Nigeria and the Shocking State of her Power Sector; An Uphill Journey Back to the Light

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Conventional electricity as a technological invention that would be the base requirement for almost every gadget or device used in modern times was artificially created over two hundred years ago. Harnessing the power of electromagnetism to create basic electricity as Michael Faraday showed it isn’t exactly the most difficult task in the world; all one literally needs to do is pass a metal through a magnetic field.

This mysterious electricity thing that is so fearsome, full of awe, and terrible in its might. This thing that makes lightning so deadly and yet resides within our bodies as the medium through which our sense organs decode the world around us and sends the information through from organ to brain. This thing that has existed since the very first electrons moved after the big bang; this mysterious thing that has been harnessed for over 200 years is what Nigerians are still struggling with in 2017.

In many cases, the privatisation of publicly run enterprises is a good thing. Characteristically, privatisation works to break up existing monopolies, open the market up for higher levels of competition, innovation and revenue generation while providing delivery of goods and services that are cheaper and more reliable to the final consumers. At face value, these may have been some of the factors that were considered between the mid to late 2000s and the eventual 2013 conclusion of NEPA’s privatisation but realistically, they remain largely as aspirations and not a lot more. The privatisation saw NEPA go from being one company into being eighteen; 12 distribution companies – Discos (IKEDC, EEDC, BEDC, etc.) and 6 generation companies – Gencos. In a way, one could look at this and see a situation where a huge problem is broken up to smaller, easier to manage sub-problems. As a first step toward solving the electricity supply problem, the privatisation was not a bad idea.

Since 1999, the Speaker of the Lower House of Parliament Yakubu Dogara remarked that around N2.8tr as at 2015, had been spent on reviving the power sector. Huge as the sum may seem, it has not translated into much in terms of increased efficiency or delivery. In fact, the Speaker quoted it as being “worse”. N2.8tr in 16 years translates to N172bn every year sixteen times and around N1.5bn per month year in year out.

Focusing first on the financial aspects as the main factor responsible for the abysmal condition of the power sector, what are the main problems with the power sector and how do we solve Nigeria’s electricity money issues?

DEBTS

The distributions and generation companies have blamed their inability to deliver on the tasks they have been charged with on huge debts, which, they either inherited from their parent company after the privatisation or were accrued over time by their business partners. Today, Gencos owe around N601bn as debts to banks, gas supplier and contractors of other services they need to keep their operations afloat. Conversely, the generating companies claim to be owed around N300bn by the Disco’s. Disco’s also claim there is a huge debt load on them from electricity consumers that stands around the same figure as the debt owed to the Gencos (N300bn). Citing instances, the ministries of works, power and housing are accused of owing over N100m; the Military, about N90bn, etc. There are no shortages of debts in the power sector and other than between just the ministries and government institution, the debt from domestic electricity consumers may be the highest of them all as accounts in some residential buildings are known to have outstanding payments as high as N500,00. It is not uncommon to hear people decry and deny outstanding bills stating that they were accrued by past residents, or simply stating that they are “crazy estimated bills” etc. and so they will not pay. In some other cases where there is no denial, account holders with debts in the hundreds of thousands often walk into NEPA offices and may pay as little as N500 – 1500, even if monthly electricity consumption at the time stands as high as N6-7,000. Rounding off, the NERC estimates that between the Discos, the Gencos, the transmission company and the consumers, there is around N1.09tr in debts that need to be offset if the sector is going to be saved.

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Privatising the distribution channels was a good idea that has not played out well yet. The Gencos accuse Discos of dishonesty in remission of revenue and as it stands today, Gencos are currently lobbying for permission to bypass Discos, distribute electricity as they see profitable and source their revenue straight from consumers in a move that all but questions the importance of the distribution companies. What might be a good idea however, would be merging the Discos and Gencos into one company. Under this arrangement, issues concerning debt recovery and remission of revenue – the most prominent matters in the dealings between the Gencos and the Discos – are not issues that would be debated in blame games between two different organisations rather; they are handled uniformly as responsibilities of a single organisation. This would promote smoother operations as well as streamline financial running of the organisation.

