November 1st, 2013 came with the promise of a new dawn in the Nigerian Electricity Sector. With the handing over of the privatized Distribution and Generation utility companies to the successful bidders, Nigerians in general expected that the light at the end of the tunnel was near. The days of constant outages and poor services were seemingly put behind us, and it was time for these newly minted utilities to roll up their sleeves and get to work on ensuring a stable and reliable electricity sector for the country.
November 2020 and seven years post-privatization, the reviews are mixed and significantly skewed towards the poor underperformance of these utilities in the provision of services for which they were privatized. While the general expectations of Nigerians are valid, the electricity sector is not a wrinkled shirt that can be ironed out with 2 minutes. The problems experienced pre-privatization are very much still the same with little or no change in site.
The key issues that continue to hold the sector to ransom can be summarized as follows:
Regulatory inconsistencies – running a business for profit must comply with the provisions of specific internal and external regulations. The Nigerian electricity sector is regulated by the Nigerian Electricity Regulatory Commission (NERC). There are key industry contracts that must be executed to run a contract-based electricity market in which irregularities and defaults can be checked and adequately dealt with according to the contract stipulations. In the Nigerian electricity sector, this is not the case; key industry agreements such as the Power Purchase Agreements (PPA) are not yet executed seven years post-privatization. Other inconsistencies include the tariff review provisions which states that the Commission will carry out a Minor and Major review of existing tariff every six months for the former and five years for the latter. These inconsistencies ensure that industry participants are not accountable for the failure to follow laid down rules and make it almost impossible to ensure a viable electricity market.
Tariff
Tariffs ensure that a business can be run in a manner that allows the business to deliver the needed service while also allowing a reasonable return on the investment for investors. The Nigerian electricity market, despite various concerns raised by the investors, continues to operate with a non-cost reflective tariff. Before the privatization of these assets, investors were promised that a cost-reflective tariff would be approved for the sector. That has not been the case as the political will to implement a tariff that is commensurate with the actual cost of electricity in Nigeria is lacking. Economic factors such as inflation, foreign exchange rates, gas pricing etc. have driven up the cost of supplying electricity. The implications of a non-cost reflective tariff are far-reaching and affect every component of the electricity sectors’ value chain.
Lack of Funding
The sector is suffering from a critical shortage of required funding. With the failure to approve a cost-reflective tariff and the regulatory inconsistencies, securing funding from financial institutions have become almost impossible. The liquidity crisis in the sector has led to transmission inefficiency form the Transmission Company of Nigeria (TCN). The TCN, unlike other assets, was not privatized and remained under the control of the government. The government has a hard time keeping to its funding obligation for TCN. Without a functional and reliable transmission grid system, the entire sector is under the threat of a complete shutdown. In addition to this, the sector is crippling under the weight of debt. The Distribution Companies are dealing with collection losses, Ministries, Departments and Agencies of the Federal Government owe the DisCos, and this has meant that the Generation Companies do not get paid in full etc. All these issues have affected the sector the improvement of services by the sector participants.
While there have been a few gains the past seven years such as; the increase in generation from 4500MW to the current 5,459.50MW; increased commitment to off-grid electricity access for both rural and urban areas; and intervention programs by the FG to reduce the strain on the sector, more needs to be done to improve service delivery and accountability to foster a viable and robust electricity sector.