JOLTS TO THE SYSTEM

Nigeria 2015 | ENERGY | FOCUS: POWER SECTOR PRIVATIZATION

In its efforts to ensure a stable power supply that could enable further growth of the economy, Nigeria's government has embarked on a privatization process of epic proportions.

As Nigeria is plagued by daily black outs, as a result of which a stable power supply for Africa's largest economy is one of the spearheads of President Goodluck Jonathan's national Transformation Agenda. To achieve a targeted capacity of 20,000 MW by 2020, the Jonathan Administration set out to strengthen the campaign instigated by previous administrations to privatize Nigeria's defunct power sector that currently produces fewer than 4,000 MW.

After years of governmental mismanagement, privatizing Nigeria's power sector was seen as the only cure for a sector that had fallen victim to a myriad of problems, such as limited access to power and power shortages resulting from insufficient generation and distribution. In 2006, the functions, assets, liabilities and employees of the National Electric Power Authority, which monopolistically controlled the entire power sector spectrum from power generation to transmission to distribution, were taken over by the Power Holding Company of Nigeria (PHCN). The Holding Company was subsequently unbundled into a single transmission company, six generation companies, and eleven distribution companies, with the latter two segments slated for privatization, while the former was to stay in the hands of the Federal Government.

Benjamin Ezra Dikki, as Director General of the Bureau of Public Enterprises the responsible executive for the privatization process, notes that, “the main objective of the unbundling of PHCN was to foster competition. It was critical to ensure full revenue collection in the value chain as failure to do so would leave the sector with no chance of survival." To this end, the Nigerian Bulk Electricity Trading (NBET) was created to minimize the risk of power losses in transmission and distribution by signing power-purchase agreements with the generation companies and independent power plants. As Dikki points out, “the aim was to avoid disincentivizing power generating companies from investing in the power generation sector. NBET basically guarantees that whatever amount of power a company generates is bought and paid for in full." It is expected that this guarantee will attract additional investment in the sector.

Investors were given additional assurances through the implementation of the Multi Year Tariff Order, which sought to figure out a tariff that was cost-reflective and that could yield an adequate rate of return on the investments of those wishing to enter the sector. To enforce compliance in the sector, the Nigerian Electricity Regulatory Commission was established to regulate and monitor the Nigerian electricity industry, entrusted with the power to issue and revoke the license of any distribution or generation company. To ensure that the newly privatized companies would not be hindered by the liabilities of PHCN, the Nigeria Electricity Liability Management Company Limited was established to effectively guarantee, assume and manage non-core assets, all liabilities and other obligations of PHCN.

In September 2013, the Federal Government handed the ownership of the majority of generation and distribution companies over to consortiums of local investors and foreign partners, marking the final stage of the privatization process. A year and a half later, Nigeria's Minister of Power Chinedu Ositadinma Nebo positively assesses the privatization process, concluding that, “the results have met government expectations, and a much larger capacity to generate, transmit, distribute, and supply electricity throughout the length and breadth of Nigeria is now being installed."

Privatizing Nigeria's power sector has arguably been one of the most comprehensive power privatizations ever undertaken in the world, but as power shortages remain rampant on a daily basis in Nigeria, significant steps still need to be taken to ensure that history will also judge it as a success. Calls have been made to further the process by also privatizing the transmission arm of the power spectrum, which is currently still in the hands of the government, and is suffering from limited capacity. The current lack of a stable and sufficient power supply is, however, also the result of the insufficient supply of gas to gas-fired generation plants, signaling the need for measures in addition to the privatization.