THE ATIKU ABUBAKAR POLICY DOCUMENTS (The Atiku Formula). MAKING - TopicsExpress



          

THE ATIKU ABUBAKAR POLICY DOCUMENTS (The Atiku Formula). MAKING GOOD THINGS HAPPEN Continued! SECTION II - INFRASTRUCTURE DEVELOPMENT 5 POWER SECTOR 5.1 The Issues The absence of a stable and effective power system is perhaps the single most important factor militating against a sustained growth of the Nigerian economy. Governments have in the past made promises on improvements in electricity supplies all of which have failed to materialize. It is estimated that a stable electricity supply system will lead to a 25 percent increase in the rate of economic growth. The power sector is presently in a crisis, and the Nigerian people expect the next government to ensure that the electricity supply situation records a significant year on year improvement within the shortest possible time. Indeed the success or otherwise of the next government may be determined largely by whether or not it is able to improve the power supply crisis. The national grid presently operates on a radial system, which is extremely fragile and prone to breakdowns. Due to the fragility of the national grid, generation levels above 3,500MW frequently lead to national system collapses. Construction of new power stations, rehabilitation and expansion of transmission and distribution networks are currently underway to bridge the electricity supply gap. These include the eleven host power plants being constructed by government, which are expected to be commissioned by the end of May 2007. Seven of the plants are in the Niger Delta, and are being developed under the aegis of the National Integrated Power Project (NIPP). The other four include three that are being constructed using “soft loans” provided by the Chinese government – in Ajaokuta, Geregu and Papalanto. There are also other private independent power projects, some of which have come on stream or under construction, for example, AGIP and SHELL plants, respectively. Altogether, the government is committed to generating at least 10,000 MW by the end of 2007. Given the realities prevalent in the electricity sector, namely, inefficient operational and financial performance, inadequate transmission and distribution infrastructure, poor payment and collection culture and dearth of investment capital, supplying the electricity produced to consumers and collecting concomitant revenues may provide serious challenges in the short-term. In addressing the inadequate supply infrastructure, government is closing the gap in the transmission network thereby making it a proper grid system as opposed to a radial system. This will make the system more reliable and less prone to national system collapses. Although distribution is receiving attention, it is, however, not certain that a clear policy on how to bridge the infrastructure gap at this level is being adequately addressed. Ostensibly, there are some critical issues that have to be addressed if generation, transmission and distribution are to improve substantially to improve the quantity and quality of electricity services to the generality of Nigerians. These include: 5.1(a) Institutional and Structural Arrangement I. Continued restructuring of institutional and organizational structure of the industry premised on competition and choice II. Clear definition on the role of government to focus on policy formulation, direction for the industry, support and legislation, while the role of the private sector will focus on operation and development of the industry III. Independent and effective economic and technical regulation to attract private sector participation and investment while concomitantly protecting the public interest IV. Appropriate industry structure will have to be based on the overarching objective of providing electricity services to the generality of Nigerians at reasonable costs while ensuring the financial viability and long-term development of the industry 5.1(b) Infrastructure I. Although government set a target of 10,000MW and is currently developing eleven power stations to realize this target, it is doubtful if 10,000MW will meet the medium-term electricity requirement of the country talkless of energy required to meet the goals and objectives of NEEDS and MDGs. II. Although transmission network is being reinforced and expanded to make it more reliable and less susceptible to national outages, the on-going transmission plan is hinged on 10,000MW. As stated in 2(a) significant investment in transmission infrastructure will be required if the quality of service is to improve particularly as the preponderance of power plants are being constructed in the southern part of the country. III. The distribution sector is the weakest link in the electricity chain. The estimated technical distribution losses, non-technical losses and collection losses are approximately seven (7), twenty seven (27), and twenty three (23) percent, respectively. The implication is that more than half of electricity generated, from a revenue collection perspective, is not accounted for. IV. Inadequate metering, as captured in non-technical losses, is an issue that is capable of seriously undermining the viability and long-term development of the industry. To address this problem, a far-reaching and widespread metering programme will have to be embarked upon to ensure that all consumers of electricity pay for what they rightfully consume. 5.1(b) Operational I. It is important that fuel availability, particularly gas supply, is improved upon to reduce the adverse impact of interruptions in gas supply that have become manifest with Niger Delta strife and maintenance of Nigerian Gas Company pipelines. II. Development of gas supply infrastructure outside the Niger Delta area (to other parts of the country not currently served) to allow the siting of power plants closer to load (consumption) centres. Since modern power plants have capacities to use dual fuel, the disruption caused by pipeline vandalisation will be isolated and mitigated. III. In the long term, electricity generation plant mix will need to be diversified to include non-renewable energy (hydro, solar, nuclear) and other thermal fuels (coal, bio-fuel) thereby reduce dependence on natural gas in light of the strife in the Niger Delta while concomitantly improving security of supply. IV. Currently, pricing and electricity tariffs are inadequate to cover cost of providing electricity services. To encourage investment and ensure viability of the industry, prices must perforce be cost reflective. This responsibility falls under the purview of the Nigerian Electricity Regulatory Commission (NERC). V. Other issues that are capable of undermining the financial and operational performance of the industry are the legacy and other debts1(including pension liabilities). It is imperative that these are addressed. The two policy options are government assuming the bulk of the debts and defray with budgetary provisions or the debts left within the industry and dealt with by increasing end-user tariffs. VI. With the best of intention and purpose vis-à-vis efficient provision of services, revenue shortfall will persist in light of the quantum of losses prevalent in the industry. Similar to (e) above, the two options are government to provide support and/or allow prices to increase to a level high enough to cover the shortfalls. VII. To encourage private investment, government will have to institute a set of fiscal and investment incentives. 