In his inaugural speech as Nigeria’s new President on May 29, President Muhammadu Buhari expressed worry that Nigeria’s economic woes were traceable to her poor power supply.
He also said it was embarrassing for the country to have spent huge resources in restructuring the sector without any real returns on the investments so far made.
Promising change, the president said: “No single cause can be identified to explain Nigerian’s poor economic performance over the years than the power situation. It is a national shame that an economy of 180 million generates only 4,000MW, and distributes even less.
“Continuous tinkering with the structures of power supply and distribution and close on $20 billion expended since 1999 has only brought darkness, frustration, misery, and resignation among Nigerians. We will not allow this to go on. Careful studies are under way during this transition to identify the quickest, safest and most cost-effective way to bring light and relief to Nigerians.”
With these, Buhari’s task to Babatunde Fashola, who was last week assigned to manage the country’s power sector as its substantive minister can be said to be precise.
Without any ambiguity, the president indirectly made known his plans for the sector, which pundits say is still struggling to cope with standard practices of a privatised market, thus giving Fashola the job of quickly, safely and economically delivering electricity to Nigerian homes and industries.
But for Fashola to achieve this, stakeholders would want that he comes to understand the sector as an interlaced value-chain; one which its synchronism determines its overall outcome.
These stakeholders reasoned that it is necessary that he adopts a holistic approach in dealing with the challenges of any of the sector’s pieces: generation; transmission; and distribution, in view of the fact that none operates in isolation.
For power generation, stakeholders who have repeatedly asked for Nigeria’s expansion of her energy mix to include other sources like her abundant solar; wind; and biomass are of the view that the minister should expand and drive further actionable conversations on these.
They in this regard, asked that past policy documents on renewable energy development should be reviewed and deployed to attract investments in the renewable energy sector.
In addition, they also requested that existing projects like the 10 megawatts (MW) Katsina Wind Farm which is reportedly 80 per cent finished; the controversial 1030MW Mambilla hydro power plant; 750 Zungeru hydro plant and other small hydro power projects which are being held back by either human or institutional circumstances, be freed to add to the country’s generation capacity.
According to them, further expansion of the country’s energy mix to increase the ratio contributions of non-gas sources to the generation capacity would be a win-win for the country especially considering the cost of transmitting energy from far-flung thermal plants in southern Nigeria to homes and industries up north.
The national president of the Nigerian Association of Energy Economists (NAEE), Prof. Wumi Iledare had recently advised that the government should dedicate priority attention to unlocking the country’s huge potentials in solar, hydro and wind energy.
Iledara stated that endemic corruption, poor assets maintenance, inadequate gas supply to thermal generation plants, transmission infrastructure challenges, and inconsistent government policies have all contributed to the poor state of electricity in Nigeria.
He however noted that the country can make a quick turnaround in its power systems by adopting such quick and cost-effective models which renewables offer.
“Until we are able to resolve the huge electricity deficit of the country, huge potentials of the economy would remain untapped and unavailable to current and future generations,” Iledara said
at the occasion of the ‘2015 World Energy Day’ in Abuja.
Likewise on generation, other stakeholders have requested that the new conversation on embedded generation which the Nigerian Electricity Regulatory Commission (NERC) recently initiated to majorly serve industrial clusters across the country, be vigorously pursued by Fashola to at least, guarantee off-grid stable supply to the country’s industrial sectors.
For existing thermal generation plants, which currently account for 80 per cent of the country’s on-grid power, stable fuel supplies and prompt payments for power generated and sold have been identified as the key challenges, which Fashola should tackle to keep their supplies coming with minimal hitches.
Fashola will in this regard, stimulate and sustain a harmonious working relationship with the ministry of petroleum resources and the Nigerian National Petroleum Corporation (NNPC) which provide almost all of the fuel used in these thermal plants.
Prior to now, such relationship was the missing link when the last administration of President Goodluck Jonathan struggled to elevate its power reform programme beyond its first phase into the transitional electricity market.
When the former administration eventually managed to link gas supply to power plants, it was reportedly quite late and too little.
In view of the past experience, stakeholders have advised that Fashola should in his first priorities for the power sector, set out his best foot by establishing a steady link between gas supplies to these power plants, especially those constructed by the Niger Delta Power Holding Company (NDPHC) Plc under the National Integrated Power Projects (NIPPs).
These projects stand to give the country quick wins from their capacities but gas supply held back closure of the NIPPs privatisation.
“The new minister of power should try to get to the root of the issue of gas production and appropriate pricing and delivery of gas to all the power plants in the country, and then the transmission infrastructure of the country. That is electricity transmission infrastructure of Nigeria,” energy expert, Dan Kunle advised.
Kunle, who worked in the economic team of former President Olusegun Obasanjo, further said: “I will advise the minister of power to separate the domestic gas obligation from the export gas production and now ask the president to approve a subsidised price for domestic gas supply.
“This means that if domestic gas needs one billion cubic feet of gas per day to meet the demands of such domestic industries like electricity; fertilizer; cement and other heavy gas users in the domestic economy, the government can give a special price for this domestic gas because in economics, you use what you have to get what you want.”
