Nigeria: How Government Can Boost Power Sector Efficiency

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Power generation and distribution have continued to be problematic in Nigeria in spite of efforts by successive governments to improve supply and boost access to energy in Africa’s most populous country and ensure viability of investment in the sector.

Since 1886, when two generators were installed to serve the then Colony of Lagos till date, Nigerians have never enjoyed the optimum benefits of electricity supply either for domestic usage or industrial production.

The country’s power supply has become more epileptic due to inadequate generation, lack of capacity to distribute what has been generated as a result of weak infrastructure and mounting corruption that has cascaded down the value chain of the power industry.

Expectations were high when the government of Goodluck Jonathan took the bold step to privatise the sector in 2014, by selling 60 per cent stakes in the power distributions firm to some private concerns.

However, from all indications, most of the Distribution Companies that acquired the power infrastructure assets have proved incapable of managing effectively the expectations of Nigerians.

It was also discovered that many of the distribution firms over-leveraged their exposure to financial institutions to the extent that rather than invest their own capital to purchase the assets, over 70 per cent of money used to buy the power assets were borrowed from local commercial banks.

This has hampered their ability to raise fresh funds needed to revive weak distribution infrastructure and enhance the capacity to improve power supply. Often times, many of the distribution firms have had the cause to reject energy supply by the Transmission Company of Nigeria, which is the government arm that ensures that energy generated by the power plants are sent to the distribution firms for onward sales to consumers.

The problem in the sector ranges from inadequate supply of transformers, shortage of manpower to manage the weak assets and financial incapacitation due to lack of access to fresh capital from commercial banks and their inability to recover cost of power supply to consumers.

Nigeria currently has the installed capacity to generate more than 10,000 MW of electricity, according to data from the Nigerian Electricity Regulatory Commission. However, available capacity for distribution remains abysmal as a result of unresolved issues in the sector which have continued to hamper the sector’s growth.

The bulk of power generated in the country today comes from thermal plants with an installed capacity of around 8,457 MW, but could only deliver around 4,996 MW at the peak period due to challenges around gas supply.

In recent times, gas pipelines have been ruptured by militants sabotaging government efforts in the Niger Delta and this has led to the closure of about six power generating plants and further shut down of supply to consumers.

Equally, the inability of the distribution firms to recover all cost due to huge debts owed by consumers who are disputing the estimated billing system has further compounded the challenges in the system.

Efficiency in the sector requires major steps by the government in conjunction with the private sector operators in the value chain and its development partners.

Addressing the issue of weak infrastructure requires huge capital outlay that, as it is, the private operators are not capable of taking up. The inability of the government to implement market tariff to ensure full cost recovery and return on investment is critical to the survival of the sector. This has been a major limitation to the entry of foreign investors into the critical sector of the economy.

Without efficient cost recovery, it will be practically impossible for operators to access finance to improve operations and ensure smooth distribution of power to the ultimate consumers and boost business activities in the economy.

One of the key objectives of the Economic Recovery and Growth Plans launched in 2017 by the government was to ensure energy sufficiency (power and petroleum products). In doing this, the government sought and obtained facility worth $486m for rehabilitation and upgrading of electricity transmission substations and lines from the World Bank. Already, the government has made available about N37bn in facility for independent private sector meter distribution firms so as to resolve the problem of estimated billing system which currently generates bad blood between the distribution firms and consumers.

Expectedly, the Discos could take advantage of the initiative by the government to meter all consumers and be able to capture effectively consumption pattern and as a major step toward ensuring cost recovery.

Over time, the World Bank facility could help ease the pressure of finance in the sector and with the standard of monitoring by the Bank, the challenge of corruption could be eliminated thereby enhancing the expected growth in the sector.

A major concern is if the government would be desirous of taking sound economic decisions and possessing the political will to ensure right policy mix in the interest of the sector ahead of the critical general election coming next February. Expectations are that a major policy decision will be influenced by politics to boost President Muhammadu Buhari’s support base and curry the favour of the electorate.

Would the government be able to adjust the tariff to enable operators recover cost and make adequate returns on their investment in the sector or would it continue to allow populist decisions to override needed action?

An efficient power sector is capable of helping to boost the non-oil sector contributions to the Gross Domestic Product and invariably enhance quality of life through provision of jobs in the economy.

The recent outburst by the Minister for Power, Works and Housing, Babatunde Fashola, on power supply has not really helped the cause of the government but rather showed some lack of understanding of the responsibilities of the government to the citizens.

While some people could interpret the statement that the people should not blame the government for lack of power supply as partially true in the sense of the privatisation of the sector, many are willing to point out the fact that regulation and control remain in the hands of the government. The government as of today owns 40 per cent equity of the distribution companies; this also provides government the leverage to ensure effective performance by the distribution firms and even call for the recapitalisation of the companies to ensure increased capital for maximum output.

The minister should therefore wake up to his responsibility as the eyes of the government to ensure that the sector is properly and adequately regulated to boost efficiency and ensure that Nigerians enjoy the benefits of government investment in the sector.

Authored By: Oludare Mayowa (Mayowa is an international financial journalist based in Lagos)

SOURCE: PUNCH

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