Nigeria: Why Nigeria's Electricity Supply Remains Poor Despite Privatisation - CEO, Century Power

A player in Nigeria's power sector, Chukwueloka Umeh, an engineer, breaks down the problems facing the industry.

In a video he recently uploaded to Youtube, Mr Umeh, the chief executive officer of Century Power Generation Limited, explained the power value chain in Nigeria and why Africa's largest economy is unable to generate and supply enough electricity for its 200 million people.

Read Mr Umeh's full presentation below from the video which was transcribed by PREMIUM TIMES business correspondent, Ayodeji Adegboyega.

Understanding the Power Chain

When we talk about there is no power in Nigeria even though the sector has been privatised, a lot of people don't understand a lot of technical terms that we use in the industry. They don't understand when we say distribution, the transmission is not working and so on and so forth, so I am going to break it down a little bit.

In the power value chain, we start from fuel production, fuel transportation, power generation, transmission, and distribution.

What that really means is this, if we are thinking of producing power only with natural gas, we are going to focus on that, that's the gas that we produce from oil drilling of gas. That gas is taken out, it has a lot of fluids in it, it could be oil, water, particles, it has to be cleaned up and processed. Then the gas is put into a gas pipeline, then delivered to the electricity generation companies (GenCos).

We produce power at GenCos and transmit the power on transmission lines (those high-tension cables that you see on the highways or inside cities), then it takes it to the distribution companies (We have 11 of them in Nigeria today).

Discos will now send the power from their facilities to the homes, factories, offices, and so on. They now collect the money to pay everyone in the chain (the transmission company, GenCos, owner of gas pipelines, and the producer of the gas). That's the power value chain.

Despite potentials, Nigeria still generating less power

In Nigeria today, we have never been able to utilise the full capacity that we have. We have a capacity of 12,522 megawatts (MW). What that means really is that we are able to produce 12,522MW of electricity within Nigeria if everything works well. But it doesn't work well.

Why doesn't it work well?

Most of the gas we produce today in Nigeria, over 40 percent is either flared or injected into the wells to produce more oil. Only about 21 per cent of the gas produced in Nigeria today is used within the country, mostly to generate electricity. That's one big problem!

Next problem is that we do not have enough gas pipelines in the country to transport gas from where it is produced to the different sections of the country (North, South, East, and West). We don't have enough and we need to build many more pipelines for us to have enough.

Put that aside for a second, let's focus on the generation.

Any developed or seriously developing country needs to have a lot of capacity to produce power. South Africa, for example, produces over 40,000 MW of power. Take a small country like Norway with a population of about four million people, they produce over 36,000 MW of power.

Compare that to Nigeria. With our population in Nigeria, what we produce currently means that if we divide it among all the about 200 and something million people in Nigeria, everybody will get electricity (only) enough to power a small bulb! Say a 15w bulb, a small bulb that you have in your house. That's not enough.

Then we talk about distribution. We do not have enough distribution capacity in Nigeria. That simply means those wires going into houses, factories, companies are not enough. Some are old. The transformers that we have are not enough to carry the amount of power we need to go all around the country. A lot of work needs to be done. A lot of houses, factories don't have a meter and you can't even tell what they are consuming.

The Crux of the Power Matter

And you hear people talking about the tariff. The tariff is the amount of money that is charged to a customer. If you are a residential customer in Lagos for example, the high valued residents who consume a lot of power are charged about N29 per Kw/hour, that is the unit of power that they use. Some other residences may be charged N25 or thereabout.

But we are saying that for us to have power in Nigeria, 24 hours a day, seven days a week, we need to charge more for that power. Of course, everybody will say "no, we are already paying too much, how could you charge us more? Produce power first before you charge.' But that's where the problem lies.

If we are going to have 24/7 power in this country, we need to charge for it because it takes a lot of money to make the investment to send meters to everyone's house, to put more wires, more transmission and distribution lines, more transformers in all the places they need to go to, it takes money.

It takes a lot of money to fix the transmission lines, those high-tension cables that come from the generating plant, all the way to substations where the power now starts going to different distribution networks.

Today in Nigeria, we have enough transmission lines only to move about 5500 MW of power. That is nothing compared to the population we have in the country.

