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THE IMPACT OF ELECTRICITY DEREGULATION ON THE
PERFORMANCE OF NIGERIA POWER INDUSTRY
BY
OLANIYAN STEPHEN OLATOYEMATRIC NO: 070853
A PROJECT REPORT SUBMITTED TO THE
DEPARTMENT OF ELECTRICAL AND ELECTRONIC
ENGINEERING
FACULTY OF ENGINEERING
EKITI STATE UNIVERSITY, ADO-EKITI
EKITI STATE, NIGERIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF BACHELOR OF
ENGINEERING IN ELECTRICAL AND ELECTRONIC
ENGINEERING
APRIL, 2013
CERTIFICATION
This is to certify that this project was carried out by
Olaniyan Stephen Olatoye with matric number 070853 of the
Department of Electrical and Electronic Engineering, faculty
of Engineering, Ekiti State University, Ado-Ekiti, Ekiti State
Nigeria
________________ _____________
Engr. B. Adebanji Date
Supervisor
________________ _____________
Dr. V.S.A Adeloye Date
H.O.D (Elect/Elect)
________________ _____________
External Supervisor
ii
DEDICATION
This project is dedicated to Almighty God for giving me
the courage to do this work. Also dedicated to my beloved
family as a whole.
iii
ACKNOWLEDGEMENTS
I give glory and adoration to the most High God for
his grace upon my life and helping me so far.
My special gratitude goes to my supervisor Engr. B.
Adebanji who took time to train and impact knowledge in me.
My special thank goes to the head of department
Dr. V.S.A Adeloye and all entire staff in the department
of electrical and electronic engineering for given me
the opportunity to advance academically.
My special gratitude goes to my parents pastor
and mrs Olaniyan for their financial and moral support.
My sincere gratitude goes to my sisters and
brothers,Olaniyan tosin,Olaniyan yemi,Olaniyan nike,
Olaniyan ayo ,olaniyan tayo and every member of the
entire family of Olaniyan
My acknowledgement would not be complete if I
don’t express my profound gratitude to my beloved
friends Ogunleye foluso folahan(FLAKES), Ajayi dipo
timothy(DIPLOMACY), Okafor Christopher, Fasola
tosin, okonkwo ike, Oputteh Benson, Avidime jonah,
Okoh Raymond, Osi treasure, Bako for being there for
me through out my course of study in the citadel
learning, I have learnt a lot from you guys. I love you
all, Thanks.
iv
ABSTRACT
Many countries in the world today, are in the verge of
deregulating their power industry. Due to the increase in
demand of most goods and services, which electricity is not an
exemption, appropriate men as should be put in place at
meeting this demand.
Some of these countries have started improving their
electricity industry by introducing deregulation as a prelude to
ushering free market competition.
This project will presents the deregulation status of the
electric supply industry in Nigeria. The historical overview of
the Nigeria electric supply industry in Nigeria. The historical
overview of the Nigeria electric supply industry will be noted.
The motivation and rationale for restructuring the electric
supply industry will be presented. The short, medium and long
term goals of the deregulation process are presented. The
project gives suggestion that will be beneficial to the ongoing
privatization and restructuring exercise in Nigeria.
