NIGERIA POWER SECTOR CHALLENGES AND ITS GENERATOR-DRIVEN ECONOMY: MORE THAN A TARIFF AND SUBSIDY ISSUE.

“A Nation In Darkness” so screamed the cover story of the defunct NewsWatch weekly magazine edition of 30th May, 1988. Nigerians may wish to inform the ghost of that great magazine that the narrative has not changed since. A paradox of motion without movement as efforts by successive governments failed to reasonably move the electricity industry forward.

During the 80s and 90s the power sector in Nigeria had an installed capacity of about 5,000mw. From this, close to 2,000mw was distributed to the then population of 120 million. Thirty five years down the line the story remains the same in relative ratio; 2,000mw for 120 million, is almost the same as 5,000mw distributed to 230 million. This is despite the colossal resources that has been poured into the sector along with series of “reforms”. The current generation capacity oscillates between 22,000 and 33,000mw while installed capacity stands at 13,000mw. From this about 5,000mw is delivered to consumers (NERC, 2023). The international standard as regards power supply ratio is 1,000mw to one million people. Hypothetically, therefore Nigeria should be generating a minimum of 200,000mw. Or at least 100,000mw by the turn of 21st century with capacity to transmit and distribute fifty percent of it to power the economy.

Nigeria’s contemporaries with lesser population and factor endowments (sources of electricity) have been doing pretty impressive in this regard. Such countries include ; Egypt (pop. 109m) 60,000mw, South Africa (pop.62m) 50,000mw, Brazil (pop.214m) 577,000mw and Malaysia (pop.34m) 34,000mw to cite but a few, in rough magnitudes. It is humbling too, to note establishments like the Heathrow Airport in UK and the Haram in Mecca KSA are provide with more electricity than Nigeria’s 5,000mw.

Electricity, for a fact remains the backbone of modern economies. Studies may not have come up with a precise numerical contribution of electricity to the Gross Domestic Product (GDP) in terms of percentage, but there is causal correlation between economic development and a sustainable power sector. No nation in modern times has achieved greatness without viable power sector. Nigeria’s $450 billion economy is no exception.

A Case Of Growth Without Development.
The Nigerian economy was rebased about a decade ago; in the year 2014 to be precise. The exercise saw the economy becoming the largest in Africa, with a GDP in the region of $510 billion, an impressive leap from the figure of $270 billion in 2014. Nigeria shoved the Republic of South Africa (RSA) to a second place. The rebasing formula so applied, more variables. Instead of using only “production”, but also “revenue” and “expenditure” were included. The rebased GDP however experienced sluggish growth since then (2014), due largely to macroeconomic challenges of which electricity (power) has been an internal part.

Rebased GDP could in actual sense be likened to “paper” expansion or basically a ” growth without development” in that its impact on national productive capacity and citizens wellbeing has always been minimal. In case of Nigeria despite the impressive leap, the phenomenon came with worsening levels of poverty (63%), mass unemployment (33%, among the youth) galloping inflation (29%), unstable interest and exchange rates with precipitous 2% average annual GDP growth between 2019 and 2023 (nbs,2024).

This is certainly consistent with the phenomenon of “growth without development” as espoused in the works of such greats scholars as Michael Tadaro and Andre Gunder Frank. Leveraging a nation of 230 million people with a $450 billion economy, projected to hit $1trillion in no distance future (curtesy: Tinubu’s Renewed Hope Agenda) on a five thousand megawatts of electricity could only mean strangulation, economically. The sector needs to be holistically overhauled in terms of policy and structure, to drive the economy with high efficiency.

The power sector structure at a glance.
Nigeria structured its electricity industry on a value chain comprising, generation, transmission and distribution segments. The stakeholders in the chain include; eight (8) generation companies (Gencos), one (1) state-owned Transmission Company (TCN) and eleven (11) distribution companies (DisCos). In addition about half ( 1/2 ) a dozen regulatory and support services agencies are also part of the system. These are the Nigerian Electricity Regulatory Commission (NERC), Nigerian Electricity Management Services Agency (NEMSA), Nigerian Electricity Liability Management Company (NELMCO), Nigerian Bulk Electricity Trading (NBET), National Power Training Institute (NAPTIN) and a Rural Electrification Agency (REA). These establishments constitute the Nigerian Electricity Supply Industry (NESI) ecosystem.

