Power
Buhari: Experts differ on power sector privatisation review
LAGOS-Power sector stakeholders have expressed divergent views about how the incoming administration of Maj.-Gen. Muhammadu Buhari (retd.) should handle the industry, especially the privatisation of key power assets.
While some call for a review of the privatisation of the power sector, others see it as unnecessary and uncalled for.
According to some of the experts, a review of the privatisation exercise is imperative because the supply of electricity across the country has not improved despite that the sector has been in private hands for more than 16 months.
Top industry stakeholders as well as operators in the sector, in separate interviews with our correspondent, said the aim of privatising the sector had not been met as the country was still struggling to generate 4,000 megawatts of electricity.
According to them, the projection before the sector was privatised was that by the end of 2014, Nigeria would have been generating over 10,000MW.
But official figures from the Federal Ministry of Power on Monday showed that the country’s peak generation as of April 12, 2015, was 3,263.6MW, while the energy sent out was 2,988.72MW.
The Chairman, Society of Exploration Geophysicists, Nigeria, and former Head of Exploration, Nigerian National Petroleum Corporation, Prof. Charles Ofoegbu, said despite the inauguration of completed power plants by the present administration, the sector had failed to deliver adequate electricity to the citizens.
He said, “The privatisation of the power sector needs to be reviewed. The incoming government needs to do this before it can get the issue of power supply right. We keep inaugurating power generating plants, but I had warned in the past that power supply would keep diminishing and we have discovered that we are not making progress but rather retrogressing in the sector.
“This is beginning to happen because we are getting shorter hours of power supply whereas we are inaugurating many distribution and generation firms.”
Ofoegbu argued that an adequate gas master plan was not implemented, a development that he noted had rubbished the privatisation exercise.
He said, “The reason for this is because we did not implement an adequate gas master plan. It has not been fully implemented and you are beginning to put in place generating points on a master plan that is not implemented. Gas supply is not there. We don’t have adequate gas supply. There are some power stations that we have in this country that don’t have pipes that take gas to them.
“Why should that be the case? Why should we not plan? Why should we not do the first thing first? Then you inaugurate these massive projects while there are no raw materials to power them.”
When contacted, the Chairman/Chief Executive Officer, Nigerian Electricity Regulatory Commission, Dr. Sam Amadi, told our correspondent that the incoming government would have to follow due process before it could review the privatised power sector.
Amadi said, “A government that comes into power has a responsibility of making policies.
“It can change policies, improve existing ones or can more vigorously pursue existing policies. So, through due process, the National Electric Power Policy, which also led to privatisation, can be reviewed by the incoming government to meet certain demands and improve the industry.”
Analysts at FBN Capital Research noted that addressing the power challenge was a priority for the incoming administration.
They said in a report, “One of the priorities for the new administration will be the power sector. The outgoing Federal Government broke up the former Power Holding Company of Nigeria, privatised its generation and distribution arms, and indicated that transmission could also have a future in the private sector (rather than under private management).
“Successful transformation of the sector could have proved a major vote-winner in the presidential elections but remains far off. South Africa offers a salutary lesson in the cost of neglecting the industry’s investment needs. It was often noted that it generated substantially more power (than Nigeria) for less than one third of the population.
“The new administration may care to look at the consistency of tariff policy. The National Electricity Regulatory Commission indicated in Abuja on March 16 that exchange rate weakness could well lead to a rise in the tariff from mid-year, yet announced a 50 per cent reduction the following day. The cut did not apply to residential users, who were granted a six-month reprieve from the increase imposed on commercial and industrial consumers with effect from January 1, 2015.”
The analysts also urged the incoming government to resolve the impasse which has prevented Geometric Power/Aba Power from starting production at its $500m generating plant in Umuahia, the capital of Abia State.
But the Chief Consulting Partner, Energy Services International Limited, Mr. Akin Bada, argued that the privatisation should not be reviewed; rather, the power sector should be enabled to deliver.
He said, “PHCN was sold to people who were adjudged to be the best buyers. It went through a long due process before it was sold. So, these buyers need to have the chance to take charge. They have not been given the chance to take charge.
