CHAPTER FOUR

CHALLENGES AND REFORMS OF THE ELECTRICITY SECTOR

Introduction

The historic gap between the demand for electricity and the available capacity has led

to the widespread power shortage, inefficiency and consequently self-generation of

power by both industrial and residential consumers. The Manufacturers Association

of Nigeria (MAN) and the National Association of Small Scale Industries (NASSI)

have estimated that their members spend an average of about 2 billion naira (about

$12 million) per week on self-power generation.1 Several efforts have been put in a

bid to continually increase capacity output. The promulgation of the Privatization and

Commercialization decree No.25 of 1988 which established the Technical Committee

on Privatization and Commercialization (TCPC) led to the review of the failures of

state monopolies including NEPA and proposals to commercialize the operations of

PHCN.2

The Causes

First, state monopoly, which is generally regarded as stifling productivity, fostering

poor accountability and precluding much needed investment, is believed by many to

be the major bane of NEPA.3 This has saddled it with indiscipline, corruption, low

morale, political jobbery, nepotism and inefficiency among staff of all cadres.

Nigeria is considered as one of the most corrupt countries in the world. It is for this

reason that most reforms initiated by the government do not yield any fruits. NEPA is

said to have been under-funded, at least until recent times. Proponents of this view

contend that private sector participation would have injected substantial capital and

1
competition into the sector. However, the claim that NEPA is under-funded flies in

the face of the substantial sums of money allocated to the state enterprise and its

revenue profile. In any case, the scale of outright embezzlement of funds and financial

mismanagement was such that the organization would always have been 'under-

funded' in the circumstances! Given the dismal failure of NEPA to justify such huge

outlays, a traditional ruler recently stated bluntly that the government was

perpetrating 'massive corruption and NEPA is the conduit.4

Table 7: Federal Budgetary Allocation to the Electric Power Sector, 1973-2001

Source: Dr Olusegun Agagu, Honourable Minister of Power and Steel, 'Developments in the electric

power sector,' paper presented at the 2002 Media Summit on Power, serialised in The Punch, 12

August 2002, pp. 40-41.

2
Apart from corruption, Nigeria is actually a poor country with enormous potentials to

be rich. A reflection of Nigeria’s wealth is in its annual budget. Before this stirs a

debate, it should remember that Nigeria’s budget, which is drawn to cater for the

needs of 180 million people, is not up to the budget of New York State Police

(NYPD). When one bears this in mind it becomes clear why the Heathrow Airport in

the United Kingdom alone can boast of (5000 MW) more power than the whole of

Nigeria. Norway with a population of less than 5 million people can boost of a budget

running into 230 billion dollars, while Nigeria with her size and population have pegs

her highest budget ever at 30 billion dollars.

The Nigerian case is that of triple jeopardy because in the face of scarcity of funds,

Nigerian leaders loot the already thin treasury to a state of malnutrition and to crown

it up they are inefficient. Inefficiency is the major, singular thread that runs through

the chain of operations, which has made delivery of power to Nigerians a tall order.

NEPA officials are not only slow in responding to distress calls, on the grounds that

their vehicles are grounded or their staff overstretched, but they always expect and

even demand a gratuity for coming round to rectify faults. Second, applications for

meters (without which an apartment or building cannot be connected to the grid) do

not receive prompt attention. Such contrived delays are, however, obviated when

consumers are willing to yield to demands for gratuities. The same applies to cases

where defective equipment, like transformers or feeder pillars, serving an entire

neighbourhood, has to be replaced. Where such equipment is supposed to be obtained

from the stock of spares in NEPA stores, officials claim that they are not available.

They always capitalize on the misery and desperation of the consumers, who need

electricity supply for their domestic use, and small-scale enterprises, to extort

substantial sums of money from them. Third, NEPA officials have also been

3
justifiably accused of fiddling with the power supply to an area in order to blackmail

its inhabitants into acquiescence to their unethical demands.5

The Table 1 shows a comparative analysis of consumption of electricity worldwide.

Based on the table for instance, Libya with a population of only 5.5 million has

generating capacity of 4,600 megawatts, approximately the same as Nigeria, which

has a population of about 140 million at the time.6 There are plans to build seven

more plants in Nigeria.7 All the stations are oil or gas fired and the country is selling

power to other African countries. South Africa with a population of only 44.3million

has a generating capacity of 45,000 megawatts, almost eleven times the generation

capacity in Nigeria which has three times the population of South Africa.8

Table 8: Comparative Analysis of Consumption of Electricity Worldwide

A. Agbo, “Ending the Power Nightmare, Tell, May 2007,

At present the current nation’s energy demand is estimated at 10,000MW. However,

existing power stations and their installed capacities as shown on Table 9 are: Oji

Thermal Station, Enugu State (30MW); Delta Thermal, Delta State (900 MW); Ijora

Thermal Lagos State (60MW); Sapele Thermal, Delta State (1020 MW); Kainji

Hydro Station, Niger State (760 MW); Jebba Hydro Station, Niger State (578.4MW);

Afam Thermal, Rivers State (969); Egbin Thermal, Lagos State (1320MW) and

Shiroro Hydro, Niger State (600MW). With the installed capacity of about 6000MW,

4
the country manages to generate only a meager (of more or less) 4000 MW of

electricity.9

Table 9: Old Power Plants and Generation Capabilities

Source: G. Atser, “Nigeria, others have less than 25%Access to Electricity – World Bank”, Punch,

2006.