Two enabling Acts, the Electric Power Sector Act of 2005 (repealed) and reformulated as the Electricity Act of 2023 provided the necessary legal backings for the operations of the various agencies. Earlier in 2021, the Electric Power Sector Reform (EPSR), among others, created a semi autonomous outfit in aid of transmission stability called the Independent System Operator (ISO). The ISO complements the the TCN’s other core activities such as system operations and transmission services provider. The goal of these elaborate policy and institutional frameworks was to create the necessary enabling environment for the power sector to harness the various sources (coal, hydro, gas, solar etc) of electricity in the country to leverage Nigeria’s rapid economic transformation.

Array of interventions.
Beyond the elaborate institutional setup and “rich” policy instruments, the government periodically undertake the reviews and interventions to strengthen routine performance. Some of these interventions include, ordinary change of names, ownership structure and bailouts. For instance, the dominant establishment driving the electricity sector in 60s and 70s was called the ECN. The name was changed to NEPA in the 80s & 90s and PHCN in the 2000s. The industry was unbundled, segmented into (generation, transmission distribution) and largely privatised in 2013.

Before the partial privatisation the government wholly owned and run the electricity sector as the a quasi social service. It still intervenes once in a while to address gaps by holding equities, stabilising liquidity and facilitating access to loans. To boost consumption, government provided subsidy which until recently was to the tune of 67%. For the industry to maintain a stable liquidity base, the government took 40 percent of the equity in the Discos, aside the provision of financial guarantees to cushion revenue losses. And to boost consumption, the government provided subsidy to the tune of 67%.
Available information indicate that about seven billion and five hundred million dollars ($7.5 billion) was secured in the last couple of years to improve the operations of electricity industry, especially transmission network expansion. Not long ago, the transmission network system, (which was highly inadequate) comprised about 5,000km of 330kv and 7,000km of 132kv lines plus about 19,000km of 11kv for distribution. The loan portfolios include the IMF/World Bank, the Chinese, AfDB, Japan etc. Internally too, the government expended over N1.6 trillion since the privatisation exercise and still counting in aid of the sector. Global best practices were provided through the engagement reputable contractors and consulting firms project execution and technical support. Some of the reputable external firms so involved the sector’s operations include, the Concraft, General Electric (GE), Manitoba, Siemens GA etc. These array of periodic interventions were effected to reposition the Nigerian Electricity Supply Industry for better performance. And to oil the wheels of the process, the government grants the stakeholders right latitude to review and hike tariffs occasionally. Thus in the last decade tariffs moved from N12 kwh in (2015), N40 kwh (2020) to N66 and eventually N226 kwh for band (category) “A” consumers in 2024. On account of these exercises, the revenue accruing to the DisCos hit over a trillion naira by the end of 2023.

The Crisis Of Performance.
Despite all of these interventions and reforms, the performance sector remains lacklustre, serving Nigerians with darkness and frustrations instead. The debilitating experiences are legendary. For a start the available power of 5,000mw is too low to make appreciable impact on the economy, by constraining access to only 54% of Nigeria’s 230 million citizen. The industry too has as small as 12 million registered consumers out of which only 5.8 million are metered according to nbs and NERC (2023). With this the industry could supply power to consumers for an average of 12 – 16 hours. Many claim the figure is far less and suggest 6 hours instead. Even at that, consumers are subjected to frequent and annoying outages, poor quality currents, voltage fluctuations etc. And so Nigerians, for most part have to depend on generators for up to 48.6% of their power needs at a huge cost to the nation and the citizens’ wellbeing. Various statistics estimate that Nigeria spent as much as $5 billion on generator import in 2020 and 2021with much on fuel and maintenance to run them annually.

