Finding Lasting Solution to Nigeria’s Power Problem

Efficient generation and distribution of electricity in Nigeria has over the years remained a sore point and the major threat to economic growth and development after poor macroeconomic policies of government. Varied measures including the transfer of major power infrastructures from government to private hands have failed to engender efficiency in the sector. Nosa James-Igbinadolor writes

Nigeria has a calamitous electricity situation that is the second major constraint to economic development after bad macroeconomic policies of government. Some 55 per cent of the population has no access to electricity and out of the total energy consumption, traditional biomass such as firewood and charcoal accounts for 86 per cent of energy use in the country. The gap between production capacity and demand in combination with poorly maintained generation installations and a poor national and regional electricity grid, results in unstable and unreliable electricity supply for both households and companies

The electricity challenges over the years, was a widely accepted analogous testament to the ineffectiveness of the Nigerian state. For most Nigerians, the incapacity of successive state-run electricity management companies including the then National Electricity Power Authority, NEPA and its successor PHCN, aptly expounded and exemplified the failure of the state in the delivery of basic and efficient services to its citizens.

The abysmal situation hasn’t changed much with the privatisation of the bulk of the nation’s power sector. It was in August 2010 that former President Goodluck Jonathan, presented a roadmap on the power sector reform to stakeholders and investors in the power sector, aimed at transferring the running of power utilities to the private sector.

The Power Sector Reform Roadmap, which preceded the then existing Electric Power Sector Reform Act of 2005 (EPSR Act 2005) passed under the leadership of former President Olusegun Obasanjo, incorporated the privatisation of the state-owned Power Holding Company of Nigeria (PHCN). Thus, it was that when in late 2013 almost all of the six power-generation plants and 11 distribution companies unbundled from PHCN were finally sold, there was high public expectation that the new owners would ensure a swift end to the intermittent power outages in the country

While the privatised power companies may have been unfettered from the debilitating state officialdom that hitherto constrained their operations, their autonomy has not stimulated efficiency gains as they continue to encounter lingering organisational and operational challenges that continue to hinder progress in the electricity sector including an outdated and poorly maintained transmission network, which the government still owns, but put under private management.

The federal government projection in line with Vision 20:2020, aims at a target of 40,000MW by 2020. This according to an analysis carried out by Vetiva Capital, “would imply significant investments from the private sector, as the roadmap estimates suggest an annual investment of $10 billion (N1.5 trillion), which effectively amounts to about 81per cent of Nigeria’s 2010 capital expenditure budget.” A recent study published by the French Development Agency and the European Union, agreed with the position that Nigeria’s power distribution sector would need to invest more than USD 10 billion in the next five years to reach reasonable standards in quality of supply and service.

Less than three months to the beginning of 2020, it is clear that the country has not only missed that target, but would be unable to come near that mark anytime soon. Just as the state has failed to deliver efficient electricity to Nigerians, the private sector has also failed to do so.

The poor state of electricity supply in Nigeria has severely imposed significant costs on the manufacturing sector as the rickety power grid remains and is often cited as the most critical growth restraining factor in the economy. With a potential to generate 12,522 megawatts (MW) of electric power from existing plants, the country is only able to generate around 4,000 MW at best. A 2015 report by GIZ noted that “2, 700 MW of power generation capabilities are regularly lost due to gas constraints in a country with one of the largest natural gas deposits in the world. Up to 500 MW are lost due to water management, while several hundred megawatts are regularly lost due to line constraints.” In April this year, power generation in the country was significantly reduced due to a gas pipeline leak that forced the shutdown of Egbin, Omotosho, Olorunsogo and Paras power stations. The Transmission Company of Nigeria (TCN) said the four power stations were completely shut down due to leakage on the Escravos-Lagos Pipeline System gas pipeline.

The adverse toll on the economy is glaring as industries continue to close down or relocate out of the country as a result of poor power supply. According to the National Bureau of Statistics(NBS), Real GDP growth in the manufacturing sector stood at 0.81per cent in the first quarter of 2019 (year on year). This was lower than in the same quarter of 2018 by -2.59 per cent points, and the preceding quarter by -1.54 per cent points. Foreign investment in manufacturing is virtually non-existent as investors remain naturally unwilling to bear the burden of investing in private power infrastructure that will support their businesses. Consequently, neighbouring countries including Ghana and Ivory Coast have become major manufacturing investment destinations in the sub-region at the expense of Nigeria.

The failure of the private sector to efficiently deliver is clearly visible across all the states in the country. In virtually all the thirty-six states, darkness pervades the major cities as well as the long unattended to rural areas. In Edo state, the Benin Electricity Distribution Company (BEDC) supplies just six hours of electricity to homes in the state during the day, while virtually no home or business is able to access power from the company between 9pm and 9am every day. The situation is not different in most states. Last November, a visibly agitated governor of Edo state, Mr. Godwin Obaseki, ordered the Managing Director of the BEDC, Mrs. Funke Osibodu, out of his office over the atrocious electricity supply situation in the state. The governor posited that, “The BEDC has been an obstacle all the way. They will not provide electricity and will not allow you to get alternative sources of power. The state will not allow it.” He added that, “As Governor of Edo State, we have lost confidence in the BEDC. We don’t want them here. We are in darkness. Let us remain in darkness until we find people who are capable of delivering electricity. This is our position.”