Available records showed that government has set 10000 MW target to be achieved

by the end 2007 as it has invested in new power projects that would be privatised after

completion.10 However, it is instructive to note that these huge investments have not

improved the situation of power supply in Nigeria for some obvious reasons, which

will be stated below.11

One of the reasons is the constant vandalisation and attack on Escravos gas pipelines

especially Chanomi Creek in Delta Sate by militant groups operating in the Niger

Delta. The channel is feeding Egbin Thermal Station. Another pipeline, Escravos

Lagos Pipeline owned by the Nigeria Gas Company (NGC), which feeds Afam with

gas has been vandalised several times over. This has brought power generation to all

time low.12

Incidentally, electricity supply programme keep on expanding in the country without

necessarily allowing the transmission grids to keep pace with the programme

requirements. Besides, many of the associated equipment, machines and other

facilities for generation, transmission and distribution had operated for several years

5
beyond their normal life span without adequate and regular maintenance, servicing

and rehabilitation. By comparison, power losses across lines in the United States

usually come to less than a percent, even across greater distances. It is impossible to

determine exactly how much of this inefficiency is due to illegal users’ tapping the

lines, but it seems likely that underinvestment in technology is the greater problem.

Lack of modern standardized components and qualified maintenance staff pose

serious problems for adequate electricity generation and supply. Various sources

indicate that Nigeria’s installed generating capacity is between 5000 and 6000 MW.

Yet, by the government’s own admission, actual output has never exceeded 4000 MW.

In reality, the actual output is usually far below this. Never mind that actual electricity

demand including off-grid generators is believed to be closer to 10,000 MW.13

The overall consequences of these anomalies are the various devices adopted by

NEPA to create an electricity supply-demand artificial balance in the face of supply

inadequacies; rationing, shedding and suppressed demand devices. These devices

result in one or a combination of the following developments in the Nigerian

electricity market; very low voltage especially in the rural areas when available;

power outages at alarming frequencies; illegal electricity consumption practices

among consumers.14

The infrastructure facilities are not only old, they are also beset by water flow and gas

supply problems. The water flow problems, which have seriously undermined the

performance of the three hydro stations in recent years, are linked to reduced water

volumes in the River Niger and its tributaries due to climate change. Increased

frequency of gas supply disruptions to gas-fuelled generating plants has also reduced

electricity generation. The vandalisation of electricity equipment in several points in

the country does not seem to help matters. All of these have culminated in frequent

6
break down of electricity equipment due to system over load, while there is a large

quantum of electricity losses in the transmission system (a range of 20 - 30%)

annually.

Against the background of the enormity of the cost of the frequency of the

interruption in public electricity supply which shows up in considerable loss of

industrial and domestic output, damages to machinery and equipment and idle labour

time, the sustenance of private electricity supply substitution is reinforced in Nigeria.

Currently, all major newly established privately or even publicly owned

commercial/industrial enterprises under take substantial investment in private supply

of electricity relying on privately owned generating plants at high costs which tend to

aggravate the high cost of production and subsequently the country’s high rate of

inflation. The wide spread substitution of private for public provision of electricity

explains why the residential electricity consuming class has taken over the leadership

of the consumption of electricity from the industrial class in Nigeria contrary to what

obtains in most industrialised economies.15

Another fundamental problem is that of debt. Consumers owe PHCN and invariably

electricity provider owes gas suppliers. Many consumers, especially government

agencies, owe the electricity provider huge sums of money. By March 1999, the debts

had accumulated to a total of four billion naira. This has compounded the financial

predicament of NEPA. Invariably, in 2007, PHCN was indebted to Nigeria Gas

Company (NGC) in the sum of N7billion for gas supplies. To recover their money

NGC several times had to halt supply of gas to the organisation to recover the debts.16

Also connected to the above paragraph is the issue of tariff, because it operates as a

state monopoly and as a social service, PHCN’s tariffs are said to be too low. It is

7
claimed that, at a time when it cost N1.20 to generate a kilowatt of electricity, NEPA

was made to charge a tariff of a mere 23 kobo per kilowatt, thus incurring a 500

percent deficit on tariffs alone.

Besides the low gas supply to the thermal stations, the worst and major cause is the

activities and conduct of the PHCN personnel. This age long problem in the sector

persists in the organisation. For instance, those personnel in the marketing

Department hardly read the meter. Billing in such cases is largely by estimation. The

result is often spurious bills. In some cases where bills are estimated instead of the

actual consumption, most of the consumers are often hostile to the officials or

personnel of the organisation. Some even refuse outrightly to settle such bills,

claiming that they cannot pay for services not rendered.17

In a survey conducted by Oladimaeji in Lagos metropolis, one of the consumers

complained:

NEPA is an extortionist; their bills are not just certified bills.

