The past administration of President Umar Yar’Adua set for the Country the Vision 20:2020, which simply is the target of being one of the world’s 20 (twenty) best economies by the year 2020.[1] In order to achieve this Vision, an efficient and effective electricity sector is a prerequisite, as there can be no industrial development without electricity.
Since the first power outage in the 1960s[2] until date, the Nigerian electricity sector has been characterized by epileptic and unreliable power supply, thus, creating a harsh environment for economic development and most especially, foreign investment. This has led to the witnessing of a number of reforms by the Nigerian electricity sector.
The aim of the reforms was to create an efficient and effective electricity industry, which in turn will boost the Nigerian economy. One significant reform is the unbundling and privatization of the electricity sector.
BACKGROUND OF STUDY:
Nigeria’s experience with electricity generation first started in 1896 at Ijora, Lagos, “when the British colonial government produced the first electrical energy in Nigeria”[3]. The following years, (1929, 1951, 1962 and 1972) respectively saw:
§ “The Nigerian Electricity Supply Company (NESCO) commenced operations as an electric utility company with the construction of a hydro electric power station at Kura, near Jos ”;[4]
§ “The establishment of the Electricity Corporation of Nigeria (ECN) to control the diesel and coal plants, and also distribution and sale electricity”; [5]
§ “The construction of the first 132kv line linking Igor power station to Ibadan power station”;[6]
§ “The establishment of the Niger Dams Authority (NDA), with the authorization to develop the hydropower potentials of the Country, the construction and maintenance of the dams and other works on the River Niger”;[7]
§ “The merging of ECN and NDA to form the National Electric Power Authority (NEPA) which had the mandate to manage, maintain and oversee electricity production in Nigeria”.[8]
Decree No. 24, which creates NEPA, gave it the statutory monopoly to generate, transmit, distribute and supply electricity throughout the Federation.[9] “NEPA’s responsibility cut across the Nigeria territorial borders as it was also responsible for the supply of electricity in the neighbouring Countries of Chad and Benin Republic”.[10]
NEPA’s sources of funding were the central government budgetary allocations through the Energy Ministry and loans from multilateral institutions.[11] “The government also controlled all procurements and foreign exchange transactions”.[12]
Nigeria’s primary fuel sources for electricity are mainly coal, oil, gas and water. Nigeria, fortunately, is rich in these resources, thus, providing for their availability.[13] NEPA owned and operated a greater part of the installed capacity, which as at 1998 was 6,000MW[14]. Nonetheless, much of this capacity is non-operational making generating capacity range between 1500MW and 2500MW.[15]
This huge disparity between installed capacity and generating capacity resulted in the Electricity sector being characterized by recurrent outages and epileptic power supply. Reports show that “45% (forty-five) of the Nigerian population have access to electricity, whilst 30% (thirty) of this population have their demand being met. The population in question is those in urban areas. The consequence of recurrent power outages is that 90% (ninety) of industrial customers and a significant number of residential and other non-residential customers provide their own power”.[16]
A number of reasons have been given for this incomprehensible situation, where a country in spite of its abundant endowment with the resources needed to fuel its electricity sector, still cannot produce sufficient electricity to meet the demand of it populace. These reasons are:
§ “36% (thirty-six) of installed capacity are over 20 years old; 48% (forty-eight) are over 15 years old, and 80% (eighty) are over 10 years old. This clearly shows that the machines are obsolete, in dire need of rehabilitation and replacement”.[17]
§ “In adequate funding, mismanagement of utility (lack of maintenance and use of substandard materials), electricity theft (from illegal connections), non-payment of bills by consumers ( the government parastatal are infamous for this), technical loses (high energy system losses to the tune of 30% - 35% from generation to billing)[18], vandalism, corruption, and so”[19];
AN ANALYSIS OF THE NIGERIAN ELECTRICITY SECTOR REFORMS:
Propelled by the insufficient electricity supply, persistent power outages, low generating capacity, high technical losses and non-technical loses characterizing the electric sector, the Nigerian government embarked on a number of reforms to reverse this trend.
In 1988, the Commercialization and Privatization Decree No 25 came into force. The Decree made provisions for the Commercialization of Nigerian Public Enterprises, NEPA, inclusive. The Decree provided for both full and partial commercialization.[20] NEPA fell under the category of public enterprises to be partially commercialized.
