POWER SECTOR REFORMS IN NIGERIA – Likely Effects on Power Reliability and Stability in Nigeria.

Navigation: Main page » Engineering Articles

 Print this page Submit articleComment article

Author: Adoghe A.U.

I. INTRODUCTION

The reform that is taking place in the Electricity sector is increasing rapidly and the nature of the reforms that are being adopted is becoming more sophisticated. Many large Countries like China and very small countries like Bolivia have adopted earlier reform models according to there own needs and circumstances. Both developed and developing countries have embarked on a program of liberalizing and reforming their power sectors. A number of authors have described the principle driving forces behind the need for the reform movement [1].

Some of the reasons include the following:

• The poor performance of the state - run electricity sector in terms of high cost, inadequate expansion of access to electricity services for the population, and /or unreliable supply.

• The inability of the state -owned sector to finance the needed expenditures on new investment.

In many countries in Africa especially some West African countries, all these factors have been present at the same time with the exception of some developed countries. Although, some state-owned utilities have performed well, there was awareness during the 1980s that a lengthy period of state ownership, without the forces of competition or the incentives of the profit motive to improve performance, will eventually result in excessive costs, low services quality, poor investment decisions and lack of sensitivity in supplying customers. Rapid changes in technology have occurred in both the generation of electricity and in the computing systems used to meter and dispatch power. These changes have made new industrial structures possible, and state utilities have been too slow in adopting these modern changes. The private sector offers many new approaches to providing power at lower cost, especially to consumers with low levels of demand through innovations in customer service and cost recovery mechanisms. The desirability of reforms focuses on the consequences of the unsatisfactory performance of the economy or sector for those who have political influence e.g failure to provide rural electrification would be seen as undesirable by large number of rural dwellers in many developing countries. These groups are usually weak politically and unable to persuade the government to change policies at the energy sector level. The picture is more complex as poor macroeconomic performance may indeed persuade the government to undergo sector reforms. However, for reform to be embraced, it is likely that the sector itself would need to be underperforming in some crucial ways-both in terms of the delivery of energy to important groups of users and in terms of its financial claims on government. A utility that can provide electrical energy to customers on demand at reasonable price is not likely to be seen as a high priority for reform, unless the motivation is solely to solve a short-term problem of public finances through the asset sale (as partially the case in United Kingdom) [2]

Power outages are the most dramatic instances the consuming public will see to make them whole heartedly embrace reforms. This is as a result of the high costs of alternative supply for those who rely on the public supply of electricity. Quality and reliable service can also deteriorate and have adverse impact on users. This failure may be associated with low operating efficiency caused by lack of maintenance, wilful damage on power installations and lack of strategic planning on the part of management. It could also be associated with lack of investment caused by financial restriction. The inability of state utility to finance new and needed investment is often compounded by poor public sector price or tariff setting which does not allow the sate owned utilities to recoup all its investments, as well as by inefficiency in collecting all the revenue due it. Hence, a strong hypothesis is that reform is more likely where there are obvious problems of shortage of supply, which give rise to frequent outages and less likely where there is excess generation capacity, making financial investment less important. This paper describes the Nigerian case and examines the possible effects of power sector reforms on the stability of power delivery to the consumer.

II. NEPA PERFORMANCE BEFORE THE REFORMS

Since 1972 till early part of 2006, Electricity production and supply in Nigeria has been a monopoly of the federal owned Electric utility body known as National Electric Power Authority (NEPA). This utility was charged with the responsibility for the generation, transmission, distribution and sale of electricity to customers and was run as a vertically integrated company. Lack of adequate funding and managerial strategies resulted in the steady decline in the performance of the utility. The table 1 showing the generated and the peak demand from 1983 till 2003 illustrates graphically the poor state of the National Power Supply System. In 1993, for example, the energy generated was 1,669 MW. The country leadership then, did not see any need to invest in the power sector. Between 1981 and 1985, during the fourth National Development plan, there was oil boom and power demand growth rate was over 10%. The rapid growth rate makes it difficult for the installed capacity to cope with the load requirement of both residential and industrial consumers. This is shown in table 2. Load shedding which affected the domestic life as well as the manufacturing activities of the industrial sector of the economy resulted from this rapid growth. Figure 1 illustrates this fact graphically. For logistic and financial reasons, electricity plants are not adequately maintained. In some cases, where maintenance is attempted, reliability centred maintenance procedure is not adopted. Thus, actual average MW power availability is in most cases less than half of the installed capacity. This state is vividly shown in table 3. From 1985-1999, the performance in the power sector with respect to generation and the power available to the consumers had been on the downward trend. The transmission and distribution networks were no better as the infrastructures on ground were far too inadequate to meet the demands of the system. On the other hand, there had been a steady increase in the demand for electrical energy for this same period as shown in table 1. It was therefore not surprising that by 1999 when the immediate past civilian administration came on board, one of the key thrusts of the government is economic reform strategy which was to ensure the complete overhaul of the power sector leading to the setting up of a working group [3] specifically focusing on the adoption of the National Electric Power Policy which defined the frame-work for the power sector reform in Nigeria.