They bring crazy bills to people, not based on what they
consumed but based on what they think, that is estimation. It
is not good for any man to pay for what he has not used and
when you go to their office to complain, they will not listen.
We are helpless. If there is any other source we can get our
supply from, we will go and get it. Power supply from
NEPA is not regular. If it is regular people will better off in
their businesses.18

Further, the problem of power supply is traceable to the usual gross inefficiency and

bureaucracy that are evident in most parastatals. Sabotage is also a significant factor.

High-tension lines and transmission and generating equipment components are stolen

regularly. Revenue collection is poor and the greatest debtors are government

establishments and parastatals.19

8
Another problem confronting PHCN is the low investment in power generation over

the years. All the plants are very old. Thirty six percent of them are over twenty-five

years old, 48 percent are over twenty old, and no new plant has been installed in the

last fifteen years prior to the advent of civilian administration in 1999. With this it is

pertinent to note that the power supply situation in the country has not improved in

the last eight years despite huge investments government claimed to have made on it

The Cost

The historic gap between the demand for electricity and the available capacity has led

to the widespread power shortage, inefficiency and consequently self-generation of

power by both industrial and residential consumers. The Manufacturers Association

of Nigeria (MAN) and the National Association of Small Scale Industries (NASSI)

have estimated that their members spend an average of about 2 billion naira (about

$12 million) per week on self-power generation.20 Several efforts have been put in a

bid to continually increase capacity output. The promulgation of the Privatization and

Commercialization decree No.25 of 1988 which established the Technical Committee

on Privatization and Commercialization (TCPC) led to the review of the failures of

state monopolies including NEPA and proposals to commercialize the operations of

PHCN.21

Ogundipe examined the electricity challenges and the performance of Nigerian

Manufacturing sector. In the three-dimensional study, she reported the perceptions of

manufacturing firms about the reform being implemented and found that

manufacturing firms were very skeptical about the Multi Year Tariff Order, although

they were in support of the reform. In the study, about 69 percent of the consulted

firms were in support of the power sector reform, but were doubtful about the effect it

9
might have on the cost of production since with privatization comes a high tendency

for increased electricity tariff. She then recommended that the government should

serve as watchdog to the private investors to ensure that what is produced, how it is

produced and to whom it is distributed is optimal. Also, a committee of technocrats

independent from government should be set to assess tariffs made by NERC before it

is published.22

It is on record that irregular power supply is one of the greatest challenges facing the

industrial sector in Nigeria. 23 Take the case of textile sector, when the federal

government banned importation of textile, the policy thrust was to improve on the

productivity of the local factories. But the sector has continued to record worse

performance. For instance, the popular Kaduna – based United Nigeria Textile Plc.

shed its 1200 workforce in 2005 due to high cost of production attributed to lack of

power supply for production.24

According to Manufacturing Association of Nigeria’s (MAN) survey in 2005, only 10

percent of industries operated. But then, the 10 percent could, on the average, only

function at 48.8 percent of their respective installed capacities. According to the

survey, 60 percent of the companies were in comatose while another 30 percent had

completely closed down. The following year, 2006, a survey conducted by MAN in

the first quarter indicated that most of the industrial areas around the country suffered

an average of 14.5 hours of power outage per day as against 9.5 hours of supply.

Further the figure released by the MAN indicated that the cost of generating power

supply accounts for 36 percent of production. About 1500 firms (60 percent) of the

association’s 2,500 members are in dire strait principally because of the additional

operating cost of alternative power generation. Over 750 companies (30 percent) have

closed shop out-rightly due to the problem.25

10
As a result power supply and other related factors, industrial sector contribution to the

Gross Domestic Product (GDP) has continued to drop since 1990 from 8.2 per cent,

got to 4.7 percent in 2003; 4.06 percent in 2004 and 4.2 in 2005 percent, the lowest

figure since the country got independence in 1960. 26 With poor power supply

situation almost all manufacturing companies that have remained in business run

private power plant at great cost and this is evident on the amount spent on the

importation of generators into Nigeria. A London based magazine, African Review of

Business and Technology in its April 2006 edition revealed that Nigeria topped the

list of generator-importing countries for the fourth year in a row, having surpassed

others since 2002. According to the report, Nigeria accounted for 35 per cent or $152

million of the total $432.2 million spent by African countries on generator imports in

2005. The Report, which focused on diesel generator of between 2,000KVA and

5,000KVA capacity, said the country imported three times as many generator than the

closest African importers – Sudan and Egypt – that spent $40.6 million and $32

million respectively on the product in 2005.27

In buttressing the above report, a survey conducted in Lagos showed that the British

American Tobacco (BAT) Plc. spent about N67.5 million in 2005 on diesel and

maintenance of its private power generation plant. Dunlop Nigeria Plc. similarly spent

N96 million on annual average, while West African Portland Cement spent

N90million on the average. Others are Friesland Foods Plc.: N50 million, Nigerite Plc.

