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Posted by on Apr 28, 2014 in Happenings in Power | 3 comments

Introduction To The Nigerian Power Industry I

Introduction To The Nigerian Power Industry I

We discussed generation, transmission and distribution in How Does Power Generation/ Transmission/ Distribution Work? blogpost.

This post is the first part of a series on the Nigerian power industry.

The Power Situation Wasn’t Messed Up In A Day

The rule of thumb for any developed industrial nation is that at least 1 gigawatt (i.e. 1,000MW) of electricity generation and consumption is required for every 1 million head of population. Nigeria has a population of 160million, ergo 160,000MW is needed. Nigeria’s public plants generate below 4,000MW at the moment.

Over the past few years decades, the annual average generation stood at 3,000 MW or less. Successive governments – for political reasons et al – couldn’t resist the pressure to keep running the machines and eventually run them into the ground. This, in part, is responsible for poor equipment maintenance and highly erratic and unpredictable patterns of power generation.

Source: Ministry of Power

In 2001, the Federal Government finally realised that having underfunded the power sector for decades, involving the private sector was the way forward for the sector to improve operational efficiency, attract new investment and offer better service delivery.1

This birthed the power reform.

Power Reform

The FG decided to fix the power sector and adopted the National Electric Power Policy in 2001 for the Nigerian Electricity Supply Industry. The Electric Power Sector Reform Act [EPSRA] was passed into law in 2005. The Presidential Action Committee on Power and the Presidential Task Force on Power were set up to oversee the reform. They had a target of 40,000MW for 2020. Nigerian Integrated Power Plants [NIPP] projects were undertaken managed by the Niger Delta Power Holding Company Limited (NDPHC).

Key Features of The Reform To Attract To Private Sector Investment

  • The Multiyear Tariff Order (MYTO): Methodology for setting cost reflective tariffs that allows a good return on investment
  • Nigerian Bulk Electricity Trading Company (NBET): The NBET will buy electricity from power generation companies on behalf of the distribution companies.
  • Power Purchase Agreements (PPA): The NBETC will negotiate Power Purchase Agreements with the state-owned power generation companies that are slated for privatisation, the NIPPs, existing and new independent power producers.
  • Credit Enhancement & Risk Guarantee: The Federal Ministry of Finance will back the NBET with credit enhancement instruments.
  • Nigerian Electricity Liability Management Company (NELMCO): Will assume non-operating assets and liabilities of the PHCN and its successor companies. The NELMCO allowed the successor companies to be sold with minimum liabilities.
  • Gas Supply Agreement: World Bank Partial Risk Guarantee for existing and proposed Gas Supply Agreements.
  • Contracting out the management of the TCN: signing a contract with a private company which has both the requisite project management and technical expertise.
  • Strengthening the Nigerian Electricity Regulatory Commission: NERC will regulate the sector and provide confidence that a level playing field will subsist and that rules will be followed and enforced.1

Above is a timeline of the Power Reform activities.

Privatisation

1st of November 2013 was a pivotal day for the reform because the privatised DisCos (10) and GenCos (4) were handed over to private investors. This was in addition to the 3-year contract signed with MHI to manage the TCN in July 2012.

GenCos:

The generation companies privatised are:

Power Plant Capacity [MW] Private Investor State
Shiroro 600 North-South Power Company Niger
Kainji 760 Mainstream Energy Solutions Ltd Niger
Geregu [NIPP] 434 Amperion Power Distribution Kogi
Ughelli 1000 Transcorp Ughelli Power Ltd Delta
Egbin 1320 KERL Lagos
Omotosho Phase 1 335 CMEC/Pacific Energy Ondo
Olorunsogo Phase 1 335 SEPCO/Pacific Energy Ogun

$1.077bn was received from the core investors by 21st August, 2013 payment deadline date for equity stakes ranging between 51% and 100% in 4 GenCos (Egbin, Geregu, Kainji and Ughelli). The core investors for the 5th Genco (Shiroro) completed its $111.6m payment a few days late and were ordered to pay a late penalty.4

The newly completed Olorunsogo and Omotosho plants were sold to  the Chinese contractor that built them via debt for equity swaps at valuations of $177.3m and $217.5m respectively.

DisCos:

The distribution companies privatised are:

Distribution Company Private Investor States Covered
Abuja KANN Consortium Utility FCT, Niger, Kogi , and Nassarawa
Benin Vigeo Power Consortium Edo, Delta, Ondo, and part of Ekiti
Eko West Power & Gas Lagos
Enugu Interstate Electrics Ltd Enugu, Abia, Imo , Anambra and Ebonyi
Ibadan Integrated Energy Distribution & Marketing Ltd Oyo, Ogun, Osun, Kwara and part of Ekiti
Ikeja NEDC/KEPCO Consortium Lagos
Jos Aura Energy Ltd Plateau, Bauchi, Benue and Gombe
Kaduna Privatisation in Progress Kaduna, Sokoto, Kebbi and Zamfara
Kano Sahelian Power SPV Ltd Kano, Jigawa and Katsina
Port Harcourt 4 Power Consortium Rivers, Cross River, Bayelsa and Akwa Ibom
Yola Integrated Energy Distribution & Marketing Ltd Yola, Adamawa, Borno, Taraba and Yobe

By the payment deadline of 21 August, 2013, private sector core investors had paid a total of $1.130 bn for 60% equity controlling stakes in nine Discos. The core investors for the 10th Disco (Enugu) paid their $126m late and were ordered to pay a late penalty.4

Regulation

The Nigerian Electricity Regulatory Commission (NERC) is tasked with regulating the Nigerian Electricity Supply Industry, comprising the Generation, Transmission and Distribution sectors.

We explain how the privatization exercise affects every one of us in Now That Power Is Privatised….

We will discuss the components, capacities and other relevant figures of the Nigerian Power Industry in a latter post titled Current Status of The Nigerian Power Sector.

Sources:

1.       Roadmap Power Sector Reform Document

2.       Opportunities For Investors In Nigeria’s Power Sector: Presidential Retreat For Power Sector Investors

3. Multi -Year Tariff Order For The Determination Of The Cost Of Electricity Sold By Distribution/Retail Companies For The Period 1 June 2012 To 31 May 2017 – Nigerian Electricity Regulatory Commission 1 June, 2012

4.       http://www.vanguardngr.com/2013/10/privatisation-phcn-next-atedo-peterside/

3 Comments

  1. There can never be a developed economy without a developed power sector. We have a very long way to go in order to Generate, Transmit and Distribute enough power to meet the country requirement for domestic and industrial utilization.

  2. Informative & educative piece. I hope for the transformation of the power sector in good time.

  3. Excellent piece! Looking forward to the next instalment.

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