Understanding Nigeria Power Crisis

Adedoyin Shittu
20% Complete
 26-Jan-2019

There is a popular joke that says when God said; “Let there be light, Nigeria was not included”. Funny as it sounds, it is sad that in this 21st century despite the money invested in the power sector, it has not yielded the desired result and Nigeria still suffer from epileptic power distribution.
It is reported that Nigerians spend 1.6 trillion naira annually to import in Generator set, this is excluding the amount spent on diesel and PMS to fuel the generator set.

Most Nigerians spend money to generate energy; money that would have been channelled to other avenues. It is ironic that the citizen self generates more energy than the federal government.
Earlier this week it was reported that the nation’s power grid collapsed twice last week and this has worsened power supply in the country.
According to the Nigerian Electricity Regulatory Commission (NERC), a total system collapse means nationwide total blackout while a partial system collapse is a failure of a section of the grid.
As of Sunday, January 21st, 2019; the total power generation stood at 3,683.60MegaWatts for a population of over 187 million people. Whereas South Africa with a population of about 62 million generates about 40,000 MW electricity.
Electricity is pivotal to the development of any nation and Nigeria potential to become one of the world’s largest economies will remain a dream without tackling the problem of electricity. Though Nigeria is the largest growing economy in Africa, this is entirely driven by what is happening in the oil and gas industry but in few years time oil and gas which is a finite resource can finish or the price can crash never to recover but electricity adds value to our lives. Electricity is the engine required for any tangible development in a country.

Also Read: Buhari’s Administration: The Invisible Change 

Background Studies
Electricity generation started in 1896 in Nigeria but the first electric utility company known as the Nigerian Electricity Supply Company was established in 1929.
By 2000, there was a state monopoly as the Nigerian Electricity Power Authority (NEPA) was in charge of generation of electricity, transmission and distribution of electric power in the country. This resulted in an unstable and unreliable electric supply with customers exposed to frequent power cuts and long period of power outages and an industry characterised by lack of maintenance of power plants, low revenues, high losses, power theft and non-cost reflective tariffs.
A reform started in 2001 with the public declaration of establishing an efficient electricity market and its objective was to transfer the ownership and management of the infrastructure and assets of the electricity industry to the private sector in order to create the necessary structures required to sustain the electricity market in Nigeria.
The reform enabling private companies to participate in generating, distributing and transmitting electricity was signed into law in March 2005.

NEPA was renamed Power Holding Company of Nigeria (PHCN) and PHCN was separated into six generating companies called the GenCos, eleven electricity distribution companies called the DisCos and a transmission company (TCN). Also the Nigerian Electricity Regulatory Commission (NERC) was created to be an independent regulator for the power sector.
Presently the federal government has fully sold its shares in the generating companies (GenCos) and 60% of its shares have been sold in the 11 distribution companies (DisCos). However the transmission company remains under the federal government sole ownership.

Understanding the Connection in the Power Market
The power generation companies (GenCos) generate the electricity in the power plants. This can be done thermally (using gas) or using hydro energy to drive turbines which in turn produces electricity.
In turn the GenCos sells the electricity as a commodity to the Nigerian Bulk Electricity Trader (NBET). The NBET function as the government appointed bulk buyer. This means the transaction is between the GenCos and the NBET.
The distribution companies (DisCos) buy the electricity from the NBET and sells it to the final consumer.
The transmission company (TCN) function as the transporter of the commodity (electricity) and it is managed solely by the federal government.
A Power Purchase Agreement (PPA) was signed by all members involved in the transaction including the gas supplier and a target was set for the GenCos. In order not to disappoint in this bargain, the GenCos sought for loans from various banks and signed an agreement with these banks.
Now the target has been met and some plants have surpassed the target but the federal government have not paid the GenCos for the services rendered. This is because the distributing companies claim that consumers do not pay for the commodity sold.
However the GenCos do not have any business or direct relationship with the DisCos in the agreement but with the federal government. This is why it seems that though the power sector has been privatised, the federal government still pay the power generating plants.
Money is not received from electricity generated by the power generating plant but by the distribution companies which in turn pay the federal government (NBET) and the federal government in turn pay the power generating plants.

Current Challenges in the Power Sector
Currently in Nigeria, there are 28 power stations with installed capacity of 13,260MW and about 7,500MW can be generated for Nigeria usage. Nigeria still depend on gas for power generation and 80% of Nigeria generating plants blare natural gas to turn turbines which generate power. It is sad that the GenCos is dying slowly in Nigeria due to some constraints that are affecting their capacity to effectively deliver in their duties.

Distance of Gas reservoirs to gas plant
Some of the power plant stations are located away from where the gas is supplied. Gas reservoirs are located in the south south and in the south east region of Nigeria but not all the generating plants are situated in that region due to the troubled state of the region.

