Nigeria signed a Memorandum of Understanding with German energy giant, Siemens, last year to add about 25,000 megawatts (MW) of electricity by 2025.
But the deal is coordinated from the office of Abba Kyari, the president’s chief of staff, whose table is overflowing with competing national issues and lacks expertise regarding the power sector. The country is yet to move the needle on the deal.
In Nigeria’s north-eastern state of Taraba, after several fits and starts, the Federal Government and the Chinese will this year begin construction of the massive 3,050MW Mambilla power plant, set to cost $4.8 billion.
If the plant is ever completed and begins generating electricity, it will hit a distribution network that is essentially ‘bankrupt’, and transmission (owned by the government) that is only able to wheel out 50 percent of generation capacity today.
Only 60 percent of Nigerian residents have access to electricity and even those who do are plagued by regular blackouts.
In August last year, the Nigerian Electricity Regulatory Commission (NERC), the power sector regulator, announced plans to review electricity tariff benchmark. Popular outrage greeted the plan and the commission pulled the message. Today, it is capping estimated billing in the middle of public consultations over tariff increases.
Few days ago, the National Economic Council (NEC) ordered a forensic audit of electricity distribution companies (Discos) to know how much they have invested in the sector. Yet, NERC approves investment thresholds for DisCos and claimed last year it was setting up information technology systems to monitor DisCos’ collections.
Power Minister Sale Mamman recently criticised the DisCos for their failure to utilise all available power or pay for the energy they purchase, even as the government has undermined them by failing to implement cost-reflective tariffs.
These examples illustrate how most human challenges in the form of poor coordination among critical stakeholders keep Nigerians in darkness as both the regulator and the operators continue to offer excuses where reforms are badly needed.
“The entire power sector value chain is in a state of flux and grossly inefficient because of the misalignment that exists between policy pronouncements and actual reality,” Charles Akinbobola, an energy economist at Creditville Limited, said.
According to the structure of Nigeria’s power sector, generation and distribution assets are owned by core investors who bought the government’s electricity assets in a public auction in 2013. The transmission segment remained with the government.
The country currently has 13,000MW of installed electricity-production capacity, about 80 percent of which comes from gas-fired plants. Only 7,500MW of that is available and about 4,000MW is dispatched to the grid each day.
The industry is hamstrung by unpaid bills and power theft even as the government-mandated tariffs aren’t high enough to recover costs, leading to circular debt and illiquidity.
The Bureau of Public Enterprises manages government’s 40 percent stake in the assets; the regulator, NERC, envisaged to be independent, oversees the sector, while the Nigerian Bulk Electricity Trader (NBET) manages the money pool.
While this nifty arrangement works seamlessly on paper, in reality, it is maze of contradictions. The BPE by virtue of holding government’s stake in the DisCos is represented on their boards but nary is a word heard from the agency when critical issues affecting the operation of DisCos are discussed including tariffs. Government ministries and departments, especially security agencies, constitute the biggest defaulters in paying electricity bills.
NBET buys electricity from the GenCos through Power Purchase Agreements (PPAs) and sells to the DisCos through Vesting Contracts. And now the government is tinkering with plans to excise it from the Ministry of Power and place it in the Ministry of Finance, against the power sector law, following a decision by the minister of power to fire the managing director of NBET, a decision the president reversed.
The core investors who purchase power distribution assets are not keeping faith with their obligated investment thresholds to maintain the integrity of their network. They are not also demonstrating fidelity with customers by metering them.
Capital expenditure for the 11 DisCos during privatisation in 2013 was estimated at N60 billion per annum for each the next five years, while GenCos were thought to require $4.28 billion just to achieve full installed capacity of about 7,000MW at the time.
Since 2013, two metering programmes – the Credited Advanced Payment for Metering Implementation (CAPMI) and the Meter Asset Providers (MAPs) – have been implemented. Both programmes allowed customers to pay for their own meters.
CAPMI failed when foreign exchange difference following currency devaluation in 2016 destroyed calculations and MAPs is failing largely because the Ministry of Finance introduced a new 35 percent tariff on meters after NERC had fixed the prices of meters, so producers who import the parts for assembly balked.
According to NERC’s data, about 50 percent of customers still do not have meters. Hence, DisCos’ argument about unsustainable tariffs impeding their operations comforts the persuaded and alienates the persuadable.
Getting to a successful private electricity sector, however, goes beyond just the DisCos and GenCos to include other players which will influence the viability of the industry.
The DisCos are at the end of a complex chain of players in the power sector which include the gas suppliers, IPPs/GenCos, the bulk trader, and the Transmission Company of Nigeria (TCN).
The TCN manages a grid that collapsed over a dozen times last year alone. The transmission network, still in state hands, is ageing and overburdened. According to government estimates, only 7,000MW of electricity can be transmitted through the available system against a generation capacity of about 13,000MW.
There is also often inadequate gas supply to power the turbines which generate most of Nigeria’s electricity. Pipelines that move gas from the Niger Delta to plants outside the region are often inadequate and prone to attacks by militants. Worse still, the Federal Government fixes gas prices sold to power plants making the venture commercially unviable. Gas plants in Nigeria require at least 3bcf/d of gas to operate at full capacity but they often get around a third.
TCN is seeking funds to expand the grid but lack of coordination and poor project management have seen it unable to draw down even 25 percent of the $1.66 billion funding extended by the African Development Bank (AfDB) after five years.
Some analysts say Nigeria needs a presidential panel or taskforce to help in coordinating different operators as well as the regulators and other stakeholders.
“We need an independent, high level committee or taskforce to serve as some sort of think tank to coordinate policy and implementation to move the sector forward,” said Desmond Ogba, energy partner at Lagos-based Templars law office.
Power Minister Mamman in December set up a Special Task Force with a two-year mandate to improve service delivery, but the task force has been accused of working to do the minister’s bidding.
Members of the committee include Abubakar Sani Sambo (chairman), Olabamiji Ogunleye (vice-chairman), Sunusi Muktar Bichi, Sam Uche Okoro, Goodluck Enimakpokpo, Chidi Adabanya, Musa Usman Yola, Abubakar Atiku Tambuwal, Shehu Inuwa, among others.
However, the track record of the members of the committee has come into question. Some analysts say only a sincere presidential task force committed to resolving the issues in the sector will suffice.
ISAAC ANYAOGU & DIPO OLADEHINDE
