NIGERIA’S power sector under President Muhammadu Buhari inability to embrace holistic market reforms and regulatory compliance has contributed to the sector’s failure to operate as a privatised market devoid of government subsidies.
In the past eight years, adherence to specific rules on market reforms (payment of right tariff cost and honouring of power purchase agreements for market players) by the government has been weak, which has seen investors showing less interest in a sector that is at the heart of the Nigerian economy.
The government’s efforts at initiating a few sector-strengthening reforms have been dashed by policy inconsistency. This development made the government pay huge subsidy in billions monthly for a sector that has the capacity to attract private capital through equity investments.
Several times, the gas generation companies threatened force majeur as a result of owed debts and poor compliance with market rules.
The chief executive officer of the Association of Power Generation Companies (APGC), Joy Ogaji, told The ICIR that market rules were constantly being violated, which put the sector at a higher risk of illiquidity, and dissuaded investors.
As a result of policy inconsistency and weak regulatory compliance, the sector has had to rely on multilateral funding agencies like the World Bank and the African Development Bank (AfDB) to keep the sector moving.
More background and key issues
Nigeria’s power sector was unbundled and privatised in 2013 with a view to creating a competitive market that would improve management and efficiency, attract private investment, increase generation, and provide a reliable and cost-efficient power supply.
However, the quest to deliver a cost-efficient power supply to Nigerians remains a pipe dream due to poor leadership and weak regulatory intervention. The situation has been no better under President Buhari, as the sector continues to falter on inefficiency.
For instance, many public institutions (ministries, departments and agencies of government) have forever been defaulting in paying for their power usage, with debts surging in billions, even as government pays subsidies for liquidity shortfall.
The ICIR had reported about debts in billions owed by some Federal government agencies, which some industry watchers say are some of the factors fuelling illiquidity and dissuading investor interest in the sector.
Accordingly, getting appropriate pricing for consumed power has been delayed for long, with the government only introducing service-reflective tariff in March 2020 to improve revenue collection and service for the consumers.
The ICIR had last month reported how the 11 distribution companies (Discos) relied on unmetered customers to earn profit through estimated billing, with the Federal government’s mass metering that it started in 2020 not quite a wide success.
Data from the National Bureau of Statistics (NBS) revealed that the estimated number of electricity customers stood at 5.91 million in the third quarter of 2022, higher by 1.09 per cent on the 5.85 million figure recorded in the second quarter of the year.
Although the NBS report stated that on a year-on-year basis, estimated customers declined by 6.38 per cent in the third quarter of 2022 from the 6.32 million recorded in the third quarter of 2021, revenue collected by the DisCos during the period stood at N202.62 billion in the third quarter of 2022 from N188.41 billion in the second quarter, indicating a rise of 7.54 per cent.
Another key problem in the power sector under President Buhari’s administration is operational deficiencies and non-alignment of various power sector value chains consisting of generation, transmission and distribution, with each constantly trading blames.
The sector, despite privatisation, remains weak due largely to underpayment of power costs by consumers, which makes subsidy in the power sector thrive.
Not complying with market rules has led to financial distress in the sector, prompting the take-over of some DisCos.
For instance, a government team led by the Bureau for Public Enterprise (BPE) and the Nigerian Electricity Regulatory Commission (NERC) had, on July 5, 2022, initiated steps to restructure the boards of the five DisCos, allegedly to save them from insolvency.
The affected companies are the Kano Electricity Distribution Company (KEDCO), Ibadan Electricity Distribution Company (IBEDC), Benin Electricity Distribution Company (BEDC), Kaduna Electric, and Port Harcourt Electricity Distribution Company (PHED).
Some industry stakeholders said the blame does not lie with the government and DisCos alone, but also with many consumers who they accused have not been playing by the rules in payment for power.
“Many Nigerians bypass power lines to access power without payment. This is hugely affecting cost recovery. There is also low electricity pricing because people are yet to pay the appropriate price for power. Most often, we get directives from the Nigerian Electricity Regulatory Commission (NERC) not to effect the appropriate price, which contradicts the Electricity Power Sector Reform Act of 2005 on the multi-year tariff order (MYTO). It also affects cost recovery efficiency,” the president of the Association of Nigerian Electricity Distributors (ANED), Sunday Oduntan, told The ICIR.
President Buhari’s interventions to lift the sector
The Buhari administration has continued closing various gaps in the power sector value chains, including paying almost N30 billion monthly subsidy to forestall possible shutdown.
The presidential adviser on Power and Infrastructure, Ahmed Zakari, said the President was keen and focused on using numerous avenues to close infrastructural gaps in the power sector. According to Zakari, more than $5 billion had been committed to upscale power infrastructure in the country.
