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The full implementation of the Electric Power Sector reform (ESPR) Act which was enacted in 2005, began earnestly in 2010, by President Goodluck Jonathan when on August 26, 2010, he officially launched the Road Map for Power Sector Reform.
The reform which government has said, would address the state of the nation’s power supply, involves a series of activities and policies which have met some resistance within the power sector with many Nigerians also expressing their concerns. These resistances notwithstanding, government has forged ahead with the process which in its judgment is the best for the nation at this point in time.
In an exclusive interview with LEADERSHIP, the Managing Director of the Nigeria Electricity Liability Management Company (NELMCO), Sam Agbogun, said world over, economic dynamism was changing, noting that the Nigerian government was also changing along that line in the interest of the nation.
Expressions of Interests
When the Bureau of Public Enterprises (BPE) called for Expressions of Interest (EoIs), as many as 331 EoIs were received from countries across the world. They came from world class companies such as Tata and Essar of India, Manitoba Hydro Company of Canada and the Israeli Electricity Corporation. 212 of these EoIs have been prequalified by the National Council on Privatisation to bid for the PHCN assets.
Opposition by workers
The planned privatisation has however, met with stiff opposition by the sector's workers union which have held various prayer sessions seeking divine intervention to stop the reforms process, their major concern being the fear of job loss by its members. Negotiations are however, still on with the unions in the electricity sector with a view to resolving all labour related issues.
Investment opportunities
Following the reform, 17 out of the 18 companies created out of the Power Holding Company of Nigeria (PHCN), would be privatised.
The 18th one, the Transmission Company of Nigeria (TCN), is to remain a state-owned enterprise, but would be managed by a reputable private firm with proven record in the power sector.
When the privatisation process is concluded by October this year, it is expected to create immense investment and job opportunities. According to the Minister of Power, Barth Nnaji, the World Bank is providing Partial Risk Guarantee to the Bulk Electricity Trading Company otherwise known as bulk trader, which was set up to ensure that all the power produced by the power generation companies is paid for, until the distribution companies become credit worthy.
In a similar gesture, the President of the United States EXIM Bank was in Nigeria towards the end of 2011, to sign a Memorandum of Understanding with the Ministry of Power to provide $1.5 billion credit facility to companies in Nigeria’s power sector using American products and services.
There are also pledges of solidarity from the African Development Bank, French Development Bank, and the Overseas Private Investment Commission of the United States of America, while General Electric, the world’s biggest electricity firm, has pledged to assist Nigerian power firms produce 10,000MW and even pledging to take up stake in the firms.
Current capacity/Future projections
To meet the aspiration of becoming one of the 20th largest economies by 2020, the country needs at least 40, 000MW. According to Nnaji, investments of up to $1000 billion are needed to realise this target by 2020. This huge capital outlay he noted, was not available to the Nigerian government which faces severe competing needs in agriculture, education, health, etc, but is available in international capital markets. Currently however, generation capacity is 4,400MW, up from 2,800MW as at May, 2011 when the new administration took over. To avert a possible system collapse as generation increases, due to the weakness of the present transmission infrastructure, the federal government has approved the building of 765KV super grid, which is intended to double the capacity of the country’s current transmission lines of 132KV and 330KV.
Tariff adjustment
Government has argued that new investments are unlikely to be attracted if there is no tariff adjustment because the current tariff is not cost reflective. According to government, the present tariff makes it difficult for electric distribution companies to pay generation companies, which, in turn, are unable to pay gas producers. As a result, the reform Act provides that the Multi-Year Tariff Order be reviewed every five years, and this has resulted in the planned increase in tariff by between 25 per cent and 88 per cent expected to take effect in May this year. Despite government's assurances that there is the provision of N60 billion subsidy in this year’s budget and the N50 billion in 2013 for rural dwellers and the urban poor, as well as most individual consumers who fall into the customer category called R2, the increase has not gone down well with Nigerians. Those who will notice significant adjustment in tariff according to government are high-end users, but respondents say government cannot be trusted to effectively and efficiently separate the customer classes. There are fears that all customer category may end up paying as high as 88 per cent since the private investors would be more interested in profit making, and considering the poor state of power supply currently, the move has been kicked against by most consumers.
Energy efficiency
However, the Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, told LEADERSHIP that post privatisation of PHCN would bring about a change of attitude in electricity consumption. He noted that the right pricing would result in the right attitude as energy efficiency would then be imbibed by all, adding that gradually, tariff paid by individual consumers would begin to drop.
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