v
TABLE OF CONTENTS
TITLE PAGE
CERTIFICATION ii
Dedication iii
Acknowledgements iv
Abstract vi
Table Of Contents vii
CHAPTER ONE 1
1.0 Introduction 1
1.1 Statement Of Research Problem 6
1.2 Research Objectives 7
1.3 Significance Of The Project 7
1.4 Justification 7
1.5 Scope Of The Study 9
1.6 Research Methodology 9
1.7 Definition Of Operational Terms 9
CHAPTER TWO 12
2.0 Historical Overview Of Electric Supply Industry 12
2.1 General Overview 12
2.1.0 Transmission 13
2.1.1 Voltage Policy Control 13
vi
2.1.2 Frequency Control Policy 13
2.1.3 Distribution 13
2.1.4 Frequency Control 13
2.2 Deregulation And Current Scenario Around The World 18
2.3 Milestones Of Deregulation: 18
2.4 Latin America 18
2.5 The Uk 21
2.6 The Nordic Pool (Norway, Sweden) 24
2.7 Canada 27
2.8 California (Us) 29
2.9 Indian Scenario Of Deregulation 31
2.10The Electricity Act 2003: 32
2.11 Supply And Demand Imbalances 34
CHAPTER THREE 36
3.0 Restructuring Of The Esi: Policy And Status 36
3.1 Needs And Reasons For Restructuring 36
3.2 Power Sector Reform Program 37
3.3 National Electric Power Policy Objectives 37
3.4 Status Of The Restructuring Process 38
3.5 New Power Station 40
3.6 Ipp Initiatives 41
vii
3.7 Billing Collection 41
3.8 Structure Of Deregulated Industry 42
3.9 Different Entities In Deregulated Environment 45
3.10The Competition 48
CHAPTER FOUR 50
4.0 Impact Of Electricity Deregulation 50
4.1 Challenges And Opportunities 51
4.1.1 Economic And Social 51
4.1.2 Political 52
4.1.3 Technical 53
4.1.4 Environmental Factors 54
4.2 Opportunities 55
4.3 Efficiency And Reliability Of Service 55
4.4 Investment Opportunities 55
4.5 Employment Opportunities 56
4.6 Improvement Of Technical Manpower 57
4.7 Encouragement Of Research 57
4.8 Conclusion 58
CHAPTER FIVE 60
5.0 Conclusion 60
5.1 Recommendation 61
viii
5.1.1 Build, Operate And Transfer Schemes. 62
5.1.2 Build Operate And Own Scheme 63
5.1.3 Transmission 63
5.1.4 Tariff Regulation 65
5.1.5 Market 66
5.1.6 Vandalism 69
5.1.7 Nigeria Electric Power Training And Research Institute
(Neptri) 71
REFERENCES 74
ix
CHAPTER ONE
1.0 INTRODUCTION
Around the world, electric industries are undergoing
extensive restructuring. The trend, which started in the UK
and Chile in the 1980s, has rapidly spread too many countries
in Latin America, Asia, Europe and Africa. The main motivation
and driving forces for restructuring the electric industry in
different countries are not the same. In some countries, such
as the U.K. and the Latin America countries, privatization of
the electric has provided a means of attracting funds from the
private sector to relieve the burden of heavy burden of heavy
government subsidies. In the countries formerly under
centralized control (central and eastern Europe), the process
follows the general trend away from centralized government
control towards increased privatization and decentralization. It
also provides a vehicle to attract foreign capital needed in
these countries. In the United States and several other
countries where the electric industry has for the most part
been owned by the private sector, the trend is toward
increased competition and regulation J. Duncan Glover, and
1
Mulukutla S. Sarma, Power System Anaylsis and Design, 3rd
ed, California: Brooks/Cole 2002.
The crisis of public sector managed electricity sector hit
the economies of several countries hard and the countries
tried various measures of reform with varying degrees of
success. The privatization of the power sector is a recent, but
internationally widespread trend, which has placed greater
reliance on market forces and less dependence on government
in the allocation of resources. The privatization of the power
sector has been made possible after recognition that the sector
could be separated into generation, transmission and
distribution sectors and even these sectors could be broken
into several companies, without compromising the economic
advantages of a vertically integrated government monopoly,
which earlier existed in most countries N. Leeparechanon, S.
S. Moorthy, R. D Brooks, A. K. David, A review of major factors
in restructuring power markets in Developing Countries,
Proceedings of the 5th international conference on advances in
power system control, operation.