N36 million and Cadbury Nigeria Plc. N49 million. By MAN’s statistics, nine

companies within its fold spent a total sum of N69.5 billion to generate their power.28

Against the backdrop of the epileptic power supply and the desire of the companies to

remain in the business, some multinational companies have devised other alternative

sources of power generation. In the recent times quite a number of multinational

11
companies operating in Nigeria generate own power through Independent Power

Project (IPP).29 However, even with this situation it is on record that some of these

companies have continued to post impressive profits and meeting the obligations of

their shareholders. But such performance is a reflection of the fact that more and more

of production costs are shifted to the final consumers most of whose disposal incomes

have declined steadily as a result of inflation generated by government’s tough

economic policies. This has the tendency to reduce consumers’ effective demand and

may force some companies to close shop or even relocate to a more investment

friendly environment on the long run as recently demonstrated in the case of

Michelin.30

A critical assessment of the performance of the power sector by the World Bank best

captures its implication for industrial sector in Nigeria. The World Bank Report on

the nation’s difficult investment climate states:

Manufacturing firms in Nigeria consider inadequate

infrastructure, particularly power supply, as their most severe
constrain. Dealing with the inadequate power supply and other
infrastructure problems absorbs far more of management’s
attention than any other business problem.

From the table, the proportion of electricity used for industrial purposes has been on

the decrease since 1970 while residential consumption has been on the increase. This

is easily explained by the epileptic power supply that has forced many of the big

industry to generate more of their own power and using less power from the national

grid.

12
 Table 10: Electricity Consumption in Nigeria, 1970-2005

Source: M. A. Babatunde and M. I. Shuaibu, “The Demand for Residential Electricity in Nigeria: A

Bound Testing Approach”, (2006).

Also summarising the effects of dismal electricity supply situation in Nigeria

between 1999 and 2007, Johnson argued that:

At inception in 1999, Obasanjo’s administration promised

Nigerians steady power supply. Former Minister of Power and
Steel…assured Nigerians that the nation would have steady
power supply by 2001…. The promise of increasing the
nation’s output from 1,700MW in 1999 to 10,000MW by
2007 has remained largely unfulfilled. Despite government
investment of over N574 billion in the sector, power output
continues to dip, a situation that has killed many business
ideas and is costing investorshefty sums to run generators. The
implication is that unemployment and crime remain high in
Nigeria.31

Peak demand has been less than half of installed capacity in the past decade, yet, load

shedding occurs regularly. This poor service delivery has rendered public supply a

standby source as many consumers who cannot afford irregular and poor quality

service substitute more expensive captive supply alternatives to minimize the negative

consequences of power supply interruptions on their production activities and

13
profitability. An estimated 20 percent of investment in industrial projects is allocated

to alternative sources of electricity supply

What all these suggest is that the cost of doing business in Nigeria is not only very

high but also very painful. Small and medium scale industries are the drivers of

economy, but instead of the sector expanding, it is collapsing. Besides, multinationals

most others have since disappeared from Nigeria’s industrial landscape. Even the

collective performance of multinational companies is not sufficient to lift the

industrial sector out of the doldrums. A number of measures taken by government to

revive the sector showed not much have been achieved. Statistics from the Central

Bank of Nigeria (CBN) indicated that manufacturing value added tax declined from

5.5 percent of Gross Domestic Product, (GDP) in 1998 to 3 percent in 2005. Further

CBN indicated that capacity utilisation, which was 32.4 percent in 1998, increased to

53.4 percent in 2004 and dropped to 22.7 percent in 2006, far less than the National

Economic Empowerment and Development Strategy (NEEDS) target of 70 percent.

The CBN’s statistics also indicated that export of manufactured goods accounted for

only 7.4 percent of non-oil exports in 2005. Foreign direct investment into the sector

is still considered low despite the fact it rose from N165 billion in 2003 to N276

billion in 2005. Besides, the sector contributed less than 10 percent to the country’s

GDP. In all these dismal power supply situation has been identified as the main factor

for the poor performance of the industrial sector. This is evident in the figures

released by MAN which showed that in 2006 the PHCN supplied only 41.7 percent of

the power required by manufacturers, while 58.3 was met through generating sets. 32

Power plays an important role in enhancing productivity of many other factor inputs

such as labour. Unreliable power leads to disruption in production, loss of perishable

goods and to a more extent loss in orders. Significant numbers of youths have turned

14
from the technical and engineering sector to the informal sector. Many of these youths

have trained in welding, fashion design and other electric related fields. This will in

the forerun bring a huge impact in the economy of Nigeria.

It is the unavailability of these policies and lack of stable electricity that has led most

people to revert to unconventional and un- environment friendly sources of power e.g.

generators. These methods contribute greatly to environmental pollution. It is also sad

to note that the concerned bodies in implementing reforms are unable to downplay the

Nigerian political issues and thus the confidence of investors will not be boosted to

yield the expected efficiency.

Statistics indicate that more than half of the cities industrial establishments have been

forced to shut down because of lack of power. Small-scale entrepreneurs in the

informal and formal sectors also rely on electricity to run their business.