One of the problems that we also have once we start talking about the tariff is that people assume that it is a social service. It is not a social service. We all have cellphones, even the poorest of the poor in Nigeria today, a lot of them can afford at least one cell phone. Even if they don't have money to buy credit, they may have a cell phone even if it's a tiny cell phone. But you put as much money in there as you can afford and you only talk as much as you can afford. So that's why you see people flashing you. They will flash you and say "Abeg I no get credit, call me back," then you call them back. That's because they use what they can afford.

But in Nigeria today, what you find in the power industry, some people are stealing the power. What that means is that they go and illegally connect so they can draw power and put in their houses or their small factories. Or the power that they get, they refuse to pay or they don't have meters.

So there is what is called estimated billing, which means at the end of the months, the distribution networks that serve the people will send you a bill based on what they estimate that you consume. A lot of times it's incorrect.

Then there is also the issue where people start to say 'we will only pay you more money when you give us 24/7 power'. So its a chicken and egg situation. Do we have more power first before you are willing to pay more? Or do you start paying more before they give you the power?

Those of us in the power industry understand that for us to raise money to meet the required investment, you must show that you will be able to collect enough money to pay back the people or the banks or the financial institutions that gave you the money at a profit. Nobody goes into business not to make a profit, everybody goes into business to make a profit - your tailor, taxi driver, maiguard, whoever.

The same thing applies to the people in the power value chain. So I say to Nigerians: very simply put, we need to change the way we think about power! You find a lot of homes today or offices, for example, someone that has 10 air conditioning units in the house and probably lives alone or with a couple of staff working for them, they need to dash out to the store to do whatever, they leave all the ACs on.

You know why they are able to do that? Either they have too much money and they don't mind wasting the money or they are not paying the correct tariff. But if they are paying the correct tariff, guess what? If you are sitting in the living room, you will turn on only the AC in the living room. By the time you retire to your bedroom to sleep for the night, you turn off everything else, including all the light and you leave only the AC in your bedroom so that the amount of power you consume is low and so your bill at the end of the month represents only what you needed to use.

You will find if people start paying the right tariff, that we will develop what we call energy responsibility. You will use only what you can pay for. Just like your cell phone, you wouldn't make a call and leave it on even if you are not talking, just leave it running. You wouldn't do that because that's money being wasted. In the same way, we need to start doing the same thing in the power sector.

Take it even further, you will not turn on the gas burner in your house, put a fire there, you are not cooking and you just leave it running. By the end of the next day your gas is fully used but you didn't cook anything! Nobody does that because you pay for what you use, the same thing should apply in the power sector.

Pricing

Now we spent a lot of time, many years talking about we need to cap the power tariff that people pay because we don't want to price gorge the people. Yes we think we are protecting the people but what we are really doing is that we are preventing the people from getting the power that they need. We should have by now, its been over 10 years since we have been talking about this, we should have by now gone way above 40,000 MW of installed capacity in the country. But because we keep talking about trying to protect the people from price gorging and all that, it hasn't worked.

Why privatisation of power sector hasn't helped

Over the past 10 years, we have been talking about having 10,000 MW running in the country, it hasn't worked and it will never work unless we do something different. And I have been saying this.

Now the government did the right thing by privatising the power industry and in that privatisation, they put some of the asset into the hand of private companies. Private companies are expected to go and raise money, a lot of money, to make the required investment, to upgrade these facilities, to install new facilities, build infrastructure. But guess what? It doesn't work, it still has not worked for several reasons.

One is the tariff. Two, there are regulations that have been created. Some of them are okay. Some of them are so restrictive that we can't make the required investment. We can't raise the required money. Three, we are no respecter of agreement in this country. We don't have the rule of law that enforces agreements.

Some of us have signed agreements as far back as 2015. Those agreements today are not even worth the scrap of paper they are signed on. NERC, the regulatory body that is supposed to guide the power sector, said that by 2020 we will have about 20,000 MW of alternative power running in Nigeria, mostly solar, and the question you will ask is how many MW of solar and installation do we have in Nigeria? Probably not up to one MW.