”Through support from the World Bank, we now have $1.6 billion devoted to the transmission expansion programme. We signed another $500 million for the development of the distribution sector. The Central Bank of Nigeria (CBN) has also put out emergency funds for the distribution sector, as well as for the transmission sector in various phases to the tune of $500 million.
”We also have the SIEMENS presidential power initiative that we’ve signed the engineering agreement. We also signed the performance improvement plans of the Discos to enable us hold them accountable as they receive these support funds. This performance agreement will enable them to align their projects with funds that are available,” he said.
The adviser expressed optimism that the national mass metering programme would improve the revenue and sustainability of the sector in addressing the liquidity concerns in the sector.
“With this enhanced metering on the service-based tariff, we can see the Nigerian electricity supply industry generating over N100 billion in the near-to-mid-term. This is very impressive. The hypothesis that we have is that if you enhance payment discipline through the metering population, revenue will go up. We have proven that,” he said.
Interventions in off-grid power offers hope
The Federal government, through the Rural Electrification Agency (REA), has under President Buhari commenced provision of access to electricity to about 85 million Nigerians not connected to the grid through various off-grid electricity solutions. The plan extends to connecting targeted markets across the country and to several industrial clusters in order to expand access to electricity. It also targeted several higher institutions in the country for constant power through solar-powered electricity solutions.
The REA drove these initiatives through its energising education, market and industry programmes via solar-powered off-grid connections.
To support the economic recovery in response to the COVID-19 pandemic, the government also launched an initiative as part of the Economic Sustainability Plan (ESP) to achieve the roll-out of five million new solar-based connections in communities that are not grid-connected.
According to the Federal government, this programme is expected to generate an additional N7 billion increase in tax revenues per annum, and $10 million in annual import substitution.
The Solar Connection Intervention Facility is expected to complement the Federal government’s effort at providing affordable electricity to underserved rural communities through the provision of long-term low-interest credit facilities to the Nigeria Electrification Project (NEP) pre-qualified home solar value chain players that include manufacturers and assemblers of solar components and off-grid energy retailers in the country.
The 5-million-Solar Power-Naija connection scheme is a Federal government initiative which objectives are to: expand energy access to 25 million individuals (five million new connections) through the provision of solar home systems (SHS) or connection to a mini-grid; increase local content in the off-grid solar value chain; and facilitate the growth of the local manufacturing industry.
The ICIR found out that some of these initiatives are still ongoing, as some industry watchers confirmed that the Nigeria off-grid market acceleration programme is creating opportunities for underserved rural communities across the country.
FG’s mass metering interventions show signs of failures
Zakari had also told the media that the National Mass Metering Programme was introduced to replace the Meter Asset Provider Programme to close a metering gap of over six million.
“Arbitrary billing is one of the key challenges of the sector, and we mandated that we transition to the national mass metering programme that is fully-funded, and the estimated six million meter gap would be eliminated by the end of the life of this administration. We’re currently in the zero phase now, for which the Central Bank has provided over N35 billion.
“The phase zero targeted 1 million meters. We’ve mopped up all the available meters produced locally, which is about 600,000 meters. The next phase brings in about 4 million meters. Four hundred thousand meters have been installed, and we track the geolocation, names of every citizens and household that had been metered. Before the end of the life of this administration, we will eliminate the metering gap,” Zakari enthused.
He pointed out that arbitrary billing and energy theft were issues the government was also addressing, “which is why we are tracking metering and ensuring regulations to stop certain untoward practices.”
Concerns with the mass metering
Findings by The ICIR showed that many indigenous meter manufacturers lack the capacity to close the metering gap on the back of weak production, importation and logistic concerns.
Indigenous meter manufacturers have not been able to produce up to 20 per cent of the needed meters, according to findings, putting unmetered Nigerians under the pressure of waiting endlessly.
Currently, Nigeria cannot manufacture all the components of the meter locally. There is still a reliance on importation logistics for some of the components. Getting cargo across the ports comes with some difficulties. The issue of foreign exchange, pandemic, and Customs logistics cannot be perfected in months in terms of metering millions of Nigerians,” Oduntan told The ICIR.
Oduntan stressed that over 500,000 meters had been provided through the Meter Asset Provider Policy of the NERC but admitted that a lot of work needed to be done to close the metering gap of over six million households.
Unbundling of TCN
Zakari noted that the Electricity Power Sector Reform Act 2005 allows that at the maturing stage of the privatised market, there was the need to separate the management of the grid, which would be a new independent systems operator, from the transmission services.
He said, “The Act requires you to unbundle first before privatisation, or commercialise. We’re currently doing both and determining how best to unbundle into the new parts. The National Council on Privatisation (NCP) and the Ministry of Power are currently evaluating that. The second step is to go back to the NCP, with approaches to unbundling and privatisation.
