Power sector reform: Is Nigeria getting its deregulation policies right?

Despite the fact that Nigeria is the fifteenth largest producer of oil and gas across the globe and the largest oil producer in Africa, it appears counter-intuitive that a country that has these potentials finds it difficult to provide adequate power supply for its citizens.

A report by the Spectator’s index in the year 2017 revealed that Nigeria has the second-worst power supply in the world after Yemen. From the year 1960 till date, the highest level of megawatts generated by Nigeria has been 5,615.40MW while a report by the World Bank ranked Nigeria as one of the countries with the least access to electricity globally. According to this report, “85 million Nigerians don’t have access to electricity which represents 43 percent of the country’s population and makes Nigeria the country with the largest electricity energy access deficit in the world”.

While a report by PwC reveals that Nigeria’s per capita power consumption of 151 kWh yearly makes it one of the lowest in Africa and across the globe as the sector is plagued with supply and transmission disruptions. By the year 2025, Nigeria’s power consumption will only reach 433 kWh per year.

Over the years, the Nigerian government has invested trillions of naira in this crucial sector in a bid to achieve a steady power supply, however, not much of this intervention have been felt by average Nigerians.

The World Bank report revealed that about 85 million Nigerians are yet to have access to an adequate and affordable power supply. The country also currently has the largest energy deficit in the world. Research has also shown that most rural dwellers are at the receiving end of this menace as only 23 percent of the population of rural dwellers has access to a power supply.

The report further revealed that lack of reliable supply of power has resulted in an annual loss of about $26.2 billion loss in revenue and more than half of its population depends on other sources of electricity to meet their daily demands.

This points to the fact there’s still a wide gap that is yet to be filled as far as reliable energy supply is concerned. Given the high population growth in Nigeria, it is evident that Nigeria will need substantial additional capacity to satisfy the demands of its local population. The country has invested so much in its power sector, however, it is estimated that about 80,000 megawatts will be needed to ensure a steady power supply in the next 20 years.

Journey so far

Due to the glaring failure of the nationalization policy, the Nigerian government took a bold step to reform the power sector through deregulation in the year 2005. Prior to the period of reform, the Nigerian power sector was totally owned and controlled by the government under the umbrella of the National Electric Power Authority (NEPA).

Due to the gross inefficiencies that plagued the sector, the Nigerian government in the year 2005 took a full step towards reform by enabling the participation of private investors in the generation, transmission, and distribution of power supply in Nigeria.

According to the World Bank, the power sector was due for reform as a result of high production cost, inadequate electricity access, the need to remove subsidy in the sector, and also the need to generate revenue after the eventual sales of the power sector assets.

The Nigerian power sector has been enjoying government interventions over time as various reform policies have been introduced by the government and the international bodies to ensure that Nigeria’s power generation and transmission capacity increase to serve its ever-rising population. For instance, a report by International Trade Administration (ITA) revealed that in June 2020, a sum of $3.8 million was approved to foster Nigeria’s electrification supply to 25000mw. The first phase of the work was to reduce aggregate technical, commercial challenges while aiming at improved grid stability and reliability. A sum of $550 million was also approved by the World Bank to facilitate the expansion of the mini-grid subsector. In 2020, a total amount of $750 million was approved by the Power Sector Recovery Operation to facilitate the supply of 4500 megawatts of electricity to the national grid by 2022.

However, despite these interventions, the gap in the Nigerian power sector still remains wide as issues such as the lack of maintenance, high production cost, dilapidated transmission facilities amongst others still remain largely visible. All these abysmal challenges have resulted in the inability to satisfy the local population. It is estimated that only about 3800 megawatts of electricity is available while Nigeria needs about 80,000 megawatts to be able to satisfy its populace.

What’s the missing element?

Proponents of deregulation argue that deregulation is a major key for economic development as it brings about an atmosphere of reduced pricing and increased service delivery as owners compete for market leadership. Also, in a market that is guided by deregulation, consumers are always seen as the king as they determine the trend of the market thereby dictating market direction.

Any attempt to charge beyond a certain price level may see a firm lose its customers to other competitors. Therefore, firms always strive to offer the best product or service at a price that consumers will be willing and able to pay for. Beyond pricing, proponents also argue that deregulation helps to promote an environment for research and development as firms would be more interested in how to satisfy their customers and offer new products which would distinguish them from other competitors.

Read also: Siemens power deal to deliver reliable electricity to 40m Nigerians

Power sector performance would be better off if Nigerians can witness the kind of reform that took place in some of its service sectors. For instance, in the year 2000, the Nigerian government took a bold step to deregulate its telecom sector as part of the efforts to reform its economy. The impact of this policy has been impressive as the telecom sector now contributes significantly to the GDP of the country which was hitherto dominated by the oil and gas sector.

From a private sector investment of about $50 million in 1999 when Nigeria started witnessing a true democratic regime till now, the telecom industry in Nigeria has attracted more than $18 billion in private sector investment. Also, as at 1996, there was only one telephone line to 250 people, as at the year 2000 only four out of every 1000 people had access to the telephone, today the number of Nigerians that have access to mobile phones has increased to over 185 million which is an outstanding development.

The Nigerian power sector has been deregulated but the concept of “choice” appears to be largely invisible due to the absence of competition. In 2019, the World Bank recommended that African economies will have to double down on their reforms if they are to make any progress. This implies that Nigeria’s power sector needs more than paper reform as deregulation goes beyond transferring ownership to private owners. Deliberate efforts should be made to ensure that transmitting agencies are made to compete with each other so that there can be more innovations in the power sector beyond the current level.

Just as what is being witnessed in the telecommunications and financial sectors, the Nigerian government will need to significantly and intentionally create policies that will avail Nigerians with the ability to choose from numerous alternatives. There’s no essence of deregulation if people can’t be availed with the opportunity to opt for the best service providers therefore the onus lies on the government to ensure more investors are wooed into the power sector so that Nigerians can feel the impact of deregulation.