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By the mid nineteen eighties, the then National Electric Power Authority (NEPA) had become technically insolvent. Revenues could no longer match expenditures. Electricity tariff was politically fixed without considering much needed growth and development of the infrastructure. Financial support was not coming regularly from the federal government, the owners of the company. Human capital was however developed through specialist training and also on-the-job.
Consequences of the situation included:
– Generation, transmission and distribution additions were delayed while others were abandoned.
– Routine and breakdown maintenance procedures of existing facilities were delayed and neglected.
– Served and unserved demand continued to grow with attendant losses in revenue collection.
– Technical, non-technical and collection losses increased to unmanageable levels, well in excess of fifty percent
– Fault clearing was delayed because of lack of spares to follow-up.
– Construction standards were compromised when hardware could be procured from unregistered suppliers. This applied and still applies specifically in the distribution sector.
– Consumer records were not updated. There are numerous cases of consumers using electricity illegally.
– Metering requests were delayed and unethical approach was adopted either for the old analogue meter users and others with applications but without the supply.
– Some consumers in collusion with local staff defraud the electric utility company.
Purpose of privatization is to improve the otherwise inefficient and vertically managed establishment. Such improvement is expected to include but not limited to:
– Increased production and delivery of quality product
– Network growth and development at the least cost
– Reduction in technical, non-technical and collection losses
– Improved revenue collection with reasonable return on investment
Globally, electricity business is classified into generation, transmission and distributions. Allied to that are regulation, bulk trading and ancillaries among others.
In our own experience, conditions of the asset prior to privatization were very poor, with lots of maintenance and other services not carried out thereby making its production and delivery inefficient. In the power generation sector, there were cases of units not maintained as and when due thereby leading to lesser power production.
Transmission facilities are both insufficient and not properly maintained with serious impact on the quantum and quality. Generally, transmission assets are usually retained by government because it is the least compensated in the business chain. Return on its investment is also unattractive. However, government must invest in the system to provide the much needed wheeling capacity and also sufficient capacity for stability and redundancies during systems fault occurrences.
The distribution subsector is the worst with little or no proper attention paid to design and construction procedures. Consequences include unacceptable technical losses due to undersized overhead wires (conductors) and cables. Unreliability of supply due to radial nature of the network in the event of faults is very common. Unbalanced voltages and currents occur because operations staff fail to check and remedy such anomalies. Connections, joints and terminations using recommended bi-metal materials are no longer being used. Grid supply in most cases is insufficient to meet consumers demand. Overloading of equipment is also very common.
While Nigeria’s experience under the privatized electricity business is less than three years, it is clear that not much has been achieved in bringing the desired efficiency into the system. It is still business as usual as most of the structures have not witnessed improvement in terms of quality and quantum of supply.
Many reasons can be attributed to the malaise. Some of the investors are doing a business of this nature for the first time. Nigeria is accustomed to merchandising. Our entrepreneurs raise capital whose tenure is short or at best medium in nature. On the contrary, infrastructure financing must be long term with low cost of capital.
The revenues expected from sale of electricity is not robust enough because the supply has reduced in recent years due to factors mentioned earlier. Consequently, investment in infrastructure development is delayed. Similarly, the much needed maintenance spares are still not available. It is unclear if the distribution companies have any stock of maintenance parts such as conductors, cables and fuses which are required to support existing facilities. It is noticed that the distribution company’s response to faults has not changed over the years. They still have not invested in logistics including communication gadgets in order to improve services.
One noticeable phenomenon is the setting up of the association of distribution companies. This group recently succeeded in influencing the regulator (NERC) to review the international tariff concept of fixed and energy charges. This in their opinion would improve revenue collections. The industry is known to be grossly inefficient because of the high losses particularly in the distribution segment of the enterprise. From the mid nineteen eighties when the World Bank had alerted the industry of the need to reduce these losses, no meaningful effort has been put in place. We were warned that the losses then were in the region of forty percent. One can guess that the figure might be in the region of sixty percent. It is the responsibility of the regulator and also the Bureau for Public Enterprises (BPE) to ensure that the distribution companies (Discos) embark on this exercise in order to buoy up their revenues among other factors. It should be noted that system losses are manageable in both generation and transmission sectors for the fact that they have been designed and built utilizing international standards.
