Arguably, the greatest economic challenge facing the Nigerian economy is the decrepit state of the power sector. The lack of consistent electricity does not only stifle economic growth, but also considerably reduces the standard of living for households across Nigeria. It has been estimated that Nigeria loses around 2 per cent of potential growth each year to poor power supply and it's associated problems. Furthermore, businesses are crippled by the astronomical cost of electricity while they receive very little in terms of power supply.
In recent times, Nigeria has adopted a ‘bring your own infrastructure’ approach to business, as the power sector has become renowned for its inefficiency, lackluster output and increasing fragmentation. Epileptic power supply has limited the amount of foreign investment into Nigeria, as investors search for countries with more conducive business environments. In order to fully grasp the scale of this problem, a historical expedition through the legacy of dysfunction in the power sector is necessary.
From its conception in 1972, the National Electric Power Authority (NEPA), a fully government-owned entity, was almost exclusively responsible for supplying electricity to Nigerians. NEPA, the offspring of a merger between all existing electricity departments in Nigeria, including the Electricity Corporation of Nigeria (ECN) and the Niger Dam Authority (NDA), began to simultaneously regulate, operate and invest in the power sector. As NEPA continued to fail on its mandate, this unsustainable arrangement was eventually replaced through the enactment of the Electric Power Sector Reform (EPSR) Act in 2005.
This crucial piece of legislation replaced NEPA with the Power Holding Company of Nigeria (PHCN) which would effectively be ‘unbundled’ into six power generating companies known as ‘gencos’ (Afam, Geregu, Kainji, Sapele, Shiroro, Ugheli) and eleven power distribution companies known as ‘discos’ (Abuja, Benin, Eko, Enugu, Ibadan, Ikeja, Jos, Kaduna, Kano, Port Harcourt). These gencos and discos would be subsequently sold to local and foreign strategic investors in 2011 by the Bureau of Public Enterprise as a way of privatising the power sector. The EPSR Act also established the creation of the Nigerian Electricity Regulatory Commission (NERC), which would monitor and regulate the price of electricity in the newly competitive electricity market. These transformative steps formed the foundation of the power sector as we currently know it, but a series of structural issues continue to plague the sector.
The challenges facing the power sector are closely linked to the chronic lack of critical infrastructure across the entire power value chain. To fully understand this point, a quick detour into the mechanics of power generation and distribution would be helpful. To produce and supply power from a gas-fired power plant (the bulk of Nigeria’s power generation), there are effectively three processes that must be followed. Firstly, natural gas must travel from a pipeline to a turbine where it is mixed and burned to produce combustion gas, this gas is then used to spin a turbine which powers an electrical generator. Once the power is generated, it is transported to the Transmission Company of Nigeria (TCN) through transmission lines. When TCN receives the power, it is then disbursed to the various substations of discos across the country which in turn, deliver it to households.
Although the northern parts of Nigeria use hydroelectricity as opposed to thermal power plants due to better dam access in hilly regions, there are still massive inefficiencies across the entire process for both methods of power supply. These make it nearly impossible to have constant power supply in Nigeria.
To begin with, whether by sheer stupidity or ‘intelligent design’, gas pipelines were not built to supply feedstock to some power plants. This has made several gencos redundant as they have no way of powering their generators. Even those that manage to generate power (above 500 KvA) will likely lose it in the intricate web of the TCN who guarantee an 8% loss of power upon arrival. This inefficiency is caused by the weak transmission links connecting TCN to power generators. However, with the formation of the Nigerian Bulk Electricity Trader (NBET), independent power plants (IPPs) now have guaranteed demand for their power as NBET buys power from IPPs and sells to discos and other buyers.
Nevertheless, even if you have somehow managed to have your power distributed to discos, there is likely to be little revenue generated as most discos are yet to implement a metering system that accurately charges customers for power delivered. So to say the least, uninterrupted power supply remains a near fantasy for now. Nonetheless, in the past few years, there have been considerable strides in the pursuit of turning this dream into a reality.
In 2013, the Central Bank of Nigeria (CBN) and NERC began outlining the framework for their intervention in the power sector. At the time, it had become clear that the existing arrangement was not working and drastic action had to be taken. Gas suppliers were refusing to send gas to gencos, discos were suffering from colossal aggregate technical and commercial (AT&C) losses due to metering, billing and collection problems and the electricity tariff was not accurately reflecting the total cost of producing electricity. This is why by 2015, the CBN announced that it would be creating the ‘Electricity Market Stabilisation Facility’. This facility would come in the form of an Intervention Fund of ₦213 billion to settle legacy gas debts and provide discos with financial support to meet their capital expenditure requirements. At the same time, NERC would ensure the tariff was economically priced. Although the recent elections caused a prolonged delay in the disbursement of this facility, there is hope that President Buhari’s administration will sustain this momentum.
Even with this notable progress, there is still much to do if Nigeria is to meet its goal of constant power supply in the decades to come. The infrastructure in the power sector needs to be revamped from start to finish and there needs to be a stronger policy framework created to compliment this (i.e. regulation, prices and competition). Nigeria’s ability to meet its energy demands will be a defining issue over the next few decades and political will is the indispensable ingredient needed to curb this challenge.
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