INFRASTRUCTURE REFORM The president believes that infrastructure development, wealth creation, and long-term economic growth are mutually reinforcing. However, many experts believe that there is a huge infrastructure-funding gap in Nigeria and other sub-Saharan African countries. In view of these premises, the administration’s underlying premise in infrastructure reforms is to close this gap by not only allocating as much funding from the budget as possible every single year, but also by aggressively attracting the private sector into investments in infrastructure projects through public private partnerships (PPP). The government also believe in seeking sources of alternative funding such as concessional credits in the country’s medium-term borrowing plan. In view of the high returns already recorded in infrastructure investments in the country, Nigeria’s inadequate infrastructure is both a challenge and a tremendous opportunity for the private sector. POWER When President Jonathan took office in February 2010, Nigeria’s grid-based electricity generation hovered between 2,600 and 2,000 megawatts (MW). For a country of over 170 million people, this abysmal statistic implied that Nigeria had one of the lowest per capita electricity consumptions in the world. In comparison, Brazil had over 100,000 MW for a population of 201 million people while South Africa had 40,000 MW for a population of 50 million people. Apart from ensuring that Nigeria could not realise most of its national development objectives with this low level of electricity generation, there were many other implications for ordinary citizens. Reliable estimates suggest that self-generation of electricity using diesel and petrol generation was at least 6,000 MW, which suggests that average Nigerians spend twice as much on self-generation of electricity than on grid-based supplies. Moreover, the stalled expansion of Nigeria’s grid capacity, combined with the high cost of diesel and petrol generation, had crippled the growth of the country’s productive, commercial industries and stifled the creation of the jobs around the country. The erratic and unpredictable nature of electricity supply also engendered a deep and bitter sense of frustration with the government, a mistrust that makes reform even less likely to succeed. Against this backdrop, President Jonathan committed to end Nigeria’s stunted growth and vowed to usher in a broad-based wave of prosperity by pursuing a new era of sector-wide reform that is driven by improved service delivery to every class of customer in Nigeria. Therefore the goal of power sector reform was to provide Nigerians access to an affordable and reliable electricity supply in order to sustain economic growth, alleviate poverty, and create jobs. The operational policy objective was to improve the electricity system in a sustainable manner and to engage the business environment for active private-sector participation in the power sector in the medium-term Reforms The government vigorously pursued the following reforms in order to realise the aforementioned goals: Road Map for Power Sector Reform: The Road Map for Power Sector Reform was launched in August 2010 and preceded by the extant Electric Power Sector Reform (EPSR) Act, EPSR was enacted by the National Assembly in 2005, and its five fundamental objectives are: Creation of an initial holding company into which the National Electric Power Authority (NEPA) assets, liabilities, and staff would be transferred. The initial holding company was set up as the Power Holding Company of Nigeria (PHCN) to exist for only 18 months and subsequently be unbundled. Incorporation of successor companies and the privatisation of the unbundled entities Establishment of a regulatory agency Establishment of a Rural Electricity Agency and Fund Establishment of Power Consumer Assistant Fund The Road Map for Power Sector Reform outlines plans to accelerate the pace of activity with respect to reforms already mandated under the EPSR Act as well as to renew efforts to improve on short-term service delivery. With its emphasis on the privatisation of power generation and distribution and the construction of a new transmission network, the Road Map is expected to reduce substantially the binding infrastructure constraints. Presidential action Committee on Power (PACP) and Presidential Task Force on Power (PTFP): The Presidential Action Committee on Power (PACP), chaired by Mr. President, and the Presidential Task Force on Power (PTFP), chaired by the Hon. Minister of Power, were reconstituted on 5 September 2012. The collaboration of these two ad-hoc committees with the Federal Ministry of Power and other agencies, including the Nigerian Electricity Regulatory Commission (NERC), the Bureau of Public Enterprises (BPE), the Bureau of Public Procurement (BPP) as well as the successor companies across the value chain and the Federal Ministries of Finance, Labour, and Water Resources have succeeded in driving the power sector reform agenda with impressive results thus far. The PTFP interfaces with system operators to ensure constant improvements in the system. The PTFP also monitored the distribution companies for improved revenue and collection efficiency during the pre-handover period. The task force regularly interfaces with the Nigerian National Petroleum Corporation (NNPC), the Nigerian Gas Company (NGC), and the Gas Aggregation Company Nigeria (GACN) to ensure gas availability, coordination of gas allocation for power, and the progression of ongoing gas projects. For it part, the PACP now meets more regularly with the full attendance of members to consider memos and to make clear decisions on issued submitted. Nigeria Electricity Regulatory Commission: The Nigerian Electricity Regulatory Commission (NERC) was empowered to provide regulatory oversight in the power sector. Its functions include: Licensing and regulating persons engaged in the generation, transmission an distribution of electricity. Creating, promoting, and preserving efficient industry and