This reform still did not get the desired effect of producing an efficient Electricity sector. This led to the reform for the Restructuring (unbundling) and Privatizing the Electricity sector.
This Reform started in 2000 with the formation of the Electric Power Implementation Committee (EPIC). This Committee prepared the National Electric Power Policy (NEPP)[21] in 2001 and Electric Power Sector Reform Act (EPSRA) 2005. The ESPRA is the legal backing for the Reform; it also “removes operational and regulatory responsibilities of the electricity sector from the federal government”.[22]
As stated above, the Reform has two components, which are restructuring and privatization. This package involved “change in the industry structure, with the aim to stimulate competition, choice and promote financial accountability; unbundling into constituent factors (generation, distribution and transmission); establishing commercial trading arrangement, and finally, change in control and/or ownership of the Electric Utility”. [23] The aim and objectives of the Reform includes:
i.“Improvement in the performance and the operation of the utility through increased private sector participation”[24]
ii.“Private sector investments”[25]
iii.“Meeting current and future demand for electricity”[26]
iv.“Establishing new market structure/rules and trading arrangement”[27]
v.“Setting up an independent regulator to oversee the affairs of the sector”[28]
vi.“Promote competition, transparency and efficiency”[29]
The reform process kicked off in 2005 with the unbundling of NEPA into 11(eleven) distribution companies, 6 (six) generation companies, a single transmission company, and the incorporation of an initial holding company (Power Holding Company of Nigeria Plc. [PHCN]).[30]
The Reform proposes that a single subsidiary will control the transmission sector leaving the six generating companies and expected independent power producers to sell electricity to the eleven distribution companies. The distribution companies will in turn, control the supply of electricity within a designated geographical area. [31]
SIGNIFICANT STAKEHOLDERS IN THE REFORM PROCESS
The Federal Government; Under Para. (13) & (14) Part II Second Schedule of the 1999 Constitution of the Federal Republic of Nigeria,[32] both the Federal Government and the State Government have concurrent jurisdiction with regards to regulation of the electricity sector. Nevertheless, the State government participation in electricity provision is limited to “supplies in the rural areas through the Rural Electrification Board (REB) where there is no NEPA (now PHCN) supply”.[33]
The Federal Government is “the initiator of the reform process; it has the paramount and supervisory authority to ensure that precise laws, regulations and measures are enacted to support its policies pertaining to the Electricity sector.
The National Council on Privatization; Established in 1999 by the Public Enterprises Act of 1999 has the primary purpose of supervising and determining the economic, social, and political objectives of the privatization and commercialization of Public enterprises. NCP is the lead policy making body in charge of privatization and commercialization in Nigeria. Its supervision functions are exercised through the Bureau of Public Enterprise (BPE).[34]
The Bureau of Public Enterprise; Established also in 1999 by the same Act, BPE was empowered to “change emphasis form commercialization to encouraging core investors and promoting foreign investment in the privatization programme”.[35] The role of NCP and BPE in this present reform is to prepare the 18 (eighteen) companies created by the Unbundling for privatization.
The Ministry of Energy: “This is the Ministry in charge of the power sector in Nigeria.”[36] This previously used to be responsibility of the Ministry of Power and Steel but in the bid of creating a more efficient power sector, the Ministry of Energy came into existence in 2007. “The Ministry is charged with formulating, monitoring, and evaluation of energy policy in totality”.[37]
Taking the responsibility of the Ministry of Power and Steel also implies that the Minister can issue directions to the Nigerian Electricity Regulatory Commission (NERC) on “matters relating to the electricity supply process, such matters are not limited to overall system planning and co-ordination. However, such directions must be consistent with the Constitution of the Federal Republic of Nigeria and the Electricity Power Sector Reform Act (EPSRA)”.[38]
The Nigerian Electricity Regulatory Commission: The regulatory supervision of the Electricity sector is divided between the Ministry of Energy and NERC. NERC is established as an independent and self-funding regulator. As provided under the ESPRA, it is the main regulatory body for the Nigerian Electricity sector.[39]
NERC is vested with the powers to “promote competition and private sector participation; establish or approve appropriate operating codes and safety, reliability and quality standards; license and regulate persons engaged in the generation, transmission, system operation, distribution and trading of electricity, monitor the operation of the electricity market, and so on.”[40]
Nutshell
Let’s focus on the power sector in Nigeria- a sector which has triggered a lot of deliberations and rackets over the years. This is the first of a three part article by Nkiruka discussing the reality of the unbundling and privatisation reform in Nigeria. The paper uses the electricity reform in England as benchmark and seeks to examine reasons for the failure of the reform and will state if Nigeria can incorporate a thing or two from England’s experience. Read, learn and discuss!
[2] http://www.vanguardngr.com/2009/09/21/phcn-vows-to-achieve-dec-6000mw-target/#comments. (Last Visited January 13, 2010).
[3] Sanyaolu, H.A. Electricity Power Sector Reform in Nigeria: Utilising Restructuring and Regulatory Reform as a means of Achieving A more Efficient and Competitive Sector. THESIS (CEPMLP, 2008).
[4] Babatunde, M.A., Shuaibu, M.I., The demand for Residential Electricity in Nigeria: A Bound Testing Approach.http://www.africametrics.org/documents/conference09/papers/Babatunde_Shuaibi.pdf. (Last Visited January 12, 2010).
[5] Supra note 3. See also Okoro, O.I., et al, Power Sector Reforms in Nigeria: Opportunities and Challenges. http://active.cput.ac.za/energy/web/due/papers/2006/O%20Okoro1.pdf. (Last visited January 12, 2010).
[9]Ikeme, J., Ebohon, O.J., Nigeria’s Power Sector Reform: What Should Form the Key Objectives? http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V2W-4BKN13P-1&_user=1669875&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1162729466&_rerunOrigin=google&_acct=C000054131&_version=1&_urlVersion=0&_userid=1669875&md5=6f07bd42629e01148e8a67d339bbe430. (Last Visited January 12, 2010).
[14] Supra note 3. Recent reports show installed capacity as “8,000MW, only 4,000MW is operable of which only about 1,500MW is available to generate electricity” – see Nigeria: Economic and Power Sector Reform Program (EPSERP)file:///C:/Documents%20and%20Settings/Administrator/Desktop/Economic%20and%20Power%20Sector%20Reform%20Program%20(EPSERP).htm. (Last Visited January 12, 2010). In addition, “the estimated current demands (as at 2008) is approximately 7,500MW excluding suppressed loads arising from self generation and networks that cannot be linked t the national grid” – see Supra note 3.
[17] Adenikinju, A.F., Electric Infrastructure Failures in Nigeria: A Survey–based Analysis of the Costs and Adjustment Responses. http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V2W-47RRTCX-1&_user=1669875&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1162856510&_rerunOrigin=google&_acct. (Last Visited January 12, 2010).
[20] Note: both full and partial commercialization does not require that government divest its equity holdings” – see Adeyemo, D.O., Adeleke, S., A Review of Privatisation and Public Enterprises Reform in Nigeria. http://www.cmr-journal.org/article/viewFile/607/2280. (Last Visited January 13, 2010).
[21] NEPP envisions a three (3) stage legal and regulatory reform of the power sector: the transition stage, medium term, and long run competition structure – see Supra note 3.
[23] Chigbue, I.N., Electric Power Sector Reform: Privatization, Regulation and other Challenges.http://worldstagegroup.com/truecolour/media/11152404144.ppt. (Last Visited January 13, 2010).
[31] Nigeria Power Unbundling Hits Snags. http://www.allbusiness.com/to-be-deleted/utilities-electric-power-generation/4077437-1.html. (Last Visited January 14, 2010).
[32] The 1999 Constitution of the Federal Republic of Nigeria. http://www.nigeria-law.org/ConstitutionOfTheFederalRepublicOfNigeria.htm#ExclusiveLegislativeList. (Last Visited January 13, 2010).
[34] Arowolo, O., Licensing of Electricity Business in Nigeria: Issues and Comments. I.E.L.T.R. (2006)29.
[39] Other regulatory bodies are: the Rural Electrification Fund (REF) and the Consumer Assistance Fund (CAF)
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