STATUS OF THE
POWER SECTOR REFORM:
THE WAY FORWARD
The Electric Power Sector Reform (EPSR) Act
came into being on the 11th of March 2005.
It provides the legal backing for the reform of the Sector and repealed the
National Electric Power Authority (NEPA) Act and the Electricity Act.
The EPSR Act provides for the transformation of NEPA to the Power Holding
Company of Nigeria (PHCN). The PHCN
was then unbundled into autonomous companies comprising of the following:
1 Transmission Company
7 Generation Companies and
11 Distribution Companies.
A Liaison Unit (LU) headed by a Coordinator
in the Corporate Headquarter which coordinates activities of the unbundled companies
pending their full privatization was also set up.
The Act further provides for the establishment
of the Nigerian Electricity Regulatory Commission (NERC), the Rural Electrification
Agency (REA) and the National Electricity Liability Management Company (NELMCO),
which is a special purpose entity that shall take over and manage the residual assets
and liabilities of the defunct NEPA after privatization of the unbundled companies. The Act also provides for the establishment
of a Power Consumer Assistance Fund (POCAF), to subsidize under privileged electricity
to date the Nigerian Electricity Regulatory
Commission (NERC), the Rural electrification Agency (REA) and the National Electricity
Liability Management Company (NELMCO) have all been established.
Similarly, the Power Holding Company of Nigeria (PHCN), the successor to
NEPA has been unbundled into the 19 companies and the Coordinator’s office set up
in the PHCN Corporate Headquarters.
The unbundled companies are:
Egbin Generation Company
Delta Generation Company
Afam Generation Company
Sapele Generation Company
Kainji Generation Company
Jebba General Company
Shiroro Generation Company
Transmission Company of
Kaduna Electricity Distribution Company
electricity Distribution Company
Yola Electricity Distribution Company
Ibadan Electricity Distribution Company
Eko Electricity Distribution Company
Jos Electricity Distribution Company
Enugu Electricity Distribution Company
Benin Electricity Distribution Company
Port Harcourt Electricity Distribution Company
Ikeja Electricity Distribution Company
Abuja Electricity Distribution Company
Status of the Structures under the Reform
As noted earlier, the Reform Act became effective
in March 2005 and immediately after that NEPA was transformed to PHCN.
The Power Holding Company of Nigeria (PHCN) was then unbundled into the 19
successor companies with a plan that by December 2006, all the successor companies
would have taken-off and PHCN phased out.
In view of the fact that the successor companies did not take-off fully, a Liaison
Unit was established to coordinates activities of the unbundled companies pending
their full privatization.
Some of the issues that need to be looked
into in order to assess if the objectives for which the Reform was initiated have
been achieved include the following:
The status of the un-bundled companies in terms of their operations
and independence from the Corporate Headquarters.
Similarly, there is the need to confirm if they are now ready
or good for privatization or full commercialization.
Also to be confirmed is the status of NELMCO i.e. whether it
has achieved the objectives for which it was established such as:
completing the detailed assessment of assets of the unbundled
advising Government on what to do with these assets? etc.
Although the Power Consumer Assistance Fund (POCAF) is yet
to be established, there is the need to know before hand the following:
its sources of funds i.e. Federal, State or Local government
of the consumers?
who manages the funds i.e. Government Department, NERC or an
its criteria for selection of consumers to subsidize i.e. its
mode of operation.
The rural Electrification Agency (REA) has been established
by the Federal Government primarily to efficiently manage the Rural Electrification
Fund (REF) and ensure nationwide rural electrification at voltages 33kV and below. Issues yet to be addressed include:
the level of contribution from the Federal, State and Local
Government into the Fund;
whether the Governments can contribute in kind or cash; and
what will be the roles of the States and Local Governments in
managing the Fund.
The full development of an electricity market under the Market
Operator where the Distribution Companies or a large industrial consumer would have
the option of choosing their preferred supplier of electricity from any generation
station has not yet been achieved.
Although, the Market Operator’s and the Systems Operator’s offices have been set
up under the Transmission Company of Nigeria presently only a shadow market operation
activity is being done as a first step towards achieving a fully developed electricity
Provision of infrastructures in transmission and distribution
all over the country after privatization of the unbundled companies, though presently
being provided by the Federal Government and to some extent by PHCN and the State/Local
Governments at rural electrification level is yet to be addressed.
This paper attempts to discuss some of the
points highlighted above and suggests the way forward as a means to achieve the
objectives for which the Reform was initiated.
Restructuring of Defunct PHCN
As indicated earlier, the defunct Power Holding
Company of Nigeria (PHCN) which is the successor company of NEPA has been restructured
into 7 General Companies, 1 Transmission Company and 11 Distribution Companies and
an Assets & Liability management company NELMCO.
Many Sector Experts believe that some of the issues raised above will be
settled if the Liaison Unit which is headed by the Coordinator ceases to exist,
as provided by the Act and a Board for each of the successor companies is established.
Presently, each unbundled company is headed
by a Chief Executive Officer and operates independent of any other unbundled company. They all, including the Coordinator
in the Liaison Unit, receive funds for their day to day operations from the Market
Operator who disburses the funds according to certain laid down criteria.