Despite more than a decade of economic growth recorded in Nigeria since democracy,

largely attributed to various transformation strategies targeted at various sectors of the

economy including rationalisation of fertiliser distribution in the agricultural sector,

the backward integration policy and national industrial revolution plan (NIRP);

Nigeria’s growth has been largely considered as one that leaves the poor behind,

hence the urgent need for inclusive growth. In modern times, no country has managed

to reduce poverty without greatly increasing the use of energy as modern energy has

great effect on poverty by boosting poor people’s productivity as well as their income.

For the poor the priority is satisfaction of such basic human needs as jobs, food,

health services, education, housing, clean water and sanitation and energy plays an

important role in ensuring the delivery of these services. The energy sector has a

strong link with poverty reduction through income, health, education, gender and

15
environment. This is reflected in the strong correlation already established in

literation between energy consumption and economic growth. Electricity as a form of

energy is vital to the growth and development of any economy. Nigerian economy,

being characterised by a large informal sector is heavily dependent on the supply of

electric power for its operations. But the national electric power source has failed to

meet the growing demand as supply of electricity lags behind the demand despite

huge financial commitments in the power sector. As a result majority of households

and firms have to rely on alternative power arrangements through generating sets to

power their businesses at very high costs. It is worthy of note that those who cannot

afford the heavy costs of alternative power sources due to the epileptic and inadequate

power supply by the government have had to close or relocate their operations from

the country such as multinational companies like Dunlop, Volkswagen, Pz, and

Unilever, not to mention several SMEs who could not afford the huge cost of

alternative electricity, bringing huge losses to the economy and increasing the poverty

rate through the loss of jobs and income for the common man. Several attempts made

to curtail unemployment in the country such as Operation Feed the Nation in mid 70s,

MAMSA and DIFFRI programmes in the 80s failed to achieve any significant

result.33

When electricity goes on and off five times in an hour, this creates serious problems

for manufacturing and industrial sectors. 34 Equipment is damaged by power surges

that usually accompany epileptic power supply and goods at various stages of

manufacturing are damaged. Industry’s response has been to run permanently on

internal generating plants and use NEPA supply as standby. It is ironical that, in spite

of the enormous power generation potential, about 60 percent of the country still has

no access to electric power supply.35

16
Reforms

Following the enactment of the Public Enterprises Act of 1999 during the Olusegun

Obasanjo administration the Bureau of Public Enterprises (BPE) replaced the

Technical Committee on Privatization and Commercialization (TCPC) with the power

to shift emphasis from commercialization to encouraging core investors and

promoting foreign investment in the privatization program.36 The current regime of

power reform began in the year 2000 with the implementation of the Electric Power

Implementation Committee (EPIC).37 EPIC was set up to carry out the function of

synchronizing, coordinating and monitoring the reform; EPIC put together the

National Electric Power Policy (NEPP), which was approved by the Federal

Executive Council. 38 The reform consists essentially of two main components:

restructuring and privatization. 39 The objective was to stimulate competition and

promote financial accountability by unbundling the old structure under NEPA into

three constituent segments namely generation, distribution and transmission.40

Government recognised the daunting challenges in the electricity sector in terms of

supply inadequacy and thus noted the cardinal challenge there from. In this regard, the

new civilian administration in 1999 identified for the millennium the need to create a

socio-economic environment that does not suffer the inadequacy of the past. Thus, the

overriding task at the time of inception of the new administration was a single-minded

pursuit of growth and development, which would go beyond the annual budgetary

revenue and expenditure allocation to the electricity sector. Towards this end,

government released the 1999 - 2003 Economic Policy document, which sets out very

clearly its stretching goals in which 14 specific quantifiable target areas feature.

17
Against this background, government proposed among several objectives, especially

on electricity related matters to:

1. Provide the framework for taking government out of direct involvement in

most economic activities which are best suited for private sector undertaking

such as energy and power generation;

2. Provide the enabling legal, fiscal and monetary environment for the private

sector to become the effective engine of growth and development in the

economy; and,

3. Up-grade the performance of major infrastructural (electricity) facilities.

According to government, the foregoing is required to open new and sustainable

economic opportunities to all Nigerians for the pursuit of honest and fulfilled life.

However, in order to attain these stated objectives, some strategies are designed. Such

strategies include among several others:

 the privatization of NEPA under the guided privatization programme

anticipated to begin in 2000 with the establishment of regulatory framework

followed by drawing up modalities for effective private sector participation;

 reduction of tariff in favour of imported raw materials and the rehabilitation

and resuscitation of infrastructural facilities to encourage increased capacity

utilization; and,

 increased budgetary allocation, particularly to the energy (electricity) sector.

Noting the foregoing, government promised to take urgent steps, among several

others, to stamp out the phenomenon of shortages of petroleum products and greatly

improve the performance of major infrastructural facilities especially by reducing the

frequency of power outages across the nation in order to make development

18
objectives attainable. In recognition of the identification of electricity problems and

the notification of the strategies to overcome such problems, the critical issue which

remains, relate to what the Obasanjo-led government has done thus far; i.e., what

remains to be done and how to do what remains to be done to allow for an improved

and sustained electric power supply for socio-economic development in Nigeria.

Against the background of these critical issues, this paper attempts to provoke some

thoughts.