TARIFFS

NERC suggests increasing electricity tariffs, as the power generating companies having a larger revenue stream to improve their operations, will be motivated towards greater effectiveness by reasonable profits and returns on their investments. Increasing the tariffs would also enable the generating and distribution companies refine and improve their operations through sourcing and increased availability of better operating equipment. This suggestion, deployed in early 2016 (tariffs were increased from N22 to N24/N29), was met with stiff resistance as the senate stepped in to “save the masses” from further price hikes. The NERC retains its stance on the state of affairs for the power sector maintaining that before any improvements can be made, first, the tariffs scheme has to change.

Simply put, the tariff issue is not one about the moral standing of regulatory commissions increasing the prices of electricity; rather it is something direr. Nigerians want to live in 2017 and use the corresponding levels of electricity but remain insistent on paying for it as if they were in 1922

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electricity retail cost (2011 – its 18c here because the Naira was worth more than it is now) – ovoenergy.com

Compared with other countries in the world, at current rates, Nigeria currently sells electricity at the rate of 7 cents/kWh. In addition and very importantly, majority of the equipment used in power generation as well as the technical requirement for their installation is sourced from outside the country. This may be thought to reflect a significant gap in the availability and proficiency of human capital that is crucial in driving energy security as an inability to innovate and create sustainable progress in the sector may be supposed to have demoted the pertinent set of engineers in Nigeria to the ranks of mere overpaid technicians. The unit cost of electricity ranges from 8 cents/kWh in India and China to as high as 41 cents/kwh in Denmark as at 2011. China and India are peculiar cases as they have a combined population of around half of the entire world and they both produce a majority (almost 70% in both cases) of their electricity from coal. Coal is a cheap source of fuel but very environmentally damaging when not handled properly. Many countries have pledged to reduce the use of coal in electricity generation with the European continent cutting down its coal consumption by more than 60% of what it used to be in the early 80s and the US also doing the same but by a factor of a lot less. The changes were informed by concerns surrounding the environmental impacts of burning coal like acid rain and global warming. Hence, while the coal system may have worked cheaply for people in the past, unless you are ready to pay the fines and sanctions associated with them, it is not pragmatic solution in modern times. President Buhari after signing both the COP21 and 22 agreements on the reduction of carbon emissions to stop climate change went on to ask the Germans and the English to assist his country in building some coal-powered plants. They bluntly turned him down and he fed news to the media that “international powers” were working against the “progress of Nigeria”. I wonder if they wondered if Mr. Buhari understood that the COP agreements on climate change were legally binding.

NERC proposes increasing the electricity tariffs in Nigeria from 7 cents/kWh to between 8/9c and 22/33 cents/kwh (N24-105), as we depend primarily on natural gas and Hydro, this would put Nigeria around the mid-high tariff side somewhere between the UK and Spain. Comparing this however with the diversity of energy mixes in the countries quoted above, Nigeria would be generating electricity quite similarly to Denmark that relies primarily on hydroelectric power (HEP) and natural gas. It is also worth stating the price at which electricity in Denmark was sold as at 2011 (41c/kWh and we don’t want to go this high). The rest countries have a diverse mix (including India and China) with sources including: nuclear, thermal – coal and gas, HEP and renewables. It is however extremely unlikely that in current climes, we would be able to sustain prices this low. This could support an inference that the more diverse the energy mix in electricity generation; the lower the final consumer prices might get to be and this quite frankly, might be a very critical issue that might have to be given more serious thought. The minister of Power and the generating companies has promised that if the new tariff scheme were launched, the country would see progress in as little as 3 months. At any rate, 300-500% increase in the electricity tariff will not sit well with majority of the Nigerian electricity consumers and this will be reflected on the levels of electricity theft and the consumer debts that the sector will suffer. However, this should not mean that the much needed tariff changes should not be implemented but instead of a onetime increase of 500%, a series of progressive increments over the next five-ten years for instance, would offer the consumers some time and space to adjust to their new realities.

