Nigeria’s Failing Power Sector

Nigeria’s privatised power sector is failing, and a good number of defining indicators support this, writes Chineme Okafor

Electricity personifies progress and modernity; its availability makes marvellous things happen in societies, but today 97 million people in Nigeria don’t have it since they are not connected to the national grid yet.

The fortunate millions who are connected, have in the last five years shared a meagre 3,680 megawatts (MW) available to the national grid. In some cases, data show that their supplies are just enough to power lightbulbs but never enough to turn fans and run simple household machines. Some pay for this terribly poor supply; others simply steal it or decline to pay.

From the bright, radiant lightbulbs that help schoolchildren study more, to the complex machines that run economies, the impressions electricity leaveson people’s daily lives are enormous and striking.

It is often explained as the foundation for contemporary civilisation; airports run on its power, industries rely on its strength, health centres look to it to overcome diseases and people expect that it will keep their homes comfortable for living.

In 1879, when Thomas Edison displayed an incandescent lamp for the first time in Menlo Park in New Jersey, he perhaps intended for it to make impressions on societies, but maybe not as profound as becoming the bedrock of modern progress.

Nevertheless, researchers in the natural sciences and economy as well as anthropologists have engaged with and highlighted the mutual relationship between electricity and societies; they have mostly played up the value of energy security and how societies often leverage electricity from diverse sources – solar, fossil fuel, wind, hydro – to transform their fortunes.

Electricity Access Deficit in Nigeria

Nigeria, a country of about 180 million people, has most of these electricity sources endowed to it but data show that it has failed to leverage them for its progress.

In a recent report of the World Bank, the country on the back of its unreliable electricity supply, loses N10.1 trillion or about two per cent of its Gross Domestic Product (GDP) yearly.

Similarly, out of the 190 countries the bank surveyed another report to determine their level of access to electricity, it ranked Nigeria 171 globally and 33 among 46 Sub-Saharan Africa countries.

The bank explained that 97 million people or 47 per cent of Nigeria’s population today do not get electricity from the national grid. These people it said rely mostly on battery-powered torchlights and fuel generators to electrify their homes and offices.

The country, it added has the largest electricity access deficit in Sub-Saharan Africa and the second largest in the world, after India.

“For the bottom 40 per cent, access to grid electricity is lower at about 31 per cent nationwide.

“The average annual per capita electricity consumption of Nigeria is 147kWh, which is a fifth of the average low middle-income country consumption,” the World Bank said of Nigeria’s electricity situation.

It further stated that: “Of the households connected to grid electricity, most experience blackouts daily, as well as frequent voltage fluctuations. As a result, 40 per cent of households with access to electricity use generators and many rely on other non-grid sources such as solar home systems, solar lantern/lighting systems, rechargeable batteries.

“Low income-households resort to candles and flashlights for lighting and firewood for cooking, which are inefficient and potentially harmful to their health and the environment.”

The bank reiterated that insufficient energy impacts all Nigerians, but that the burden frequently falls predominantly on women in the country.

Electricity Generation in Nigeria

Starting out for the first time in 1896 but officially becoming a public good with the setting of the first electric utility company, known as the Nigerian Electricity Supply Company (NESC) in 1929, the history of electricity generation and distribution in Nigeria is quite as old as the product itself.

As explained by the Nigerian Electricity Regulatory Commission (NERC) – the regulator of the country’s modern-day electricity sector, the Electricity Corporation of Nigeria (ECN) and National Electric Power Authority (NEPA) succeeded the NESC. NEPA however emerged as a state-owned monopoly controlling the generation, transmission and distribution of electricity across the country.

According to the NERC, NEPA operated as a vertically integrated utility company and had a total generation capacity of about 6,200 megawatts (MW) from two hydro and four gas power plants. It also had kilometres of transmission and distribution cables and infrastructure but was hugely incompetent.

Its operational inefficiencies resulted in unstable and unreliable electricity supply services so much so that eligible consumers experienced frequent power cuts and long periods of outages.

NEPA, the NERC added represented, “an industry characterised by lack of maintenance of power infrastructure, outdated power plants, low revenues, high losses, power theft and non-cost reflective tariffs.”

Fast-forward to 2001, and Nigeria coming through a popular transition to democracy from military rule in 1999, the country considered and initiated reforms to revive her electricity sector.

