Examining Nigeria’s Power Sector in 2019

Nothing describes the operations of the country’s power sector in 2019 better than poor governance, reports Chineme Okafor

Keeping up with its reputation for ineptitude, Nigeria’s power sector in 2019 plunged further to a new low and primarily failed to satisfy consumers’ appetite for quality electricity service.

Just like in 2018, when it produced an abysmal average daily supply of 3800 megawatts (MW) for millions of Nigerians to share, the sector in 2019 even went lower than expected.

And after taking in billions of naira invested as intervention funds, it failed to at least maintain the 2018 daily production records, and instead dropped its average daily output level to 3775MW.

It added to its poor outing an average volume of 3587MW of electricity that could not get to homes and offices of Nigerians every day in the year.

According to the Office of the Vice President, Prof. Yemi Osinbajo where the operational statistics were obtained by THISDAY, due to inefficiencies such as gas shortage, distribution and transmission infrastructure challenges, the 3587MW – almost as much as what was supplied daily in 2019, could not be produced or put on the national grid.

Osinbajo’s office also stated that as a consequence, the sector equally failed to earn a whopping N609.532 billion worth of revenue that could have been earned if that volume of electricity got to homes and offices in the country.

It explained that in 2018, what the sector lost as unearned revenue between January 1 and December 20 when the calculations for this report were done, was N517.088 billion.

Additionally, Osinbajo’s office disclosed that constrained volume of electricity in 2018 was 3043MW, indicating that instead of improving on its output, the sector rather raised the volume of constrained electricity volume by 544MW and unearned revenue by N92.4 billion.

A hallmark of instability
Statistics obtained from the first and second quarters so far published in 2019 by the Nigerian Electricity Regulatory Commission (NERC), the sector’s operations were abysmal, representing its recent consistency with poor outcomes.

On all ends of its operations which include service delivery, power production, revenue accrual, safety standards and compliance to regulatory demands, the sector did not do better than in 2018.

According to the NERC: “The industry’s highest peak daily generation of 5,348MW for the second quarter of 2019 was recorded on the 3rd April 2019. The available average generation capacity further declined marginally by 0.56 per cent to 6,069MW in the second quarter of 2019.”

The NERC stated that that the consecutive decrease in available generation capacity was attributable to maintenance of generation units.
It however indicated that: “Although the average plant generation units available during the quarter under review increased by one unit to 62 units, this is significantly lower than the 78 generation units available in 2018.

“Despite the increase in available generation plant units in the second quarter relative to the first quarter, the electric energy generated declined by 5.59 per cent to 8,451,428MWh from 8,951,869MWh recorded in the first quarter of 2019.”

Further in its review of power production and consumption, the NERC stated that 63.79 per cent of the available capacity was utilised in the second quarter of 2019, indicating a 4.34 percentage points decrease from the capacity utilisation rate during the preceding quarter.

It explained that the decreased capacity utilisation rate was due to technical and operational constraints such as inadequate gas supply, water management at the hydropower stations, transmission constraints, and limited distribution networks as well as commercially induced low load off-take by the 11 electricity distribution companies (Discos).

The regulator added that a comparative summary of the system stability performance of the national grid for the first and second quarters of 2019 showed that there was a relative improvement in the stability of the grid network during the second quarter of 2019 with three incidences of total system collapse, that is total blackout nationwide, unlike in the first quarter where five total system collapses were recorded.

Commercially the NERC said the viability and financial liquidity of the industry continued to be a major challenge with slight improvement in the second quarter of 2019.

During the quarter under review, it noted that the total billing to electricity consumers by the Discos rose to N186.08 billion with a total collection of N121.32 billion. It noted that while there were 0.20 per cent and 5.11 per cent respective increases in billing and collection efficiencies between both quarters, the level of collection efficiency during the quarter under review however indicated that as much as N3.09 out of every N10 worth of energy sold still remained uncollected as and when due.

“Similarly, during the second quarter of 2019, out of the total invoice of N180.08 billion issued to the 11 Discos for energy received from NBET and for service charge by MO, the sum of N55.10 billion of the total invoice was settled, representing 30.60 per cent remittance performance, and 2.83 percentage points increase from the first quarter of 2019.

“The average total remittance performance to the market for all Discos was 30.60 per cent and ranges from 13.12 per cent (Jos) to 43.27 per cent (Eko).
“Notwithstanding the slight progress recorded in the second quarter of 2019, the financial viability of the Nigerian Electricity Supply Industry (NESI) is still a major challenge threatening its sustainability,” it said.

According to the regulator, the liquidity challenge was partly caused by the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft and consumers’ apathy to payments under the widely prevailing practice of estimated billing.

“The severity of the liquidity challenge in NESI was reflected in the less than 50 per cent settlement rate of the energy invoice,” it added.

Prevalent consumers’ dissatisfaction
Although a prolonged routine, the NERC explained that in 2019 electricity consumers in Nigeria still had to deal with poor services from the Discos which did very little to improve on this front.