The immediate past administration decided to tackle the Nation's power supply problems in order to ensure uninterrupted power supply within three years without first studying the problems in the NEPA establishment. This led to huge financial investment on the upgrading of the generating capacity. There was however no corresponding investment on the transmission and distribution networks. This investment actually showed a positive growth in the available power generated in 1999 (as seen in figure 1). These positive growths do not reflect on the consumers since the transmission and distribution infrastructures on ground could not cope with the increase in the power generated. This can be seen clearly when one of the distribution components was observed closely for one year as shown in table 3. The three transformers feeding Benin City and environs are shown with their rating and the percentage MVA loading in the table. The percentage MVA loading in some cases were more than 100% as shown in the table. This shows that, even if generation is doubled, the power that will be available to the consumers will still be limited by the installed capacity of the distribution transformers, associated transmission lines as well as the available circuit breakers if they are not upgraded. Another factor which was not properly considered before the huge investment was the inadequate manpower in NEPA (Managerial and Technical Personnel). NEPA did not have sufficient indigenous manpower to deal with the sophistication in a modern energy and power industry. This situation is compounded by the politicisation of key positions under the cover of federal character and geographical representation syndrome. This is also coupled with our over-dependence on overseas manufacturers for the supply of power plant equipment, facilities and spare parts. These hindered the efforts of NEPA to reduce Mean Time to Repair (MTTR) and ensure uninterrupted power supply. The immediate past administration had spent huge amount of money to boost electricity generation in the country. As a matter of fact in February 2007, the Federal Government of Nigeria awarded 43 power generation contracts under the National Integrated Power Project (NIPP) at the cost of about N105 billion for the execution of 287 projects across the country[4].

III. THE NEED FOR POWER REFORMS

The need for power sector reform has been on the public agenda in Africa for more than a decade in an effort to improve the technical, commercial and financial performance of state owned utilities, boost sector cash flow, facilitate mobilization of resources for capital investment on commercial basis, thereby releasing funds for other investments and extend access to electricity to both urban and rural communities. Many countries in Africa had before now adopted plans to reform the power sector of their state-owned electricity utilities as a result of the reasons stated. Power sector reforms have started in some African countries like Ghana, Mali, Namibia, South Africa, Tanzania and Uganda. [5] The reform has conventionally begun with an initial stage of commercialization and corporatization of state-owned utilities, which is followed by their unbundling and introduction of competition when private sector participation is allowed. Although many countries have begun this reform process, no African country has completed the transition to a fully unbundled, competitive, and private electricity sector, with exception of Uganda that had successfully unbundled its utility. [5] Some may have introduced limited competition for the market by allowing bids by Independent Power Producers (IPPS), but none have succeeded in developing competition in the market through a competitive power market at the distribution level. However private sector participation is now present in form of IPP in some African countries like Ghana, South Africa, Tanzania and Nigeria. All countries in the continent of Africa that have undertaken power sector reform have established electricity regulators with various level of success

IV. THE EXTENT OF THE REFORMS IN NIGERIA

The reform in Nigeria had so far led to the corporatization and unbundling of the state owned Utility, now known as the Power Holding Company of Nigeria (PHCN). The unbundling had led to the establishment of 18 successor companies from PHCN comprising six Generation Companies, one Transmission Company and 11 Distribution Companies. The sector has also been deregulated leading to private sector participation in the generation sector and a number of IPPs are in operation in the country today. Each of the 18 companies has its own management, is self accounting and not dependent on government. The Bureau for Public Enterprise (BPE) is now preparing each of these companies for privatisation. The Nigerian Electricity Regulatory commission (NERC) had also been established in line with the Reform programmes. The Goals of NERC: NERC was established under the Nigerian Electric Power Sector Reform Act, and was passed into law in March 2005. It effectively took off on October 31, 2005, after the inauguration of its seven full time commissioners. NERC which was set up as an Independent and self-funding sector regulator is expected to perform the following primary functions.

• Ensure orderly development of a competitive power market.

• Ensure efficient, safe and adequate production of electricity.

• Promote competitive and private sector participation

• Protect consumers and the public interest

• Evolve standard and codes that measure with international best practice.

• Evolve stable and equitable rates thereby ensuring reasonable profit

• License and regulate persons engaged in Electricity business • Settle disputes amongst industry participants.

• Ensure expansion of access to rural and urban dwellers.