The way forward for the power sector

Guess what? It is not going to change until we start (with) the way we think about power. The government needs to focus on doing what government needs to do, which is create policies that support the sector to grow, and then let private companies do what they need to do to help the sector grow. The government did a fantastic job in privatising the telecommunications industry, we need to do the same thing in the power industry.

We need to liberalise this industry, allow a free market to exist, allow companies to do businesses with each other without interference.

The person that generates or produces gas should be able to deal directly with the GenCos that are trying to produce power, let it is a willing buyer-willing-seller type of market.

GenCos should be allowed to deal directly with the distribution companies. If Century Power, for example, sells power to Benin DisCo and they are not able to pay, Century Power should be able to sell the power to Enugu Disco. If they are also not able to pay I should be able to put that power in the grid, sell it to Eko Disco, if they are going to pay, or Yola Disco or Ibadan, wherever it needs to go for them to pay me. That is the way it should work.

And the tariff should be whatever we are able to negotiate amongst each other. Guess what? If we have a market that is fully open, people in the Eko Disco network should be able to buy power not just form the Eko Disco but from other power traders within that locality.

So if Mr A is selling power to you at N30, N40, N50 per KW/Hour, and you think its too high, you should be able to buy it from Mr B who might sell it to you at a small discount. If the value you are getting from Mr B is not sufficient, you go to Mr C, that's how it works in other countries that we have tried to copy their systems. We have tried to copy but it has not really worked out well because we are not copying properly. We need to make the policies that work for Nigeria, by Nigerians in order for our sectors to work. Otherwise, all the money that we have spent trying to fix this sector will be a waste.

Year in year out we have many meetings, engagements, focus groups talking, discussing, it is time to stop talking and start working. Allow a free market to exist. Power is not a social service, allow power to be treated as what it is, a business! If this happens, we are going to have power work in Nigeria 24/7.

This is the only way and people need to be educated to understand that the amount of money that you spend when you produce power by yourself, using your diesel, petrol generators, inverter, even your solar system that you install on the roof of your house, it's so much more than what you can get from the national grid even if they raise the tariff you pay today.

I will give you an example. When you run a big diesel generator in your house, you are probably paying over N100 per KW/hour. But when you buy power from the grid today in your residents, you probably pay about N29 per Kw/Hr, so if the discos charge you N50 or N60 or even N70 per kW/hr, it is still cheaper than what you pay using your own generator. It causes you less stress, the pollution in your environment from smoke that comes from the generator is much less, so its healthier for you to buy from the grid. The hassles that you deal with, the noise from your generator, the dangers that you expose your families to is also reduced and at the end of the day, the whole place is more peaceful.

How to best protect Nigerians to get power

Those people that we think we are protecting by forcing the tariff to stay low, we are actually hurting them. Because those people can't really get jobs because factories are not working. We have a few factories working. But if we produce a lot of power, even at double the price of what we produce today, more factories are going to be able to produce goods in Nigeria. They will be able to hire more Nigerians, pay them more. Those Nigerians are going to turn around and buy these produced goods from the factories that work in Nigeria and the money is going to go around.

This is what happened in China. It took about 20 years for China to turn around its economy, from an almost poor economy to a superpower. The same thing can happen in Nigeria. Vietnam increased its power capacity from about four gigawatts of power to about 40 gigawatts of power installed capacity in only 10 years.

In Nigeria, we have been talking for over 15 years. Other people have done it. Vietnam GDP is similar to Nigeria's GDP. Their population is about 93 million people. We have over double that. We can do it. We have the resources, the know-how, the people, and the intellect to do it.

Power argument in brief

My argument is simple. We should completely liberalise the power industry so that the entire value chain can start to work

We need to start seeing power as a business. We need our leaders to have the political bravery, to have the courage to allow this liberalisation to work so that the power sector can work just the same way the telecoms industry worked.

I applaud the government for doing what they have done so far and I encourage them to please do much more faster. Whoever gets the power industry right will be a hero for generations to come. Please be the hero that Nigeria wants. Be the leaders that Nigeria is expecting and be the change that we need.

We cannot keep doing the same thing and hope for different results, that's what clinical psychologists will call madness. Please do this differently so that Nigeria can become great.

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