CHALLENGES OF POWER SECTOR AND WAY FORWARD
Wemimo Adewuni kicks off with the words: Electricity supply is an economic infrastructure facility very critical to any nation’s economic growth and according to the former Managing Director, Chief Executive Officer Eko Electricity Distribution Company, Dr. Oladele Amoda, “Nigeria requires about 88,282 MW to meet the demand of a fast growing economy by 2020.”
Nigeria currently has the potential to generate 12,522 MW of electric power from existing plan but most days, Nigeria is only able to generate some 4,000 MW. So on Morning Crossfire, the duo of Wemimo Adewuni and Sherif Quadri take a look at the challenges of the power sector, propound solutions so that the country can have a way forward.
Sherif Quadri adds that in November 2013, Nigeria embarked on a large-scale privatization of electricity project. What was the objective and was the project worth it?
Answering that question, Dr. Sam said “If you look at what Nigerians are getting by output or the supply, you would say it is not worth it because Nigerians are not getting more power arguably. But if you look at how the sector is generally changing, the fact that we have a private electricity market even though not really competitive and efficient, the investment is still sluggish, but it can attract some investment. Then you can say some improvements have been made.
“The real point for me is that we have somehow changed the fundamentals of the market," says Dr. Sam. "There are three points to make here: The reason we went into privatization reform was an effort to find solution to financial viability. We want to have an industry that is profitable and has the finance to build lines and maintain the as at when due. If you look at the debt over-hang, the industry is owed so much. We are yet to have the financing for expansion of capacity and investment and to maintain this capacity.
“If you look at supply, as at year 2000, we were generating 2000 MW or thereabouts. That was when the reform started. About 19 years after, we are still generating less than 4,000 MW. This means that Nigerian businesses can only make use of about 3,000 to 4,000 MW for their businesses. So, essentially, we have not done much. Yes we have capacity available but it is not distributed generally. Take a look at what could be available if all things are equal. 19 years after this reform started, 11,000 to 12,000 MW should be the possible the industry generates.
"Power is not what you produce and store like cement. You only generate power when there are buyers" ~ Dr. Sam Amadi.
“When the reform took real momentum in 2005, we achieved over 30,000MW. In that period those licensees were empowered and commissioned to send energy to the grid. It doesn’t mean that privatization is bad but the outcome has been depressing.”
Dr. Sam also revealed that before Nigeria resorted to privatization, there were six NEPA plants but four of them were owned by oil companies. Why were the Independent Power Plants (IPP) not productive? Power is not a product produced and stored like cement, says Dr. Sam, and then when power is produced, the deal has to be sealed. Foreign investors also are not willing to deal on projects that are not viable. Once an agreement is reached, whether one uses the power or not one has to pay for has been sealed in a deal.
When he came into the power sector, Dr. Sam says he noticed that most of the license owners were not performing. Why were the licenses not cancelled if the IPP contractors are not performing?
Government would like to focus on a few who are making progress. One such is the Azura-Edo Power Project, which is the first project financed Independent Power Plant (IPP) in Nigeria. The project consists of the development, financing, construction, operation and maintenance of a 450MW gas fired plant located in Edo State.
Since Nigeria’s government have not yet solved the problem, most of the licenses cannot perform. “We need some level of government intervention in terms of perhaps building the power plants themselves and allowing private sector to manage it,” say Dr.Sam. The market is too risky for any private sector interested individual to think he just go in 'plug and play' and make profit. There are several things to consider first.
What is the way forward?
Dr. Sam said that Nigeria should think about unbundling distribution networks in the country. For example, as EKO distributes in Lagos, other companies can be allowed to do the same as well. That will be in a bid to break the monopoly and make way for efficiency. Next, there must be great increase in supply. There must be something to distribute and there must be supply before there can be competition. Also, companies can look at alternative sources of power because Nigeria has a lot of resources.
According to Dr. Sam, NERC is ready for any operator that is willing explore, seek and get physical policy support because NERC has regulation for all types of distribution links, from the micro to mega grids. While there could be just 2,000MW in the central power grid, there can be other small grids in different locations and when summed up these could be up to 20,000MW in total.
Morning Crossfire with Wemimo (@wemimospot) & Sheriff (@SheriffQuadry), alongside Resource Person: Dr. Sam Amadi (Former Executive Chairman and CEO, Nigerian Electricity Regulatory Commission).
By Jude Chukwuemeka