Zakari noted that the CBN had sustained interventions to the Transmission Company of Nigeria (TCN) through the Transmission Expansion Programme to plug the gap in transmission infrastructure in the country and provide supervisory control and data acquisition (SCADA) that helps to control grid collapse by enforcing efficient communication in the various power value chains.
“The issue of unbundling of the TCN is NERC’S responsibility as prescribed by the Act. We are currently losing a lot without unbundling the TCN. The day you open up the TCN for proper unbundling, you would solve the problem of dilapidated infrastructure as people would build their own independent transmission backbone. Investors would come in and build their own transmission infrastructure,” said a power sector governance expert, Chuks Nwani.
“This is not good for the system. As you can see, the distribution companies trade blames with the TCN once there is a grid collapse issue. We must deliver the unbundling as quickly as possible for the advancement of the power sector,” Nwani emphasised.
Nigeria’s expectations still unmet
Nigerians have been waiting to harvest the fruits of the power sector privatisation embarked upon in 2013. However, the exercise has not delivered efficiency, and calls for its review have heightened.
For instance, the MYTO, as prescribed by the Electricity Power Sector Reform Act of 2005, states that the tariff ought to be reviewed every six months to factor in various variables like exchange rate and inflation concerns.
This has not been consistently adhered to as adjustments in tariff clauses had met stiff opposition from various labour unions in the country and, recently, from legislators, leaving the government with huge payment gaps to bridge the shortfalls through subsidy to the power sector.
Against this backdrop on non-adherence to the Electricity Power Sector Reform Act of 2005, and lack of implementation of the MYTO, government’s financial support and interventions to the power sector have been about N2.7 trillion in the past few years.
Despite these interventions, the current administration still struggles to keep the lights on.
A former Minister of Power, Mamman Sale, disclosed that it takes about N50 billion monthly to sustain the subsidy. The power sector has not been able to stand on its own because of the numerous challenges.
World Bank ranks Nigeria’s power sector low, despite providing funding support
Nigeria has been enjoying lots of support from the World Bank and the African Development Bank to support efforts to improve power supply.
The World Bank once approved $1.5 billion to support the government in improving its electricity sector. The sum was intended to boost electricity access by improving the performance of the DisCos through a large-scale metering programme desired by Nigerians for a long time.
The CBN, the disbursement agent for the fund, had confirmed the disbursement of N35.9 billion on mass metering so far.
According to the World Bank, 85 million Nigerians do not have access to grid electricity. This represents 43 per cent of the country’s population, which makes Nigeria the country with the largest energy access deficit in the world. The lack of reliable power is a significant constraint for citizens and businesses, resulting in annual economic losses estimated at $26.2 billion (N10.1 trillion), which is equivalent to about 2 per cent of the gross domestic product.
According to the 2020 World Bank Doing Business report, Nigeria ranked 171 out of 190 countries in getting electricity access.
“Improving access and reliability of power is key to reducing poverty and unlocking economic growth in the aftermath of the global COVID-19 pandemic,” the World Bank Country Director, Shubham Chaudhuri, said at a recent press conference.
“The operation will help improve the financial viability of the DisCos and increase revenues for the whole Nigerian power sector,” Chaudhuri added.
In its latest online meeting with the media people, the bank indicated that over 78 per cent of electricity consumers in Nigeria received less than 12 hours of electricity supply daily.
According to the global financial institution, while 93 per cent of metered power users paid their bills regularly, 78 per cent of the electricity consumers in Nigeria received less than 12 hours of supply daily. The bank said it harvested the results after a thorough survey.
PriceWaterhouse Cooper’s Associate Director in charge of Energy, Utilities, and Resources, Habeeb Jaiyeola, noted that fund injection into the sector and mass metering arrangement remained the right way to go.
Jaiyeola argued that the sector would have collapsed without the government’s timely intervention.
He said, “It is necessary for the government to continue to keep the industry balanced. Because as of now, even though we have privatised the sector, the government will have to intervene so that the industry does not collapse.
“We expect more sensitisation for Nigerians to understand the issues. Nigerians are still not seeing power as a service that needs to be fully paid for. We have issues with cash collection; we have to keep improving on the collection by the DisCos, who are constrained by security and other issues. Part of what is causing the poor collection is the absence of full metering.”
Public policy expert, Princewill Okorie, told The ICIR that NERC must intensify efforts to improve its plans and focus on consumer enumeration reports with the DisCos to guide the mass metering programme properly.
Okorie expressed concern that Discos appeared comfortable with estimated billing, raising issues on their less emphatic drive on the mass metering programme.