An Abuja based Lawyer and power sector specialist, Shakede Dimowo, opined that the failure of the market to deliver where the state had failed was simply due to the incapacity of the generating and distributing companies to invest in new infrastructure and thus expand their generating and distribution capacities.

Dimowo noted that many of the private power operators had struggled to make progress, especially as they have had to contend with challenges, including ageing facilities requiring substantial amounts of investments to upgrade and expand, shortage of gas supply for thermal plants and high levels of unpaid electricity bills.

This opinion was corroborated by sources within various generation and distribution companies, who spoke to THISDAY. According to a senior management staff of the Jos Electricity Distribution Company, who spoke on condition of anonymity, the problem in the GENCOS is that they are not generating enough and they are not generating enough because they have refused to invest in new infrastructure.

The source further noted that “because virtually all GENCOS in the country generate power either through hydro or gas, they have had to face the lingering challenge of poor and irregular gas supply from the NNPC as well as the persistent issue of low power generation during the dry seasons as a result of low water volume at Kainji, Jabba and Shiroro”.

A major issue that has sedated new investment by the GENCOS and DISCOS has been the uneconomic energy tariffs especially the pricing of electricity, which the private utilities have long demanded a review of. Between 2015 and 2019, the average electricity tariff climbed from N12 kWh to about N32kWh and is slated to go up again by about 30 per cent in 2020. It was against the persistent calls for government review of electricity tariffs that the Nigerian Electricity Regulatory Commission, recently approved an increase in the tariff payable by power consumers across the country with consumers having to pay an additional sum of between N8 and N14 for every kilowatt-hour of energy as from 2020. Whether this increase in electricity cost would incentivise the electricity companies to invest in new and better infrastructure that would ultimately lead to a corresponding increase in output, remains to be seen.

Dimowo agreed that investors in the sector were not motivated to invest in new infrastructure as the “tariffs are not cost reflective and this weakens the finances of the utilities and ultimately harms their capacity to deliver efficiently.”

The President of the Manufacturers Association of Nigeria(MAN), Mr. Mansur Ahmed, rejected this position earlier this month when he argued that the DISCOS ought to build capacity to deliver and operators at that level should also have enough resources to be more effective. According to him, the industrial consumers are already the ones paying the highest rate and subsidising other consumers. So, to continue to increase the tariff when neither the quantum nor the quality of electricity supply has improved is not fair to the manufacturing and industrial sectors.

“We do understand that the power sector is in a very difficult situation and a lot needs to be done to firm things up. It goes beyond just increasing tariff. The sector needs to be completely restructured and overhauled. They should ensure that proper capacity is built and the private operators, especially at the distribution level, must have the capacity and resources to run this sector properly.

“That really goes beyond just throwing money into the sector. Already, the government has invested hugely in terms of capital and interventions. Over a trillion naira has been thrown into this sector with very little improvement to show for it.

“Increasing tariff and injecting funds into the system is not the solution that will get us out of this situation. In the manufacturing sector, electricity is one of the most critical inputs.

“There is no way our products can be competitive if we have to cope with this kind of energy supply and the cost of it. Clearly, we cannot continue to do what we have been doing all over again. Something drastic must be done to change the situation.

“It should not be business as usual again. A very radical solution must be found to get us out of here”.

This very radical solution seems to be emerging with the return of state interest in the form of state governments intruding into the market space. Earlier in the year, former Minister of Power, Works and Housing, Mr. Babatunde Fashola, called on other tiers of government such as state and local governments to pay attention to communities within their territories with limited access to grid power to improve energy access for them using off-grid solutions.

According to Fashola, contrary to widely held beliefs, state governments can establish their own power stations, can generate, transmit and distribute electricity in areas not covered by the National grid within that state and establish their own electricity to promote and manage their own power stations. He added that areas not covered by the grid constitute viable areas of intervention by state government to contract their own power supply without reference to the federal government.

Many state governments have taken up this challenge from Edo to Imo and Rivers.

A 2018 World Bank analysis report on Getting Electricity Indicator of Doing Business which measured the time, procedures and cost to connect to the grid, as well as service reliability and electricity tariffs showed that there was no significant difference across utility ownership types with regards to the efficiency and quality of services provided to commercial end-users.

According to the report, overall, there are no major differences between the efficiency and quality of services which commercial end-users receive from private or public utility companies. This is also reflected by the fact that the top 10 economies in the Getting Electricity indicator of Doing Business have both majority public (e.g. Korea Electric Power Corp and Dubai Electricity and Water Authority) and majority private distribution companies (e.g. CLP Power Hong Kong Ltd and UK Power Networks) represented”.

The report concluded by noting that “more nuance is needed when examining outcomes across utility ownership types. After all, many utilities have a mixed ownership structure between the public and the private sector. Studies have also found that public-private partnerships as opposed to entirely private (or public) ownership may be more conducive to utility performance, an area that deserves further research”.

It is unclear, if state returns to power generation and distribution albeit in a miniscule size, will provide the much-needed impetus to the privately-run utilities to get their acts in order. What is clear however, is that with the glaring failure of the state at all levels in delivery efficient public goods over the past 60 years, it is unlikely that the ambitious entry of state governments into the capital-intensive power sector will yield efficiency gains. Like everything touched by government in Nigeria, they are most likely to be characterised by corruption and mismanagement.