1 The recent Paris club Debt relief will positively affect the debt stock of the industry. 5.2 The Initiatives • Provide EPPs for key urban areas (Lagos, Port Harcourt, Abuja, Kaduna, Onitsha; Kano) but taking into account the need to provide investors with a reasonable return in the pricing decisions; Nigeria is committed to achieving the Millennium Development Goals. To halve poverty by 2015, the Nigerian economy must grow at an annual rate of seven (7) percent. There is a high correlation between GDP growth and availability of electricity (a factor of 1.25). That is,, for every 1% GDP growth, a 1.25% growth in power supply is required. Based on some preliminary assessment, by 2011 Nigeria will need 13,000 MW of available generation capacity, and 20,000MW by 2015. A National priority programme will therefore be required to provide an additional minimum of 1000MW pa between 2007 and 2012 to reach 15,000MW. Developing new stations is a medium term approach because it will take at least two and a half years to construct a conventional power station. Short-Term Adopt a 2 tiered approach – an emergency power programme (EPPs) that can deliver additional capacity in certain key areas (as was done with AES in Lagos and Geometeric & Aggrecko in Abuja), and also ensure the completion of the power plants, distribution and transmission infrastructure currently under construction, and a National Power Programme (NPP) to be pursued over the medium-term. EPPs will be undertaken as a short-term measure to ensure enhanced supply within the first year of the new administration: • Provide EPPs for key urban areas (Lagos, Port Harcourt, Abuja, Kaduna, Onitsha; Kano) but taking into account the need to provide investors with a reasonable return in the pricing decisions; • Ensure an accelerated procurement cycle to achieve timely delivery of the EPPs • Consider acquiring excess capacity from Eastern Europe/other such areas, although care will be taken to ensure a transparent procurement process • Undertake tariff adjustments to make it viable for operators/ government to make the new investment in the industry. • Commercial rates to be charged in commercial areas. (This may also be used as a mechanism to allow cities to reclaim their commercial areas). Medium-Term Under the NPP, pursue a 2 pronged approach 1. Complete ongoing system expansion to increase supply; and 2. Undertake a holistic reform (restructuring and private sector participation). a. Implement an integrated approach; as allied industries – gas development must be linked to power. b. Achieve an efficient use of resources and demand side management (development and commitment to a long term industry development plan); c. Efficient load management with priority given to wealth creating activities d. Development of alternative energy sources - Nuclear power for the long term (i.e., upon exhaustion of gas although the needed research and development work should commence within the life of the next administration) e. FGN to encourage private sector in generation and distribution, and provide incentive schemes; f. Ensure adequate power off-take arrangements including where appropriate, direct support from government. g. Improve the transmission network so that a closed circuit exists to replace the present radial network h. Privatisation to be pursued alongside restructuring. The sector restructuring will be fast tracked while simultaneously pursuing privatisation. i. Liberalisation will continue apace with efforts being taken at the Local and State Government level too as power is on the concurrent list. j. Consultation: All strata must be made aware of the developmental role of power and the need to incorporate it into the reform efforts. All stakeholders shall be carried along (States; Local Governments etc). k. FGN will in consultation with other stakeholders, utilize some excess crude earnings to provide additional generation and distribution capacity. l. Assess the configuration of distribution sector. 6. Micro initiatives Private sector to be encouraged to provide power to certain areas based on mini generation schemes in return for a services charge; • Reduce generators operating within an area and encourage the development of “mega” generators in neighbourhoods. • Shall be on an incentive-based structure rather than via coercion. • FGN to provide support for cities and states to develop framework required for facilitating cooperation between individuals; Operators can secure sites and provide power for particular areas 6.1 GAS • Undertake a review of and develop a new gas fiscal regime. Gas fiscal regime presently provides little incentive for the deep development of the gas sector. It must be reviewed to encourage reduced flaring and greater utilisation in power generation. • Develop gas supply infrastructure while minimising flaring especially developing the gas pipeline along Oben- Abuja – Kaduna – Kano as a priority project. 6.1(a) Power Sector Institutional Mechanism 1st 100 days • Appoint a fully empowered individual with sufficient authority across all the relevant sectors/government agencies to spearhead the power reforms (“power sector czar”). • All government agencies MUST cooperate on the priority projects. Presently, liaison between agencies (customs; immigration, ports, FIRS) is very weak and bedeviled by conflict. • It MUST be made very clear to government agencies that all the reforms /changes are predicated upon government speaking with one voice. Short-term • Strengthen regulation (a better equipped and positioned NERC and make more effective. Based on the close interplay between gas and electricity, close co-ordination between the two sectors (and regulation) is imperative; • Review the role of the Ministry of Petroleum Resources; restructure into a Ministry of Energy covering power and gas; • Abolish Ministry of Steel and transfer its functions to Ministry of Industries • Set targets and develop appropriate model for increasing rural access
Posted on: Sun, 15 Sep 2013 07:12:58 +0000

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