Nigeria’s democratic government since its advent in 1999 started making huge

investments in the energy sector. In the process the sector had to undergo some

reforms to increase power generation and distribution. Among the reforms is the

setting up of the National Electricity Regulatory Commission (NERC), unbundling of

PHCN and entry of Independent Power Producers (IPP) among others. These reforms

are expected to increase power generation and distribution and also residential

electricity demand in Nigeria.41 Available records showed that by the end of 2001 the

generating capacity had increased from 1824 MW (from 19 generating units) in

March 2000, to about 4000MW (from 40 generating units) and a new peak generation

of 2934 MW was recorded in the process. This was made possible through

rehabilitation of existing generating units, installation of new generating plants and

the procurement of power from independent operators.42

In the recent times, the Authority had embarked on a number of special projects

geared towards increased involvement of the private sector as a necessary ingredient

for long-term sector viability. It was expected that these projects would not only

improve the overall electricity power situation in Nigeria, but should instill in the

authority practices which would be invaluable in deregulated energy sector.43 These

initiatives arose out of the basic realization that government is increasingly becoming

19
unable to fund this heavily capital-intensive sector. For instance, The ROT2

programme for Sapele and Afam power stations is an attempt by government to get

AES Frontiers Limited and Shell Petroleum Development Company Ltd respectively

- private sector - to invest and participation in provision of power. With this, it is

expected the about $700 million of private capital would be injected in the

rehabilitation/modernization of both power stations over a period of time.44

In addition an Operation and Maintenance (OM) programme was conceptualised to

provide improved technical and managerial expertise at power stations via the

introduction of short-term private participation especially in stations such as Delta,

Egbin, Jebba, Shiroro and Kanji. Since improved generation can only be sustained by

corresponding improvements in revenue generation; the Authority sought and

received approval for the outsourcing of parts of its marketing activity in a limited

number of districts under the Revenue Cycle Management (RCM). Given the paucity

of funds for electricity, infrastructure rehabilitation and expansion, the Authority

sought for and received approval from the World Bank for $100 million credit under

very concessionary terms.45

Makwe et al assessed the Nigerian electricity reform before the success of the

privatization process. By using a Linear Programming model with the sensitivity

analysis, the study analyzed the impact of the reform, and transmission network on

private investors’ incentive, precisely the impact of electricity price and distribution

losses on the electricity industry, both pre-reform and post-reform. The result revealed

that an upward review of electricity price is essential in incentivizing the investors

and would improve the sector after the reform because more plants would be

encouraged to operate and demand would be met. However, price is believed to be

lower in post-reform because of the competitive wholesale market. Considering the

20
success of the privatized power companies, the model of Makwe et al cannot be said

to have been taken to reality because despite increase in electricity prices, investors

are still calling for higher electricity prices and according to a report dated March 24,

2014 on Vanguard newspaper, the United Nations have queried the Federal

Government over increased electricity tariff. The UN alleged that the implementation

of the MYTO by the NERC is having detrimental impact on the human rights of those

living in poverty in the country.46

With Power Reform Act already passed into law by the National Assembly and

accented by the erstwhile President Obasanjo in 2005, the former National Electric

Power Authority was renamed Power Holding Company of Nigeria (PHCN). With

this arrangement it was expected that by end of 2007 PHCN would have been broken

up into 18 companies in a takeover that was expected involve private sector in the

generation, transmission and distribution of electricity and further improve on the

performance of the sector. The offshoot companies of the PHCN would be made up of

one transmission company, six power generation companies and eleven distribution

companies.47

Also the Act attempts to encourage private investor in the sector. With this

arrangement different Independent Power Projects are expected to be embarked by

some state governments and multi-national organisations that may be interested to

generate their own power and may extend to the members of the public who may be

interested. 48 In line with this, government established National Electricity and

Regulatory Commission (NERC) to facilitate government divestment from the power

sector. The role of the commission, among other things, is to promote competition

and private sector participation in the sector. Further it has the responsibility to

21
establish or approve appropriate operating codes and safety, security, reliability and

quality standards and to monitor the operation of the electricity market.49

To further demonstrate its commitment towards provision of electricity, the Federal

government in 2007 awarded the construction of 2,600MW Mambilla plateau

hydropower station to Chinese company, Gezhouba Group Corporation, at the cost of

$1.46billion. The Mambilla station is part of Nigeria’ National Integration Power

Plant (NIPP). This project is one of the targets set by government in August 2003 to,

among others, establish a sustainable electric power industry, develop capacity to

reliable transmit and distribute the increased generation and develop a medium term

investment plan for the sector. Other projects of NIPP as presented on Table 3 are;

Odukpani, Cross River State, 561MW; Egbama, Imo State, 338MW; Ihovobor, Edo

State, 451MW; Gbarian/Ubie, Bayelsa State 225MW; Sapele, Delta State, 451MW;

Omoku, Rivers State, 230MW and Ikot Abasi, Akwa Ibom State, 300 MW.50

Table 11: Seven New Federal Government Projects in the Niger Delta

Source: G. Atser, “Power Outages takes Toll on Economy”, Punch, June 8, 2006

Conclusion

Admittedly, the shocks from the electricity crisis in Nigeria have created some

wedges in the national wheel of effective management of industrial and the other

socio-economic development programmes in Nigeria. Against the background of this

22
admission, NEPA’s institutional reforms via the economic deregulation policy seem

wise and desirable.

