A SWOT Analysis of The Electric Power Sector One Year after Handover to the Private Sector (Cont’d.)

We continue our SWOT analysis of the Nigerian electric power sector, a year after the handover of its ownership, management and control, almost entirely, to the private sector.

In the last edition of this column, we reviewed some of the strengths and weaknesses of the current power sector regime and continue this week with the weaknesses, opportunities and threats contained therein.

The Weaknesses

The Natural Gas Problem

It is often claimed that circa 80% of Nigeria’s available electric power capacity relies on natural gas and that Nigeria is ‘an island of oil sitting on an ocean of gas’ with proven reserves of approximately 186tcf. Despite Nigeria’s huge gas reserves, availability of gas domestically, has been a major challenge in the energy sector. This has been as a result of a number of issues including an inadequate domestic gas supply infrastructure; a problem gas producers can assist in resolving where given the enabling environment. These gas producers, most of which have the technical and financial capacity, have been somewhat reluctant to put the necessary infrastructure in place to meet domestic gas demand which was initially infinitesimal but has increased substantially in the last few years.  Rather, many have chosen to develop export projects.

Another major reason for gas producers not wanting to invest in the domestic gas sector infrastructure and the domestic gas market generally has been the other problem in the gas subsector- the absence for a long time, of a commercially viable pricing structure. This non-availability of gas has therefore, been a huge threat to Nigeria’s aspiration to improve its electricity power sector and a multiplier beneficial improvement in the overall economy and quality of life. In fact, it is the case that many of the international oil corporations are reluctant to sell gas to the now privatized, formerly government owned electric power generation companies. This is due largely to the fact that many of them are owed several hundreds of millions of dollars by the defunct National Electric Power Authority (“NEPA”) the former State owned behemoth entirely responsible for electric power generation, transmission and distribution, In spite of the fact that the federal government of Nigeria (“FGN”) has made it a policy to prioritize the use of gas as the major fuel for the electric power sector reform and has developed a gas-to-power plan under the auspices of the Gas Master Plan (GMP or the Plan), no sufficient success has been achieved. 

It is the writer’s view that with (a) proper pricing of electricity which adequately factors the cost of gas which is what the multi-year tariff order seeks to achieve; (b) the on-going construction and rehabilitation of gas pipelines and other infrastructure; (c) the expected domestic gas and gas export price parity, (d) the upgrade and expansion of the transmission system (e) strict enforcement of the penalty provisions in the relevant regulations, the challenges in the power  sector can be quickly resolved and competition can easily flow.

The Opportunities

Generation

There are several opportunities here; an option currently available may be to develop independent power Projects (this is without prejudice to the power procurement guidelines) or embedded generation such that eligible customers as defined by the relevant regulations can be catered to profitably without any constraints.

Opportunities also exist along technical areas such as the provision of, or investment in, Information Technology related businesses in electric power generation, provision of  energy saving technologies and products such as the Compact Fluorescent Lamps (“CFLs”) and Light Emitting Diode (“LEDs”) to replace the incandescent lamps. There are also opportunities for providing training services to prospective employees of these companies as there are complaints around the dearth of manpower for the emerging electricity market.

Consultancy services, training, research and development services may be rendered to power generation companies. Information technology companies and experts will now have new areas of business to deploy their expertise and make returns.

There are also new job areas such as power economics, power law; provision of power technical advice to banks, amongst others. Equipment supply is another area where opportunities exist.

In view of the foregoing a  discerning businessman may either provide the  above goods and/ or services or acquire equity or stake in companies which provide same.

Transmission

The business opportunities along the transmission network include engineering and procurements works for the enhancement of the grid and to improve and develop other facilities and infrastructure relevant to the transmission network. This is in addition to the opportunity to supply equipment and consumables. Furthermore, there are consultancy prospects, research and development activities particularly connected with provision of transmission services and even matters connected with remote sensing of any damage along the electricity network are also available for the skilled persons.

Provision of financing is also another opportunity which may be given due consideration, as funds in excess of US $3.5 billion are reportedly required annually for the next 7 years to achieve the 40, 000mw of power required for Nigeria, to be amongst the top 20 countries in the world by the year 2020.

It is also the case that the FGN is actively looking to have private sector more actively participate in the transmission aspect of the value chain. Specifically, the writer understands that the FGN has, for example, signed a Memorandum of Understanding (MoU) with a Chinese firm, Shandong Power Equipment Company Limited (Shandong), to construct a new power grid for the country. If the project goes ahead, then Shandong would require subcontractors and artisans etc. therein also do opportunities abound.

Distribution

The opportunities that exist along the distribution networks are innumerable and include services related to metering and collection. Other goods and services such as trading in electricity cards, provision of card technology for the pay as you go meters and provision of meter reading services are also viable business types. There are also countless opportunities to provide consultancy, research and development for new products as the market evolves with the opportunity for collaborations between Nigerians and foreigners with sufficient expertise.

Entrepreneurs with the technical and financial capacity can also set up new distribution and supply companies giving customers the opportunity to choose their electricity supplier thereby creating competition in the market 

The provision of services related to payment for electricity consumed and payment systems would also be good areas of business; together with the provision of aggregate technical, commercial and collection reduction techniques. It is pertinent to note that there are limitless opportunities in this sector.

Natural Gas Opportunities

It is unusual to include fuel supply in the electric power supply value chain. However, it is the writer’s view that fuel supply should critically be a part of the electric power supply value chain. This is the case because, without fuel supply, power cannot be generated in the first place; speak much less of transmitting or distributing same.

There are, however, challenges in the gas subsector as highlighted above. Generally, challenges come with the opportunity to resolve same. So, where creative ideas can be developed in relation to the problem in the gas subsector, opportunities exist to make profit.

The poor gas pipeline network has been a critical challenge. Hence, creative businessmen are already thinking outside the box and options such as haulage by trucks of compressed natural gas (“CNG”) from gas fields/ processing plants to where they are required, are seen as good alternatives to the currently poor gas supply infrastructure.

For more information on the power sector, read the text, the “Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business by Ayodele Oni”.

Ayodele Oni  HYPERLINK “mailto:{[email protected]}” {[email protected]}, a solicitor, specializes in international energy (oil, gas and electricity) investment law and policy. He holds a mini-MBA in power & electricity. Follow me @ayodelegoni.