Nigeria: Examining Nigeria's Troubled Power Sector

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Nigeria's power sector is still underdeveloped and measures taken so far have not been comprehensive.

Last Sunday, at about 13:33 hours, a multimillion naira 45 mega volt amp (MVA) 132/33kV power transformer of the Transmission Company of Nigeria (TCN) went up in flames at its Apo substation, and there was no guarantee the transformer would be salvaged after the fire was put out afterwards.

Shortly after the fire went off, a statement from the TCN said, "that the fire resulted from a direct fault from one of Abuja Disco's 33kV feeders which had a history of incessant tripping." It added that the 33kV feeder of the Disco lacked protection, thus bringing to fore the level of blame games that defines Nigeria's power sector.

Even though the TCN said it was investigating the possibility of a transformer protection failure as the cause of the fire on its 45MVA transformer, it noted that the 33kV feeder H13 circuit breaker and current transformer exploded when the 33kV outgoing transformer snapped.

This, however indicate that after about five years of Nigeria's power privatisation, the sector appears to still struggle with getting it right in key areas of its development trajectory.

Between 2013, when the privatisation exercise was concluded and last year, reports indicate that it has mostly struggled to secure enough investment for its generation and distribution sectors, as well as being riddled with debt from tariff shortfalls.

Though the government would often argue against the situation, records show that it has never being easy for the sector.

Some hard-hitting records

Bringing to reality the situation in the sector, recent records from the Advisory Power Team in the office of the Vice President, Prof. Yemi Osinbajo, indicate the power sector is still facing challenges and has not achieved very much since 2013.

For example, last Saturday, Osinbajo's office stated that the sector has so far in 2018, lost an estimated revenue of N179.461 billion to poor operational conditions relating to insufficient gas supply to generation companies (Gencos); distribution and transmission challenges like the Apo transformer fire; as well as water reserves management issues as regards the operations of the hydro Gencos.

Further breaking it down, the records stated that on that same day, just about 3,937 megawatts (MW) of electricity was generated for distribution to millions of Nigerians, while 2,382.50MW could not be generated due to unavailability of gas.

In the same vein, 227.5MW was lost to unavailability of transmission infrastructure, while 849MW was not generated due to high frequency resulting from unavailability of distribution infrastructure, thus resulting to a financial loss of N1.660 billion on that day.

Again, the records showed that 4,070MW was generated daily on the average in 2019, while 3,116MW was shut-in. The situation was even worst in 2018 when an average of 3,807MW was generated every day into the national grid and 3,039MW was not.

In all, the sector lost a total of N532.436 billion in 2018 and N957.629 billion in 2017, which was a total of N425.193 billion last year.

Cumulatively, however, between May 29, 2015 when President Muhammadu Buhari, took over office and April 29, 2019, the data showed that the country's power sector has only managed an average daily generation of 3,609MW, while an average of 2,926MW have not been generated daily due to constraints.

With regards to revenue, the records equally noted that for this period, the sector lost over N2.006 trillion to these constraints.

The real issues

Based on its review of the workings of the sector, the Stakeholder Democracy Network (SDN), which is an international advocacy group that supports the efforts of those affected by the extractives industry and weak governance, had stated in a 2018 report that investment in the sector still remains far below the 20,000MW of capacity demanded by the country's "Vision 2020" policy.

SDN explained that the power privatisation has largely failed because the 11 existing Discos are still not in alignment with the various transmissions zones of the TCN. Thus, indicating that this could be the reason for the frequent bickering between the Discos and TCN.

Also, the SDN noted that metering of consumers have remained inadequate, creating under-billing, bypassing of tariffs and stealing of electricity.

"There is a low level of power output and it is deteriorating. Most of the new generating capacity is unfinished," the report titled: 'Nigerian Power Sector Review 2018,' added.

According to the organisation, "there is no enumeration of customers or basic market information to guide both tariff setting and expectations," in the sector.

