November 1, 2013, the federal government unbundled Power Holding Company of Nigeria, PHCN, which gave birth to five generating companies, GENCOs, and 10 distribution companies, DISCOs, many Nigerians heaved a sigh of relief.
But SEBASTINE OBASI writes that one year after the handover, their anxiety and frustrations over electricity supply have increased even more, as the situation is far from improving.
Nigerians had thought that the long frustrating period of power outage would be a thing of the past. They looked forward to a new era when every part of the country would be seen to be having uninterrupted power supply.
This means that the long wait for uninterrupted power supply would continue, as the GENCOs and DISCOs are grappling with the numerous challenges, while government is yet to solve the problems inherent in the transmission network, the backbone of the electricity sector.
Addressing journalists at a conference last week in Lagos, the Minister of Power, Prof. Chinedu Nebo, said that at least $1 billion will be required annually in transmission alone, in order to grow the national grid.
He said, “We have to have a stage-wise systematic development of the transmission infrastructure in Nigeria. The reason is there is no way you can get infrastructure for transmission to meet 170 million Nigerians. It has to grow. It is not something we have to do in one fell swoop.
“We need a minimum, I mean barest minimum of $1 billion every year in transmission alone, not even generation or distribution. This is in order to be able to grow the national grid to where after several years most Nigerians will be connected. But so far it is not possible.”
Nebo argued that the federal government is trying to stabilise the sector for now, which necessitated the injection of N213 billion for the generating and gas companies.
“The federal government is trying to stabilise the market by meeting the short falls accruing from privatisation.
We are remaining on a tariff regime that is not competitive enough, and a tariff regime that is not reflective enough to make sure that gas is paid for and all the power supplied are paid for.
“What the government is trying to do through the Central Bank is to stabilise the market. It is actually a loan that is given to the generation companies and the gas companies because of debts that are owed in the past.
So they will now have the impetus to invest the money in expanding their facilities in a way that Nigerians will benefit the more,” he said.
The Minister explained that the loan which has an interest rate of 10 per cent will be paid back in 10 years. As regards when the fund will be ready, he explained that it is ready.
“Oh it is ready. We want to sign off. We want every one of them to sign off. Within a week or two, we should. In fact, we were hoping that we do that later part of this week. There are one or two little things like dotting the I’s and crossing the T’s, and I believe it will be done very soon,” he added.
Since the coming into being of the GENCOs and DISCOs, the country’s electricity generation has only reached a two-year high of 4,044 megawatts, MW, out of the installed generation capacity of 6,000MW.
Encumbered by challenges
Why is Nigeria’s power sector still tottering after such enormous investments by successive governments?
Sweetcrude learnt that over time the sector had not been adequately funded, as most of the plants were built without taking into cognisance the issue of gas supply.
Reflecting on the challenges of Ikeja DISCO in the last one year, the Managing Director, Mr. Abiodun Ajifowobaje, told Sweetcrude that although his company is not abe to meet the expectations of Nigerians, gas supply has remained a hindrance to their operations.
He said, “What Nigerians expected after private take-over was 24-hours power supply; but that has not happened. The issue is that it will take time to correct the imbalances we inherited.
“The Federal Government is building power stations in several places, but the issue of availability of gas to power the stations is there.
“It is also just unfortunate that some “rascals” have seen vandalism of gas pipelines as their legitimate business. This is the major problem militating against power supply reliability.”
Ajifowobaje explained that Ikeja DISCO resorted to power rationing due to inadequate supply from the national grid, which has not augured well with their customers.
He argued, “Well, in the face of inadequate allocation, we have to ration power supply to our customers.
We resort to what we technically call load-shedding.
“Let me explain better; our daily maximum power demand is about 1,250MW, while what we have gotten between the day we took over and now, on the average is about 400MW.
What we have to put in place is a sustainable effective load management to ensure that there is equitable power allocation to all levels of our customers.”