Three facts define the scope of the investment problem and enormity of the policy

challenges associated with the electricity crisis: the current low level of electricity and

energy consumption per capita by global development standards; the dismal state of

socio-economic conditions in an economy just recovering from almost two decades of

poor performance and deepening poverty; and the low human development indicators.

The investment challenge must be appropriately situated in the context of a

constrained multi-objective incentive compatible optimization problem. They have

several dimensions, namely, size, source, plant mix, security of investment and input

supply, human resource requirements, investor/producer incentives e.g., electricity

tariff level and structure, regulatory framework and macroeconomic environment.

From the demand side, the current level of electricity demand underestimates the true

level of demand given the high level of suppressed demand. The estimation of

potential level and growth in demand must incorporate these factors for greater

forecasting accuracy. Power is exported to the neighbouring Niger Republic and there

are plans to connect Nigeria with other countries in ECOWAS through the West

African Power Pool Project.

Based on these factors and the current decay in the grid, the numbers look staggering.

According to a recent projection, generating capacity should increase from 6000 MW

in 2007 to 35 GW in 2015, a six-fold increase.51 This is expected to further triple to

105 GW in 2025 before slowing down to reach 164 GW in 2030. This system

expansion is expected to eliminate current electricity poverty and raise electricity per

capita from the current extremely low level of 140Kwh to 1,110kwh in 2015,

23
5,000Kwh in 2030. It is striking that Nigeria’s per capita consumption in 2030 will be

about 20% above the level that obtained in South Africa in 2003! In addition, since

domestic demand must be examined in the context and integrated into the ECOWAS

electricity framework, given WAGP and WAPP, and the proposed integrated energy

market in West Africa, domestic electricity infrastructure investment and supply

policies and promotion must be mutually consistent and coordinated with the rest of

the region.52

The projected amount of investment to meet this system expansion is estimated at

about $262 billion. This amount is enormous given industry experience. Though this

financial requirement is daunting, it is achievable. The right institutional framework,

policy consistency, appropriate incentive structure and security of investment and

input would guarantee the required flow of investment. The successful privatization

of the telecommunication industry, which brought in about $12 billion of investment,

provides support for this position. The turning around of a moribund public utility to a

vibrant private sector-led industry with one of the fastest system growth rates in the

world has been due to the combination of right institutional framework, policy

consistency and appropriate incentive structure.

Both domestic and foreign investors and producers have important roles to play in

achieving a sustainable electricity future in Nigeria. There is a huge market for

electricity producers in Nigeria and the entire West African region. For example, In

July 2004, Nigeria signed an MOU to secure funding for supplying power to Benin,

Burkina Faso, and Niger with electricity through a new transmission line based on the

New Partnership for Africa's Development (NEPAD).53

24
Developing and deploying cleaner energy should be part of the investment strategy

with the focus, however, on progressively adopting cleaner fossil fuels based on

renewable energy sources to meet rural electricity demand. Notably, the government

plans to achieve 10% of the electricity supply from renewable resources by 2025.54

Coal and nuclear energy are also on the options list. 5000 MW of nuclear generating

capacity is expected by 2026. 55 In pursuit of the nuclear power objective, the

government and IAEA recently began discussion on identifying possible sites for

nuclear power stations.

On the whole, arising from the revelation from this paper, it can be concluded that all

that is need to fix the electricity department is political will and hopefully a

government with the will would come on board to set the standard for a truly

developmental energy sector.

25
Endnotes

1 www.vanguardngr.com/2013/02/the-challenges-of-the-nigerian-electric-
power-sector-reform-1/
2 Ibid.
3 Eze Mbiano, interview with Tolu Aturu, Journalist, Phone interview, 40 years,

20 July 2016.
4 A. Akindele, interview with Tolu Aturu, Civil Servant, Phone interview, 38 years,

20 July 2016.
5 K. Elesho, interview with Tolu Aturu, Staff at Eko Distribution Co., Lagos Island,

30 July 2016.
6
J. Lohor, and O. Ezeigbo, “Nigeria Population is 140 Million”, Thisday,
December 30, 2006, 14.
7 G. Atser, “Power Projects: Stakeholders Fret Over Gas Cuts”, The Punch, March

22, 2007, 22.

8 A. Agbo, “Ending the Power Nightmare”, Tell, May 2007, 28-31.
9
G. Atser, “Nigeria, others have less than 25% Access to Electricity –
World Bank”, Punch, 2006, 28.
10 R. Owan, “The Nigeria Power Industry – The Next Goldmine”, A Lecture

Delivered at the Nigeria – British Chamber of Commerce in Lagos, Nigeria, October

13, 2015.
11 L. Ajanaku, “Battling with Darkness”, Tell, May 21, 2007, 31-33.
12 C. Nwachukwu, “Vandalisation, Gas Shortages Cause Low Power

Supply”, The Punch, May 30, 2007, 28.

