By Felix Ayanruoh

Here we are again reinventing the wheels of governmental agency reform, this time the power sector, while simultaneously taking actions that seem to undermine the reform process – alleged bias in the granting of distribution licenses, capacity shortages and, generally letting the bottom fall out of the quality of power generation and distribution. The government has recently announced the commencement of the review of its “Power Sector Roadmap.”

It is indisputable fact that Nigerian has one of the most problematic electricity sectors in the world, with an estimated installed electricity generation capacity of 8,644 MW, and available capacity of only approximately 3,718 MW, to cater for the needs of a population of over160 million.

By comparison, South Africa, with a population of just 50 million, has an installed electricity generation capacity of over 52,000 MW. On a per capita consumption basis, Nigeria is ranked a distant 178th with 106.21 KWh per head, – well behind Gabon (900.00); Ghana (283.65); Cameroon (176.01); and Kenya (124.68).

The historic gap between the demand for electricity and the available capacity has led to the current widespread power shortage and inefficiency and, consequently, self-generation of power by both industrial and residential consumers. The Manufacturers Association of Nigeria (MAN), and the National Association of Small Scale Industries (NASSI), have estimated that their members spend an average of about N2billion (about $12 million) per week on self-power generation. To this end, the Nigerian power sector presents immense opportunities for private investment in the electricity power sector.

It is self-evident that the poor performance of the electricity power sector in Nigeria has been a significant barrier to private investment in the country, the overall development and economic growth. The sector’s market structure like most economies of the developing world is dominated by the state-owned power entity – Power Holding Company of Nigeria (PHCN), formerly the National Electric Power Authority (NEPA) – in a monopolistic, vertically integrated business model.

The dissatisfaction with the performance of PHCN – symptomized by its low capacity generation; high costs; inadequate distribution of electric power; inability to finance new or expanded infrastructure; and inadequate machinery for effective billing and collection of bills fuelled the debate on the theoretical and empirical justification for its involvement in Nigeria’s electricity power sector, and became the driving force behind liberalization.

Heuristic analyses, by experts in the field conclude that the process of reform and liberalization of a capacity-deficient electricity power sector such as Nigeria’s, should include the following key elements:

• Mandating PHCN to operate according to commercial principles

•Introduction of competition

•Restructuring of PHCN’s supply chain to enable full liberalization. This entails unbundling PHCN’s business structure into several generation and distribution enterprises.

•Privatization of the unbundled electricity generators and distributors under dispersed ownership, to encourage private investors and operators to bring in financial resources and technical and managerial expertise to correct PHCN’s deficiencies

•Development of economic regulation that is independent from government and industry capture

•Restricting government’s role on policy formation and execution.

Beginning in 1896 when electricity was first produced in Lagos, with a generation capacity of 60KW, and continuing to the establishment of NEPA in 1972, several efforts have been to continually increase capacity output. The promulgation of the Privatization and Commercialization decree No.25 of 1988 which established the Technical Committee on Privatization and Commercialization (TCPC), led to the review of the failures of state monopolies including NEPA and proposals to commercialize the operations of PHCN.

Following the enactment of the Public Enterprises Act of 1999, the Bureau of Public Enterprises (BPE) replaced TCPC with the power to shift emphases from commercialization to encouraging core investors, and promoting foreign investment in the privatization program.

Despite the foregoing broad statutory framework, the Nigerian electricity power sector continued to experience low electricity supply. In response, the Federal Government adopted the National Electric Power Policy (NEPP) in March 2001, setting out the following critical objectives:

•Attract private investment both from Nigeria and from overseas

•New legislation to provide the legal framework for the reform Agenda

•Establishment of an independent regulatory agency

•Development of a wholesale electricity market

•Establishment of a consumer assistance fund to ensure the efficient and targeted application of subsidies to less privileged Nigerians

•Establishment of a Rural Electrification Agency (REA) to manage the rural electrification fund.

The Electric Power Sector Reform Act of 2005 (EPSR) codified the preceding objectives, creating a new legal and regulatory framework for the sector, including the elimination of NEPA and provisions to ensure privatization of successor companies; establishment of the Nigeria Electricity Regulatory Commission (NERC); establishment of the Rural Electrification Agency; and a Consumer assistance fund to bridge the funding gaps for low income earners.

After five years of implementation of the 2005 Reform Act, the liberalization process remained stalled and mired in intractable challenges. Power shortages, poor operational performance, a lack of foreign investment, the absence of a sustained and deliberately deployed long term power development strategy, under-exploitation of the nation’s abundant energy endowments and the inadequate implementation of reforms, were readily conceded by Government in the Presidential Road Map of 2010.

In a nutshell, liberalization has not enjoyed the predicted success. The challenges facing the sector can be summed up as both institutional and regulatory. Some have argued that, for liberalization to attain its objectives, the government must have political will and also allow for a captive-free regulation regime.

To be continued…