Business
Concerns as the decade-long pact to privatise the Nigerian electricity sector expires
As Nigeria’s electricity decade privatisation process is anticipated to end on October 31, 2023, worries are growing.
The decades-long turmoil in Nigeria’s power sector has made it increasingly difficult.
The nation’s energy value chain has faced difficulties for more than 62 years, from distribution to generation and transmission.
The government made two attempts to break the curse in the nation’s failing power sector: first, by passing the now-defunct Electric Power Sector Reform (EPSR) Act in 2005, and second, on November 1, 2013, by starting the privatisation process.
According to OBASANJO NEWS24, the government began privatising Nigeria’s electricity distribution and generation businesses in November 2013 with the goal of ending the country’s protracted power crisis. The process was benchmarked on a 10-year embargo on operational licences.
However, 10 years later, the power industry’s issues are still unresolved and continue to stymie Nigeria’s economic development.
While the generation firms suffer with poor investment and transmission inadequacies, resulting in persistent grid breakdowns, the energy distribution companies contend with cash flow problems, low remittance, and the metering gap.
With over 200 million inhabitants, the nation has long struggled to provide 5,000 megawatts of electricity every day.
The second quarter 2023 report from the Nigerian Electricity Regulatory Commission, or NERC, shows that the 26 power plants’ combined generation capacity fell to 4,387.91MW.
The research further stated that the annual capacity payment loss in the industry was N214.93 billion, N273.32 billion, N236.47 billion, and N264.08 billion, respectively, in 2015, 2016, 2017, and 2018. The sector experienced annual capacity payment losses of N256.97 billion in 2019, N266.10 billion in 2020, N159.86 billion in 2021, and N88.13 billion in 2022 (January through August).
Despite various government interventions, the problems have persisted.
Remember that the Federal Government announced a loan of N213 billion to the privatised electricity companies on September 30, 2014?
Similar to this, on March 1, 2017, the Federal Government authorised the establishment of a power assurance guarantee fund in the amount of N701 billion for use by the Nigerian Bulk energy Trading Plc to cover the cost of the energy generated by the producing companies for a period of two years.
The nation’s power business has continued to suffer despite these measures; in 2019, the government additionally gave the sector another N600 billion payment guarantee facility.
The economy is operating poorly as a result of the issues facing the power sector.
For instance, the Manufacturing Association of Nigeria revealed in June that the electricity sector issue costs its businesses N10.1 trillion yearly.
However, stakeholders speculated that the 2023 Electricity Bill, which President Bola Ahmed Tinubu signed on June 9, would bring about the much-needed reform in the industry if it is implemented throughout the sector.
Adebayo Adelabu, Nigeria’s minister of power, would need to provide the sector with the necessary policy guidance in this situation beyond generalisations.
The 2023 Electricity Act, according to Wumi Iledare, Professor Emeritus and Executive Director of the Emmanuel Egbogah Foundation, promises a new horizon for the nation’s power sector.
He stated that the appropriate application of the Electricity Act is the way to go.
“My recommendation is still the same: decentralise the power industry with appropriate state and federal regulatory organisations.
“The Electricity Act is prospective in its current form. Of course, having a good legislation is one thing; adhering to the spirit of the law is quite another.
“I continue to be confident that vertical integration in the power value chain is still a viable market choice for value optimisation at the level of development in Nigeria.
“NERC must accept its responsibility as a regulating body. The Ministry of Power cannot be a commercial organisation because it is a policy-making organisation rather than a regulating one.
“In my opinion, the market system that was chosen for the privatisation of power has been flawed from the beginning. Take a look at the executive turnover at Disco. Given that the permits are up for renewal, the power market needs to be restructured for economic efficiency. Diseconomies of scale exist due of the size of the Disco market jurisdiction.
“Being a shareholder in Discos makes me think of the joint ventures in Nigeria’s oil and gas industry. One could wonder, for what reason? Increased revenue for the FG or the mantra of energy security?
“Why not open up the electricity industry for global investment if investors can come from every corner of the world and invest in the telecom industry?
Last but not least, low energy consumption in Nigeria is a result of energy availability, accessibility, affordability, and adaptability. The Electric Power Act should be properly implemented in order to reform the power sector and restructure the electricity distribution markets under institutional supervision of the state.
The framework for the privatisation of the power sector was also criticised by Kunle Olubiyo, President of the Nigeria Consumer Protection Network.
According to him, the government may restructure the industry after the Performance Agreement and Licensee Moratorium expired.
“The Performance Agreement & Licensees Moratorium was not granted with the intent that it would endure indefinitely.
The initial plan called for it to last for five years, from 2013 to 2018.
It was unexpectedly extended by a further five years, making it a total of 10 years (2013-2023).
In spite of everything, no significant regulatory attempts were made to evaluate the licensees based on Key Performance Indicators, Service Agreements, Performance Agreements, or Vesting Contracts.
“Timeline, Actionables, Deliverables, etc. are the main pillars on which Key Performance Indicators are founded.
“It is clear that something is wrong, and the government’s beneficiaries as well as licensees will do whatever to prevent action being taken to address the situation.
In the current environment, “our activities seek to awaken public conscience and consciousness.
“You don’t implement a rule for a football game at your whim or convenience. The game’s rules are unbreakable. The privatisation of the electrical sector has resulted in unparalleled inducements and gaps in the regulatory ecosystem.
So that the economy and Nigerians can take a breath, it is reasonable for the government to investigate the possibility of ending the 10-year embargo on the Power Sector Privatisation Exercise.
“In the end, the Nigerian Government’s next course of action will be determined by the depth of the findings of the regulatory review of the power sector privatisation exercise,” he said.
Adetayo Adegbemle, convener and executive director of PowerUp Nigeria, said the industry’s repositioning depends on the revision of the power sector privatisation deal.
“Privatisation came with a lot of uncertainty, and many people didn’t even know what to anticipate. So we’ve all learned a lot over the past ten years.
The funny thing about asking for reviews is that the industry has been changing even without a “particular review.”
The metering of consumers, all power sector interfaces, customer enumeration and classification, and correcting the imbalance between generation, transmission, and distribution are examples of low-hanging fruit.
All of these issues are urgently in need of attention and would have an impact on the industry, he said.