13
Bureau of Public Enterprises, "Power Sector Reform Overview, 2008”,
http://www.bpeng.org/en/companies/power/Background.htm, Accessed November 20,
2015.
14 F. Makanju, interview with Tolu Aturu, Market Analyst, Ikeja, 29 years, 31 May

2016.
15 B. Nwalue, interview with Tolu Aturu, Observer, Phone Chat, 42 years, 13 July

2016.
16 G. Atser, “Power Projects: Stakeholders Fret Over Gas Cuts”, 23.
17
O. Ikechukwu, “Beyond Service Quarters”, NewAge, June 17, 2005, 9
18
T. Oladimeji, “More Billing Pains from NEPA”, NewAge, July 20, 2005,
12.
19
A. Adegbamigbe, “Obasanjo’s Legacies”.
20
Vanguard, “Challenges of the Nigerian Electric Power Sector Reform”,
www.vanguard.com/2013/02/the-challenges-of-the-nigerian-electric-power-sector-
reform-1/, Accessed December 10, 2015.
21
Ibid.
22
T. Ogundipe, “Electricity Challenges, Power Sector Reforms and
Performance of the Nigerian Manufacturing Sector”, Proceedings of the 2013
NAEE/IAEE conference.
23
National Planning Commission, “Nigeria: National Economic
Empowerment and Development Strategy”, Abuja. (2004).
24
A. Adegbamigbe, “Obasanjo’s Legacies”.
25
Ibid.
26
L. Ajanaku, “Battling with Darkness”, 31-33.
27
G. Atser, “Power Outages takes Toll on Economy”, Punch, June 8, 2006,

26
 .B. Nwalue, interview with Tolu Aturu, Observer, Phone Chat, 42 years, 13
July 2016.
28 P. Odiaka, “Power Sector Reforms: Still a Reign of Blackout,” The Guardian,

August 24, 2006, 15.

29
G. Udeajah, “Industrial Firms Lose N38 million, to Power Outage”, The
Guardian, August 24, 2006, 29.
30
A. Ogunjobi, “Succumbing to Imports”, Tell, May 21, 2007, 40.
31
B. Johnson, “Odd Against Yar’Adua”, The News, May 21, 2007, 18.
32 A. Ogunjobi, “Succumbing to Imports”, Tell, May 21, 2007, 40-41.
33
George E. O. & J. E. Oseni, “The Relationship Between Electricity Power
and Unemployment Rate in Nigeria”, Australian Journal of Business and
Management Research, Vol. 2, No. 2, 10 – 19.
34
Interview with Mr. A. Koleosho, (Ikorodu, PZ Nigeria, 42 years),
November 30, 2015.
35
UNDP, “UNDP 2001 Human Development Report Nigeria”, (Oxford:
Oxford University Press, 2001).
36 www.vanguardngr.com/2013/02/the-challenges-of-the-nigerian-electric-

power-sector-reform-1/
37 Yemi Oke, Nigerian Electricity Law and Regulation (Lawlords Publications

Abuja, 2013), 9
38 Power Sector Reforms. www.bpeng.org/docs/powersectorreform
39 Yemi Oke, Nigerian Electricity Law and Regulation, 9.
40 Ibid.
41
M.A. Babatunda and M. I. Shuaibu, “The Demand For Residential
Electricity in Nigeria: A Bound Testing Approach, 293.
42
J. Makoju, “The 2002 Project Plan: Why we are bent on Network
Expansion,” 12-14. See also: Agbo A 2007. Ending the Power Nightmare. TELL,
May, 2007 pp. 28-31
43
A. Agbo, “Ending the Power Nightmare”, 28-31.
44
B. Johnson, “Odd Against Yar’Adua”, 18.
45
J. Makoju, “The 2002 Project Plan: Why we are bent on Network
Expansion,”
46
J. N. Makwe, et al, An Economic Assessment of the Reform of Nigerian
Electricity Market”, Energy and Power, Vol. 2, No. 3, 24-32.
47
I. Chiedozie, “Obasanjo Orders Reduction of Power Firms”, The Punch,
April 11, 2007, 56.
48
T. Oladimeji, “More Billing Pains from NEPA”, NewAge, July 20, 2005,
12.
49
R. Owan, “The Nigeria Power Industry – The Next Goldmine”.
50
A. Agbo, “Ending the Power Nightmare”, 28-31.
51
A. Adenikinju, “Analysis of the Cost of Infrastructure Failures in a
Developing Economy the Case of Electricity Sector in Nigeria”, African Economic
Research Consortium, AERC Research Paper 148, February 2005, Nairobi.
52
A. Iwayemi, “Investment in Electricity Generation and Transmission in
Nigeria: Issues and Options”, International Association for Energy Economics, First
Quarter 2008.
53
M. A. Babatunde and M. I. Shuaibu, “The Demand for Residential
Electricity in Nigeria: A Bound Testing Approach”, 293.

27
 54
Energy Commission of Nigeria, “Renewable Energy Master Plan”, Abuja,
November 2005.
55
……………………………….., “National Energy Policy”, Abuja, August
2002.

28