In the restructured environment power sector is no
longer based on vertically integrated model. Substantially
2
different economic characteristics are recognized in the
generation, dispatch, transmission, distribution and supply
stages. National, state owned, vertically integrated companies
have given birth to many companies in generation and supply,
which compete to provide electricity to the industrial
consumers and end consumers. Government role has been
changed from entrepreneurial role to regulatory one.
Competitions among private actors are established as the
mechanism to assign resources in generation and supply, with
the state regulating dispatch, transmission and distribution
activities. Most of the prevailing electricity market follows the
model as shown in Figure 1.0.
Currently electric power supply in Nigeria is the
responsibility of the federal government owned National
Electric Power Authority (NEPA), which has been recently
restructured into a holding company named Power Holding
Company of Nigeria, (PHCN) in preparation for deregulation.
NEPA was established in April 1972, with the amalgamation of
the former Electricity Corporation of Nigeria (ECN) and Niger
Dams Authority (NDA). NEPA supplies electricity power to an
estimated four million customers in Nigeria and the Niger
3
Republic, from a combination of hydroelectric dams, coal and
gas powered operating source.
Like most state-owned enterprises, NEPA has suffered
from severe under funding and under-capitalization,
inappropriate capital structure, excessive executive
interference, and sub-optimality and decision-making. The
consequence of this trend is a structural unbalance between
electricity power demand (estimated at 10000MW in 2005,
forecasted to rise to 20,000MW in 2010), and supply. Although
the installed capacity is about 6000MW, the maximum load,
ever recorded, was 3083MW. With a 40% generation and
distribution losses, the resultant power outages cost the nation
an estimated $1 billion per year (2.5% of GDP). Anurag K.
Srivastava, Service to Commodity: Which Way to Follow in the
Context of Indian Power Sector, Research Paper for ECE 650
at Illinois Institute of technology, 2002. Lack of adequate
electric power has caused the collapse of many industries that
rely heavily on adequate power supply. Small businesses and
heavily machined manufacturers are severely affected by the
abysmal performance of NEPA. The people in general are also
affected socially, psychologically and physically due to
4
inadequate and unstable power supply. Overall NEPA has
contributed in no small way to the stagnation of Nigeria
economy.
In 1999, a new democratic government was elected into
power Nigeria. This regime under the leadership of President
Olusegun Obasanjo initiated sweeping reforms across the
various sectors of the Nigerian economy. The new
administration recognized the fact that National Public
Enterprises (NEPA inclusive) have failed to meet public
expectation; they consume a large proportion of national
resources without discharging the responsibilities thrust upon
them. The administration also established the following facts
about its NPEs: they fail to allocate these resources efficiently;
they create economic inefficiencies; they incur huge financial
losses; absorbed disproportionate share of credit especially in
the form of Paris and London club loans, as well as domestic
loans and advances; and contributed to consistent fiscal
deficits. As a result the administration has slated most of the
NPEs for privatization or/and deregulation. NEPA is one of the
key NPEs slated for privatization and deregulation. Sesan A
5
Ayodele, Improving and Sustaining Power (Supply) for Socio-
Economic Development in Nigeria, 2003.
FIGURE 1.0: Restructured power system
1.1 STATEMENT OF RESEARCH PROBLEM
Under regulated power system, problems of improper
allocation of system usage cost if the participants as well as
high tariff on part of the consumers are eminent, this work is
thus to provide means of overcoming this problems.
1.2 RESEARCH OBJECTIVES
The objectives of this research are:
Firstly, it presents the deregulation status of the
electric supply industry in Nigeria.
Secondly, it will present the needs and reasons for
restructuring of the electric supply industry in Nigeria.
6
Thirdly, to recommend an efficient status of the
deregulation process of electric supply industry in
Nigeria.
1.3 SIGNIFICANCE OF THE PROJECT
The significance of this project is to : Encourage the entry
and full participation of private investors into the power
industry in Nigeria. Achieve the stability of price in the
electricity market. It gives the suggestion that might be
beneficial to the ongoing privatization process in Nigeria
power industry.