It is uncertain if the electricity demand in the country has been evaluated or updated in the last two decades. In most cases, power is evaluated by the system generation and dispatch rather than the actual demand of the market. It is common knowledge that the actual demand is constrained by the available grid generation, transmission and distribution.
Some decades ago, all classes of customers including industrial, commercial and residential were connected to the grid. This pattern has changed due to irregularity and unavailability of supply and in some cases the poor quality as well. All classes of customers have developed alternatives to the public electricity supply at a huge cost despite the fact that the demand has grown tremendously.
Nigeria’s unserved electricity market includes the International Oil Companies (IOC) operating in the country. These companies have established their own electricity supply for various classes of their business – off-shore and on-shore including the residential quarters. Refineries in Port Harcourt, Warri and Kaduna also have independent sources of power without recourse to the public supply. It is doubtful if the proposed Dangote Refinery being scheduled to commence operations from 2018 would wish to be tied to the public supply.
Cement industry is located in various areas of the country including Ogun, Kogi, Edo, Anambra, Sokoto and Cross River states. None takes regular supply from the grid. The GSM phone companies including MTN, Airtel, Globacom and Etisalat have more than 30,000 base stations. An average of 10kVA is connected to each station with most of them using alternative power sources.
The banking industry set up many additional branches across the country. Each of the existing and the additional offices has its own generation facility.It is not clear if the iron and steel industry is still functioning. If it is, there is no way it will rely on the public supply.There are eateries, supermarkets and shopping malls which do not rely on the irregular and poor quality supply from public sources. The same applies to the breweries, soft drinks and others who over time have by-passed the public supply.
It should be noted that federal, states and local governments have set up private generation plants to take care of their need. Commercial enterprises, large, medium and small in structures are mostly dependent on auto generation. Residential consumers particularly in major cities and townships similarly have individual generating plants for their use. Hospitals at all levels of administration have alternative electricity supply. Same applies to over a hundred universities. Hotels and other hospitality centres have adopted standby power generating assets.
It can therefore be deduced that despite the huge electricity potential of the country, only a fraction of the customers is serviced by the public electricity utility network.
Foreign direct investment in the electricity industry is urgently required to improve the quality and quantum of supply in the short term. Similar exercise took place in the telecommunications sector of the economy about fifteen years ago. This industry is a multi-trillion Naira annual revenue yielding today. Same can be replicated in the electricity market.
From available situation today, it is impossible for the current investors to mobilize billions of dollars for this project. Alternative and private energy uses are too expensive for Nigerians to continue to fund. Supply and installation of pre-paid meters is taking years to implement. How many years or decades do we expect modernization of distribution network with the view to reducing system losses would take at this rate?
Development of national grid is being pursued at the expense of setting up of smaller power plants in all geographical areas of the country with the highest voltage being 33kV. Before the advent of the Kainji Dam project which was the foundation of the national grid, distribution systems were isolated and each served specific geographical locations with greater reliability. They included Ijora in Lagos, Eleyele in Ibadan, Oshogbo, Benin, Warri, Enugu, Port Harcourt, Bida, Okene, Jos, Sokoto, Maiduguri, Challowa in Kano, Kaduna, kafanchan among others. They should have formed the foundation of the so called national grid of today. For the purposes of systems reliability, there is the urgent need to return to the old approach. Nigeria has its peculiarity of few and large power plants interconnected by long transmission lines. The lines serve large demand (load) in many cases and lighter demand in selected situations. All these factors with attendant system faults have caused the grid to collapse on occasions. The planners need to examine setting up local power plants to meet the basic requirement of each zone and then overlay them with the grid in order to improve overall performance.
Edwin Ajagbe