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However, while the electricity tariffs continue to stay at the levels they are currently, the NERC implies that if the power companies cannot financially support the much needed overhaul and expansion that is needed to breathe new life into the sector, then the government (especially as it supports the current tariff scheme) would have shore up the funds required through government assisted loans and subsidy schemes. This is a complicated proposition as the power sector was not privatised so the government would have to spend money to keep it alive. Subsidy schemes and proposed “bail-outs” while seemingly necessary would reflect in its most obvious manner, the failure of the privatisation programme. This point may be what Aliko Dangote was driving at when he advised the government to reverse the privatisation of the power sector in late 2016. A complicated proposition it may be but bailouts to the power sector have been implemented before (N213bn in 2014,) and in fact, with the present situation advisably should be administered again. Rightly, over N700bn has been propped to this effect.

MORE ELECRICITY SUPPLIERS

The senate has called for the NERC to increase it deployment of more electricity generating licensees as a way to add to the power generation quota. In all fairness, this will not work as the same set of problems that have been suffered by the older generating companies where they ran businesses until they became crippled by debts and inconsistencies in their supply chains are going to be suffered by the new licensees. It should be said that the main problem with electricity generation is less reliant on the power companies as it is on the systems on which they rely.

HUMAN CAPITAL

Privatisation may have failed for so long for several reasons and arguably, the most basic being that we do not have sufficient human capital to drive an independent revolution towards constant electricity.

The hard work and dedication that many of our more senior engineers bring to the table is appreciated but running an entire power sector is a lot more than turning a few loose screws, taping wires and keeping the floors clean. Our inability to learn the intricacies of these systems and create their components well enough that we can run them without “external supervision” is one for which they will have to take responsibility. If our engineers have by this age not yet mastered the processes of independently and efficiently running basic systems such as thermal and HEP, how exactly are we supposed to diversify our energy mix into areas like nuclear and renewables with strong enough purpose and intent to be successful?

Emergencies often happen and from time to time, maintenance may have to be carried out on mechanical equipment and usually they may require expert attention, other times replacements might be needed immediately to ensure smooth operations. When the manufacturers of these needed parts operate in locally, sourcing the parts and arranging maintenance are usually not significant problems. However when a part that goes bad has to be replaced but the replacement is sourced from China for instance where it has to travel more than 10,000km (at least 15 hours without flight and logistics delay) or as long as three months or even longer via ocean routes barring logistics and clearance issues, the problem becomes a bit bigger. While this is one aspect, having to internationally source for the technical ability to run advanced maintenance procedures on these machines poses another problem. To highlight this fact, the United States Bureau of Labour put the combined number of trained engineers (not technicians) working directly or indirectly with the electricity generation sector at almost 180,000. In essence there is one electrical engineer for every 200 people in the US. It is difficult to compare to these stats with the way it stands in Nigeria, as the real population of engineers are not easy to ascertain. However, while this might not be the fairest comparisons for a country like Nigeria, since the results that are being worked towards are similar, this should give an idea of exactly what we ought to be working towards to achieve independence in this sector.

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In the instance that our old, veteran dogs can learn no more new tricks, as a sensible short-term solution to fill the skill gaps in the sector, a government/private funded younger engineers and technicians training programme might offer a way out in as little as 6-18 months for technicians and already qualified engineers. In the long term, we may look towards the five years it may take to graduate from a University’s Faculty of Engineering with a focus on mechanical and electrical engineering while agreements are struck up with generating and transmission companies especially, on the immediate absorption of these professionals. This in a relatively short time, increases the population, availability and depth of skilled workers as at present, in cases where there are adequately enabled engineers to look over these plants, they just are not enough and are often spread too thin between several plants at the same time.

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LACK OF PLANNING AND POLICY MAKING

In 1991, India carried out a privatisation programme in her power sector. India’s progress may have taken a relatively long time as in fact, between 1991 when the privatisation was first announced and 2003, India in that time managed an average generation quota of a measly 2000MW. In 2003, the Indian government implement a unified reformation programme on the already privatised power sector that saw prospective local and foreign power investors get very good deals on the risk they took and this could serve as a very good example for Nigeria to follow.