1.4 JUSTIFICATION
This wok will justify proper allocation of system usage
cost thereby providing proper means of compensating the
wheeling utilities and the customers.
7
1.5 SCOPE OF THE STUDY
This study is fundamental at discussing the various
methods used in restructuring of the electric supply industry
in Nigeria and does not include issues concerning congestion
management of such power system.
1.6 RESEARCH METHODOLOGY
Power system is an interconnection of different
equipment from the generating station to the end users. This
equipment normally form a complex network, hence analyzing
such network tends to be cumbersome.
For the purpose of this project, reviewing of journals
and articles, interviews and collection of data from the
National Control Centre Oshogbo are also some of the
methodologies used in the project.
1.7 DEFINITION OF OPERATIONAL TERMS
The definitions of some of the terms frequently used in
this project are given below:
i) Customer: end user which purchases the power from
the distribution utilities.
8
ii) Deregulation: a system whereby new laws and
regulations are introduced to increase competition in a
previously monopolized industry.
iii) Firm transmission: transmission service that cannot be
interrupted for any reason except during an emergency
where continuous power delivery is not possible.
iv) Monopoly: a market structure in which a single entity
controls the production of goods and services which has
no close substitute e.g. electricity.
v) Network: an interconnected power system consisting of
transmission lines and equipments for the transmission
of electricity.
vi) Producer: owner of the generating station that
generates electrical energy.
vii) Transmission: process of transporting electrical energy
at high voltage from the supply source to the utilities.
viii) Transmission provider: the entity responsible for
providing transmission services subject to reliability,
regulatory and commercial requirement. A transmission
provider may or may not be the transmission owner.
9
ix) Vertical integrated utility: a traditional electric utility
that has direct control on the generation, transmission
and distribution facilities.
10
CHAPTER TWO
2.0 HISTORICAL OVERVIEW OF ELECTRIC SUPPLY
INDUSTRY IN NIGERIA
2.1 GENERAL OVERVIEW
From 1972 to 2005, NEPA, the state owned, vertically
integrated monopoly, controlled about 94% of the generation
capacity and 100% of the transmission, system operation,
distribution and marketing sector of the industry. The
transmission lines and generators are interconnected in a
common grid, with a single control center. Sesan A Ayodele,
Improving and Sustaining Power (Supply) for Socio-Economic
Development in Nigeria, 2003.
The national electric grid comprises of three hydro and
six thermal generating stations with a total installed capacity
of 5906MW. Sesan A Ayodele, Improving and Sustaining
Power (Supply) for Socio-Economic Development in Nigeria,
2003.
The generators types and capacities are presented in
table 1. The transmission and distribution networks include:
11
2.1.0 TRANSMISSION
5000 kilometres of 330KV lines
6000 kilometres of 132KV lines
23 of 330/132KV sub-stations
91 of 132/33KV sub-stations
2.1.1 VOLTAGE POLICY CONTROL
330KV + 5% & -15%, 132KV + 10% & -15%
2.1.2 FREQUENCY CONTROL POLICY
50Hz + 0.4% & - 0.4%
2.1.3 DISTRIBUTION
23,753 kilometres of 33KV lines
19,226 kilometers of 11KV lines
679 of 33/11KV sub-stations
543 of 33/0.415KV or 11/0.415KV sub-stations
2.1.4 FREQUENCY CONTROL
20, 50Hz: 33KV +/- 10%
In addition, there are 1790 distribution transformers and
680 injection sub- stations.
Table 2.1: Generation mix of PHCN
12
Generators Total Installed Capacity
Types Fuel Location MW
Hydro -- Kanji 760
Hydro -- Jebba 570
Hydro -- Shiroro 600
Thermal Natural Gas Afam 709.6
Thermal Natural Gas Delta 912
Thermal Steam Egbin 1320
Thermal Steam and Gas Sapele 1020
Thermal AGO fuel Ijora 60
Total: 5951.6
While table 2.1 shows an installed capacity of 5951.6 MW
it is sad to note the current available capacity from generators
is only about 2536.6MW, less than 50% of the install capacity.
