Missed Out on the Telecoms Revolution?
In the early 2000s there was a telecommunications revolution in Nigeria, with several opportunities which several people took for granted to their detriment. A few people however latched on those opportunities and are now the better for it.
With Forte Oil shares rising by over 1, 000 % and Transcorp also doing extremely well on the back of their power plant acquisitions, some have already missed out on the very early opportunities in the power sector reforms. Now, it is the time to cream-off the remaining opportunities in the emerging electric power sector in Nigeria. The Government has, since 1999, embarked on infrastructural rehabilitation and expansion programs (which eventually led to the launch of the Nigerian Integrated Power Project in 2005). Subsequently the Federal Government of Nigeria (“FGN”) began the reform process with the enactment of the Electric Power Sector Reform Act (“EPSRA”) 2005, and the creation of the Power Holding Company of Nigeria (“PHCN”) which was the initial holding company of the assets of the defunct NEPA prior to the transfer of such assets to newly formed successor companies to the unbundled state owned utility.
To re-jig the strategy, re-awaken interest after a lull and kick-start the process again, in 2010 the FGN launched the Roadmap. Shortly after the launch of the Roadmap, the process began from where it had been stayed during the tenure of the Umaru Yar’Adua administration. In this regard, the actual transfer of assets and liabilities in deed and in law, the giving of effect to the Nigerian Electricity Liability management Company (“NELMCO”), the setting up of the Bulk Trader which would directly purchase electric power from the generation companies (the on-sell) to the electricity distribution companies (the “Discos”) and the establishment of its Board were effected. The FGN is currently in the process of handing over the formerly government owned electricity generation and distribution companies to new private owners. It is also in the process of privatizing 10 government owned power generation companies. In addition to the foregoing, the government is in the process of reforming the domestic gas sector and enhancing the national electricity grid. The foregoing activities bring with them, new business opportunities along the whole electricity value chain. This paper reviews those opportunities.
Where We Were:
Prior challenges in the power sector encompassed poor operational performance as a result of poor plant maintenance, lack of adequate spare parts and vandalism of electric utilities across the country and the general lack of investment in the Nigerian Electricity Supply Industry (“NESI”) value chain. All of the foregoing contributed to ensuring that installed capacities, which itself had been, and still is, grossly inadequate, almost always exceed actual generated capacity. There had also been poor transmission and distribution infrastructure. The long years of neglect and inadequate investments by previous governments resulted in dilapidated, weak and obsolete transmission and distribution networks, and high technical and non-technical losses. The foregoing had always translated into erratic power supply.
Other challenges which are being tackled head-long are the low tariff, poor revenue collection, gross inadequate metering, poor billing and electricity theft; the effect of which had been that the electric power utilities operated at huge losses.
A despicable maintenance culture, ineffective Regulations, inappropriate industry and market structure, unclear delineation of roles, duties and tasks, low level of technological upgrade together with abysmally poor maintenance and investments levels also contributed to the pathetic state of the sector.,.
Today:
The Federal Government of Nigeria, on September 30, 2013, handed over almost all of the 17 formerly government owned power generation and distribution companies to new owners after a tedious and challenging process which spanned several years. The process experienced serious setbacks along the way with a number of very important persons playing key roles to the success we now see today, losing their positions.
Prior to that time, the Electricity Management Services Limited (“EMS”), a new corporate entity incorporated/established to take over some non-core professional services of the PHCN was formed. The EMS, a government-owned limited liability company under the ministry of power is both a professional and technical agency which mandate is to close the technical and management lacuna which might have been created as a result of the on-going power sector reforms, resulting in the privatization of the nation’s electricity value chain. The functions of the EMS include engineering laboratory, meter test stations, central store system, testing and certification of major electrical power equipment.
There are still challenges around labour, the state of the contracts with government, financing, the initial challenges which the Transition Electricity Market would face, the national grid, gas supply and gas infrastructure, load allocation, companies reaction to lack of electricity and lack of a robust grid. Further to the above, there is a capacity gap in the electric power sector which needs to be filled, particularly in the technical aspects along the whole value chain.