It promulgated the National Electric Power Policy to establish an efficient electricity market and sought to transfer the ownership and management of the infrastructure and assets of NEPA to private businesses.

This way, it envisioned that it will get the government out of the real business of generating and distributing electricity to allow private businesses leverage their famed knowhow to revive the rather dead sector.

By 2005, the country made significant progress in its planned reform of the sector, and a new law, the Electric Power Sector Reform (EPSR) Act was in place.

The EPSRA became the bedrock of the power reform; it birthed what was supposed to be an independent regulator, NERC and created the Power Holding Company of Nigeria (PHCN) from NEPA as a transitional corporation that had 18 successor companies – six generation companies (Gencos), 11 distribution companies (Discos) and a transmission company.

By design, the Gencos and Discos were to be privatised, while the transmission company would be operated through a management company. These moves were equally matched with the setting up of a credible off-taker – the Nigerian Bulk Electricity Trading Plc (NBET) – to buy and sell electricity from the Gencos to the Discos until direct power trades was possible in the sector.

Essentially, the NBET was to become a sort of a clearing house, helping to counterbalance expected trade deficits between the Gencos and Discos. Its chief responsibility was to ensure that the sale of electricity between both entities was smooth in the interest of Nigerians.

By November 2013, the privatisation of all Gencos and 10 of the 11 Discos was completed – the last Disco was privatised in 2014. As planned, the government retainedits ownership of the transmission company. An efficient power market was then expected.

Failing Sector

Shortly after privatising, the then promising power sector began to fall apart through what experts called teething problems. Seven years after, its fortunes and goodwill have further deteriorated. Today, most Nigerians consider the sector hopeless and its operators dishonest.

From records, the exercise which was undertaken to instil efficient service delivery through firm contracts, has failed to lift up. Trust deficit between key stakeholders, regulatory and policy failures, tariff shortfalls and contempt for contracts are chiefly its defining characters.

Key performance indicators (KPIs) agreed between parties ahead of the privatisation have equally been spurned, making its stakeholders quite unwilling to fix its challenges in harmony.

By the first quarter of 2020, the NERC disclosed that these challenges remain unaddressed.

In its first quarter 2020 report, the regulator noted that: “The financial viability of NESI (Nigerian Electricity Supply Industry) has remained a major challenge threatening its sustainability.”

“The liquidity challenge is partly due to 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,” it added.

The NERC equally stated that only 10,477,856 people or homes are registered electricity customers in the country, from which only 4,231,940 or 40.39 per cent have been provided meter by their Discos.

Additionally, it explained that from service complaints lodged by consumers, cases of load shedding, delayed connection, service interruptions, outages, arbitrary disconnections and infrequent voltage were top on the list.

This, it inferred indicated that nothing really has changed from the inglorious days of NEPA. Even safetypractices are frequently compromised in the sector so much that in the first three months of 2020, nine people died of electrocution.

Providing their perspective on how the sector began to fail, power Gencos in June 2020 claimed that the government from its inactions bungled the privatisation process, hence the failure.

They stated that the governing contract agreements reached with the Bureau of Public Enterprises (BPE) prior to the November 2013 takeover were not executedand that the disregard for agreements which included the Power Purchase Agreement (PPA), Gas Supply Agreement (GSA), Gas Transportation Agreement (GTA) and grid connection agreement resulted in the gradual decline of the privatisation goals.

They equally noted that the agreement for 100 per cent financial security of power production, in other words,guaranteeing availability of electricity from existing Gencos with stable securitisation was also botched.

“This has led to a huge outstanding debt of approximately one trillion naira owed to Gencos from the inception of privatisation till date,” the Executive Secretary of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji told a local newspaper – Premium Times in a June interview.

Ogaji noted that the non-provision of the securitisation for payments encouraged multiple defaults on invoices for power supplied to the national grid and with zero consequences for such defaults.

According to her, while Gencos receive payments below their expectations for power generated, “the weak transmission and distribution networks inherited from the PHCN are still in existence and are not complementing Genco’s efforts in maximising available capacities to the benefit of the Nigerian consumers.”

“The maximum capacity attained by the national grid ever is 5,375MW as opposed to the current overall average available capacity, 8,589MW, and installed capacity of 13,427MW, with an expansion capacity of 20,000MW in an enabling environment,” she further explained.

In essence, Ogaji stated that the average volume of electricity stranded from getting to Nigerians everyday as a result of poor transmission and distribution facilities is 3,214MW.