“Secondly, there was no thorough due diligence on the PHCN assets because the workers there were at war with the Federal Government on the sale of the assets. During that period, none of the buyers could actually go in to assess what they were going to buy. So on getting there, they found a different thing and they must tackle these issues before things will work well.
“Also, in through last three or four months, every week we hear of the blowing up of gas pipelines, and gas is our major source of fuel to power plants. And when there is no gas, no energy will be sent. So, yes there are challenges but reviewing the whole thing by going back to the drawing board may not solve any problem. We have enough regulations and organs to take it to the next level. They should be enabled and not reviewing the exercise.”
The managing director of a power distribution company in the South West told our correspondent that reviewing the privatisation depended on what the incoming administration want to consider in the entire process.
The official, who spoke in confidence, said, “I don’t think a total review of the whole exercise will mean well for the sector. But reviewing some policies in the sector that will allow power firms to perform better will make a whole lot of sense.
“There are some issues that we often discuss with the regulator and such concerns can be looked into by the incoming government. So, it depends on how they wish to go about it.”
PUNCH-
According to reports, Nigeria’s population may face more challenging times ahead as electricity tariffs are projected to increase by over 40 percent in the near future.
This rise in tariffs could ultimately result in the elimination of all energy subsidies in the country.
Currently, the electricity sector relies on a monthly subsidy of approximately N50 billion, stemming from a shortfall in revenue.
The tariff hike, scheduled to take effect from July 1, will pose another significant test for President Bola Ahmed Tinubu’s administration and its ongoing market reforms.
The government has already taken steps to remove subsidies on Premium Motor Spirit (PMS) and implemented a floating exchange rate for the national currency.
These decisions have added complexity to the price-setting process of the Nigerian Electricity Regulatory Commission (NERC) and its 2022 Multi-Year Tariff Order (MYTO).
Despite power sector players failing to meet the target of supplying a minimum of 5,000 megawatts, even after signing contracts with the Nigerian Electricity Regulatory Commission (NERC), the current Service Based Tariff (SBT) is based on an exchange rate of N441/$ and an inflation rate of 16.97 percent.
According to NERC’s directives in 2015, the average tariff for distribution companies (DisCos) and different categories of end-users was N25 per kilowatt, as per Order 198/2020, which came into effect on September 1, 2020.
However, in the MYTO for 2022, the average tariff increased to N60 per kilowatt across all customer categories, and in the most recent update, it stands at N64 per kilowatt.
The determination of the 2015 tariff relied on a foreign exchange rate of N198.97/$, which increased to N383.80/$ in 2020 and further to N441.78/$ in 2022. In terms of inflation, the 2015 MYTO utilized an 8.3 percent rate, which rose to 12 percent in 2020 and reached 16.97 percent in 2022.
Currently, the inflation rate stands at 22.41 percent, and experts predict it could reach 30 percent by the end of June, considering the floating of the naira and the removal of subsidies on Premium Motor Spirit (PMS).
The tariff determination process takes into account various factors, including the significant metering gap of over seven million, gas prices, losses within the system, and the actual generation capacity. These elements play a role in determining the final tariff.
As anticipated, NERC had projected that the tariff for July 2023 would eliminate subsidies and introduce increases to the previously frozen tariff bands D and E.
These adjustments were intended to raise the bands from N54.59/kilowatt to N62.16 for band D and from N48.37/kilowatt to N61.16 on average. Moreover, the average increase across all bands was expected to reach N67/kilowatt.
However, due to the ongoing floating of the naira and the significant inflationary pressures, it is now projected that the new average tariff will need to be approximately N88/kilowatt for the power sector to recover its costs.
According to energy lawyer Madaki Ameh, the continuous and frequent increases in power tariffs are akin to a form of blackmail against electricity consumers.
Amen said “Indexing the cost of electricity on the dollar is a huge mistake because most of the inputs for electricity supply are local. The DisCos are also holding Nigerians to ransom by failing to increase the supply base, thereby spreading the tariffs across a broader spectrum of consumers to reduce the unit cost of electricity.”