• Establish and administer the power consumer Assistance fund for subsidising under privileged consumers. [6 ]

V. LIKELY EFFECTS ON QUALITYAND RELIABILITY OF ELECTRICITY SUPPLY

Improving the quality and reliability of Electricity supply was a major factor driving some of the reform programs in Africa. Instability in the power sector, negatively affects the domestic and economic lives of the people. Individual and organisations are forced to invest on expensive backup systems. In addition, reliable service can reduce costs; improve efficiency and stimulate growth for small business that rely on electricity which can have a huge impact on the lives of rural and urban dwellers by creating jobs. Introducing private sector participation can greatly improve quality, efficiency and ensure reliability in power supply. Power sector reforms will, in the long term, affect the quality of power in Africa through special customer service arrangements. New prepayment method when introduced will allow people to choose and monitor how much they wish to spend on electricity each month. Potentially the most far reaching impact of power sector reform is on the facilitation of economic development by creating a reliable and affordable electricity supply for power industries and small businesses. Although power reform may lead to the removal of many cross-subsidies and hence increase the price of electricity for small businesses and domestic consumers, stable and reliable electricity that is always available may reduce operational costs. There will be no need for individuals or organisations to invest on costly backup systems. New businesses can now be established in welding, sewing, ice making, battery charging and telecommunications. Reforms have the potential to affect access levels in many ways. Improving the efficiency and financial soundness of the power sector, reforms can attract new investors or free up government resources to be used in expanding access provided there is an effective demand. Power sector reforms will however; introduce market-driven private sector participation that may encourage utilities to focus on providing electricity to communities that are viable and profitable.

Power quality and reliability Utilities in Nigeria do not publish standard performance statistics, as they would reveal how far they are behind acceptable norms. Standard metrics include (1) SAIFI (System Average Interruption Frequency Index), the average number of Interruptions experienced by customers per year, (2) SAIDI (System Average Interruption Duration Index), the average number of interruption minutes experienced by customers per year, or (3) CAIDI (Customer Average Interruption Duration Index), the average duration of an interruption, equal to SAIDI divided by SAIFI. The US for instance had averages of SAIFI equals 1. In addition to lack of supply, the quality of the supplied power is also quite lacking. Even the standards themselves are outdated, based on the Nigerian Electricity Acts. Voltage for low-voltage (retail) consumers is allowed to deviate by 6% while the frequency is allowed to deviate by 3%. In practice, the voltage can fall by much more than 20%, especially for long rural feeders, while the frequency can dip by more than 4%. Also, the frequency often goes over the rated at night or off-peak periods, indicating very poor grid discipline and management. To maintain the quality of power supply as well as grid discipline, NERC should include a means of making both the generating and distributing companies publish their standard performance statistics. This will ensure that standards are maintained by all the participating companies. This will reduce the losses due to frequent distribution transformer breakdowns and associated lack of supply.[7] Reforms do not adequately address the issues of access and affordability, especially considering private companies entering the field. NERC should ensure that policy is formulated to allay this fear.

VI. CONCLUSION

With the establishment of the Nigerian Electricity Regulatory Commission (NERC), the reform of the Power Sector in Nigeria has indeed become a reality. Nigeria with its enormous potentials, high power demand and rapid economic growth remains a green field full of potentials for would-be investors in the power sector. NERC is mindful of the onerous responsibilities placed on it to revamp the ailing power sector, and the development of its licensing framework was formulated with this responsibility in mind. NERC will, in its initial years of operation, endeavour to make a positive impact on the general populace, industry participants, potential investors and consumers. Power sector reform will improve the stability of electricity supply, improve cost recovery, and increase the availability of investment capital. To improve cost recovery and the financial health of utility systems in developing countries, there is increasing pressure to price electricity at its marginal cost and allow independent power producers (IPPs) to sell power to the grid. Several models of regulation have also emerged through the reforms, ranging from independent commissions that conduct a broad range of planning and regulatory functions to bodies within government that primarily manage generation dispatch and fix tariffs. Reforms have also affected the quality of power in Africa through special customer service arrangements. New prepayment methods have allowed poor people to choose and monitor how much they wish to spend on electricity each month. [8]

REFERENCE:

[1]. Bacon R. W. (1995) Privatization and Reform in the Global Electricity Supply Industry. In Annual Review: Energy and the Environment. 20: 119-43 [2] Kuale, P.A., Tsado Jacob. (2006) "Optimization approach to independent power production" JEEE, Vol.10, NO.1 Page 1-10. [3] Lewis Asubiojo, (2007) "The Guardian Newspapers" Feb. 2007, pp 09. [4]. Campos, J. E., Salehi- Esfahani, H. (1996) "Why and when do governments initiate public enterprise reform", 1996, The World Bank Economic Review 10: pp 451-85. [5] Ifey Ikeonu, [2006] "The Nigerian Electric power sector Reform: Establishing an effective licensing Framework as a tool for attracting investment. [6]. Haggard, S., Webb, S. B, [1993] "What do we know about the political economy of economic policy reform" World Bank Research Observer 8, pp 143-68 [7]. ]. Richard Tongia, [2003] "Indian Power Sector Reform Studies" Stanford-CMU. [8] NEPA, (2003) "Annual Report" Published by Generation and Transmission Headquarters, Oshogbo.