It said that during the second quarter of 2019, the Discos received a total of 145,959 complaints from consumers which was 3.94 per cent less than complaints received during the first quarter of 2019 but attended to a total of 128,025 of the complaints which centered on metering, estimated billing and service interruption.

NERC noted that on this list, metering and billing accounted for 52.80 per cent or 77,063 of the total complaints in the second quarter of 2019, adding that it was investigating instances of poor complaint handling and resolution process by the Discos.

Additionally, the regulator’s desire for a safe electricity industry was not fulfilled as it recorded a total of 73 accident reports from the operators during the second quarter of 2019 which resulted in 37 deaths and 18 injuries of various degrees involving both employees of the companies and third parties.

In comparison to the first quarter of 2019 when 10 deaths and seven injuries were recorded, the NERC stated that there was a significant decline in the health and safety performance of the operators in the second quarter.

Regulatory enforcements were equally challenged in 2019 as the NERC which threatened to withdraw operational licenses of eight Discos for allegedly abusing the sector’s law, eventually freed most of them to the chagrin of consumers who criticised the regulator’s decision.

Experts’ review
Providing an expert appraisal on the sector’s operations in 2019, the President of the Nigerian Association of Energy Economics, Prof. Yinka Omorogbe, had told THISDAY that the sector had done badly.

Omorogbe, who questioned the policy choices of the government in sector said that, “the electricity sector is actually much more than a troubled segment of Nigeria’s energy industry.”

According to her, “So far, that sector is frankly speaking, a dismal failure, and until we come to terms with this fact, we will get nowhere in our quest for constant electricity for every Nigerian.”

She noted that accepting that life without modern energy services is tough should the starting point for Nigeria to overcome her electricity challenges.
“This is now a well-known and incontrovertible fact internationally, but somehow, we do not know this in Nigeria. We have become a nation where everyone has a generator, because of the epileptic nature of our electricity supply, even if you are connected to the electricity grid.

“In other countries, generators are backups in case of infrequent blackouts. In Nigeria, unfortunately, when there is not light for days, (and that is not an unusual occurrence) the generator is the primary source of supply.

“The result is that numerous businesses have at least two large generators, with all the attendant environmental and financial negatives,” Omorogbe explained.

According to her, “Right now, half of the population has no electricity, and those of us that do, suffer from frequent interruptions. Nigeria has an electricity access rate of 54 per cent, lower than Ivory Coast with 66 per cent, Gabon with 92 per cent, and Ghana which has 79 per cent.

“The Gambia has a 56 per cent electricity access rate while all of North Africa has 100 per cent access, with the exception of strife-ridden Libya, and even that troubled country has an electricity access rate of 72 per cent.

“Why Nigeria has been unable to achieve 100 per cent electricity access is a complex answer…I will say that Nigerians do not yet see that electricity is a necessity for all persons, irrespective of where they reside or their level of income, and this includes those who are supposed to be planning for electricity.

“To put this conversation in perspective, South Africa generates 51,000 megawatts (MW), from varied energy sources, has a population of 67 million; and produces 3.904-kilowatt hour per person per year. Egypt has 100 per cent electricity coverage from 40,000MW, and has nearly one hundred million people.

“However, Nigeria has an installed capacity of about 12,000MW, normally generates about 4,000MW daily, and has about 200 million people. For a country of nearly 200 million people to be planning for 20,000MW, as we did in our ‘Vision 2020’ document is very strange to me,” Omorogbe added.

Similarly, a former chairman of the NERC, Dr. Sam Amadi questioned the impact of the financial bailouts the government has so far extended to the sector which included a N213.4 billion bailout in 2014 through the Central Bank of Nigeria (CBN)-Nigeria Electricity Market Stabilisation Facility (NEMSF) and N701 billion through the same CBN in 2017, describing them as perhaps evidence that the sector could be failing.

“The bailouts are unfortunate but necessary except you want cessation of electricity business in Nigeria. Bailouts are what you get when your reform fails; when there is no commercial viability in the sector. Government must step in.

“But my problem is the manner of the step-in. Government is taking all the risks and leaving benefits to private operators. If you provide the money, then take some responsibility for decision making so you can control market behavior. Otherwise the bailout becomes a moral hazard that induces bad corporate behavior,” Amadi said.

He also talked about the enforcement action on the Discos which the NERC recently disclosed the final outcome of its review of their response and said the regulator could do a comprehensive enforcement rather than focus only on the Discos’ financial remittances.

“We want more power and worry less about the quality of power. But the regulator needs to work the trapeze and somehow protect consumers interest while promoting production of power.

“In theory this works fine. In practice the balance must tilt one side. Presently the operators are getting more attention with all the ‘bail-outs’ and focus on tariff regime.

“But we need to drive satisfaction for consumers by putting the Discos feet on the fire. I think the query to Discos should not just focus on failure to settle bills. It should include failure to serve customers well,” he noted.