Each company is also empowered, though with limitations to operate as commercial
The Performance indices set up by Corporate
Headquarters to monitor the performance of the unbundled companies show that there
is considerable improvement in their performances as compared to when NEPA/PHCN
was under a vertically integrated structure.
Admittedly, the performances are far below Government and the general publics’ expectations. The major reason being pressure from
on among others settling liabilities of possible down sized staff after full privatization. As a result, the companies carry a lot
of staff whose emoluments take a sizable percentage of their revenue leaving little
amount for effective maintenance and development of the infrastructures in their
area of operations.
A humble suggestion to address this problem
is to adopt the NNPC structure, where there shall be a Group Managing Director who
shall oversee the activities of the Managing Directors/Chief Executive Officers
of the successor companies. Furthermore,
each of the successor companies must be allowed to operate as fully commercialized
company. This structure should operate
for not more than 5 years which is believed to be enough time to enable the successor
companies be fully privatized if necessary and as need arises.
It will also enable the full development of the Electricity Market in addition
to satisfying the
and public concern that Government is being too hasty in the privatization of the
In that respect, NERC, must be allowed to
take over the full responsibility of the regulation of the power supply industry
in the country. The Nigerian Electricity
Regulatory Commission (NERC) shall then work out the monthly tariffs for all the
successor companies in the same manner it shall work out for other IPPs.
The Federal Government will only come into the matter where subsidy is involved
or required as advised by NERC.
Power generation is a very high capital intensive
venture. In a developing country like
where different sectors of the economy are competing for the available limited funds
it is best for Government to hands off those sectors of the economy which the private
sector can and are in a better position to handle more efficiently.
In view of this it is suggested that for the existing power stations which
have been unbundled under the PHCN their future be pursued as suggested in the above
section under Restructuring of the Defunct PHCN.
As for the on-going power plants being constructed by government under the
NIPP, Government may consider completing and privatizing them or it may invite the
Private Sector to complete and operate them for an agreed period then transfer them
For new plants Government should continue
to encourage Private Sector as Independent Power Producers (IPPs) to build and operate
their own plants that would feed into the National Grid, under defined and agreed
conditions as highlighted in the Act.
Under such competitive environment, power generation in sufficient quantity and
at reasonable cost will be guaranteed.
Although transmission lines and substations
are also high capital intensive projects their nature of crossing several states
to reach an intended load point makes them natural monopolies which are best owned
by one body. However, the Transmission
must also be made to operate as a fully commercialized company that will be able
to sustain itself in the running, maintenance and development of its infrastructures.
It is then recommended that transmission
of power should be the sole responsibility of the Federal Government, which should
charge power producers reasonable tariff for wheeling power to consumers through
the transmission network. That reasonable
tariff shall be worked out by NERC.
The transmission network, referred to as National Grid, should be owned and funded
by all the three tiers of Government.
It is not advisable to bring other parties into transmission, as this will generate
riotous wire networks at very high voltage all over the country.
Also, the National Grid should be broken down into states in order to demarcate
ownership and forestall total system failure at any time.
With time it will be expected that the office
of the Market Operator and that of the Systems Operator will become autonomous from
the Transmission Service Provider as is the practice Worldwide in the Electricity
Market. A target of 3 years should
be set for the separation so that all the 3 i.e. Transmission Service Provider,
Systems Operator and the Market Operator are fully set up and functional before
the Generation and Distribution companies are privatized.
Distribution & Marketing
Noting that this is the major, if not the
only source of funds for the Power Sector in a fully commercialized or privatized
set up where the Electricity Market operates fully and noting that this is the department
of the Sector which inter faces with the public, the need to ensure that it operates
efficiently and in a competitive manner can not be over emphasized.
It is therefore, highly recommended that the 11 Distribution Companies as
the 7 General Companies be empowered to operate as fully commercialized companies
and be privatized within the 5 years earlier suggested.
Consideration may be given to the States and Local Governments where the
Distribution infrastructures are located to partly own the privatized Distribution
Additional Power Generation
One of the major problems of the Power Sector
today is the non availability of gas for power generation in the thermal stations. This is partly because of the problem
of the Niger Delta region but more importantly because of Government’s, through
the Nigerian Gas Company, preference to export the gas as against local consumption. In the case for power generation which
consumes about 85% of the local gas market this policy may be due to the inability
of the power stations to pay the appropriate unit cost of the gas they use for power
generation. However, with the restructuring
of the power stations and their eventual privatization it is hoped that this will
In the meantime, there is the need to provide
additional generation through the development of addition conventional resources
in Mambilla hydro, Zungeru hydro,
coal etc and several other mini hydro sites that are located all over the country.
Similarly the need to pay attention to the
’s contribution to Global Warming can not be over emphasized, accordingly consideration
can be given for the Renewable Energy sources for generation of electricity as
has abundance of solar, wind and biomass.
In order to further diversify its energy
mix Government should not completely close the chapter on Nuclear power generation.
Fatima Balaraba Ibrahim
Minister of State for Power.