It is apt to situate the origins of President Goodluck Jonathan’s Road Map on Power, launched in August 2010, to the Electric Power Sector Reform Act of 2005 which gives legal backing to the industry reform programme. In 1999, the National Council on Privatization (NCP) instituted the Electric Power Sector Implementation Committee (EPIC) to undertake a comprehensive study of the electricity power industry.
The key objective of EPIC was to prepare a power policy blueprint that will define government’s new direction for the electric power sector. One of the key outcomes of EPIC was the preparation of a draft National Electric Power Policy (NEPP) in March 2001. This policy was subsequently approved by the Federal Executive Council (FEC) in September 2001.
The NEPP document is primarily aimed at liberalizing the electricity industry, attract private sector investment and enthrone competition amongst participants in the electricity market. The policy envisaged a three-stage development of the electricity industry with a comprehensive change in the legal and regulatory environment of the sector. Three broad objectives of the reform of the sector are:
• Attract and encourage private sector participation;
• Attract capital to fund the sector; and
• Ensure a level playing ground for all investors.
The power sector is very capital intensive, necessitating the need to attract other parties, as government does not have the resources to meet all its burgeoning obligations. It is expected that with the introduction of a better operating environment that is efficient, effective and well regulated, private participants would be encouraged to invest in the sector. The participation of the private sector should bring about higher generation capacities through the provision of more efficient and cost effective stations and improvements in the distribution sector, such as billing and collection, distribution networks etc.
The reform of the electric power sector in Nigeria comprises two main components – restructuring and privatisation.
• Restructuring of the Nigerian power industry involved three main components: First, the change of the industry structure to stimulate competition and choice as well as promote financial accountability; second, the unbundling of power utility into the constituents functions; and third, putting in place a new commercial trading arrangement.
• Privatisation, on the other hand, is the change in control and/or ownership of the utility.
Given that the power sector reforms had stalled, President Jonathan, in August 2010, launched the New Roadmap. The short-term service delivery of the roadmap includes quick completion of National Integrated Power Projects (NIPP); additional NIPP transmission will boost capacity to wheel electricity; new gas pipelines to feed natural gas to plants; monitor and remove bottlenecks to on-going power projects intended to enhance the distribution system; monitor transmission projects intended to expand capacity and increase stability of the grid to reduce system collapse; close monitoring of all generation rehabilitation and stabilization projects; and privatisation of 17 out of the 18 successor companies unbundled from Power Holding Company of Nigeria (PHCN.)
However, the handover of the successor companies to the core investors in November, 2013, has thrown up several challenges, the principal issue being how the investors will raise funds to meet up their capital requirements. Power sector reform is a very challenging process because in most cases the dividends of the reform and the return on investment are only realizable in the long term. The Nigerian power sector reform is even more challenging as poor performance of the sector has led to impatience which has translated to long term plans being disrupted by short term interventions which only worsens the problem.
The electricity industry reform aims at improving the overall industry efficiency through restructuring, private sector participation, and competition. The reform process will be completed when full competition in all the competitive parts of the industry, namely generation and supply, is attained.
In order to fast tract the process, President Jonathan has taken the bull by the horn by convening a one-day International Conference for Facilitating Financing of Power Infrastructural Development in Nigeria with the theme “Invest in Nigeria’s Power Sector— a Rewarding Return on Investment Awaits”. This initiative is to augment the efforts of the private sector who recently took over electric power generation and distribution assets of the defunct Power Holding Company of Nigeria (PHCN.)
The conference which holds on Monday, February 10, 2014 at State House Banquet Hall, Presidential Villa, Abuja will draw participants from Nigeria’s development partners, the donor community, international financial institutions, and international financiers.
The conference aims to achieve the following:
I. To facilitate interaction between the new investors and local and international financial institutions to explore the available opportunities in meeting the capital expenditure (CAPEX) needs of the Nigerian power sector;
II. To support the creation of a sound economic expansion framework that will enhance performance across the power sector value chain;
III. To provide the enabling environment for potential investors in the power sector to refine their entry strategy into the Nigerian power sector;
IV. Identify areas of need that can affect the viability of the market;
V. Provide opportunity for clarifying government policies for the power sector; and
VI. To create a sector CAPEX plan that will serve as baseline for future monitoring and evaluation of the sector participants.
According to the Chairman of the organizing committee of the conference and the Permanent Secretary, Federal Ministry of Power, Ambassador Godknows Igali, “Nigeria’s power sector is open to strategic partnership and investors are invited to invest.” He noted that “following the physical handover of the successor companies to the private sector investors on November 1, 2013, the burden of process optimization and capacity expansion has been shifted from the Federal Government to the new owners. Nonetheless, the Federal Government recognizes that power supply still remains a social responsibility as it is the paramount infrastructure needed for our nation building and economic development.
“Ultimately, the direct beneficiaries of the fund influx are the Transmission Company of Nigeria, the Discos, Gencos, NIPPs, the emerging IPPs and other sector service providers”, Igali added
The quantum challenge before the core investors of the power assets can be gleaned from a few facts from the five year total capital expenditure (Capex) for the eleven distribution companies which are estimated at $1.8 billion. A breakdown shows that from 2013 to 2017, the Capex for the 11 Discos is $357,663,000 for each year. For Ikeja Disco alone, its annual Capex is $58,737,000 (the highest) whilst Yola Disco’s annual Capex is $13,133,000 (the lowest).
The privatisation programme is anchored on the attainment of clearly defined goals and parameters. In the case of the PHCN Genco, capacity is expected to be ramped up from the current low levels to meet target capacities.
For the Discos, the performance of the business operations of the new owners will be measured on the basis of their abilities to reduce distribution losses to loss targets specified in their business plans. The Discos will be making investments in expanding of their networks to distribute power and also in connecting new consumers to the existing network.
The privatisation of the successor companies has shown that there is a strong demand from the private sector participation in the generation and distribution sectors of the electricity industry.
By: Godfrey Ijebuwa
