3 January 2013

Nigeria: Power Supply - Prediction Comes True (I)


As 2012 closed, President Jonathan records another high in power supply, On December 23, 2012 the Nigerian Electricity Supply Industry generated 4,500 megawatts. This is a significant improvement if we consider where we were in 2010 when President Jonathan assumed office as Acting President.

Of course, we are still nowhere in sight of the hullabaloo 40,000 megawatts of Vision 2020. And many homes and businesses have not witnessed much improvement in power supply in spite of the increase in generation. But there is a great difference between 2000mws in 2010 and 4,500mws in 2012 considering the long gestation period for power projects.

As the regulator of the sector, to see the year close at about 4,500 megawatts is a prediction come true. In July 2012, as electricity generation picked up after the massive drop in hydro power, there was so much reckless optimism in the air as many delighted public officials promised that we will end the year at about 9,000 megawatts. I knew that such expectation was unfounded because the fundamentals of the electricity industry do not assure such massive haulage of power.

I knew that it will be totally unrealistic to expect the NIPP to fire all its plants or even most of it before the end of the year, even as NIPP managers work very hard. I knew also that as much as the handshake between gas and power is getting firmer and the regulatory frameworks of the two sectors are more effectively interfacing, we still can't expect delivery of gas to all the scheduled power plants in such a short time.

As a regulator, I crunched at the data coming from operators and debunked the expectation of 9,000 megawatts. But I promised that we will hit a princely 4,500 megawatts by December 2012 which is a significant increase from the 3,600 megawatts at that time.

In June 1, 2012 the electricity sector regulator - NERC - released the Multi Year Tariff Order (MYTO-2). The MYTO had some set of inbuilt assumptions about the macroeconomic fundamentals that will affect generation, transmission and distribution of electricity. Some of them are inflation rate, exchange rate and cost of gas. It also has sets of technical assumptions like the generation availability, the power factor and the percentage of power sent out to the grid. MYTO subjects itself to biannual minor reviews to track changes in these variables.

Last week, NERC completed the minor review and the good news is that there were no significant deviations from the predictions of NERC to warrant a change in the wholesale price of electricity. Getting it right is important to driving the reform in the power sector. Unfounded optimism may lead to misappraisal of the gains of the sector and induce a loss of morale in steering forward the reform.

The key insight is that predictive power depends on ability to comprehensively assemble data and to analyze them intelligently. My prediction of 4,500 megawatts derived from the financial and technical assumptions which NERC used to build the Multi Year Tariff Order (MYTO-2) model.

MYTO has restored confidence in the Nigerian electricity supply industry. It is that confidence that will enable Nigeria to generate and effectively transmit and distribute 40,000 megawatts in 2020 or soon thereafter. The restoration of confidence of international and domestic financial markets in Nigeria's electricity market is the singular most important achievement of President Jonathan and not the growth in generation capacity, as desirable as it may be.

This is so because it is such confidence that will ensure periodic haulage of megawatts in a sustainable manner to keep pace with growth in population and energy demand. Even if by some miracle we cranked out 9,000 megawatts by end of 2012 and the market structure, including its financial protocols, does not guarantee prudent and efficient investment in the sector yearly, we will soon hit the bottom as we did in the late 1990s when per capita wattage became one of the lowest in the world.

President Jonathan can take pride as the president who created a real market of electricity in Nigeria. It is true that a robust electricity market is yet to emerge. But the building blocks are mostly in place. The President's singular determination to reestablish the regulator and allow its independence was a game-changer.

Let us not forget that the nascent power sector was truncated and no foreign investment came for power projects when President Yar'Adua was ill-advised to disrupt the work of the regulatory commission. President Jonathan's commitment to uphold the integrity of the regulated markets makes the difference between the old and the new.

Now, the success of the privatization of under-performing state assets is clearly in sight. The credit should go to both Professor Barth Nnaji and Ms Bola Onagoruwa who tenaciously pushed the wagon to the finishing line. But you get nowhere if President Jonathan and his deputy who chairs the National Council on Privatization do not guarantee a stable political and policy environment for privatization.

President Jonathan's unusual transparency and disinterest in who becomes the preferred bidders shifted the mode from cynicism to enthusiasm. The history of such reforms in the past in this part of the world is a story of audacious takeover by the big man upstairs. Here in Nigeria, the world was pleasantly surprised at the rigorous process set up to guarantee that preferred bidders are competitive on technical and financial proposals.

They could not believe that Nigeria could present such quality of information and processes that encourage credible bidders to enter the game. The Nigerian power privatization is being studied as possibly the largest single privatization in electricity industry in the world.

-Dr. Amadi is chairman and chief executive officer of the Nigerian Electricity Regulatory Commission (NERC)

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