Cover Story
Fashola; hobble by Sango…, Power sector reform in danger
By AYOOLA OLAOLUWA
Barely three years after the reform of the power sector by the administration of former President Goodluck Jonathan, the euphoria that greeted the privatization move adjudged to be one of the boldest power reform initiatives internationally, has turned to despair among Nigerians. Whereas the government and electricity power firms daily promise improved power supply, the reality is sadly grim. Homes and businesses across the country have continued to suffer power blackouts.
At their peak in February 2016, the nation’s electricity generating plants generated 5,074.7MW as well as the highest maximum daily energy of 109,372 megawatts Hour (MWH), despite their total installed capacity of 12, 000MW. Business Hallmark finding revealed that despite government and power operators’ explanations and assurances, the problem might persist for a long time.
According to BH findings, several system inefficiencies, such as incessant gas pipeline vandalism, lack of expertise, gas pricing, energy pricing, inadequate funding, weak transmission infrastructure and many other are to blame for the continuous blackout.
GAS
The biggest challenge the power sector is facing is the availability of gas to power thermal plants. Since electricity is highly subsidised in Nigeria, The federal government has consistently compelled gas producers to sell their gas to power plants at prices much lower than the international going rates. While oil companies that operates in the country exports gas at over $4 per cubic feet, the federal government mandate them to sell at $2.50 and allows for 80 cents transportation, which came to $3.30. Before the advent of the present administration, gas was made available to local power plants at the rate of $1.30 per cubic feet.
In November 2014, the former Minister of Power, Prof. Chinedu, Nebo stated that Nigeria was losing over 60 percent of its installed gas-fired capacity due to the lack of gas. He declared that while 1.9 billion cubic feet of gas was needed per day to power the country’s total capacity, the gas plants were only able to produce approximately 900 million cubic feet per day.
Some industry experts also believe that the federal government’s pricing regime for gas-to-power is responsible for some of Nigeria’s gas pipeline vandalism issues. They alleged that gas production companies have more incentive to vandalise their pipelines to the power sector in order to increase the gas volumes they sell to their industrial consumers who pay almost three times more per unit volume of gas
These developments, according to a source in the petroleum industry, forced gas-producing firms to liquefy the available stocks and export it to Europe and America for more profits.
“Gas production for local use was low because the price was not right. Local gas use was selling at $2.50 and for export it was $4. If you were producing gas, where would you sell it? “Also because of this, gas production in Nigeria has not expanded at the required rates. Oil and gas firms are not adequately funding gas exploration because of fixed price. We need to raise price to get more gas to our idle power plants”, he said.
PIPELINE VANDALISM
Another problem that is to blame for Nigeria’s thermal plants not performing to capacity is pipeline vandalism. Pipelines, used to convey gas to power plants, until recently are frequently vandalised by militants and vandals. The Minister of Power, Babatunde Fashola, recently said that the vandalism of the Excravos-Lagos pipeline cost N470 million in losses per day across the entire power sector supply chain.
There is hope however for a stable supply of gas to power plants, as the peace initiative of the government with Niger Delta leaders seems to be bearing fruit. Pipeline vandalism, according to the Nigerian National Petroleum Corporation (NNPC) has reduced by over 80 percent.
WEAK TRANSMISSION INFRASTRUCTURE
According to BH findings, over 70 per cent of electricity generated cannot be evacuated to the grid system on account of weak transmission lines. It was gathered that TCN is plagued with high non-technical loss and low infrastructure coverage of the country. Less than 40 per cent of the country is covered by the existing transmission infrastructure.
The Transmission Company of Nigeria (TCN), based on information on its website, has transmission capability of about 6GW. It said Nigeria’s transmission infrastructure is made of approximately 6,680km of 330KV lines, 7,780km of 132KV lines, 330/132KV substations with installed transformation capacity of 10,166MVA and 132/32/11KV substations with installed transformation capacity of 11,660MVA.
The TCN also stated that going by its project schedules, a total of 2,650km of 330KV and 7,101km of 132KV transmission lines and 2,850MVA of 330/132KV and also 2,900MVA of 132/33KV transformation capacity will be added to the network in the next two years.
“In addition, there are ongoing reinforcements of existing 330KV and 132KV lines and substations to enable the efficient wheeling of more electricity across Nigeria”, it said.
But in reality, while the generating companies have a total installed capacity of over 12, 000mw, ageing and weak transmission infrastructure makes the evacuation of 6,000MW impossible.
The Managing Director of Nigeria’s biggest electricity generating firm, Egbin Power Plc, Mr. Dallas Peavey, had in March, expressed frustration that his firm is constrained and limited to generate about 350MW daily due to TCN’s system operations’ constraints and inadequate gas supply issues.