“So, the minister should face gas availability and supplies and tackle it and then transmission because these two are extremely critical to stable electricity in the country,” Kunle added.
Having retained and managed the country’s transmission network in the reform exercise, the federal government has continued to deal with the challenges of attracting and deploying practical funding to upgrade the country’s transmission network.
The Transmision Company of Nigeria (TCN), which is currently under a management contract by Canadian firm, Manitoba Hydro International (MHI) has however not fared as well as expected by the stakeholders, thus raising doubts on its capacity to deliver the goods.
As at the last count, the government said that approximately $2.7 billion would come the way of the TCN from sources that include bilateral partners to fund its transmission expansion projects.
The government noted in this regard that such funds have come in the form of loans from the World Bank-$700 million; JICA- $200 million; African Development Bank (AfDB)-$370 million; as well as the expected $1.65 million proceeds from the sale of NIPPs plants; EXIM China’s $500 million and other contractor financed turnkey projects worth $1 billion.
Unfortunately, the board of TCN is yet to get its act together. Since the appointment of a chairman and some initial board members was first announced some months ago, so much time appears to have been lost internal squabbles. If TCN does not deliver the goods in 2014, there will be a crisis of sorts when the 10 NIPP power plants come on stream.
Responses from industry stakeholders on the status of TCN indicate that not much has changed since then, hence, the need for Fashola to also look in closely on TCN and the transmission network.
“The transmission should be possibly handed over to at least two serious groups from China in the form of long term concession of Build Operate and Transfer (BOT), so that they can sit down and design for us very functional transmission system which they can manage for maybe 20 years and transfer back to the government,” Kunle proposed as an alternative to the preference of some other stakeholders.
On distribution, stakeholders indicate that nothing much other than helping the distribution companies cut technical and commercial losses to minimal levels would be needed.
They in this regard asked that relevant institutions such as the Nigerian Electricity Regulatory Commission (NERC), the Nigerian Electricity Management Services Agency (NEMSA) and the Nigerian Bulk Electricity Trading Plc (NBET) be strengthened to continue to undertake their responsibilities.
For NERC and NEMSA, both of which are saddled with the task of regulating and checking standards in the industry, stakeholders have called for further insulation of both agencies from potential political interferences. This request, they said is based on the known consequences of political interference in regulation of critical industries like power.
Accordingly, making sure that the distribution companies stick to delivering in their respective metering plans to upgrade scientific revenue collection from consumers as well as cut commercial loses, should also find a place in Fashola’s itinerary. He in this regard can breathe down on the neck of NERC to sit up and follow through the Discos’ adherence to the performance indicators it has given them on metering.
In strengthening key institutions in the power sector, stakeholders especially the Discos also indicated that a firm move to reconcile extant differences between NERC and NEMSA would add value to the government’s reforms in the sector.
Other auxiliary issues
In addition to these tasks, getting the country’s privatised power sector to a financially stable state should also form part of Fashola’s agenda. The sector is in a dire financial strait owing to poor revenue inflows.
There are strong indications that the sector is unable to make payments for power generated and distributed, thus impeding its progress and final transition into a reliable market. The NBET which guarantees supply payment through its various instruments is being owed energy and capacity payments by Discos whose remittances have dropped below expected thresholds.
The minister would have to, in partnership with relevant sector participants and operators, explore creative means of improving the sector’s revenue intake through proactive metering of electricity consumers across the country. Proactive metering is one aspect of the market that the Discos have failed woefully, and even with the provision of stop-gap funding from the Central Bank of Nigeria (CBN), the situation has rarely improved, thus contributing immensely to the sector’s revenue shortfalls.
Extant private power projects like the 450MW Azura independent power project in Edo State which the government has promoted by sealing its support for a World Bank’s $237 million Partial Risk Guarantees (PRG), should also be encouraged, along with plans by Zuma Energy to build a 300MW coal power plant in Kogi State.
The World Bank guarantee on Azura comprises a debt mobilisation guarantee capped at $117 million and a liquidity guarantee capped at $120 million.
The combined value serves to leverage a total investment in the power plant of more than $900 million made by a set of 20 international banks and equity finance institutions drawn from nine different countries.
The government in this regard should continue to inspire the confidence of such investors with continuity of its reforms in the sector.
The execution of the Azura PRG comes on the back of the release of the government’s Solicitor General’s legal opinion confirming the validity of the Put-Call Option Agreement that was signed last year by the government, Nigerian Bulk Electricity Trading Plc (NBET) and Azura Power.
NBET has also signed off its pioneer Power Purchase Agreement (PPA) for coal-to-power generation with Zuma Energy for the coal power plant in Itobe in Kogi State. The development serves to signal the country’s continuous opening up of its power sector which Fashola should leverage on.
Again, helping the country nurture its foray into other energy mix such as solar, wind, biomass and small hydro to upgrade access to power by the country’s rural population should also take up Fashola’s attention. The NAEE had noted that more than half of 75 per cent of Nigeria’s 170 million people who have zero or minimal access to electricity are within the rural areas of the country.
The minister should have this in mind and push for strong policy actions on embedded power generation and distribution especially using medium and small hydros.
These energy sources are found in Taraba, Kaduna, Benue and Cross River States with estimated capacity generation of 4,650MW.