In the field the sector has to contend with increasing frequency of national grid collapse and the vandalisation of critical installations. Between 2017 and 2023 the grid system collapsed over 46 times by the end of 2023. Since then about 1/2 a dozen more. No thanks to aging facilities, code compromises and the use of sub standard materials on account of corruption. This is aside rising incidences of vandalism. The NERC reported as many as 117 cases of vandalisation of power installations (towers, cables, transformers etc) took place in the years 2020 and 2021. These ugly developments degrade the the power sector’s capacity enormously to the extent that about 8,000mw could not be wheeled from the Gencos. TCN’s wheeling capacity limitations plus aging infrastructure complete the industry’s woes. And not discounting the massive corrupt practices among the generality of the employees in the electricity industry. Extortion, cover up for illegal connections, connivance to steal power and wipe out bills are the order of the day.
The precarious state of the power sector was captured by ex-Governor El Rufai during a Senate screening exercise where he made it known that 5 out of the 11 DisCos were under receivership by creditors, while 3 were seriously stressed. Only 3 were managing to stay stable. Many of the investors too liked financia and technical competence to run power firms successfully. That the Gencos depend on gas for over 85% of their operations and so easily got bogged down when scarcity sets. These challenges and more have literally conspired to reduce the power sector to a national liability and a big setback to the economy and people’s happiness.

On account of this some state governments have openly come out to castigate the service providers. Just recently the Niger State house of assembly passed a motion asking the state government to pull out of the AEDC. A few years back, the Edo State Governor literally worked out the functionaries of BEDC from his office for non performance and also stifling the economy of the state. Many industries have closed down or relocated to more business friendlier environments out the country while those still hanging on are producing at prohibitive and uncompetitive costs.

Corporate bodies like MAN and NACIMA have claimed that around 800 enterprises in Nigeria have either closed down or relocated to other countries, especially the Multinationals on account of harsh business environment particularly dearth of power supply.

The missteps.
How did NESI come to be so challenged? The privatisation was done in haste with little due diligence on the buyers who turned out to be technically and financially deficient. This much insiders like former top government functionaries like El-rufai and Shamsudeen who were part of the process from inception have acknowledged.

Besides the hasty pace, the processes seemed to have dispensed with the elementary laws of demand and supply in crafting the operations of the various stakeholders along the power value chain. Simple economics tells that for effective equilibrium to be achieved what is produced (supply) and consumed (demand) should be projected right from planning stage. In such a case, the incongruous situation in which TCN/DisCos could only wheel/ off-take less than 50% of Gencos output smacks of poor planning. The relationships among the stakeholders should have been more seamless and properly synchronised.

The existence of too many regulatory agencies may serves as unnecessary “check points” especially where some of their functions overlap or operational decisions and directives conflict.
Relying on a single source of electricity like has its down side. Nigeria should diversify its sources to include viable alternatives like coal, hydro, and solar. Over reliance on an underdeveloped gas sector by Gencos has been one the drawbacks of the power sector.

Half hearted war to contain corrupt practices by successive governments been part of the power sector’s undoing Monumental corruption has permeated most, if not all aspects of the electricity industry. From the “fault man” with a ladder to the Ministerial Boardrooms where multi billion dollar contracts are influenced and awarded. Usually underlined by political patronage and/or clique interest. The alleged $6 billion Mambila Power Project comes readily to mind among others. At the lowest rang a lot of field officials from the DisCos have made it a habit to either extort or connive with consumers to short change their respective establishments. They facilitate illegal connections, wipe out bills, and pilfer accessories for pecuniary interest. A case of monumental corruption from top to bottom.

With benefits of hindsight a couple of architects of the Nigeria’s model of privatisation like El Rufai and Shamsudeen Usman had come to recognise capacity deficiency as one of the major gaps in the exercise. Political exigency and self-serving interests for instance handed over the distribution of power to entities (DisCos) that were technically and financially ill-equipped. It is therefore instructive that Government and its development partners should place high premium on the human factor when it does reform exercises.