It added that the wide variety of tariffs bears little relation to costs, and that the expansion of the transmission system has been inadequately planned and slow.

"There is a major lack of investment capital. There is a chronic lack of gas available for fuel with an inadequate gas supply infrastructure. The plans failed to allow for 'systemic risks'.

"There is a lack of 'back-to-back' contracts, particularly affecting gas purchasing, but also for forcing the Discos to take volumes of power. The system of tariff formulation through Multi-Year Tariff Order (MYTO) is inflexible. There is considerable tension between the Gencos and the Discos, each blaming the other," SDN further listed as the real challenges of the sector.

Beyond these, the SDN equally explained that there are risks relating to foreign exchange in the sector, while the potential of demand has been under-assessed.

"Expectations of demand have been over-estimated. There has been a chronic lack of investment in the sector as a whole. There is no effective legal regulation regarding theft of electricity. Most of the Discos are effectively bankrupt.

"The net result of all this is that the sector needs considerably more political attention than it has recently received," added the SDN in the report detailing the challenges of the sector.

But despite these challenges, the government however believes the sector is on an upward trajectory and that it (government) has been alive to its responsibilities.

At a recent meeting in Abuja where a book on how well the government has executed its infrastructure plan, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, claimed Nigerians were pleased with the state of the sector.

He specifically said: "For power, I said that we will change paltry budget of N5 billion which we met in 2015 by spending more and I committed to the delivery of incremental power, as our short-term objective.

"In the power sector, well-meaning Nigerians acknowledge our efforts by saying clearly that their power supply experience has improved compared to 2015, and we acknowledge that the work has not finished.

"The task going forward is to solve the outstanding issues of estimated billing, supply of meters, add more power and make the supply steady which I stated will be our medium-term goal."

Fashola, also noted that some good works have been put in the off grid solar power sub-sector, through the Rural Electrification Agency (REA) which is implementing off grid projects initiated by the government in the forms of Energising Economy Programme (EEP) and Energising Education Programme (EEP) - both programmes aim to provide clean stable electricity to select markets; economic centres and higher places of learning in the country.

Nevertheless, a former chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, argued that the sector has done badly in the last four years.

"I think in a way it is a wasted four years. Today, with a wonderful staff, I think the NERC no longer have a full-arm embrace of the sector.

"There are rejections which have resulted in lawsuits because regulatory stability and authority has collapsed partly due to government's policy failure and failing to empanel a full regulator in time.

"I think the future of the sector is very bleak. We are not seeing technical improvements from a technical market based approach. We have no capacity growth, but flash in the pan improvement. We have not seen qualitative improvements even in regulatory perspective," Amadi said in his assessment of the situation.

Speaking specifically on the regulatory situation, Amadi explained: "We have also seen the regulator drop in terms of credibility, public and industry acceptability, as well as authority.

"Financially, it is not looking good for the sector. At some point when we were there, there were up to 80 per cent remittance level and to think that the debate has gone further down four years after means that where we are now is similar to where we were in 2013, when out of fear we enabled the interim market rule.

"So, evidence based, we have moved backwards and it is fair to say we have not made progress within the last four years. Growth in four years after privatisation should be greater than growth in 10 years before privatisation when we did a lot of work and should be seeing rapid growth," added Amadi.

Besides Amadi, the Discos through their trade association - the Association of Nigerian Electricity Distributors (ANED), also said the sector has done badly and urged President Muhammadu Buhari to take bold steps and fix the situation.

Through the Director of Advocacy at ANED. Mr. Sunday Oduntan, the Discos said the sector was in deep trouble with more than N1.4 trillion revenue shortfall, and declared they would only guarantee stable electricity supply to Nigerians if the government would meet certain conditions including, that it allowed cost-reflective tariff in the sector; provide financial subsidies for people who may not be able to pay the right economical tariff in the case of a review; and create regulatory assets scheme for them to leverage in sourcing for finance to expand their operations and augment tariff shortfall.

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