market structures Maximizing access to electricity services by promoting and facilitating customer connections to distribution systems in both rural and urban areas Ensuring that the prices charged by licences are fair to consumers and are sufficient to allow the licences to finance their activities and make reasonable earnings for efficient operation Ensuring that regulation is fair and balanced for licencees, consumers, investors, and other stakeholders Promoting competition and private sector participation, when and where feasible Establishing or, as the case may be, approving appropriate operating codes and standards for safety, security, reliability and quality Establishing appropriate consumer rights and obligation regarding the provision and use of electric services Approving amendments to the market rules Monitoring the operations of the electricity market The NERC commissioners were re-appointed in 2010 to undertake regulation that is fundamental to a healthy electricity market and to protect consumers. Cost-Reflective Tariff Regime: The Electricity Power Sector Reform (EPSR) Act of 2005 vests the Nigerian Electricity Regulatory Commission (NERC) with the power to adopt any tariff methodology it deems appropriate for the nation. A Multi-Year Tariff Order (MYTO) was subsequently established with a major tariff review every five years. The law made it mandatory for NERC to adopt a tariff that is favourable to the Nigerian people and investors. However, the periodic major review does not necessarily imply an increased payment by every consumer. The second MYTO came into effect on 1 June 1 2012 NERC will apply the MYTO in calculating tariffs, thereby ensuring effective pricing. By so doing, NERC will ensure that Nigerians are not overcharged for the supply of electricity services, as only efficiently and competitively incurred costs can be passed on to consumers. Establishment of Consumer Assistance Fund (CAF): The government has commenced providing its contribution to the consumer assistance fund through the federal budget as provided in Section 83 (3) of EPSR Act. The consumer assistance fund is a fund that is set aside to subsidise the tariff to be paid by poor electricity consumers in private sector-driven power sector. This subsidy is different from the petroleum subsidy because, among other differences, there is no cash involvement at all in electricity subsidy. The government’s aim is to prevent the less privileged from paying heavily for electricity consumption, which is a basic necessity. Eligible consumers would be identified according to their consumption pattern (KWh consumed). This may be consumption as low as 25 KWh per month (about four lighting points used for only five hours daily throughout the month). Consumers falling within this group are not required to pay for either the meter maintenance charge or the fixed charge. Rural Electrification Agency (REA): The operation of the Rural Electrification Agency (REA) was suspended in 2009. However, in recognition of the full compliance with the law, especially with the EPSR Act of 2005 and to restore the confidence of investors and the general public in the power sector reform, the REA was fully restored with the office of a managing director replacing that of a sole administrator. The objective of REA is to ensure greater access to electricity in rural and semi-urban areas. The federal government provided a substantial vote in the 2012 and 2013 annual budgets to fund electricity provision for rural communities and to make electricity a fundamental right of every Nigerian. Transmission Company of Nigeria: The transmission Company of Nigeria (TCN) plays a critical role in the Nigerian Electricity Supply Industry (NESI), in terms of transmitting power from suppliers to distributors. Thus, potential investors in the Generation and Distribution segments will be reluctant to make large investments in the upstream and downstream sectors of the electricity industry unless they are confident that commensurate investments and efficiencies in the midstream sector will also take place. As such, the federal government contracted the Manitoba Hydro international (MHI) of Canada in 2012 to manage TCN and inject international best practices and technical expertise and to ensure the requisite restructuring of the company. MHI is contracted to manage TCN for three years, with possibility of an extension to five years. They have also commenced an accelerated ramp up of the management and operational efficiency level of TCN to match the expected profile of the privatised upstream and downstream assets. Generation Companies (GenCos) and Distribution Companies (DisCos): In 2010, the process of privatizing the 17 successor companies (of which six are generating and 11 are distribution companies) commenced earnestly after the process was suspended in 2007. Consequently, 207interested parties were shortlisted from an expression of interest call. After several bidding and evaluation processes, the National Council on Privatisation (NCP) approved 14 preferred bidders for the Power Holding Company of Nigeria (PHCN) generation and distribution companies in its ongoing privatisation programme. The companies that made the Bureau of Public Enterprises (BPE)’s 21 August 2013 deadline for the outstanding payment for the power assets were: West Power and Gas, the preferred bidder for the Eko Distribution Company; NEDC//KEPCO, Ikeja Distribution Company; 4Power Consortium, Port Harcourt Distribution Company; Vigeo Consortium, Benin Distribution Company: Aura Energy, Jos Distribution Company; and Kann Consortium, Abuja Distribution Company. Others included integrated Energy Distribution and Marketing Company, the preferred bidder for both the Ibadan and Yola Distribution Companies; Sahelian Power, Kano Distribution Company; Transcorp/Woodrock Consortium, Ughelli Power Plc; Amperion, Geregu Power Plc; Mainstream Energy Limited, Kanji Power Plc; Interstate Electric, Enugu Distribution Company; and CMEC/EUAFRIC Energy JV, which made part-payment