The foregoing notwithstanding, it must be said that a lot has been achieved already. The reforms and privatization are moving along well and the administration of Presidents Goodluck Jonathan and Olusegun Obasanjo must be commended together with several other notable persons.
The new owners have minimum performance targets which they are expected to achieve with efficiency. A new class of business people now exists and support industries would grow with attendant multiplier effect on the Nigerian economy. With the reforms along the electricity value chain, are new opportunities. Also with the problems and challenges, come money making opportunities and what better way to start than to read on, this article and also pick up and read a copy of my text, the “Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business”.
Business Opportunities
A vast understanding of the NESI is required to take advantage of the numerous opportunities in the power sector. In this respect, it is important to delineate the electric power value chain into its basic constituents in order to do a proper review of the emerging opportunities in every aspect along the value chain. Specifically, the NESI is divided into electricity generation, electricity transmission and electricity distribution.
Power Generation
Along the electric power generation aspect of the NESI value chain, opportunities that exist include the opportunity to invest in any of the companies currently looking to acquire the 80% government stake on offer in the privatization of the 10 National Integrated Power Projects. Prospective investors can also invest in Private Equity firms which have invested directly or indirectly in the newly privatized PHCN successor power generation and Discos.
Another option may be to develop Independent Power Projects or Embedded Generation such that eligible customers as defined by the relevant regulations can be catered to profitably.
Opportunities also exist along technical areas such as the provision of, or investment in, Information Technology related businesses in electric power generation also; opportunities exist in providing energy saving technologies and products such as the Compact Fluorescent Lamps (“CFLs”) and Light Emitting Diode (“LEDs”) to replace the incandescent lamps. There are also opportunities for providing training services to prospective employees of these companies as there are complaints around the dearth of manpower for the emerging electricity market.
There is also the opportunity to provide consultancy services, training, research and development to power generation companies. Information technology companies and experts have new areas of business to deploy their expertise and make returns.
There are also new job areas such as power economists, power lawyers; power technical advisors of banks, amongst others. Equipment supply is another area where opportunities exist. Generally, the discerning businessman can either provide the foregoing goods and/ or services or acquire equity or stake in companies which provide same.
Transmission
The business opportunities along the transmission network include engineering and procurements works for the enhancement of the grid and to improve and develop other facilities and infrastructure relevant to the transmission network. There is also the opportunity to supply equipment and consumables. Furthermore, there are consultancy prospects, research and development activities particularly connected with provision of transmission services and even matters connected with remote sensing of any damage along the electricity network are also available for the skilled persons.
Provision of financing is also another opportunity which may be given due consideration, as funds in excess of US $3.5 billion are reportedly required annually for the next 7 years to achieve the 40, 000mw of power required for Nigeria to be amongst the top 20 countries in the world, by the year 2020.
Distribution
The opportunities that exist along the distribution networks are innumerable and include services related to metering and collection. Other goods and services such as trading in recharge cards and provision of card technology are also viable business types. There are also countless opportunities to provide consultancy, research and development for new products as the market evolves with the opportunity for collaborations between Nigerians and foreigners with sufficient expertise.
The provision of services related to payment for electricity consumed and payment systems would also be good areas of business; together with the provision of aggregate technical, commercial and collection reduction techniques. It is pertinent to note that there are limitless opportunities in this sector. For more information on the power sector, read the text, the “Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business by Ayodele Oni”
Conclusion
Nigeria is indeed one of the key emerging markets where profitability is high. Although, there are indeed challenges such as the poor grid network, challenges with gas supply, human capital and a few other challenges etc. However, considering the huge gap between electricity demand and supply, the huge population together with the current government efforts and success recorded so far in the on-going reforms along the electric power value chain, the electric power sector is a sure bet.
Ayodele Oni, a solicitor specializes in international energy (oil, gas & power) investment law and has a mini MBA in power & electricity. You can follow me on twitter @ayodelegoni.