February 26, 2024

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Experts Recommend Electricity Policy and Re-Privatization of DisCos

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power sector

CEM REPORT, ENERGY | Experts have called on the Tinubu-led administration to focus on incremental megawatts/hours (MWh) generated and consumed, instead of megawatts (MW) that can be generated.

They urged the new administration to consider re-privatising some of the nation’s electricity distribution companies (DisCos) if it hopes to be successful in its electricity priority.

Experts at Agora Policy, in a report titled “Addressing Nigeria’s Lingering Power Challenge”, noted that various initiatives and reforms aimed at creating an optimal power sector for the country have fallen short.

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They recommended that the failing DisCos be privatized as new organizations and divided into smaller franchise regions, ideally along state borders.

To ensure a “sensible activation” of contracts in the industry, it was also said that the Tinubu-led administration should prioritize finding a solution to the privatization issue.

“By “smart activation” of contracts, we refer to permitting more bilateral discussions of market contracts between participants in the sector, rather than their imposition, under the regulatory supervision of the NERC.

“The new administration also needs to look at re-privatising some of the DisCos that have been taken over by lenders due to default by core investors in meeting the acquisition loan repayment terms to the lenders, or under some form of administration by the NERC and the CBN.”

More specifically, the research emphasized that instead of focusing on installed generation capacity, the government should begin to consider the amount of power provided, or, to put it simply, how much electricity is produced and used by Nigerian electricity customers per hour.

The report went on to say that the incoming government must give resolving interface problems and difficulties along the whole power sector value chain (from the natural gas to electricity interface to the transmission to distribution interface) top priority.

Recommended Policies

Agora policy noted that with the recent constitutional alteration of section 14(b) of the concurrent legislative schedule of the 1999 Constitution (as amended), it has become imperative to develop a new national electricity policy.

Therefore, recommended that the incoming administration create a national power policy that takes into account the goals for electricity shared by the federal government and the states per the new constitutional requirements.

The report also stated that states and other sub-national governments have finally entered the electricity market as a result of constitutional amendments that give state houses of assembly the authority to enact laws for electricity generation, transmission, and distribution within areas covered by the national grid in their domains.

“The new administration ought to collaborate with the states to create local power markets.

Consequently, it urged the new administration to develop a national electricity policy that reflects the electricity aspirations of both the federal government and the states in line with the new provisions of the constitution.

Additionally, the report said that with the constitutional amendments that grant states’ houses of assembly the power to make laws for electricity generation, transmission and distribution within areas covered by the national grid in their domains, states and other sub-national governments have finally become players in the electricity market.

“The incoming administration should work with the states to develop the electricity markets within their localities.

“By the revised Electric Power Sector Reform Act (EPSRA) and the new national energy strategy, state governments should be encouraged to start developing the electrical resources in their regions.

“This means that the newly elected state governments will also need to create the best legal and regulatory frameworks for their states to create effective and competitive electricity market structures, which can aid them in luring in the required investments into the electricity market. States should be urged to promote rural electrification as well.”

According to Agora policy, reversing the privatisation of the power sector should not be considered under any circumstance, noting that the lack of effective coordination of the various segments of the power sector value chain is one of the causes of the dysfunction in the sector.

They suggested that the Tinubu-led administration think about creating a permanent interministerial energy committee that would be presided over by the vice president.

“Contract provisions established into the privatization process handle any core investor’s breach of their performance commitments. The government just needs to fulfil its duties to its main investors in order for these contract clauses to take effect.

“The Nigerian Upstream Petroleum Regulatory Commission (NERC), the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA), the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA), the Governor of the Central Bank of Nigeria, and heads of other important agencies and departments in the country should be included in the inter-ministerial committee.

“The inter-ministerial committee will be responsible for ensuring efficient coordination among the organizations and businesses involved in the gas-to-power value chain.”

The report also made the recommendation that if there is a smooth conversion and flow of energy from the natural gas fields to the generation stations, from the generation stations to the high-voltage lines that transmit the energy to the national grid, and ultimately to medium-voltage and low-voltage lines that distribute the energy to end users, an increase in the megawatt-hours delivered to electricity customers can be achieved.

The experts also emphasized that the policies, efforts, and interventions made in the electricity sector by the Buhari government must be continued by the Tinubu-led administration.

Agora policy emphasized that incoming governments are subject to political pressure to either discontinue, halt, put on hold, or develop rival initiatives, policies, and interventions in the electricity sector.

“The incoming administration should continue the implementation of these and perhaps other projects and initiatives of the Buhari administration in the electricity sector.

“While we advocate for the continuation of the Buhari administration interventions, the incoming administration should also review and optimise some of these programmes and initiatives to ensure value for money,” it said.

Failure of Previous Reforms

Speaking of failures of previous reforms, the study said that the reforms started by the President Olusegun Obasanjo administration, which resulted in the privatization of the electricity industry in 2014, had not yet produced the expected outcomes.

“Nigeria has the biggest energy access gap in the world, according to the World Bank. According to the World Bank, the absence of dependable power costs the Nigerian economy around $26.2 billion (N10.1 trillion), or nearly 2% of its GDP. This is not to argue that since 1999, Nigeria hasn’t made some strides in the electricity industry.

It further said that Nigeria possessed nine power-producing facilities in 1999, including three hydroelectric and six thermal facilities, with a total installed on-grid generation capacity of 5,906 MW, but with a low level of usable output of less than 1,500 MW.

“Today, Nigeria has up to 26 on-grid generation stations with a total installed capacity above 13,000 MW.

“However, available generation capacity hovers around 4,000 MW, with an average daily energy output of about 100,000 MWH. Sadly, the little progress that has been made in the power sector since 1999 is neither at par with our population growth nor adequate for the energy needs necessary to achieve our economic potential,” the report said.

It said Nigeria’s energy consumption per capita at 140kWh is relatively low and is three times lower than the average for Sub-saharan Africa.

Recall that the Tinubu-led administration listed the power sector as a priority sector in its first tenor.

CEM reported that at the swearing-in ceremony, President Bola Ahmed Tinubu said his administration will ensure electricity is affordable for individual homes and businesses to boost production and grow the nation’s GDP. Experts have called on the Tinubu-led administration to focus on incremental megawatts/hours (MWh) generated and consumed, instead of megawatts (MW) that can be generated.

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