The Perennial Electricity Power Problem

August 11, 2019

After unbundling of the power industry and subsequent privatisation of the resultant generation and distribution entities of the legacy Power Holding Company of Nigeria (PHCN), not much seems to have changed as the rot from the days of government’s involvement in electricity business has evidently been carried over to the private sector. Francis Ezediuno examines this critical sector and proffers solutions to perennial electricity problems in the country

Nigeria is the giant of Africa and in that capacity, it is a nation of many contrasts. Resource is not the country’s problem, but indeed how to harness and maintain such wealth for equitable distribution to the large, vast and diverse populace.

Although the nation has been generating electricity in commercial quantities for over a century, the pace of electricity infrastructure development in the county is very slow and power supply remains highly inadequate. Nigeria aims to improve and advance technologically and industrialisation has been at the heart of every successive administration from independence from the British on 1st of October, 1960 and in order to get that achieved, there is need for adequate and constant electricity supply to get the industries running so that these targets of government could be attained.

There are various forms of power generation that the Nigerian government has embarked on, chiefly amongst which are hydro and thermal and in very few cases solar and nuclear.

Even though the government has been reluctant over the years to embrace the last two methods of power generation, the country has not been lagging behind in terms of power generation from hydro with the completion of the Kainji, Jebba and Shiroro hydro electric dams and power projects.

Even with the foray into thermal power generation, the establishment of Egbin and Afam thermal power plants has been up to the task in meeting the generation needs of the country to the extent that the Federal Government generates revenues from supplying Nigeria’s neighbouring countries with electricity.

The problem of power supply with this supposed giant of Africa is power transmission, for it seems Nigeria’s neighbouring countries have perfected this all-important part of power supply chain that their supplier.

Over the years, the Federal Government tried various means, strategies and reforms to grow the power sector and to make it work, but all attempts have been an exercise in futility.

Under the Electric Power Sector Reform Act of 2005, the Power Holding Company of Nigeria was established to take care of the functions, assets, liabilities and employees of the then National Electric Power Authority, which, at one time, was a sing-tune.

The government then unbundled the PHCN into 18 successor companies: six generation companies (GENCOs), eleven distribution companies (DISCOs) and one national power Transmission Company of Nigeria (TCN).

The power supply line is divided into three, namely: generation, transmission and distribution.

As highlighted above, in order to meet the generation needs, the Federal Government has constructed three power hydroelectric dams and thermal power stations across the country which all fall under the operations of the generating company of GenCo and has established the TCN to supervise power transmission while there are several distribution companies known as DisCos for distribution.

Presently, 76 million Nigerians or 40.7 per cent of the Nigerian population (more than twice the population of Canada) are not connected to the national power grid.

For those connected, power supply is a serious problem as about approximately 90 per cent of total power demanded is not supplied.

Here is the problem. Presently, total installed generation capacity is 12,522 MW, but average operational generation capacity is just 3,879MW of which 7.4 per cent is lost in transmission, and up to 27.7 per cent load is rejected at distribution.

This leaves Nigeria with just about 2,519MW. Yet, Nigeria’s electricity demand is estimated at 24,380 MW in 2015.

As a result, Nigerians self-generate a significant portion of their electricity with highly polluting off-grid alternatives and at a cost that is more than twice the cost of grid-based power.

Nigeria and South Africa

Many nations in the world have adequate supply of electricity. Nigeria has been an exception. In spite of her rich human and natural resources, the country has struggled to maintain a stable and efficient power sector. This is even more hurtful, considering the array of technocrats that the nation parades, the series of meetings between stakeholders and regulatory interference, all availing to nothing.

Some other African countries, including Ghana, have celebrated no less than three years of uninterrupted power supply. South Africa, with a population of about 60 million, produces 51,309MW, while Nigeria, with a population of about 190 million, produces just 4,000MW. As the centrepiece of Africa, we still are unable to produce sufficient megawatts for more than half of the population.

In 2013, two segments of Nigeria’s power sector (generation and distribution) were privatised to resolve the challenges associated with the prior monopoly of government in power generation, transmission and distribution. However, privatisation only changed the dimensions of the challenges and power supply remains largely inadequate, unaffordable and unreliable in the country.

Despite having a far larger population, Nigeria generates less electricity relative to other major African economies and failed to expand its power generation along with its growing population.

For instance, South Africa with a population of 48 million generated 35,000MW out of an installed capacity of 52,000MW in 2015.

In Nigeria, as of December 2013, the total installed capacity of the power plants was 6,953MW. Available capacity was 4,598MW. Actual average generation was 3,800MW.

