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          STATUS OF THE POWER SECTOR REFORM:

THE WAY FORWARD

 

Introduction

 

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  It provides the legal backing for the reform of the Sector and repealed the National Electric Power Authority (NEPA) Act and the Electricity Act.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 consumers.

 

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:

 

1.       Egbin Generation Company

2.       Delta Generation Company

3.       Afam Generation Company

4.       Sapele Generation Company

5.       Kainji Generation Company

6.       Jebba General Company

7.       Shiroro Generation Company

8.       Transmission Company of Nigeria

9.       Kaduna Electricity Distribution Company

10.     Kano electricity Distribution Company

11.     Yola Electricity Distribution Company

12.     Ibadan Electricity Distribution Company

13.     Eko Electricity Distribution Company

14.     Jos Electricity Distribution Company

15.     Enugu Electricity Distribution Company

16.     Benin Electricity Distribution Company

17.     Port Harcourt Electricity Distribution Company

18.     Ikeja Electricity Distribution Company

19.     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:

 

1.       The status of the un-bundled companies in terms of their operations and independence from the Corporate Headquarters.

2.       Similarly, there is the need to confirm if they are now ready or good for privatization or full commercialization.

3.       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

                   companies;

-                     advising Government on what to do with these assets? etc.

4.       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 NGO?

-        its criteria for selection of consumers to subsidize i.e. its mode of operation.

5.       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.

6.       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 market.

7.       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 company.

 

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 the Union 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 Union and public concern that Government is being too hasty in the privatization of the Power Sector.

 

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.

 

Generation

Power generation is a very high capital intensive venture.  In a developing country like Nigeria 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 to Government.

 

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.

 

Transmission

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 Company of Nigeria 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 company.

 

Additional Power Generation

One of the major problems of the Power Sector in Nigeria 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 change.

 

In the meantime, there is the need to provide additional generation through the development of addition conventional resources in Mambilla hydro, Zungeru hydro, Oji River coal etc and several other mini hydro sites that are located all over the country.

 

Similarly the need to pay attention to the environment as Nigeria ’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 Nigeria 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.

 

Mrs. Fatima Balaraba Ibrahim

Hon. Minister of State for Power.

 

 

                  

 

 
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