“This implies that if we had a grid capacity that matches our average available capacity, 3,214MW can be immediately made available to Nigerians with the current state of operations of the Gencos and at no additional cost,” she added.

But typical of the fraught relationship between operators in the sector since its privatisation, the Discos subsequently debunked the Gencos claims.

“Since 2015, there has been no significant improvement in the energy generated and wheeled by TCN, that is finally received by Discos. It continues low and flat, only affected by a seasonal effect between the dry and rainy seasons,” they said in their first quarter 2020 operational report which was published by their association, the Association of Nigerian Electricity Distributors (ANED).

The Discos equally claimed that supply uncertainty from the Gencos, NERC’s regulatory inconsistencies as well as theft and assets vandalism have remained key challenges to progress in the sector.

Equally providing his perspective on the sector’s failures so far, Wale Shonibare who is a Director for Energy Financial Solutions, Policy and Regulation at the African Development Bank (AfDB) pointed to governance failures and unhealthy political compromises as key reasons.

Shonibare spoke at a recent meeting in Abuja where he stated that, “to address the liquidity issue, there has to be a reset of the utilities. The lack of political will and regulatory power has led to the dis-alignment in the power sector.”

He added that on the basis of its failure, potential investors would be cautious to put their money in the sector for service improvement.

Messier Situation

In furtherance, the World Bank made the condition of the country’s power sector clearer when it recently explained that between 2017 and 2019, the level of debt from tariff shortfalls totalled N1.249 trillion.

It stated that N322 billion, N403 billion and N524 billion were recorded in the sector as tariff debts in 2017, 2018 and 2019 despite the government spending N1.301 trillion within these years as subsidy payment for power production. The subsidy it noted however benefits only rich Nigerians.

“The significant fiscal resources spent on funding tariff shortfalls disproportionately benefit the (relatively) rich.

“While access to grid electricity of the poorest 40 percent, ranked by per capita household expenditures, is 37 per cent, 68 per cent of the richest 60 per cent reported access to the grid.

“Living in more affluent neighbourhoods, the top 60 percent also experienced fewer outages, and spent almost twice as much on electricity as the bottom 40 per cent.

“As a result, the fiscal expenditure on tariff shortfalls largely benefits the rich. Eighty per cent of the fiscal expenditure on tariff shortfalls benefits the richest 40 percent of the population, while only eight per cent benefits the bottom 40 per cent, and less than two per cent benefits the poorest 20 per cent,” the bank explained.

Similarly, data which THISDAY obtained from the Advisory Power Team in the Office of the Vice President, Prof. Yemi Osinbajo, and subsequently analysed showed that between 2015 and November 2020, the average volume of electricity from the grid to Nigerians every day was not more than 3,680MW.

Within these years 31393MW was not supplied daily as well on account of several constraints, while a massive N3.074 trillion could not be earned by the sector.

The data explained that constraints from insufficient gas supply to Gencos, poor distribution infrastructure and transmission infrastructure continued to help the sector to underperform within these periods.

Further breakdown of the data showed that in 2015, the average daily supply was 3,790MW while 2,413MW was shut in resulting in the loss of N246.6 billion. 2016, had an average daily supply of 3,211MW and 3,546MW with N622.9 billion lost by the sector.

In 2017, it was an average of 3,559MW supplied daily to the Discos from the national grid, 2,420MW was not supplied and N425.1 billion lost. 3,807MW was the average daily supply in 2018 and 3039MW was not supplied with N532.4 billion lost, while 2019 had 3,782MW and 3,599MW supplied and not supplied respectively as N630.5 billion was unearned.

Between January and November 2020, the data also showed that an average of 4,007MW was supplied daily while 3,880MW was not, resulting in a deficit of N616.4 billion.

Clearly from the perspectives of experts, these recurrentshortcomings of the sector are signs that it has refused to innovate and failed to recognise that its customers are key to its operations. The sector according to the experts has also failed wean itself of deep-rooteddishonest practices.

Based on the World Bank’s data, aggregate technical, commercial and collection (ATC&C) losses of the Discos in 2019 hovered around 41 per cent while inadequate metering of end-use customers and non-settlement of electricity bills by many federal, state and localgovernment Ministries, Departments and Agencies (MDAs) across the country have remained high; these have further ensured that across Nigeria today electricity supply remains poor, indicative of a failing sector.