The policies implemented under these reforms made specific provisions on the return on investments for proprietors of power plants by adding as part of the consumer tariffs, 16% of the cost for which would exclusively be the profits to investors. The Indian government made exact provisions on how much of the equipment used in power generation had to be imported as well as stating conditions under which they may apply. They invested in debt financing and credit schemes to the very specifics of working out just how efficiently newly commissioned power plants would have to perform for them to independently service their loans. Tax holidays were given and specifics were worked out on the cost and conditions of modernising older power plants. In cases where importation was a necessity, with government approval import duties were either completely removed or they were reduced to the barest minimum. Efforts were also made to ensure complete metering and the government allowed for 100% repatriation of profits in the cases of foreign power producers. The Indian government reduced the hoops that needed to have been gone through in the case of seeking appraisals for prospective projects, they fast-tracked applications and streamlined regulatory bodies overall, this reform worked so effectively and translated to so much progress that as at March 2014, the 2000MW generation quota in India had grown to an astounding 240,000MW. The system developed and implemented by the Indians show in comparison with Nigeria, the depth of planning that went into creating the power reforms and ensuring that they were effective. It also shows the level of dedication by the government towards the cause of electrification and their purposefulness in ensuring that the reforms worked to their calculated potential. This progress not only reflects on the electricity situation in India but Indian GDP followed a strikingly similar trend between 2003 and 2014. For a country in recession, the effects of electricity on productivity and economic buoyancy cannot be underestimated. Policymaking may also open doors for investors

TRANSMISSION AND METERING

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The transmission of generated electricity from the point sources to the final consumers is perhaps the most important issue as far as electricity supply to the final consumer is concerned. Nigeria’s transmission proficiencies add up to about 6000MW. In infrastructure, this is broken down into around 6,700 km of 330 kV lines; 7,780km of 132kV lines; 330/132kV substations with installed transformation capacity of 10,166 MVA; and 132/32/11kV substations having installed transformation capacity of 11,660MVA that covers only about 40% of the country. Although, the Transmission Company of Nigeria (TCN) is a government owned enterprise that has been managed privately since 2012, the National Grid has been described as:

“…characterized by poor voltage profile in most parts of the network, inadequate dispatch and control infrastructure, radial and fragile grid network, inadequate available generation capacity, and inadequate or total absence of spinning reserve. The grid is marred by incessant voltage and frequency instability issues, leading to load curtailments.” – Oleka et al, 2016

This unfortunately and quite simply, translates to a situation whereby when relatively large amounts of electricity are generated (peak demand is estimated to stand around 12,800MW), factors relating to electrical impedance, thermal limits, voltage drops and other technical aspects within these conductors begets a situation that encourages energy loss thusly deterring enjoyment of electricity by the final consumer.

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The “national grid” – Oleka et al. 2016

For the longest time, this has been one of the banes of both the generating and distributing companies. As government investment in bringing the transmission lines into the 21st century continues to be slow, perhaps it would only be logical to entertain the idea of privatising the transmission systems as well as their huge potential for revenue generation and unbundling them in a similar fashion as the discos. This follows the trend in virtually every country with a developed and reliable electricity supply system, while the government concerns itself with regulation because facing the facts, with a network as old and ineffective as what is seen in Nigeria, it is not possible to make any real profits from the current arrangement.

The efficiency in transmission may also be tied closely to metering and consumer monitoring. In the present case where monitoring isn’t well implemented, increasing the tariffs leaves room for speculation as to the ulterior motives involved in knowing that electricity consumers would be made to pay more without knowing exactly how much electricity they have consumed. This makes the implementation of a mass-metering campaign extremely crucial to the success of this cause as well as thwarting revenue-draining avenues like electricity theft and bribery of electricity officials. It is also important to understand that electricity generated is very difficult to store and cannot be reverted to the fuel that created it. This highlights the problems of rejected electricity loads as reported by the discos, and the problems they pose to both generation and transmission equipment.

CONCLUSION

The money spent in “trying” to revive the power sector is factually inane. If a government was prepared to spend more than a billion every month on electricity; starting over and completely resetting the system as at 2003 when the talk of privatisation started, one could argue that the power sector would have been in conditions a lot better than what currently stands. The hole we find ourselves in is deep and prospects of getting out grow bleaker with every passing day but we have to crawl out and that we will. However, as far as modern day electricity business is concerned, generation, transmission and distribution all have to be run by the private sector; this models every successful system in the world. Insistence otherwise only raises questions as to the motives behind them especially in this context where so much is being put in to so little ends.

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