A heat wave has swept through Lagos recently, which is usual for this time of the year.
What is unusual though is that in the year 2016 (some 216 yearsafter electricity was discovered), most residents of this mega city of 22 million plus people have no electricity to cool their homes in response to the biting heat.
The lack of power largely boils down to market failure resulting from bad policies.
Nigeria’s rulers since 1960 (including the current one who had a first stint as President in 1983), have managed to create a situation where millions of citizens demand a product/ service (electricity), are willing to generate power themselves at a higher price (up to N70/kwh) with Generators, but cannot get it supplied to them from their local utilities.
The situation is made worse by the fact that Nigeria sits on 187 trillion scf of gas, one of the largest energy resources in the world.
Where we are today
After the privatization of most of the power chain by the last government, today the country still generates only about 4,000 megawatts and can wheel out (transmit) about 7,000 mw, whereas demand is estimated at close to 20,o00 mw and increasing at 3 – 4 percent per annum as the country’s population grows.
It is obvious that the whole power chain is in need of revamp from the Generating Companies (Gencos), Gas producers, Transmission Company of Nigeria (TCN), Distribution Companies (Discos), NERC and NBET.
The handover of 6 PHCN Generating assets to new private sector owners was only the beginning of a long drawn journey fraught with pitfalls as the new owners struggle to undo decades of rot in the electricity sector.
Majority stakes in Gencos located in Geregu (434mw), Ughelli (832mw), Sapele (1,020mw), Shiroro (600mw) and Kainji (760mw) were sold in 2013 to companies including Transcorp, Sahara Power and Forte Oil Plc.
In some ways the Gencos have seen the most progress since privatization with real Capital expenditure being seen.
Transnational Corp. of Nigeria Plc has doubled the output of its acquired Ughelli power plant, from levels they were at pre privatisation from 150 megawatts (MW) to over 338 mw.
Transcorp has also contracted General Electric (GE) to increase the output at the plant -acquired at a cost of $300 million – to 1000 MW.
Sahara Power and Forte have also expanded capacity at their plants from pre-privatisation levels, while new Independent Power Plants (IPPs) are coming on stream such as the Azura-Edo IPP which comprises a 450MW gas fired plant.
The biggest problem and opportunity today with Generation however lies with the 10 NIPPs with a capacity to produce 4,774 MW which are near 70 – 90 percent completion but for which there seems to be no policy from the current government on moving ahead with their privatisation.
Getting the NIPPs right can easily double Nigeria’s production capacity to over 10,000 MW in about 2 years. This would entail this Government moving clearly to restart their privatisation and also freeing up the gas space to enable enough gas get to the plants as they are all gas fired (more on this later).
The Transmission Company of Nigeria (TCN) is one of the weaker links in the power supply chain.
Even if Nigeria can double its power generating capacity to over 10,000 MW, TCNs existing transmission system, is only capable of delivering about 7,000MW of generation to the distribution companies (Discos) Trading Points, and is inadequate to meet expected growth with NIPP and various IPP generation projects coming online.
Inadequate maintenance of the transmission network over the years has also resulted in high technical losses on the transmission network.
To make matters worse TCN today is technically insolvent.
The existing MYTO transmission tariffs and billing collections are inadequate for the company to finance its operations according to San Francisco based consulting firm Nexant in a financial assessment of TCN covering the 2011 to 2013 period.
“The company is consistently unable to meet its obligations to suppliers/contractors in compliance with terms of contracts,” Nexant said.
TCN’s Performance in terms of transmission losses deteriorated between 2011 and 2013, increasing from 10.4 percent in 2011 to 12.1 percent in 2012/13, before falling to 8 percent in 2014, according to data from Nexant and NERC.
Non-collection of tariff charges is also a significant recurring problem for TCN.
The Interim Market Rules (pre-TEM) provides for collection of 70 percent for Transmission Service Provider (TSP) and 60 percent for System Operations (SO) and the Market Operations (MO), which are TCNs three separate and interdependent departments.
However, the overall average collection rate in 2013 was around 60 percent. TCN for instance had N36.3 billion in wheeled power revenue billed in 2013 but only collected N22.1 billion from its customers.
TCN made pre-tax losses of N13.7 billion ($88 million) in the 2012/13 with negative operative margin of around 18 percent, based on unaudited financial statements, seen by Nairametrics.
The number of staff employed by TCN increased from 3,334 in 2011 to around 4,210 by end 2013.
The increase in staff numbers was far greater than the growth in wheeled energy and as a result the energy wheeled per staff declined from 8.1GWh in 2011 to 6.9GWh in 2013.
As a result of this TCN spent N13.5 billion on payroll in 2013 but only N3.73 billion on repairs and maintenance.
From the above numbers it can be seen that TCN needs to be urgently privatized and Transmission Decentralised.
TCN is currently owned by Government but has a management contract with Manitoba of Canada.
There are often turf battles between it and the Ministry of Power.
TCN also needs to be able to raise long term bonds in the private markets to boost capex grow its assets and gain from the expected increase in Generating Capacity.
Getting TCN right will mean that the biggest clog in the wheels of Nigeria’s power sector has been solved and transmission can keep up with the growth in generation.
The Government has to begin the process of privatizing TCN to eliminate the bottlenecks hindering its growth. If this is not done the power sector will not be able to deliver electricity to Nigeria as the sector is only as strong as its weakest links.