31 May 2013

Nigeria's Power Sector Still Stutters


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 a medium sized European city.

In December 2012, power generation in Nigeria hit a record 4,517mw. In 2010, it was 2000mw.

The government celebrated it at every opportunity. That record has continued to dwindle, fluctuating between 2500mw and 3500mw since then. Just last weekend, there was a system collapsed that plunged the entire country into darkness.

At the start of 2011, then minister of Power, Prof Barth Nnaji, made a commitment that by December of 2012, the power generation capacity would hit 5000 megawatts. It never did. The federal government blamed poor transmission grid, saying generation capacity had hit the target but could not be wheeled to the distribution companies.

By the wake of 2012 and down to the beginning of 2013, the federal government assured Nigerians that generation target for December 2013 was 10, 000 megawatts and indeed by the timeline contained in the vision 2020, Nigeria is supposed to have 10, 000mw by end of 2013.

However, on May 1, 2013, minister of power, Prof Chinedu Nebo, again announced that given current realities, the 10, 000 mw for 2013 was unrealistic. The goal post was then shifted once again, this time; first quarter of 2014.

Few weeks before, at an elaborate ceremony at the state house in Abuja, Prof Nebo had said the transmission grid needed an overhaul and an investment outlay of $3.5 billion to be able to handle the quantum of power generation capacity in the coming months.

These forward and backward movements and sometimes confusing direction have characterized the Nigeria power sector in the last 53 years. Nigeria boasts of the seventh largest gas reserves in the world but is yet to get its electricity right. About 80 percent of Nigeria electricity generation is powered by gas but gas shortages remain one of the biggest challenges in the sector yet.

However, the government says it is determined to put this night mare behind all Nigerians. It is on this note that the former government monopoly, Power Holding Company of Nigeria (PHCN) was unbundled into 18 companies to be sold to private investors.

The power minister says almost all the proceeds from the sale of PHCN would be used to pay the workers-about N400 billion.

In the last one year, there have been increased activities in the sector.

On 22nd April, 2013, the preferred bidders for the 10 power generating companies (GENCOS) and five distribution companies (DISCOS) each got their certificate of transaction from President Goodluck Jonathan after paying 25 percent of their bid prices.

They are to pay the balance of 75 percent within six months before taking over full ownership of the companies. The government is yet to settle its

Also, the National Council on Privatization (NCP) last Monday announced 11 firms who have crossed the first technical hurdle to buying up the Kaduna Electricity Distribution Company and the Afam thermal plant, two of the 18 successor companies of former PHCN whose transactions were suspended last year due to certain irregularities.

The 11 firms would now proceed to the next stage which is financial bid to be aired on live television in the coming months.

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 were 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.

Starting from June 1, 2012 when the new tariff took effect, NERC promised Nigerians that within 18 months, all electricity consumers connected to the national grid would metered for free. Some seven months away from that dead line, the promised remained far from redeemed.

The commission recently launched the Credited Advance Payment for Metering Implementation (CAPMI) starting from May 14, which seeks to fast track the deployment of meters to customers on estimated billing system.

CAPMI is a self financing metering alternative that provides a platform for willing customers to pay the cost of the meter into a dedicated account jointly managed by the DISCO and meter Vendor/Installer. Once payment has been effected, the customer will have their meter installed within 45 days, by a NERC accredited Vendor/Installer. Sale of DISCOs, GENcos

After the Power Holding Company of Nigeria (PHCN) 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 but now without a fight and controversies.

The ghost of failed privatization in recent history of the country keeps haunting the government. Consequently, the announcement of the preferred bidders by the NCP was greeted by 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.

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. President Goodluck Jonathan performed the groundbreaking formalities at the project site last Monday in Zungeru.

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 a 950mw but was reviewed downward in 2008 by Coyne et Bellier which provided the feasibility study and engineering design.

TCN, Manitoba, Controversies

Manitoba Hydro International of Canada won the bid to manage the Transmission Company of Nigeria (TCN) through a bidding process conducted by the Bureau of Public Enterprises (BPE) and consequently signed the $23.7 million contract in July 2012.

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.

However, the Manitoba management eventually got the delegation of authority to consummate the contract to fix TCN.

System collapses remain an integral part of the TCN operation so far. Since January, 2013, there have been up to five system collapse which often plunge the entire country into darkness.

The TCN is one of the successor companies created from the unbundling of the Power Holding Company of Nigeria (PHCN). 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 rresolve ggratuity spat

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

The crises which 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 Prof Barth Nnaji's tenure as power ministry, he had a tough fight with the workers over the 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 (RSAs).

It is important to note that the federal government is yet to pay the workers their entitlement a condition the unions insist must be fulfilled before the new buyers can take over.

Foreign iinvestors in the ssector

A good number of notable countries sent business delegations to visit the country to express interest to invest in the power sector. Among them were the United States of America, South Korea, South Africa, France, Sweden, United Kingdom among others.

The federal government signed a Memorandum of Understanding with a South Korean Company, Daewoo Engineering and Construction Company Ltd, to facilitate the production of 10,000 megawatts of electricity projects in Nigeria.

The Company undertook to provide 20 per cent equity in the various projects identified under the scheme, in addition to providing expert advice and guidance on electrical, production and construction of power projects to companies wishing to do business in Nigeria under the agreement.

The other MoUs signed was with US Exim Bank to provide $1.5 billion credit to the Nigerian power sector and with Siemens of Germany to assist in the provision of 10,000 megawatts of power generation infrastructure in the country and 10-15 per cent equity in new power generation stations.

Power Generation Capacity went up to 4500mw by the middle of December, the Transmission Company of Nigeria (TCN) announced that power generation had hit an all time high of 4,517 megawatts. The improvement came from some of the commissioned National Integrated Power Plants (NIPP) and recovered units in the old turbines.

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