Nigeria’s power sector is failing. After $2 billion was spent on the nationalised National Electric Power Authority (NEPA) in the 1980s and 1990s, the Authority had an all-time low 1,700 MW of power capacity. This was hopelessly inadequate to meet the growing needs of the country. It was also clear that the Government could not afford the necessary investment in generating capacity, then estimated at $40 billion in capital costs. It needed to privatise in order to produce this investment.
In 1998, a new approach was tried, with the creation of a number of Independent Power Producers (IPPs) and the purchase of power from the International Oil Companies (IOCs). Yet this attempt at a partial privatisation of the generation sector did not significantly increase the availability of power. Thus the Government decided on complete reform. It enacted the Electric Power Sector Reform Act (EPSR) of 2005, which created an independent regulator in the Nigerian Electricity Regulatory Commission (NERC). This brought in the necessary reforms to create a system of private generators and distribution companies by 2013.
Yet five years down the road, the sector is still struggling to secure enough investment, and is riddled with debt.
Investment still remains far below the 20 GW of capacity demanded by the “Vision 2020” Policy. So why has privatisation so far failed to produce the hoped-for improvements? The reasons are many and various.
1. The 11 distribution companies (discos) are not in alignment with the nine transmissions zones.
2. Metering is inadequate, creating under-billing, bypassing of tariffs and stealing.
3. There is a low level of power output and it is deteriorating.
4. Most of the new generating capacity is unfinished.
5. There is no enumeration of customers or basic market information to guide both tariff setting and expectations.
6. The wide variety of tariffs bears little relation to costs.
7. The expansion of the transmission system has been inadequately planned and slow.
8. There is a major lack of investment capital.
9. There is a chronic lack of gas available for fuel with an inadequate gas supply infrastructure.
10. The plans failed to allow for ‘systemic risks’.
11. There is a lack of ‘back-to-back’ contracts, particularly affecting gas purchasing, but also for forcing the discos to take volumes of power.
12. The system of tariff formulation through Multi-Year Tariff Order (MYTO) is inflexible.
13. There is considerable tension between the generators (gencos) and the discos, each blaming the other.
14. The risks relating to foreign exchange and the potential of demand have been underassessed.
15. Expectations of demand have been over-estimated.
16. There has been a chronic lack of investment in the sector as a whole.
17. There is no effective legal regulation regarding theft of electricity.
18. Most of the discos are effectively bankrupt.