As of December 2014, the total installed capacity of the power plants was 7,445MW. Available capacity was 4,949MW. Actual average generation was less than 3,900MW. The problem of shortage of electricity generation in Nigeria is painful, as different governments have tried to solve it for decades. For a long time, a monopoly was maintained.

After returning to civilian rule in 1999, the government had to spend $2 million annually to improve weak power sector in Nigeria as well as improve service.

In 2010, the electric power industry was transferred to the private regime on the initiative of the former President Goodluck Jonathan. Then the holding company PHCN was privatised. In 2013, six plants and 11 electricity distribution companies in Nigeria were sold. The population expected things to get better.

Some improvements have been noticed, but this is still far from what should have been obtained. This progress can be compared to a drop of water in a huge sea. Although the production of electricity reached the level of 6,400 MW, this is still a very weak result. The supply is much less than demand.

The owners are new, but the problems are still the same.

In spite of the fact that the electric power enterprises are relieved of the bureaucratic pressure, which previously hampered their activities, there are still a lot of structural problems. They impede the orderly provision of Nigerians with utilities and hinder the growth of the energy sector.

A serious problem is the shortage of the gas used by thermal power plants and the number of unpaid bills continues to grow.

The transmission network has long been obsolete and poorly maintained. Even if more electricity was produced now, there would be no way to process it. This explains the efforts of many energy operators to stimulate progress.

To expand and modernise the means of energy distribution, considerable investments are needed.

The Federal Government through the Ministry of Finance and the Central Bank of Nigeria has allocated and is still allocating billions of Naira to the power generation and transmission sector and also for the maintenance of old and obsolete equipment but Nigerians on a massive scale are not feeling the impact of these huge investments in the power sector.

This is all due to system collapse on a huge scale. Just recently in late June, there was a well publicised power cut as a result of system failure from transmission that left the states of the federation enveloped in darkness for almost a week. This is a phenomenon has become a recurring decimal.

Solution

TCN is 100 per cent owned and managed by the Federal Government of Nigeria and it is the weakest in the Nigerian Electricity Network.

TCN is the heart of the Gencos and Discos that was privatised in 2013.

Hence technically, the Federal Government owns the Discos and Gencos. Moreover the Federal Government still owns 40 per cent of the privatised Gencos and Discos.

When the heart is not working, it means you are dead no matter what you do with the body.

The TCN is moribund and can’t push more the more than 5000MW over 24hrs as it has never since inception it will never happen.

We have over 12500MW Electricity Generating Plants installed in Nigeria, but the absence of necessary gas network to the plants left most of them idle. Many were built during the PDP era apart from the biggest IPP in Edo which started in 2014 kitted with Siemens gas engine.

It was situated 1km to a gas network.

Government is saddled with the responsibility to build a robust gas network but they are not doing same.

The same Federal Government via National Electricity Regulation Commission (NERC) controls the tariff and everything in the Power Sector is technically managed by government.

All the agencies that drive the power sector are controlled by the Nigerian Government hence they should never attempt to abdicate power responsibility.

Every equipment used in the power sector is import dependent and when Nigerian government devalued her currency in 2016, energy was sold at N30/kWh averagely circa 2016 that was 15.2¢ after devaluation it dropped to 8.3¢ today that is 45 per cent loss in tariff.

We should not forget the Discos and Gencos borrowed in United States Dollar and they will pay back in same currency. With devaluation they owe 132 per cent extra on the borrowed funds because they earn in Naira.

It is simply you borrowed $1m in 2013 that is N155m without interest rate and you want to pay back in 2019 that is N360 million=$1m without interest rates.

It means these companies are indebted to the tune of N205m extra because they will earn in Naira and pay in Dollar and your currency has been devalued.

How will they survive with this mess?

This does not also exonerate the Discos from the mess the power sector is saddled with. Majority of the Disco owners have no business running a power utility firm but this is Nigeria where anything goes.

To make the power sector work there need to be a rejig of the power sector policy in the areas of:

Pricing of gas; Payment systems at end user and across value chain; Ownership of gas pipelines; Location of power generating stations; Grid flexibility; Entry requirements for diverse power generating sources; Extent of government involvement; Gas exploration, production and distribution; Power and all energy should be under one ministry and not a separate one for petroleum and gas; A real professional either in governance, discipline or commercial space in power, oil and gas sector should head the ministry; and Transparent governance structures.

Besides, all power facilities (from gas to home) should be covered by the national treasures act as is the practice in Ghana and South Africa.

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