• Thursday, June 13, 2024
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BusinessDay

Blackout escalates as power sector faces more challenges

Power-plant

Stakeholders in the power industry say the power sector has been unable to meet the needs of its customers because of the chain of challenges facing the sector.

According to the stakeholders, there’s no end in sight to the daily blackouts that is estimated to be costing the economy about $100 billion a year, except some of these issues are resolved.

Problems dogging the sector including gas shortages; pipeline vandalism, inadequate funding, unprofitable tariffs and corruption, mean fixing the electricity cuts two years after a partial sale of state power companies to private investors won’t be easy.

Dolapo Kukoyi, a partner at Lagos-based Detail Commercial Solicitors, which advised investors looking to buy the distribution companies, said the issue of gas and validalisation are external factors which are seriously undermining the operations of the power companies. Kukoyi adds that these are security problems that the government should deal with.

Generated output has never risen above 5,000 megawatts, which is about a third of peak demand, and if it did, the state- owned transmission system cannot deliver any more than that before it starts breaking down.

Hopes that the power situation would improve after former President Goodluck Jonathan partially sold off 15 state generation and distribution companies for more than $3 billion to private investors two years ago, have been frustrated by the challenges listed above.

Another industry operator who does not want to be named, told BusinessDay that investors who bought these companies found them not financially viable and  the distribution firms with loads of debt started haemorrhaging cash. He said last year the financial flows in the sector came close to collapsing.

The generation companies have battled with chronic gas shortages, despite Nigeria holding Africa’s biggest reserves of more than 180 trillion cubic feet. Seventy percent of the plants are gas powered.

The companies have also not received payments from the  Nigerian Bulk Electricity Trading (NBET), which acts as a middleman between them and the distribution companies. The distribution utilities haven’t paid about N20 billion owed and since February, payments to the power plants have slowed.

NBET has enough cash according to an inside source, to make market payments for some months. The source further said the money is there to cover breakdowns and the company doesn’t want to deplete the funds until approval comes from high above.

The national grid is another bottleneck. Another  industry source said it needs about $40 million a year just for maintenance, compared with the $1 million now allocated by the government. Nigeria’s aggregate technical, commercial and collection losses are still high, according to the World Bank.

The power bottleneck comes on top of a slump in oil prices and currency challenges threatening Nigeria’s role as a destination for investors. Economic growth slowed to negative 0.37 percent on an annual basis in the first quarter.

The power industry according to reports still requires as much as $20 billion of investment in the next six years.

Meanwhile, a failing national grid, which collapsed 16 times between January and July this year, is intensifying calls for unbundling the Transmission Company of Nigeria (TCN), increased investments in mini grids, and attracting innovative project financing for the sector.

With a mere 40 percent geographical coverage and transmission capability of about 6,000 GW, Nigeria’s transmission infrastructure comprises about 6,680km of 330 kV lines, 7,780km of 132kV lines, 330/132kV substations with installed transformation capacity of 10,166 MVA and 132/32/11kV substations with installed transformation capacity of 11,660MVA. It suffers average transmission loss of about 9 percent.

Experts say projects stuck in the pipeline, mostly band-aids measures aimed at addressing the crises in the sector will no longer suffice as poor transmission network is rendering futile increased investments in electricity generation.

A recent International Energy Association (IEA) report stated that Chinese companies are working on three projects totaling 1.5 gigawatts in Nigeria.

In 2013 Chinese consortium, HTG-Pacific Energy signed a Memorandum of Understanding with the Nigerian Government for the exploitation and mining of the Ezinmo Coal Bricks in Enugu, followed by a Power Purchase Agreement (PPA) that authorised the investors to build a 1,000 megawatts coal power generating plant at the cost of $3.7bn.

Other projects include a 3,050 MW hydropower plant in eastern Mambila Plateau and 700 MW hydro station in Zungeru, to be built by Chinese firms Electricity Equipment Corporation (CNEEC) and Sinohydro Consortium.

“Transmission is responsible for many instances of stranded generation, thus the improvement of its operational performance and efficiency remains fundamental to the attainment of stable and reliable power to all Nigerians,” said Odion Omonfoman, energy consultant and CEO of New Hampshire Capital Ltd.

Experts attribute frequent collapse of the national grid to systems and infrastructure challenges, funding and revenue challenges, management – governance, operational and project management issues.

“But these incidences help to buttress the long overdue necessity to aggressively develop off-grid and mini-grid solutions ,as well as renewable initiatives that has superior reliability,” Chijioke Mama, an energy analyst, said in response to BusinessDay enquiries.

However, the inability of the Federal Ministry of Power and Nigerian Electricity Regulatory Commission to commence the operation of mini grids in industrial clusters, one year after the policy initiative was announced has not helped to alleviate problems with the national grid infrastructure.

 

OLUSOLA BELLO  & Isaac Anyaogu