The transmission grids are heavily overloaded, because
transmission capability was not expanded with increasing MW
13
added to the transmission grid. According to a study done by
O.A Komolafe et al the transmission grid is limited to a load
supply of 4000MW. This limit includes the effect of Var
Injections and Voltage control equipments. If all the available
capacity of 5951.6MW is injected into the transmission, total
system collapse will occur. Transmission losses are estimated
to be 20-30% annually.
During the inglorious days of military dictatorship in
Nigeria (1983-1999), generation, transmission and distribution
apparatus (rotating machines, transformer and others) were
operated for several years without the necessary turn around
maintenance required to keep them operating efficiently and
prevent them from collapse. As a result a lot apparatus cannot
be operated efficiently or outright inoperable. Also substantial
amount of the machineries have outlived their useful life,
deteriorated beyond repair or rendered obsolete due to better
technology.
PHCN equipments are subjected to vandalism and theft
by group of cabals in different part of the country. The hydro
power stations suffer from low water level during dry season
and the generation output capabilities of thermal stations are
14
often hampered by shortage of fuel. Equipments are expensive
to repair, mostly due to their obsolete status.
NEPA has always struggled to meet its end of the bargain
to supply electricity to its end consumer. NEPA supply
electricity through a hostile regime of load shedding and
rationing. Power outages occur at high rates and power quality
delivered in most area is very low. The frustration caused by
inefficacy of NEPA fueled by the lackadaisical attitude of NEPA
personnel has lead to a high rate of illegal electricity
consumption practices among consumers. 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.
NEPA is a government ran entity that enjoys a lot of the
financial transfers, subsidies, grants and tax and import duty
waivers from the government. These social incentives from the
government were counter productive for NEPA’s efficiency. It
resulted in an under trained and unmotivated manpower and
15
lack of will to operate as a profitable entity. The billing system
of NEPA is fraught in two main ways: 1) The tariff does not
cover the cost of supplying power to consumers 2) NEPA does
not have an effective billing system, which results in
widespread under billing.
16
2.2 DEREGULATION AND CURRENT SCENARIO
AROUND THE WORLD
2.3 MILESTONES Of DEREGULATION:
- 1982 Chile
- 1990 UK
- 1992 Argentina, Sweden & Norway
- 1993 Bolivia & Colombia
- 1994 Australia
- 1996 New Zeeland
- 1997 Panama, El Salvador, Guatemala, Nicaragua,
Costa Rica and Hondura
- 1998 California, USA and several others
2.4 LATIN AMERICA
From 1980 onwards, a major transformation took place
throughout the electric power industry in South America. The
first to begin was Chile, which made modest reorganization
efforts in 1980, and privatizedNacional de Electricidad S.A. in
1988, purchased by Endesa (Spain). Endesa along with other
utilities purchased stakes in the Chilean electric industry. Over
17
time, government owned power gave way to five generating
companies competing in the main grid.
In Argentina, the government separated generation,
transmission and distribution in 1991. The two state owned
companies were split into almost 40 competing private
generator companies, many with only a single power plant.
This fragmentation was designed to assure that no one
generator had anything approaching dominant position in the
marketplace. Transmission assets were sold to private
Transcos, and 18 electric distribution companies were created.
MAIN FEATURES:
Disaggregation of generation, transmission and
distribution into separate business sectors.
Creation of intense competition in power production
through fragmentation of national generating resources
into many companies, none of which dominates the
market.
All generating companies bid into ‘Poolco’ like structure,
essentially centrally dispatched by an independent Poolco
operator.
There are almost no barriers to the construction of
18
thermal, wind and solar plants. Licenses and government
cooperation are required for construction of hydroelectric
plants.
