Poor leadership at NESI blamed for woes in Nigeria’s power sector, as GenCos lament 20% monthly invoice settlement, 2,500MW idle generation

WorldStage Newsonline– The hope of a stable power supply in Nigeria will remain a mirage as long as the poor leadership and coordination, absence of corporate governance at the Nigerian Electricity Supply Industry (NESI) are not addressed, according to a presentation at the WorldStage Economic Summit (WES) 2020.

The NESI is said to be going through the worst situation that could ever imagined for any national asset with lack of reliable/accurate and verifiable or bankable data; no  effective contractual framework, mostly on conjectures; inadequate and outdated infrastructures – lots of unstructured funding thrown around; lack of required investment along the transmission and distribution interface.

Others include over politicization of the sector – appointments, undue interference etc; low electrification rate-Poor market revenue; lack of an efficient monitoring and evaluation framework; silo-centric operations of power-sector related MDAs; lack of strong, transparent regulator- weak regulatory oversight; and continued changes in macroeconomic parameters (exchange rate, inflation, etc.

Dr. Joy Ogaji, Executive Secretary, Association of Power Generation Companies (APGC) in a presentation on  Electric Power Infrastructure Perspective of Diversification at the WES 2020 on Tuesday, November 10, 2020 painted a gloomy state of the electricity sector where national electricity demand is over 28,700MW with pipeline capacity at over 21,000MW and installed generation capacity at over 13,000MW while only over 8,000MW is available out of which about 5,500MW could be transmitted and only 4,500MW being distributed.

Dr Ogaji lamented that generating companies were being paid a fraction of what they are producing at an average monthly market invoice settlement of 20%.

In fact, despite NERC’s minimum remittance order (July to Dec, 2020), she said average remittance accounted for 27.9% with minimum remittance dipping as low as 11.05% in March and 19% in June 2020.

“Nigeria is not facing a lack of generation capacity challenge, but an optimal utilisation  and payment issue,” she said.

“Nigeria needs to fully utilise its available capacity before considering additional generation capacity.

“The stranded capacity has consistently grown since 2013 till date, thereby making capacity recovered by GenCos not translating to a corresponding increase in power supply to consumers.

“It is international industry best practice in critically underserved countries, that available generation capability should be equal to average generation (energy utilized). In Nigeria, available generation has met increased stranded capacity.”

Addressing the theme of the summit ‘New Reality: Consolidating Economic Diversification’ in relation to the development in nation’s electricity industry, she said “energy plays a pivotal role in economic diversification as its scale of use determines the socio-economic development of any nation capable of solving Nigeria’s problem.”

With crude oil been the mainstay of Nigeria’s economy from 1956 till date, she said the battle cry globally had been diversification.

“This fact has been better buttressed and heightened by the current coronavirus pandemic combined with mounting debt obligations and declining GDP,” she said.

“The updated IMF forecasts on COVID-19, GDP growth is expected to fall to -3.4% by end of the year 2020.

“Those fortunes have waned way below expectations this year and, with more than one-quarter of its labour force jobless, it is time to question Nigeria’s economic pathway.”

On the economic impact of NESI’s distortions over the years, she quoted a 2017 National Bureau of Statistics (NBS)/Small & Medium Enterprises Agency of Nigeria (SMEDAN) survey which showed that “SMEs are the most vulnerable to losses from lack of power supply with majority of them receive between just one to five hours of electricity daily.

“The number of medium-sized enterprises decreased significantly from 4,670 in the year 2013 to 1,793 in the year 2017 (representing a 61% drop) and power constraints was the leading determinant.

“Power cost component of manufacturers overhead represents about 36% of the total production cost.

“In the last 5 years, SMEs have contributed about 48% to GDP. However, this would have grown by over 50% if there was constant power supply.

“Bridging the stranded power gap could save the closure of 2,877 Micro enterprises with the capacity of employing an average of 28,770 Nigerians.

“Manufacturers expends over N100 billion on self-generated energy annually.

“Households spends an estimated $12 billion on self-generated power annually.

“Households and businesses spend about $14 billion (₦5 trillion) annually on self-generation; which is expensive ($0.40/kWh or ₦140/kWh or more), of poor quality, noisy, and polluting (REA).

“The annual economic losses caused by Nigeria’s unreliable power supply have been estimated at N10.1tn or about 2% of GDP (World Bank).

“Nigeria ranks 171st globally, out of the 190 countries, and 33rd among 46 sub-Saharan Africa countries in respect to getting electricity.

“Research has shown that for Nigeria to be fully sustainable in power supply, the country needs to generate an estimated 30,000 to 35,000 MW of electricity.

“Unfortunately, GenCos are presently allowed to generate between 3500 – 4,500MW out of over 8000MW, the rest; between 4,500MW – 3,500MW is left to waste as electricity cannot be stored.

“The poor state of electricity supply system in Nigeria is threatening the welfare and security of life and properties of millions of individuals with adverse economic consequences for the country.

“Electricity plays important role from production to distribution of goods.”

She said things can be turned around with a reversal of the poor leadership at the NESI.

Specifically, she said, the challenges can be addressed at the short term by exploring the options of a “visionary apolitical leadership with sound corporate governance model; strong institutional framework with KPIs and performance evaluation

“Central Data Management Systems: Connecting nationwide energy infrastructure on a single public portal to assist interested parties which improves analysis, planning and decision-making processes.