He insisted that as long as there remain many unmetered consumers and many others not connected to the grid at all, the few consumers on the grid would continue to be subjected to unjust tariffs, which are not reflective of the quality of service delivered.
Ameh hoped that the signing into law of the new Electricity Act would mark “the beginning of light at the end of the long tunnel of inefficient and epileptic power supply in Nigeria.”
Segun Ajibola, the former President of the Chartered Institute of Bankers of Nigeria (CIBN) and a professor of Economics at Babcock University, highlighted that there remains a gap between the cost of electricity and the value it provides in exchange.
“Nigerians are still struggling to keep pace with the cost of energy for business and household use. If the electricity tariff goes up as envisaged, the question remains if there will be value for the quantum of electricity so paid for.
“The truth remains that if electricity supply is constant, of the right quantity and quality, the envisaged upward review in the tariff will be gladly absorbed by the populace,” he said.
Lanre Elatuyi, an Electricity Market Analyst, expressed that the recently implemented tariff rate would have significant implications. He emphasized that the devaluation of the Nigerian currency poses a major challenge for companies with dollar-denominated loans to repay.
He said “They will need more naira today to buy a dollar. They need to manage their exposure to foreign exchange risk. Even operators of hydro plants pay their concession fees in dollars. So, wholesale electricity price will be adjusted upward and this will get to the end users’ tariffs too.”
Senator Shehu Sani, a prominent Nigerian lawmaker has accused President Muhammadu Buhari’s government and state governors of secretly selling five power generating plants without disclosing the utilization of the funds received.
He disclosed this in his Twitter handle on Monday.
Senator Sani, known for his outspoken nature and activism expresses his concerns over the alleged undisclosed sale of the power plants.
He claimed that the government, in collaboration with state governors, had carried out the transactions without informing the Nigerian public about the purpose of the funds acquired from the sale.
The post reads “Buhari’s Government in collaboration with the State Governors quietly sold the five power generating plants without telling the country what the money was used for.
The Vice President of Nigeria, Prof. Yemi Osinbajo, has inaugurated the Afam 3 Fast Power 240-megawatt turbine project in Rivers State.
The project, which is a subsidiary of the Transcorp Group located in Oyigbo, on the outskirts of Port Harcourt in the state, was unveiled during a ceremony that took place on Tuesday.
The event, which was attended by several dignitaries, including the Chairman of Transcorp Group, Tony Elumelu, and other top officials, saw the Vice President arriving at the venue in a chopper at exactly 11:35 am.
Upon his arrival, he was escorted into the premises where he officially inaugurated the project.
During his speech at the event, he disclosed that the acquisition of the project was approved by the National Council on Privatisation (NCP) and the acquisition cost was ₦105.3 trillion.
Osinbajo further emphasized that the successful completion of the project is a significant breakthrough in Nigeria’s power sector.
In his address, Osinbajo said, “In 2020, electricity subsidies reached N584 billion, but service-based tariffs have led to a doubling of collection in the Nigeria Electricity Supply Industry from N40 billion in 2020 to N80 billion in the first quarter of 2023.
“If this trajectory continues, the Nigeria Electricity Supply Industry will be able to pay for itself. Our administration has also created programs for off-grid for electrification. Rural Electrification Agency now has the capacity to provide electricity supply on a first-class basis.
“We are on track to electrify all Nigerians in the next decade. However, we will not make progress if our gas supply does not improve. The gas supply challenges are hampering improvements.”
He further lauded General Electric, the National Council on Privatization (NCP), and the host communities for their contribution to the completion of the Afam 3 Fast Power 240-megawatt turbine project in Rivers State.
Osinbajo highlighted that the successful completion of the project will significantly increase the country’s power supply capacity, leading to a better quality of life for Nigerians.
In November 2020, the federal government and the Transcorp Power Consortium signed a share sale and purchase agreement in relation to Afam Power Plc and Afam 3 Fast Power Limited.
The National Council on Privatization approved the privatization of the Afam Power Plant back in August 2017, which triggered a competitive bidding process involving 12 prospective investors.
After careful consideration, Transcorp Power Consortium emerged as the preferred bidder with a combined offer of N105 billion.
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