

In August 2010, the federal government launched the Power Sector Roadmap which hinged the growth, prosperity and national security of the country on the adequacy of its electricity supply industry. The Power Sector Roadmap outlined the critical areas required to remove obstacles to private sector investment as the following:

  • The establishment of a bulk purchaser/ trader.
  • Strengthening the Nigerian Electricity Regulatory Commission.
  • The provision of Federal Government Credit Enhancement.
  • Operationalising the Nigerian Electricity Liability Management Company (NELMCO).
  • Strengthening of National Power Training Institute
  • Strengthening of technical and managerial capacity of the Transmission Company of Nigeria (TCN).
  • The sale of Nigeria’s generating companies (GenCos) and distribution companies

Though energy generation and supply are inadequate in the country they are still being hampered by high technical and informal losses in transmission and distribution.

In recent times, the domestic (household) sector has accounted for over 50% of the grid electricity consumed in the country while the commercial and industrial uses have accounted for approximately 25% each. In view of the ever-increasing demand for electricity in the country, there is a need to install more power capacity, promote demand side management measures and introduce renewable sources of energy to the energy mix. It is expected that this increase in power supply will be complimented by increasing investment to ensure reduction in transmission and distribution

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Lanre Alabi
Lanre Alabi
Lanre Alabi is the Publisher/Editor-in-Chief of Infrastructure Development Magazine

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