Failure to move on gas keeps power generation stuck at 3,000 MW

Daily power outages that put a brake on growth and productivity are continuing in Nigeria, Africa’s largest economy, as bottlenecks that stall the gains expected from privatisation keep power output stuck at an average of 3,000 megawatts (MW).

The new private companies have had to deal with bottlenecks of lack of gas availability for power plants and vandalism of gas pipelines, lack of market-reflective tariffs and power cheats from bypassed meters and unpaid bills, leading to a continuation of the rolling power outages for homes and businesses that increase the cost of doing business.

BusinessDay’s analysis of daily peak power generation data from the Nigerian Electricity Regulatory Commission (NERC) shows that for the month of July, the highest output generated on the grid was 3,605.6 MW, while the lowest output was 2,406.4 MW.

Output from thermal and hydro-electric plants that power most of Nigeria’s on grid electricity production has fallen nearly 30 percent from the highs of 4,186 MW last achieved on May 05, 2014.

The fall in power output has particularly hit hard on Lagos, Nigeria’s commercial capital and largest city of about 20 million people.

Energy sources tell BusinessDay that for a noticeable improvement in power supply to be observed in Lagos, output has to remain above 4,000 MW.

The two distribution companies (Discos), Eko and Ikeja, have the capacity to distribute 700 MW and 950 MW of power, but currently get a maximum of 240 MW and 406 MW, respectively, from the grid.

Nigeria completed the first phase of an ambitious privatisation programme last November, through the sale of 18 companies unbundled from the former Power Holding Company of Nigeria (PHCN) comprising six generation companies (Gencos), 11 distribution companies (Discos), and a transmission company (TCN).

In the World Bank’s latest ease of doing business ranking, Nigeria fell nine places to rank 147 from 138 the previous year.

Local authorities in Lagos estimate that the city, which generates 20 percent of Nigeria’s economic output, needs up to 20,000 MW of electricity, but only an average of 1,000 MW is delivered to the state from the national grid, when total output is above 4,000 MW.

Nigeria’s current per-capita electricity usage of 136 kilowatt hour (KWH) compares with an average per-capita electricity usage of 4,803 KWH in South Africa, which generates about 41,000 MW.

The Nigerian electricity market also continues to operate under a set of government interim rules five months after the planned launch of the transitional electricity market (TEM) was put on hold.

“Investors and financiers are already reluctant to release funds because there is no TEM,” says Bismarck Rewane, chief executive officer, Financial Derivatives Company Limited.

“Distribution companies continue to record losses in excess of 50 percent because tariffs being set by NERC are not cost-reflective. Supply is low and the number of customers also low. The numbers were highly overstated,” he says.

The interim rules order prescribes minimum payments that each Disco must produce and that each Genco must receive. These amounts are meant to represent targets that are achievable and which when performed should be able to keep the market in a well-defined shape on its progress to TEM.

“These minimum payments are not being met and consequently during this post-handover period, market liabilities are building up and the resolution of these is not yet determined,” Beks Dagogo-Jack, chairman, Presidential Task Force on Power, said at a June 3 event in Lagos.

PATRICK ATUANYA