Also the Director General, National Power Training Institute of Nigeria, NAPTIN, Mr. Reuben Okeke, said recently that gas supply from the Nigerian Gas Company, NGC, was not sufficient to meet the nation’s electricity supply need. NGC is a subsidiary of the Nigerian National Petroleum Corporation, NNPC.
He noted that gas supply shortage was delaying the activation of 224 distribution substations built by the Federal Government to boost electricity supply.
“Though the stations are ready to help move the country from its current 4, 500MW supply level to 20,000MW in the next few years, it has been impossible to achieve this feat due to gas shortage. Shortage of gas has stalled the various projects initiated by the government to wheel electricity into the national grid,” Okeke said.
Impact on companies
Gas shortage has not only hampered the operations of the GENCOs and DISCOs, it has equally taken its toll on companies operating in Nigeria.
For example, Dangote Cement Plc, arguably Nigeria’s biggest cement company, said that its first-half profit reduced by 11 percent as operating costs increased on gas supply challenges resulting in use of heavy oil for its plants.
“We appeal to the government to do something about the problems of gas and LPFO supply,” said Edwin Devakumar, Group Managing Director, Dangote Cement.
“If we don’t have power and fuel, businesses cannot survive.
If not resolved urgently, the situation will compound the problem of unemployment and insecurity in the country. It will impact on companies’ profitability. We have already lost about 10 per cent of our capacity and that means less cement in the market,” he said.
Sweetcrude also learnt that the cumulative cost of sales for the four major cement companies: Dangote Cement, Lafarge WAPCO, CCNN, and Ashaka Cement increased by eight percent in half-year 2014 to N120.17 billion, from N111.73 billion in the 2013 corresponding period.
The gas matrix
Nigeria, has gas reserves of more than 187 trillion cubic feet, most of which are flared. According to the Ministry of Petroleum Resources, at least $3 billion in revenue is lost annually due to gas flaring.
The prospects of building more gas infrastructure such as pipelines and plants have been thwarted by government’s control of the gas pricing mechanism, which made investors less willing to be involved in the sector in the past.
However, the government appears ready to tackle the issue. Recently, The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, announced an upward review of gas price from $1.50 per million cubic feet (mcf) to $2.50 per mcf, and an additional $0.80 fee as transport costs for new capacity.
She also said that gas prices are to be reviewed periodically based on United States inflation data.
According to the Minister, it is hoped that an increase in gas supply from 750 mscf to 1,120 mscf per day will boost production from its current 2,600/3,600 MW levels to 5,000MW by the end of 2014. But the situation is still far from reaching the target.
While the DISCOs and GENCOs are grappling with their numerous challenges, electricity consumers have continued to accuse them of insensitivity to their plights.
For example, consumers allege that they are being extorted monthly through estimated bills, exorbitant tariff and non-supply of meters, while electricity supply has not yet improved.
But their worries may not be solved in the nearest future, as the DISCOs apparently are more concerned about recouping their investments in the earliest possible time.
Recently, the Deputy Managing Director of Ibadan Electricity Distribution Company, IBEDC, Mr. John Darlington, said that the prepaid metering scheme was yet to kick-off for consumers under the network.
This is because the company is not yet convinced that the local technology deployed for its production is foolproof.
Darlington also noted that foreigners did not invest in the DISCOs due to the complicity that trailed government-labour relationship.
“We bought the distribution companies without doing due diligence because the union did not allow anybody to come into this company. But Nigerians took the risk. That is why there is no foreign investor in any of the DISCOs today,” he added.
Embedded generation as alternative
To ameliorate the daunting challenges encountered in the sector, the Chairman, Nigerian Electricity Regulatory Commission, NERC, Dr. Sam Amadi, advised state governments and corporate bodies to invest in embedded power generation.
This is a situation where a generator is directly connected to the distribution network. It consists of smaller or modular generators that use a variety of generation technologies such as solar, wind, biomass, diesel, fuel oil, crude oil and small hydro.
It is also a useful means of dedicating power to states and local governments, eligible customers and others.