Why power sector still struggles 11 years after privatisation

Over ten years after privatisation of the power sector, the same challenges that bedeviled pre-privatisation seem not to be going away. Analysts say the government needs to increase its level of supervision on the value-chain for the sector to experience a new lease of life; BENJAMIN UMUTEME writes.

When the federal government handed over the Power Holding Company of Nigeria (PHCN) to private investors, it was with the expectation that the sector would receive a tremendous boost with the private sector in charge of managing its affairs.

Alas, since 2013, when PHCN was unbundled into power generation companies (GenCos) and distribution companies (DisCos), it has been the same old song with a different meaning. From liquidity issues to lack of investment, to lack of a proper knowledge of the networks operators bought, Nigerians have been made to feel that government management ‘might’ still have served them well.

Dismal performance

The dismal performances by value chain players in the power sector has partly contributed to the comatose state of the manufacturing sector as manufacturers spend the majority of their operational costs on alternative power.

According to the manufacturers Association of Nigeria (MAN), its members spent at least N60.4bn on alternative energy sources in the first half of 2023. The Association said the figure was 21.25 per cent from the N76.7bn spent on alternative energy in the same period in 2022.

The expenditure on alternative energy was linked to increasing diesel prices that had reportedly impacted negatively on the production capacity of many of its members, the association said.

For development researcher Adefolarin Olamilekna, poor supply of gas continues to impact power generation and supply. He told Blueprint Weekend that the entire value chain is faced with legacy problems that are difficult to overlook.

“Conversely, we cannot underestimate the poor supply of gas impacting electricity generation in our country. Poignantly, we cannot also overlook the fact that the nation’s power sector is besieged with intractable challenges that negate power generation, transmission and distribution.

“And in our understanding we see this as the dilemma confronting the Transmission Company of Nigeria (TCN) and other stakeholders in the management of our national grid and electricity value chain.

“Having said that, we recall that before now, excuses around obsolete equipment, the lack of spare parts, challenge of forex and bottles at the sea port for imported transformers and power transistors and low water level is one major complain from TCN in the pass on why our national grid collapse, given room for what analysts referred to as inefficiency in the body of our power sector management.

“Importantly, while the complaints about inadequate or poor gas supply to power the thermal generating infrastructure across the country, it has been pointed out again and again as the problem.

“On the other hand, the cumulative impact from vandalism of power line, gas pipeline, substation and theft of power cable is a big blow impacting on electricity stability in the country with vandals and saboteurs having a field day,” Adefolarin, an economist, said.

Revisiting the power pact

Speaking with Blueprint Weekend, a legal practitioner & CEO of Sage Consulting, Bode Fadipe, said the situation in the sector can only improve when the government should revisit the agreement signed at the point of handing over the unbundled PHCN to private hands.

Fadipe added that the inefficiency currently on display by the operators was not helping matters.

He said, “There were documents that were prepared at the point of privatisation which speaks to power improvement plans over a certain period of time which speaks to certain performance indicators for each of the value chain members: for generation, to ramp up their generation, which we know that they have done substantially.

“Of course, you cannot run away from the fact that there has been some gross inefficiency. I mean, even if they say that liquidity has been their problem, the question is, are you saying you have been unable to invest in the network in the last ten years? In the last ten years, how many transformers have you put into the system that you inherited?

“Some of them lay claims to a lot of excuses, that they didn’t have a good knowledge of the network or the assets that they bought. But you have bought these assets for ten years, what have you done to improve the assets?

DisCos

Analysts say the government has allowed the distribution companies (DisCos) to ride roughshod on Nigerians. They stressed that 11 years after privatisation of the sector, the country is still stuck at about 5,000MW. For the Minister of Power, Adebayo Adelabu, ‘it is shameful’ that the national grid only utilises about 5,000MW.

Speaking at a three-day Nigerian Electricity Supply Industry (NESI) Market Participants and Stakeholders Roundtable (NMPSR) in Abuja, on October 30, 2023, the minister decried huge interventions running into trillions paid by the government to sustain the sector despite privatisation since 2013.

He said, “It is shameful; the national grid is doing a little above 4,000 megawatts after 10 years of privatisation. We’ve been hearing of these 4,000 megawatts of power for a long time. This is not something I’m proud to say in public. The big question is, after 10 years of taking over the assets, have these core investors transformed the sector? Are they also adhering to terms and conditions of their licence?”

Who’s to blame?

Repeatedly, many have blamed the Transmission Company of Nigeria (TCN) for the epileptic power supply, but TCN’s general manager (public affairs), Ndidi Mbah, said “what happens with the national grid is a question of demand and supply.”

She told this reporter that the lack of understanding of how the national grid operates is the reason people are quick to say the national grid collapsed even when it’s just an operational fault from DisCos.

“If the gas does not supply us there is little we can do because the grid is a question of demand and supply. If TCN is struggling to stabilise and generation is very low… There are so many things that can cause grid collapse. It’s not a matter of TCN sitting down to checkmate grid collapse.

“Again, there is the issue of spinning reserves. Now that we don’t have a spinning reserve, if there is a sudden drop in generation for instance, the spinning reserve will kick-in and help us stabilize. And because we don’t have spinning if there is a drop in generation and there is an imbalance it can cause. There are so many things; it’s not one thing that you can just go and fix.

“For instance, when there is no light in half of Enugu or for the whole of Enugu, it doesn’t constitute grid collapse. Grid collapse is when something happens and there is no light nationwide. And partial grid collapse is when a part of the grid has an issue, no light in major parts of the country. When you have pockets of darkness across the country, it is not grid collapse. That one is the distribution in charge of that area,” she said.

Time for FG to act

Fadipe, whose company undertakes power sector policy analysis, insisted it was time the government began to bring down its hammer power companies that have failed to perform based on the privatisation agreement.

He said, “For me, the government has to be able to bite harder. For instance, the government in its wisdom took over one of the DisCos in the North, and that is a good move. It’s been in the news that the government plans to take over another one in the South-south; whether that has taken place I don’t know. March 3 was set as a deadline for the takeover of the DisCos in the South-south region.

“The government must be ready to make sure that they play by the rules, anyone that is not playing by the rules; they take over and put it up for sale again.”

He said further that the government needs to come clean also, if it is to effectively supervise the power companies for the benefit of Nigerians.

“And then of course, it’s not going to be the value chain members alone, the government must make sure that it is coming to equity with clean hands. If the government is asking the value chain members to perform, it must be able to do its own part.

“The government itself must come to equity with clean hands. I know that when AEDC published the lists of debtors, the military was one of them owing about N12 billion, no business can survive on that kind of huge outstanding not to talk of even the entire market owing the gas suppliers about $1.3 billion. I mean, that’s humongous, that’s something terribly huge. You see that there are different angles to the issues of inefficiencies that we see in the power sector on a delay basis, and rather than get out of it, we are even digging further.

“Secondly, engaging the right people and businesses with capacity and reinvestment plans into the private sector is the leeway. We cannot afford conning business men and women who are only interested in government intervention funds to take charge of the sector. With the right technology, surveillance equipment and detectors, vandals of power infrastructure, transmission cable lines, poll, gas pipelines and transformers would be protected,” he said.