Eskom, the wholly state-owned electricity company, generates, transmits, and distributes electricity to 4.65 million industrial, mining, commercial, agricultural and residential customers. With its 45,700MW installed capacity, it generates 95 and 40 percent of electricity consumed in SA and Africa, respectively; it is the 7th largest electricity utility, by sales, in the world and contributes about 3 percent to SA’s GDP.
Nigeria’s revised GDP has pushed it to number one in Africa, ahead of South Africa. The not-so electrifying news, however, is that South Africa produces 10 times more electricity than Nigeria. There is a positive correlation between a country’s electricity consumption and its GDP – a growing economy typically consumes more electricity. Though insufficient, electricity necessary is for economic growth. It’s indispensable for meeting basic needs.
Nigeria’s information and communication sector saw the largest magnitude of change after the GDP was rebased. Its N5.6 trillion contribution was 23 times more than electricity, gas, steam & air conditioning supply (N248 billion). Power Holding Company of Nigeria (PHCN), the formerly state-controlled power sector, has been a spectacular failure.
Nigerians, with their knack for making do, have used generators and inverters to keep the lights on, watch TV, Nollywood, DStv and power their fridges and phones. But not every Nigerian – individual, household, company or institution – can afford this alternative. A privatised power sector is expected to produce the next MTN, whose Nigerian subscribers are more than the population of South Africa.
Power investors unlike telecoms investor won’t be minting naira anytime soon. Replicating the fabulous performance of telecoms companies in the power sector will be challenging. There are more legacy issues to tackle in the power sector e.g. price and availability of gas, metering technology and debt (part of PHCN’s N757 billion debt that the Federal Government plans to transfer to the Debt Management Office are for gas supplied).
An investor in the power sector contends that “There is currently no assurance that distribution companies (Discos) can pay up for even the energy being supplied today, let alone higher priced energy due to more expensive gas. If gas prices rise, electricity tariffs will follow; with the attendant political implications in a country where there is barely any power being supplied.”
Rather than concentrate effort on fixing power supply to Nigeria, it’s ridiculous to hear that Nigeria has signed a Memorandum of Understanding (MoU) with the Democratic Republic of Congo to import electricity from its planned 40,000MW Inga Dam. (By the way, the biggest hydroelectricity dam projects on record in Africa are in Ethiopia. The 1,870 Gilgel Gibe Dam III, which is almost complete, will be dwarfed by the 5,250MW Renaissance Millennium Dam.
To renegotiate current prices from the politically-mandated to the best possible commercial price, generation companies (Gencos), Nigeria Electricity Regulatory Commission (NERC) and the Ministry of Power need to sit down with gas suppliers and the Nigerian National Petroleum Corporation (NNPC). Working out a viable gas-to-power commercial framework is in the interest and for the benefit of hapless and long-suffering Nigerians.
Regulatory mismatches will have to be sorted out too. NERC’s cost-reflective tariff regime and incentive-based regulation are at odds with the industry that supplies the natural gas for the power sector.
NERC’s regulatory powers are clear and up to date, while that of the Ministry of Petroleum Resources is a relic of a military era that presumes, but does not expressly provide that the Minister of Petroleum shall be fair, transparent, reasonable, forward-looking and always mindful of the national interest.
An ideal framework for electricity and natural gas, through an amendment of the Electric Power Sector Reform Act, 2005 (EPSRA), should give NERC purview of the energy, not just electricity, industry. Theoretically, this is easy, but politically, it’s not expedient. Pushing it through will take time, claim many victims, probably produce drastic and unintended consequences, says someone with familiar with NERC’s thinking. Hence, the best solution must be substituted for what is urgent and politically realistic.
Maybe, a NERC-equivalent for gas which is responsible to (or overseen by) a collection of stakeholders including IOCs, indigenous suppliers, non-NGC pipeline owners, IPPs, other major non-IPP gas buyers (fertilizer, cement, heavy industry) and Ministry of Power can be set up. Such a body will more likely make progressive policy to spur gas availability.
In effect, a commercial market price for gas will emerge. This must then be passed through to the electricity supply tariff. The Discos will be driven to collect tariffs for energy supplied so that they can pay the Gencos, who will in turn pay their gas suppliers. It’ll be absurd to wait till 2016 to come up with a commercially viable solution that ensures gas-to-power projects are coordinated to meet the demands of the power sector; it’s like putting a brake on the power sector reform.
The 10 natural gas-fired plants of the Nigeria Independent Power Programme (NIPP) with a combined capacity of 4,774MW are expected to come on stream this year. Without a commercial market, and the number and pace of gas pipeline projects NIPPs won’t generate much power this year; they are at least, three years away from generating and delivering their optimum capacity to the national grid.
The economy, now Africa’s largest, and Nigerians, hapless and long accustomed to blackouts, can’t continue to bear the brunt of erratic power supply. A rethink of economic strategy is required. It’ll free Nigeria’s associated and non-associated gas from an obsolete “below production cost gas-for-power” policy that is unwittingly undoing the huge gains of the power sector reform.
Tayo Fagbule
