Many people know that several changes have occurred in Nigeria’s power sector, but the specifics of these changes are not so popular. This piece presents a rundown of the reforms in the power sector as well as an overview of the current structure of Nigeria’s power sector.
Nigeria’s power sector reforms over the past decades
Electricity was first generated in Nigeria in 1896. Three decades later, Nigeria’s first electricity utility company was established in 1929. This company was called the Nigerian Electricity Supply Corporation (NESCO). NESCO was generating, transmitting, and distributing electricity.
In 1959, the Electricity Commission of Nigeria (ECN) was established by an Act of Parliament. ECN was created to regulate and operate power supply systems in Nigeria.
In 1962, Niger Dam Authority (NDA) was established for the development of the Kainji Hydroelectric Dam. A decade later, the NDA merged with the ECN to form the National Electric Power Authority (NEPA) in 1972.
The NEPA “regime” was largely monopolistic with the government controlling the power supply in the country. During this period, there were few privately owned power generation plants scattered across the country, but NEPA was “calling the shots” as far as the power sector was concerned.
The pursuit of an efficient electricity market
For years, Nigerians have complained about erratic power supply. It is often reported that the generation and distribution of electricity in Nigeria leave much to be desired.
In the past years, the Nigerian government has made efforts to make the electricity market more efficient. In 2001, the National Electric Power Policy was promulgated. This policy aimed to transfer the ownership and control of power sector infrastructure to private investors to achieve power sector efficacy.
Further to the National Electric Power Policy, the Electric Power Sector Reform Act (EPSRA) was enacted in 2005. The enactment of EPRSA translated to the demise of NEPA and the birthing of an initial holding company – the Power Holding Company of Nigeria (PHCN) and 18 successor companies:
• Six generation companies
• Eleven distribution companies
• One transmission company
EPSRA also created the Nigerian Electricity Regulatory Commission (NERC) which regulates the power sector.
By the end of 2013, the PHCN ceased to exist as all six generating companies and ten of the distribution companies had been privatised. By November 2014, the last distribution company was privatised. “Privatised” here means that more than 50% of the shares in these companies were sold to private investors.
The transmission company – Transmission Company of Nigeria (TCN) was not privatised. It is currently under the control of the Federal Ministry of Power.
The latest reform in this sector is the Electricity Act of 2023 which repealed the EPRSA. The Electricity Act of 2023 permits private participation across all levels of the electricity supply chain, provided such private entities obtain the appropriate licence (s).
The current structure in Nigeria’s power sector
The best way to understand the power sector is to first understand how electricity moves from the “producers” of electricity to the consumers. The electricity supply chain in Nigeria is:
Generation – Transmission – Distribution – Consumption
Electricity is first generated. Afterwards, the generated electricity is transmitted and then distributed to the end users for consumption.
Generation and transmission
Electricity is generated by the generating companies (GenCos). GenCos own power-generating plants and as a result, they can generate electricity. The generated power is transmitted by the Transmission Company of Nigeria (TCN) also called the TransCo. The TCN’s functions include electricity transmission, system operation and electricity trading. It is responsible for evacuating electric power generated by the electricity GenCos and wheeling it to distribution companies.
Distribution and consumption
The distribution companies (DisCos) are responsible for the distribution of electricity to the final consumers. As far as the electricity chain is concerned, most consumers will only interact with the DisCos as they oversee connection to receive electricity, maintenance, metering, billing, and payment collection. Currently, there are 11 DisCos in Nigeria, and each DisCo is responsible for distributing power to certain parts of the country. The DisCos and their areas of jurisdiction are:
How payments travel in the electricity market
The DisCos install metres to measure the power consumed by the end users. In turn, the end users pay the DisCos for the power consumed. The DisCos don’t generate power, so they have to buy power from the GenCos.
Many contracts and payment agreements exist across the various levels of the power sector. However, for simplicity, think of the GenCos as the producers of electricity and the DisCos as the retailers who sell electricity to the end users.
Leke Olushuyi is a chartered accountant and a finance professional.