Adopting the Breton Woods “advice” (structural adjustment programme) line, hook and sinker has a lot of down sides. Structural adjustment programmes from the West, conventionally presuppose or are based on certain assumptions, some of which include citizens’ patriotism and transparency. So also merits and competencies. These attitudes are taken for granted or as given. Unfortunately they are in short supply in environments like Nigeria. And so when the IMF/WB comes with SAP that focus on economic variables such as exchange rate, subsidy, tariff hikes, etc they hardly succeed. The take off point for donor support such as those in the power sector should instructively be the human factor, especially content of character. Else both the national and donor resources that come with such interventions/programmes would simply disappear; a basket case, which has become a recurrent feature of Nigeria-IMF/WB and indeed other externally funded bilateral projects.

Way Forward
The task of closing up 100,000mw power deficit is certainly a daunting one. But Nigeria has no option but brace up to target a respectable level of 50,000mw in the short run. And for that goal to be achieved immediate steps should be taken to address the obvious drawbacks encumbering the electricity industry.

So for a way forward, considerations for the issues herein after identified would be crucial.

a) Government should be wary of using tariff hikes and removal of subsidy as basic tools of reform. Emphasis should be placed on enhancing national investment in the power sector. The entire revenue that could accrue from the sale of 5,000mw without subsidy would be too small to turn the fortune of the sector around. Yet it has the needless potential to create widespread disillusionment in the society is massively required. Government should turn to part of the savings from the petrol subsidy withdrawal, excess crude funds, new taxation bands, etc to generate the required investment funds.

b) The human factor is of essence too. The technical and managerial capacity gaps in the TCN and the Discos at all levels should be addressed through massive technical training and retraining, plus reorientation for attitudinal change. To achieve this goal, the Government should take back the DisCos. The bane of the DisCos has been inadequate investment and inefficient management. Consumers should not be made to pay for such inefficiencies

c) Attention should be paid to coal and alternative sources of power generation like the hydro in Mambila and other parts of the country, solar and even wind energy that are equally in abundance. The West that have been preaching against fossil fuel are busy using same in national interest

d) As regards the about 8,000mw “unevacuated” stock of electricity from the Gencos, government should explore the possibility of acquiring an industrial “power bank” that could store huge amounts of energy for a long while. A special purpose vehicle (SPV) could be put in to transmit the stored energy to industrial cluster who consume power in bulk. The strategy is being adopted in many Asian and M.E countries.

e) The Nigerian government initiative on nuclear power development for electricity should be stepped up. New technologies and processes are making nuclear power plants safer and more efficient. National interest and options should be be brought to bear on this vision. But it’s worth being kept at the front burner.

f) The regulatory agencies are too many with some of them seemingly having overlapping functions. A case of too many cooks spoiling the stew. This is notwithstanding the theoritical division of functions provided for, in their respective enabling acts. The sector is top-heavy and constituting needless drain on the system.

g) The phenomenon of corruption has become malignant and also a way of life or second nature in Nigeria. It poses existential threats to communities and nation. The power represents one of cesspit of this ugly vice. It has almost succeeded in killing the sector. And so given the centrality of power in the lives of ordinary folks and the national economy, government should establish a special power court (SPC) to deal with culprits. In many other climes, corruption and the vandalisation of critical national installations/infrastructure like electricity are considered treasonable felonies. Nigeria should take a cue.

h) With time the government should explore the possibility of fast trucking the acquisition of nuclear power technology for peaceful purpose such as generating electricity. i) The Federal government too should fast truck the participation of the state governments in the power industry in the spirit of the Electricity Act of the 2023. States should be free to produce and deliver electricity to their citizens to boost economic activities.

j) The nation needs a robust strategy beyond the externally inspired narrow praxis of tariff hikes, subsidy withdrawal and free market forces.
A. G. Abubakar
agbarewa@gmail.com


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *