A SWOT analysis of the electric power sector one year after handover to the private sector
Proem:
The lack of steady electric power supply in Nigeria has remained a constant source of concern to the Federal Government of Nigeria (the “FGN”) and to the Nigerian public as well. The poor grid electricity situation had also proved to be a significant handicap to the growth of the country’s commercial and manufacturing sectors such that these sectors have not competed favourably with those of some neighbouring African States.
To resolve Nigeria’s electric power problem, the FGN adopted the National Electric Power Policy in 2001 with the intention of carrying out a comprehensive power reform. Historically, attempts at revamping the problem ridden Nigerian Electricity Supply Industry (NESI) began as early as 1988 with the commercialization of the now defunct National Electric Power Authority (NEPA) and the upward review of tariffs. These efforts, however, hardly made any impact. The behemoth, NEPA subsequently re-named the Power Holding Company of the Nigeria (“PHCN”) had been the key culprit of the poor electric power situation in the country.
To re-jig the strategy, re-awaken interest after a lull and kick-start the process again, the FGN launched in 2010, the Roadmap. Shortly after the launch of the Roadmap, the process of privatization of the successor electric power generation and distribution companies that had been hived off of the PHCN between 2006 and 2007 began in earnest.
A SWOT Analysis of the Power Sector:
This week and next, we shall be reviewing the strengths, weaknesses, opportunities and threats inherent in the electric power sector, post-privatization.
The Strengths
Government’s Responsiveness and Support
From the commencement of the issuance of the 2010 Roadmap, the current administration has shown determination in the improvement of the electric power sector. Very recently, to guarantee effective gas supply to power generation companies and find a sustainable resolution to electric power sector challenges in Nigeria, the Nigerian government announced a N213 billon power intervention fund to cater to the legacy gas debts and address the revenue shortfall in the power sector.
Whilst outlining the scope of the issues that the N213 billion facility is designed to address, the current minister of petroleum resources stated that the fund would be used to (a) settle the legacy gas debts which stands at N36 billion, (b) execute agreed metering programs and (c) procure transformers by distribution companies and execution of maintenance programs and procurement of equipment by generation companies.
Apart from this, the government has been making efforts to improve gas infrastructure, particularly pipelines. The FGN has also been working hard to raise funds for the enhancement of the national grid.
The Take-over of Running of the Power Sector by Private Sector
The government is regarded as a bad businessman, the world-over; particularly where electric power generation and distribution are concerned. It is generally argued that the role of the government should only be restricted to the provision of an enabling environment and support where there are serious challenges in a sector. Hence, the mere fact that the private sector is now firmly in charge of the power sector is a strength in itself. Unlike the public sector, the private sector is efficiency and profits driven. As far as the electric power sector is concerned, if electricity is not generated and efficiently too, the private sector cannot generate the desired profit, so there is an incentive for the new owners to do all in their power to improve generation and distribution and the efficiency thereof.
A Strong Regulator
The chief regulator of the power sector in Nigeria- the Nigerian Electricity Regulatory Commission (“NERC”) has performed quite well and needs to sustain the good work. There is need for a deliberate effort at providing responsive regulation as we move into the uncharted path of private sector participation in the whole value chain of electric power provision. Although, it is the writer’s view, that NERC is blazing the trail in efficiently regulating the electric power sector in Nigeria, but NERC must not fall into the trap of over-regulating the sector by not duplicating the role of varying regulations or introducing ‘unworkable’ regulations.
NERC has been stable and appears fairly independent and this is a very important strength of the power sector post-privatization.
The Weaknesses
Government’s Ownership of the Grid
Every electric power system is an assemblage of generation, transmission, distribution, communication and associated facilities which are physically linked and operated as a single unit under one control. Typically, the transmission and distribution lines together with the allied facilities are used to transmit electricity from its point of origin (the power generating plant) to the final consumer. Due to its physical characteristics, electricity flows uniformly along all available paths that offer the least resistance. As such, the flow of electricity must be closely monitored to ensure that sufficient generating capacity is available and on-call to satisfy the entire demand (load) for electricity placed on the power system.
In addition, for system standardization and reliability purposes, the flow is maintained at a specific frequency (in Nigeria, it is set at 50Hz). All equipment and apparatus connected directly or indirectly to the Grid must operate at the specified frequency mode (cycles per second). The flow of electricity within the system is maintained and monitored by dispatch centres having control and security responsibilities. Typically, in evolving electricity markets, the dispatch centre prioritizes and inventorizes all generating capacity available to it, tracking transactions involving buying and selling of either electric power or capacity, monitoring current load and anticipated future load on the system.
In Nigeria, there have been challenges with the Nigerian electricity grid because for a long time, the state-owned electric monopoly; the National Electric Power Authority (NEPA), was characterized by poor operational performance which could be gleaned from various facts including the fact that only 426 out of the 774 local government councils in Nigeria were connected to the national grid. The situation was such that, of the 426 local government councils (the “Councils”) connected to the national grid, only the headquarters of the Councils were connected and not the entirety of the residents in these local government areas.
Further, the situation was such that the last transmission line was built in 1987. In fact, a survey conducted in 2012 by TNS Research and Marketing Services, a leading global research organization, revealed that 51% of Nigerians do not have access to (grid) electric power supply, and the remaining 49% of Nigerians with access to electric power supply, admitted its epileptic and unreliable nature.
With the pathetic state of the electric power sector, the cost of doing business in Nigeria has been much higher than that of her neighbouring States, such that certain key businesses have relocated outside Nigeria. This has led to a drop in the volume of businesses that would ordinarily have been attracted into the country, because of the lack of quality and dependable grid power supply to the economy for industrial, commercial and socio-domestic activities.
The situation would appear to have changed much as the FGN still owns the grid and only does have a management contractor and in real life, the FGN still does have control over the grid and a chain being only as strong as its weakest link, means that power sector may not realistically improve beyond the improvement experienced by the national grid.
This piece continues next week. For more on the electric power sector, read the text “The Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business” by Ayodele Oni.
Ayodele Oni {ayodeleoni@outlook.com}, a solicitor, specializes in international energy (oil, gas and electricity) investment law and policy. He holds a mini-MBA in power & electricity. Follow me @ayodelegoni.