Licensed, open access operation of power delivery assets,
usually having local monopoly franchises limited to power
movement, not sales.
Local distribution concessionaires are assigned an
obligation of supplying electricity to consumers with long-
term franchises.
RESULTS:
Increasing investment in new facilities, especially new
generating plants
Substantial increase in thermal plant availability
Reduction in specific power consumption of thermal
plants and consequent decreases in both spot and
contract market prices
Service quality improvements, reduction in non-served
energy and decrease of system failure probability
Reduction in total service losses
Considerable consumption growth (40% increases in last
five years)
19
Transmission investments in the period have been
moderate, because of the strict economic criteria
required for their implementation by interested party.
Reduction in non-supplied energy because better
transport service quality
Reduction of prices since beginning of the process around
50 %
Average monthly electricity prices in wholesale market
dropped from $60/MWhr to $30/MWhr
2.5 THE UK
The most widely quoted example of deregulation is the
United Kingdom. The process of privatization in the UK began
in February 1988, and in some ways the UK led the world in
electric industry deregulation. Great Britain was privatized in
three stages, with England and Wales first, followed by
Scotland, then Northern Ireland.
MAIN FEATURES:
Central Electricity Board was split into four entities,
which consisted of two private generating companies,
National Power and Power Gen, a government owned
generator, Nuclear Electric, and the National Grid
20
Company (NGC), which is the independent transmission
system operator.
12 local electricity boards privatized as Regional electric
Company (REC), each having monopoly franchise on local
power distribution
National Grid became National Grid Company (NGC),
initially owned by 12 RECs. But now a public traded
corporation.
Scottish non-nuclear companies, Electricity de France
(EdF) and IPPs became the member of pool.
Non-franchise customers (earlier > 1 MW, later > 100
KW and now free) have option of choosing their supplier
from any RECs, National Power or PowerGen.
Pool maintained by NGC
REC submit grid forecast to Pool co operator
Generator bids are entered into NGC’s GOAL program
The GOAL program derives half hourly marginal costs
The “System Marginal Price” (SMP) is the price quoted
by the most expensive generator which is accepted for
dispatch during each half-hourly time slot when
transmission constraints are ignored simple
21
unconstrained dispatch New Electricity Trading
Arrangements (NETA):
In July 1998 the Director General of Electricity Supply
(DGES) published a proposals document describing new
market based trading arrangements for electricity (NETA). In
October 1998 the Government accepted these proposals.
The proposals envisaged market-based trading
arrangements more like those in commodity markets
elsewhere. Forwards and futures markets would operate up to
several years ahead, evolving in response to demand. A
voluntary Short-term Bilateral Market would operate from at
least 24 hours to about 4 hours before real time, allowing
participants to fine tune their positions. When the Short-term
Bilateral Market closes, a voluntary Balancing Market would
open with the National Grid Company, in its role as System
Operator, accepting bids for increments or decrements of
generation or demand to enable it to balance the system.
There would be a settlement process to reflect differences
between contract positions and metered volumes of output and
to recover other costs to be borne by market participants.
A Balancing and Settlement Code would contain a set of
22
rules covering the balancing market, the imbalance price and
the settlement system.
RESULTS:
Staffing at generation plants fell by 60%, while
productivity increased almost 75%
Improved operating efficiency.
Prices have fallen for majority of customers with
increased reliability
2.6 THE NORDIC POOL (NORWAY, SWEDEN)
The Swedish electricity sector was never completely
centralized or nationalized. Till 1991, the sector was
dominated by Vatenfall, which in addition to owning about
50% of the total generation also managed the 400 kV and 220
kV transmission lines and some large networks at lower
voltage levels, down to the customers. There were about a
dozen other large generating companies and 270 distribution
companies, which operated the networks at lower voltage
levels and often owned their own generation.