Therefore the gas has to be transported from the reserve to the point of need. By the time the gas reaches the point of need, pressure of the gas has reduced and there is difficulty in getting the gas to be used. There is no necessary infrastructure in the sector to increase the pressure of the gas when they reach the plants and private investors are sceptical in investing their resources. This is because the federal government have not shown willingness in paying them for services rendered.

Insolvency of the GenCos due to debt owed by the federal government
There is no contract set by the federal government in the power market that is effective and this does not give room for long term planning for investors investing in the power sector.
The GenCos are owed large sum of money that should be used to run the companies smoothly and just like the blood is the life line of the body, money is the lifeline of any company
The generating plants are owed by the NBET acting on behalf of the federal government money for the generated electricity and these generating plants in turn owe the gas companies.
The Executive Secretary, Association of Power Generation Companies (APGC), Barrister Joy Ogaji raised an alarm over the liquidity challenge faced by the GenCos. There have been an inability to pay for gas and this is responsible for the low utilization of gas. These have brought about a standstill in the supply of gas to some plants and also not encourage the suppliers to put in more infrastructures for continuous gas supply.
On January 23, 2019; four gas generating companies were shut down as a result of their failure to pay debts owed two gas producing companies and their inability to access fresh loans for gas.

Now the question is why the generating plants are not been paid for the energy generated?
Out of the 7500 generated energy, only about 4,500MW of electricity can be transmitted to the Nigerian consumers by the power grid. There is no viable power grid to put the generated power on and most of the nation grids are old and inefficient.
The distribution companies further reduces what is transmitted because the companies can only distribute about 4,000MW of electricity.
So while the generating plants are expecting a payment for about 7500MW of energy only about half that amount reaches the consumer and the distribution companies complain that the final consumers do not even pay for the energy supplied. The consumers in turn complain of the high amount that they are made to pay when they are not even given adequate light, so thus creates confusion and fees are not met.
This has limited the capacity of the generating companies in expanding their power generation.


Power Rejection by the Distribution Companies (DisCos) to distribute electricity to consumers
This is because the DisCos do not want to increase the debt burden on them as a result of the transmission company insistence to sending power to communities where it is difficult to recover payments from.

Inefficient management of the Nation’s Grid
The Transmission company of Nigeria or more aptly put, the federal government is in charge of managing the nation’s power grid and they have not manage to maximise the load on the power grid. If too much load is placed on the power grid, it collapses as it happened recently.

Low tariffs and high volume bypass as a result of electricity theft
The price for producing an actual unit of electricity is not been paid. This encompasses everything it takes to produce the electricity including the human resources involved but this is not put in place. The GenCos are not adequately paid for the electricity they generated and they are manufacturers of the electricity. If they are not there, there will be no electricity.
Also many household either pay less than they use or more than they use. The old meter is still in use by most household and some homes or organization can go as long as a year without payment for electricity used.
Also prepaid meters have not been made available to more than half of household that uses electricity in Nigeria and many of them bribe officials with tokens to have electricity.
There is also the issue of bypassing of meter by household and organizations to dodge the payment of electricity tariffs and this is practised in large volumes by organisations and homes.
Though the customers complain of the high electric bills given to them by the distribution companies every month, this does not commensurate with what is received by the GenCos. This is because if one person steals or bypasses power another law abiding citizen pays for it.

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Solution to challenges facing the Nigeria Power Industry
With the privatization of the power sector, power generation is no longer an issue but rather the ability to transmit the generated power, and also to distribute the power. The new cry of the industry is rejection of the generated electricity.
To optimize the current generation capacity, there is need for massive investment in transmission and distribution networks in the country.

Power Generation Companies (GenCos) have the capacity to increase their output in the near term. However, an increase in power generation without a resultant increase in Transmission Company of Nigeria’s (TCN) wheeling capacity and improved distribution infrastructures will continue to lead to stranded power generation. Nigeria has about 13,000 (MW) of installed capacity, a transmission capacity of about 5,000MW and distribution that hovers between 3,500 and 4,200MW.
There is also a need for effectiveness of contracts. One of the notable functions of a contract is to facilitate forward planning and to make provision for future contingencies. The current market situation gives room for assumptions. There is no binding contract in the industry. This impact is felt more by the GenCos, who due to lack of effective contracts are in a tight corner especially in the supply of gas for power plants and in seeking of loans.
There are instances where the GenCos had to resort to other means other than the electricity market to support the gas and other services just to put power on the national grid. The electricity market has the potential to absorb significant investments and provide rewarding returns on those investments if the market is allowed to run on competitive basis with little or no government interference.
The lack of sanctity of contracts have also resulted in huge debt burden on the generation companies (GenCos) who are never fully paid for power generated and supplied to the market.
The government should stop interfering in the electricity market without seeking a better understanding of the market. There should also be a free hand of operation by all players in the power industry. The right tariffs should be set and there should be adequate data of electricity users in order for effective collection of payments.
Finally the consumers should comply with rules and regulations. They should stop or report all ill practices such as by passing of meters and refusal to pass electricity tariffs.

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