2 January 2013

Nigeria: In 2012, the Power Sector Struggled to Be Powerful

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The power sector in Nigeria remains largely in the doldrums in spite of sing-songs from the federal government, given that the ever expanding Nigerian population of over 160 million is still grappling with just 4,500 megawatts of electricity, an amount of power used by medium sized European cities.

The year 2012 was quite eventful for the power sector. Apart from Professor Barth Nnaji's controversial resignation as minister of power, the minister of state Arch. Darius Ishaku was redeployed to the ministry of Niger Delta in the same capacity while Hajiya Zainab Ibrahim Kuchi, formerly at the Niger Delta ministry took over his place.

Other critical issues and events that shaped the power sector in 2012 were; the increase in electricity tariffs, sale of the electricity distribution companies, generation companies and the management contract of the Transmission Company of Nigeria (TCN) including the controversies that trailed it as well as renewed show of interest by foreign investors among others.

Nnaji resigned

Professor Nnaji resigned his post as power minister in August over alleged conflict of interest. He allegedly had interests in the company bidding for the Afam Power Plant, one of the six power generation companies put up for sale. As a sitting minister; it was considered against transparency and good governance. He denied all allegations. He said he had resigned his position as chairman of Geometric Power, the company with links with the group bidding for Afam Plant.

Consequently, the Afam power plant in Cross River state had all the bids nullified by the National Council on Privatization with the excuse that they failed to meet the 75 percent mark on technical evaluation. Another round of bidding process is now set to take place early this year.

Power generation capacity went up to 4500mw

By the middle of December, the Transmission Company of Nigeria announced that power generation had hit an all time high of 4502 megawatts. The improvement came from some of the commissioned National Integrated Power Plants and recovered units in the old turbines.

The year had started with 4,100mw but that was short-lived as system collapses dropped the capacity to average about 3000mw in the course of the year.

The federal government had set a target of 5000MW by December though but the MYTO II was designed with a projection of 3500MW by December 2012, chairman and chief Executive Officer of Nigerian Electricity Regulatory Commission, Dr Sam Amadi had explained.

Increased Electricity Tariffs

On June 1, 2012, a new set of electricity tariffs took effect as announced by the Nigerian Electricity Regulatory Commission (NERC).

The NERC chaired by Dr Sam Amadi argued that the tariffs in Nigeria were the lowest in the West Africa sub-region, and were not cost reflective and as a result disincentive to investors/potential investors.

The new tariff dubbed Multi Year Tariffs Order (MYTO) II which provides for minor review for every six months is subject to major review every five years.

According to the new tariffs, put in five basic categories, poor electricity consumers are put on subsidy, paying N4 per kilowatts instead of N7. The poor consumers are classified as Residential 1 (R1); those who expend 50 kilowatts or less of electricity in a year.

A subsidy of N50 billion for 2012 and 2013 was announced by the federal government.

Other categories include; Commercial, Industrial, Special and Street lighting.

Sale of DISCOs, GENcos

After the Power Holding Company of Nigeria was unbundled into 18 successor companies, the goal post for the transfer of their ownership had been shifted severally in the past. The year 2012 saw a marked improvement in the speed to reforms promised by the federal government.

Failed privatization in recent history of the country keeps haunting the government. Consequently, the announcement of the preferred bidders by the NCP was greeted with criticisms from all corners and groups.

For instance, the companies announced as winners were variously linked with political money bags and close associates of government officials.

Consortiums backed by former head of state Abdulsalami Abubakar and businessman Emeka Offor are among them.

Abdulsalami's Integrated Energy won the bid for the Yola and Ibadan discos.

Also, Interstate led by Offor was approved as the preferred bidder of the Enugu disco. Vigeo Power Consortium emerged the winner of the Benin disco.

This angered governors of Edo, Ekiti, Delta and Ondo states after the firm they backed; Southern Electricity Distribution Consortium lost out.

The governors rejected the bid results, threatening not to allow Vigeo operate in their areas.

Governor Adams Oshiomhole of Edo state said: "The entire process was a racket that is inconsistent with running a transparent government. The BPE used a set of criteria that have never been used before.

"The figures put forward by Vigeo were shady and we observed that funny things started happening, even before the bids were opened."

700MW Zungeru Hydro Plant

Thirty years after conception, the federal government finally entered into a contract with Chinese consortium, CNEEC-Sino Hydro Consortium for the construction of a 700 megawatts Hydro Electric Power Plant in Zungeru, Niger state.

The contract was consummated on December 11, 2012. The project which is to be completed in 48 months (four years), is to be 75 percent financed by the Exim bank of China while the rest 25 percent is provided by the federal government.

The project started in 1982 but has received less than stellar attention since then until recently. It was originally conceived to be 950MW but was reviewed downward in 2008 by Coyne et Bellier which provided the feasibility study.

TCN, Manitoba controversy

Manitoba Hydro International of Canada won the bid to manage the Transmission Company of Nigeria through a bidding process conducted by the Bureau of Public Enterprises and consequently signed the $23.7 million contract in July.

The Power Grid of India lost out in the bidding contest. Transmission is the key link between power plants and sub-stations feeding end users of electricity in the country.

However, barely two months into the contract, news filtered in that President Goodluck Jonathan had cancelled the transaction, citing non-compliance with due processes.

This was followed by public angst and disappointment as the move was viewed as a sign that the Nigerian government does not respect contract obligations and may well send a bad signal to potential foreign investors.

In another week, the cancellation was reversed and the contract restored to Manitoba but the Director General of BPE, Ms Bolanle Onagoruwa was axed few weeks later, allegedly for her role in taking sides with Manitoba.

The TCN is one of the successor companies created from the unbundling of the Power Holding Company of Nigeria. It combines the functions of a transmission services provider, a system operator and a market operator, all of which are central to the sustainability and development of the electricity sector.

PHCN workers, FG resolved gratuity spat

After three years of horse trading and back stabbing between the workers of the PHCN and the federal government over gratuity and pension payments, both parties finally reached agreement in December.

The crises which has pitched both parties against each other followed the ongoing privatisation of the Power Holding Company of Nigeria (PHCN) since 2010. During the one year and four months of Professor Barth Nnaji's tenure as power ministry, he had a tough fight with the workers over formulae to employ in the gratuity settlement. They celebrated when the minister resigned in August.

The parties agreed that total accrued pension as at June 30, 2007 shall be paid in accordance with the PHCN 2010 conditions of service.

It was also agreed that 25 per cent is payable to exiting PHCN staff while 75 per cent shall be paid into the Retirement Savings Accounts. The federal government subsequently announced that about N170 billion was ready for the commencement of payments while the BPE prepares the total cost to be offset soon.

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