• Wednesday, May 22, 2024
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BusinessDay

After six decades of near blackout, Nigeria gears to keep the lights on

power industry

Over a hundred years ago, Ijora, now a densely populated Lagos metropolis was originally a swampy and water-logged village where residents coming from Lagos Island could reach their homes on canoes.

During the late 1890s, the colonial government established a railway terminus at Iddo, a nearby settlement. In 1919, the colonial government commissioned a coal wharf at Ijora to unload coal for the use of the Nigerian Railway and soon after it constructed the Ijora Thermal Station to generate electricity for the railway and the environs close to Ijora. The first power plant built in the area was a 20mw power plant.

As with most things inherited from the colonial masters, electricity was centrally controlled. It started with the formation of the Electricity Company of Nigeria (ECN) to regulate supply and generation in 1951 and thereafter the Niger Dams Authority (NDA) was formed to manage dams in Nigeria, raising total installed capacity to 50MW at independence in 1960.

In 1972, the military government merged the NDA and ECN to form the National Electric Power Authority (NEPA), a state owned vertically integrated power utility.

NEPA was a monopoly that was not commercially viable. It had significant managerial deficiencies and leakages, could not attract investment to ramp up generation, distribution and transmission though population was rising.

By early 2000s, the Federal Government began to restructure the sector. The National Electric Power Policy (NEPP) was developed to set the pace for reform. In 2004, the National Integrated Power Projects (NIPP) which includes generation, transmission, distribution and gas supply projects were undertaken to fast track the growth.

Privatisation began when the Electric Power Sector Reform Act (EPSRA) was passed in 2005. The Federal Government created a Vision 2020 and Power Sector Road Map in 2010, which is a blueprint to conclude the privatization of the power sector.

In November 2013, the privatization of PHCN assets was completed and Manitoba Hydro International (MHI) was engaged as management contractors of TCN.

The power sector reform created an independent sector regulator, Nigerian Electricity Regulatory Commission (NERC) as well as an initial holding company, Power Holding Company of Nigeria, was created for NEPA assets and liabilities and the Nigerian Bulk Electricity Trading Company was also created to manage commercial transactions.

Successor companies were formed – 6 generation companies (GenCos);11 distribution companies (DisCos); 1 transmission company (TCN); 2 special purpose entities. Individual DisCos and GenCos were transferred to the private sector through a core investor sale of a minimum of 51percent of the government’s equity.

But challenges such as technical, commercial and gas challenges hampered plans. Power plants require at least 3BSCFD of gas but can only get 900mscfd of gas due to challenges with legally binding long-term gas supply agreements absent, inadequate gas transportation infrastructure, lack of guarantees and credit enhancement for gas payments and electricity tariffs that did not guarantee commercial returns.

GenCos too were troubled, with a capacity of 13,000MW, on average they could only produce about 5,000MW of power. Unsettled invoices, power purchase agreements that were not bankable for foreign capital due to lack of guarantee and stringent Take-or-Pay condition on gas supply agreement constrained their ability to deliver power.

TCN says it has capacity to wheel 8000MW of power but due to long lead times, high transmission losses, poor financing and a weak radial grid leading to frequent grid collapses, less than 5,000MW of power gets to customers. DisCos did not invest to improve their network, tariffs were not commercially viable and huge technical losses troubled distribution. Consumers too were hostile to tariff hikes.

New reforms

The result is poor electricity access for millions. “The country hasn’t performed well in 60 years,” says Ayodele Oni, energy lawyer and partner at Bloomfield law firm, “The power sector has consistently got worse until recently. Things have improved slightly and if all hands remain on deck, the story should be different within the next decade.”

Over 80million Nigerians lack adequate power supply creating an opportunity for some companies to provide power to some off-grid communities using renewable energy sources, especially solar.

New policies including the waiver of the 35 percent levy on imported meters and components, grants from the World Bank and the Central Bank to ensure mass meter procurement, the Meter Asset Provider regulations which has allowed third party investors the opportunity to sell meters to customers through DisCos will eventually lead to more people having meters and improving the commercial returns to the sector.

NERC has also acceded to a review of electricity tariff after operators had long complained that they do not guarantee commercial returns. The new service reflective tariff divides electricity customers into different bands allowing for those who use the most power pay higher rates.

On the technical aspects, the government has reached an agreement with German energy giant Siemens to embark on a complete overhaul of the transmission and distribution assets and could double Nigeria’s energy output in the next five years.