for the acquisition of Sapele Power Plc. On 30 September 2013 President Jonathan formally handed over share certificates and licences to the 14 new core owners of PHCN successor companies. Operationalising NELMCO: The Nigerian Electricity Liabilities Management Company (NELMCO) was established as a government special purpose vehicle to assume a manage extant assets, liabilities, and other obligations that could not be easily transferred from PHCN to any of its successor companies. The federal Government is working to ensure that NELMCO is made fully operational and fully funded and that any uncertainties regarding the transfer of residual liabilities are removed. Grid-based Generation of Power: In view of the high costs and long lead times required to develop commercial power generation through solar, wind, nuclear, and biomass, the federal government has focused development efforts on hydro, coal, and natural gas. Incentives were provided to investors to exploit these resources to their fullest potential. In collaboration with the Nigerian Gas Company and various sector project owners, the federal government achieved significant improvements in gas supply in 2012 and 2013. There have been significant development in the supply of gas both overall and to power. Specifically, an additional 285 million standard cubic feet per day (MMscfd) of gas was added to the western grid. A surplus of 100 MMscfd of gas (approximately 350 MW of thermal power) was also attained. However, this was not fully utilized due to constraints in transmission. Specific achievements in gas to power included the following: The completed looping of Escravos-Lagos Gas Pipeline (ELP) from Escravos Node to Warri to facilitate additional gas from Chevron Nigeria Limited (NCL) Escravos. This critical looping will allow even more gas flow as CNL improves their production capacity. Chevron increased its gas input (to ELP) from 290 MMscfd to 410 MMscfd (an increase of 120 MMscfd). The Utorogu gas plant increased production from 250 MMscfd to 320 MMscfd. This represents an improvement in production of 70 MMscfd. The Ughelli East gas plan improved its production from 40 MMscfd to 70 MMscfd, an increase of 30 MMscfd. The Nigeria Petroleum Development Company (NPDC) completed its gas plant at the Oredofield. The National Integrated Power Producers (NIPP) also completed the pipeline connecting the plant to the ELP. As a result, NPDC has commenced injection of 65 MMscfd of gas into ELP. Permanent gas pipeline to Olorunsogo from ELP was completed and commissioned. The temporary gas supply line from the Imo River Shell Petroleum Development Company of Nigeria (SPDC) field to the NIPP Alaoji power station was completed to facilitate supply of 30 MMscfd to the Alaoji power plant. Oben gas plant was also upgraded in 2012 to improve the quality of gas delivered to the ELP/Oben Ajaokuta/Sapele system. Gas Supply Agreements (GSAs) were concluded and initiated for Garegu and Sapele power stations. Gas Transportation Agreements (GTAs) have also been concluded and initiated for Egbin power plant as a model for other power plants. Transmission : Nigeria’s power sector transmission infrastructure continues to be challenges, as it remains a weak link in the electricity supply chain. Moreover, even with the completion of the transmission projects, the gap between generation capacity and grid capacity is expected to remain. Nevertheless, despite prevalent funding constraints, the Transmission Company of Nigeria (TCN) completed a number of projects that included construction of transmission lines and substations at both 330 KV and 132 KV levels, and transformer reinforcements. These completed projects resulted in added capacities of 159 KM of transmission lines and 1590 MVA (1372 MW) transformer capacity. By end of 2013, an additional 400 KM transmission lines and 1700 VA (1360 MW) would be achieved. The resultant effect of this development would be substantial reduction of 132/33 KV interface problems and increased of wheeling of the grid. Distribution: There has been an increase in the distribution network from 6,360 MW in January 2012 to 7,350 MW in December 2012. Many obsolete and unserviceable types of switchgear have been retrofitted to enhance network reliability and system stability. The national average hours of supply in certain major cities increased from 12 hours to 16 hours. Results and Outcomes Although most of the gains from the administration’s reforms in the power sector are yet to be realised given the peculiar nature of the sector, the administration has achieved the following: Historic Power Generation: In 2012, generation operators attempted to maintain the current allocation of power for every part of the country, while allocating a significant portion of additional power from the National Integrated power Producers (NIPP) and other independent Power Producers (IPP) to key urban and industrial centres. Generation from most stations was maintained with significant capacity for Shiroro Hydro Generation, which achieved a new peak of 4,517.6 MWh/h on 23 December 2012, an historic achievement, whilst a record average energy distribution of 4,028.85 MWh/h was attained on 2 December 2012. Development of a sustainable transmission capacity expansion to provide adequate highway for wheeling generation Delivery by NIPP of critical transmission projects Delivery of gas-to-power projects that increase generation levels significantly Appointment of MHI and an accelerated ramp-up of the management and operational efficiency level of TCN to match the expected profile of the privatised upstream and downstream assets Successful handover of share certificates and licences to the 14 new core owners of PHCN successor companies (GenCos and DisCos) New Tariff (MYTO 2) instituted June 2012 Reconstituted the Board of Nigerian Energy Regulatory Commission (NERC) Funded Rural Electrification Agency (REA) Resolution of labour issues
Posted on: Tue, 02 Sep 2014 06:39:02 +0000
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