“We have attained 1,100 megawatts (MW) out of the installed capacity of 1,320MW, but the grid system constantly rejects power. Sometimes, when you get good news from TCN that you can increase your generation, we will be confronted with gas shortage and when there is gas, you have TCN issues. The situation is that bad,” he said.
An energy consultant and the CEO of New Hampshire Capital Limited, Mr. Odion Omonfoman, in his reaction, said that the existing transmission infrastructure and its operation is the weakest link in the electricity value chain. He explained that transmission is responsible for many instances of stranded generation, thus the improvement of its operational performance and efficiency remains fundamental to the attainment of stable and reliable power to all Nigerians.
Omonfoman listed some of the broad challenges facing TCN to include radial lines with no redundancies, obsolete substation equipment, overloaded transmission lines and substations, inadequate coverage of transmission infrastructure, as well as weak infrastructure to evacuate existing generation and serve Discos’ load demand as and where required.
Debt profile of the Discos
Another challenge hobbling the power sector is the rising debt profile of distribution companies (Discos). According to the Nigerian Bulk Electricity Trading Plc (NBET), invoices from the 22 power generation plants for September 2016 alone, totalled N36.49 billion, while payment to them based on receipt from the Discos was N8.99 billion, representing 24.64 per cent.
The 11 electricity distribution companies (Discos) in the country, while corroborating the huge debt owed them, claimed that the revenue shortfall in the market has reached N809.8 billion. Speaking through their trade association, the Association of Nigerian Electricity Distributors (ANED), the Discos claimed that the amount covers from November 1, 2013 when the new owners of power companies took over to date includes. The Director of Research and Advocacy of the association, Mr. Sunday Oduntan, said that Egbin alone is being owed over N110 billion for electricity generated, a development that has forced the company to threaten to shut down its operations.
However, the Transmission Company of Nigeria (TCN) put the blame on the Discos, claiming that it gets only 30 percent remittances on monthly invoices from the Discos.
“The low revenue collection affects transmissions as well as gas plants. All these are parts of the issues affecting the sector at one point or the other,” said the General Manager in charge of Transmission at TCN, Bede Opara, Discos.
All the power firms are also massively indebted to financial institutions. A report by Lagos-based CSL Stockbrokers Limited titled: “Banks and Power Sector Exposure,” obtained by BH, showed that the total power sector exposure of eight banks namely: FBN Holdings Plc, Zenith Bank Plc, United Bank for Africa Plc (UBA), Guaranty Trust Bank Plc (GTBank), Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc and Skye Bank Plc stood at N402 billion ($1.3 billion) in their full year 2015 financial results.
Energy pricing
Another problem bedevilling the power sector is the issue of inappropriate pricing. According to industry experts, the current Multi Year Tariff Order put together by the Nigerian Electricity Regulatory Commission (NERC) is not cost reflective. Currently, the average rate paid as energy charge by residential consumers across the country is N22.8/KWH, but the Discos are threatening to increase tariff, or that the government should come in with a subsidy package.
The Chief Executive Officer, Association of Nigerian Electricity Distributors (ANED), Mr. Azu Obiaya, in his reaction, said that to avert an increase of over 200 per cent in electricity tariff payable by residential consumers in the near future, the federal government had to intervene in the sector. He explained that the government’s intervention was vital in order to address the N809bn revenue shortfall in the industry, insisting that it was impossible to expect Discos, which buy power at N68 per kilowatt (kw) to sell to at not more that N31/kw and still make enough money to keep the sector liquid.
“Discos are not willing and could not impose any increase in tariff on consumers, but to avoid a situation where the consumers would have to pay as high as N70 to N105 per kilowatt-hour as energy charge, the federal government must do something.
“The intervention could come in form of subsidy to consumers, access to foreign exchange by the companies, as well as commercial reasonable financing for the Discos”, he said.
Lack of capacity
Industry watchers also told BH that one of the problems of the power sector is that players in the electricity supply chain, the GENCOs, Transmission Company of Nigeria (TCN) and Discos lack the required capacity needed to play their respective roles effectively.
“It is disturbing that while some of the generation companies, especially those that rely on gas for their turbines, continue to lament their inability to meet consumer’s expectations due to incessant vandalism of gas pipelines, the distribution companies are not willing to invest in modern infrastructure to reduce power loss.
“The federal government should have done due diligence before selling the companies to the owners who seems to lack the necessary tools to do business, such as capital and expertise. The general consensus is that those power assets were sold to cronies of the past regime”, declared Engineer Toba Adewolu.