“New regulatory paradigms: Enabling new roles and initiatives for distribution network operators and third-party stakeholders.

“Transparent energy billing: This can be enabled by deploying advanced smart meters which detects theft and data on load management.

“Liberalised contract-based market to promote competition and boost investor’s confidence

“Two-tier electricity market- vesting and bilateral – willing buyer- willing seller.”

According to her, why Nigeria has no choice than to diversify its economy and fix the power sector including the privilege of accounting for over 51% of West Africa’s over 400 million population where its products- services, agriculture, and industries can dominate the sub-region and bring in the much-needed foreign exchange.

As lack of access to energy contributed to inequality, poor health, education and poverty in all aspects, she said to achieve the anticipated economic growth, “Nigeria needs to unlock its potential by taking specific steps to build capabilities and enable growth across multiple sectors.

“More than 15% of the total population of the entire African Continent. More than 40% of Nigeria’s population is less than 15 years old. In a nutshell, Nigeria has a large and energy hungry population.”

To explore power as a diversification option, she said, “Nigeria’s power sector have been discovered to be a reflection of the economic growth strategy of the country. Power is a strategic infrastructure and represents the most important requirement for moving the economy forward.

“Thus, whatever form of diversification to be embarked on must have affordable, clean and efficient power supply at its core.”

The factors which she said must be considered/addressed when diversifying the economy include;

Socio-political disposition towards promoting sustainable energy sector: The energy transition of developed nations appears seamless, not only because of their financial strength; but because of the enabling policy structure, favorable legislative rulings and legally established competitive yet regulated market environment. Economic diversification requires a socio-political crusading that will ensure a viable and reasonably just structure for both government-owned, privately-owned and community-owned energy systems.

Increase investment plan for hydroelectric power technology: Only about 17% of the large hydro resources have been deployed in Nigeria. Hydropower remains one of the most cheapest and reliable energy sources in terms of returns on investment, operation, and maintenance, etc. Hence, more investment in hydro generation facilities can be of immense benefit towards achieving economic diversification.

She also called for better clarity on the power policy post privatisation to provide clarification of the linkage between the power sector and the real economy in the post-privatization market in terms of national infrastructural development, and economic growth; the need to meet the challenges of national energy efficiency implementation and demand management; specifying the direction of the development of the national grid in relation to the prevalent growth of smart technologies and clarifying the policy on the development of renewable energy for the power sector.

“It is therefore expedient that the NEPP 2001 be reviewed to provide direction for a post- privatisation Road Map in the decades ahead,” she said.

“To provide the needed clarity for infrastructural development  as well as relevant regulatory/policy frameworks that will attract investments into the power sector.”

Another argument on power as a diversification option she proposed is to design a Two-Tier Electricity Market given the reality of the large disparity between available generation capacity and the transmission and distribution network capacities in the country.

“A two-tier market is a synchronization of the vested contract market and the bilateral market.  This would release stranded capacity and help in mitigating the challenges currently faced by the GenCos,” she said.

“Under the vesting contract, the DisCos will determine what they can distribute for a given period and whatever is left will be sold to bilateral customers.

“Bilateral customers comprise of DisCos who require more than their MYTO-approved allocation, premium customers (Industries and large estates) and international customers.

“4,500MW capacity can also be activated with equivalent Gas  contracts while additional capacity is treated as Energy only contract pending when the DisCos and TCN networks are ready for contractual commitment. This will help ensure constant and reliable gas supply.

“Distributed Generation:  This can be likened to creating industrial clusters around power plants. Nigeria has abundant natural resources to successfully implement and reap the full benefits of distributed generation. Distributed generation should be prioritized among power sector stakeholders and government at all levels in order to achieve electricity supply security for the nation’s industrial, commercial and residential sectors.”

On the way forward, she said, “Available data have shown that operating a mono-economy can be likened to an economic obituary. Therefore, the only thing that will save Nigeria from her economic crunch now or in future is the diversification of her economy.

“Equally, government must have the political will to do the needful and develop a heterogeneous economy. The clarion call for diversification should not only be government’s responsibility. Other stake holders must cooperate and collaborate with the government to make this dream come true.

“Nigerian  government,  at  all  levels,  should  urgently  create  an  enabling  environment  that  will  favour diversification of the economy that will de-emphasize mono-economy system and pay more attention to heterogeneous economy.

“Evidence-led policy development and pragmatic implementation are key prerequisites for achieving a more sustainable energy future. Nigeria is yet to showcase an alignment between research and energy policies, and between available resources and the particular programmes designed to improve energy efficiency. This impedes synergies between energy policies and economic-sustainability plans, and undercuts the benefits of scale that a more holistic approach would bring.

“For Nigeria to achieve anything near its objective of satisfying unmet energy demand, innovative policies and financing mechanisms are needed.

“The right policy mix combined with aggressive funding can position the country as a renewable energy leader, both on the African continent and globally. And it will reap the benefits in technology development, foreign investment, decreased emissions, poverty reduction, and energy for the population without access to the national grid – all of which could ripple into millions of clean energy jobs in manufacturing across the country.”

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