The Norwegian electricity sector was dominated by small/
medium sized municipality owned power companies, each
23
vertically integrated, i.e., they generated power and
transmitted that to their own dedicated customers. Most of the
transactions were on a bilateral basis, between the utility and
bulk consumers.
MAIN FEATURES OF NORWEGIAN DEREGULATED
MARKET:
Deregulation was created in by the Energy Act of June
1990 and market operation started in May 1992
Restructuring removed the transmission ownership from
Stat Kraft, a national utility, and the creation of a new
national owned company Stat Nett to be transmission
owner, market operator and ISO.
Nord pool is not a mandatory pool. Generators and
consumers voluntarily decide whether or not they
wish to sell or purchase electricity through this market.
As a consequence, the majority of electricity is still traded
via bilateral contracts between generators and
consumers, with the pool serving primarily as a wholesale
market for marginal electric supply.
There is a future market where weekly financial futures
contracts ranging from a week ahead to 3 years ahead
24
are traded.
Norwegian Water Resources and Energy Administration
(NVE) are responsible for monitoring grid operation in
Norway and for setting the tariffs for the local
distributions companies throughout Norway.
MAIN FEATURES OF SWEDISH DEREGULATED
MARKET:
Passed deregulation legislation in October 1995 and
joined existing Norwegian market structure in January
1996 inspired by the Norwegian initiative.
Transmission operation was removed from national utility
Vattenfall that continues to operate generation, and
Svenksa Kraftnat, the national grid owner and ISO, was
formed.
Nord Pool, a market operator was formed, owned equally
by Statnett & Kraftnat, to look over spot and future
market for the both countries.
Some large retail distributors also generate all or a large
fraction of the electricity they distribute.
Sydkraft and Stockholm Energi, the two largest
distribution ompanies, are the next largest generators
25
after Vattenfall.
RESULTS:
Prices have declined about 2% for residential & 7% for
commercial consumers
Service reliability has remained at or near traditionally
high levels
Management of hydro energy has resulted in no
shortages or apparent waste of water resources.
2.7 CANADA
January 1, 1996 was a turning point for Alberta’s electric
industry since it meant vertically integrated utilities became a
thing of the past. Since then, restructuring is moving
cautiously, trying to retain the benefits of the existing low cost
generators for customers while making the transition to fully
competitive market.
MAIN FEATURES:
New power pool, through which all energy in the province
will be traded. The hourly pool price will be the same for
buyers and sellers.
Competitive bidding for future generation. Utilities will
continue to own and operate their existing power plants.
26
However, as these are retired, IPP will be brought on to
replace them and meet load growth. This will lead to the
generation sector becoming fully competitive.
A province-wide transmission grid, which will be
administered by the Grid Company of Alberta Inc.
(Gridco). It is owned by the four utilities that own
transmission facilities in the province and will contract
with those individual owners to supply transmission
services.
An advisory group, the Electric Transmission Council, will
represent the interests of consumers and transmission
users.
2.8 CALIFORNIA (US)
In the United States, the Federal Energy regulatory
Commission (FERC) deregulated the wholesale generation and
bulk transmission parts of the electric power industry with its
order 888, in April 1996. The wholesale generation market
throughout the United States will be competitive, with low
barriers to entry and dominance by no one. The transmission
grid will be open to access by all qualified parties.
Individual states are free to pursue different approaches
27
to how they implement and operate the electric industry in
their state, within the FERC guidelines. Naturally, the fifty
states are pursuing deregulation in different directions.
Electricity costs in California were claimed to be about
50% higher than the national average. So, this state has been
most aggressive in pursuing restructuring. On March 31, 1998
California became the first sate to offer all customers a choice
of electric service providers
MAIN FEATURES:
A ‘power exchange’ (PX) - a spot market, runs much like a
stock market for power, into which both buyers and
sellers bid.
Unlike some systems, this PX allows only short term (real
time, hour and day-ahead) trading.
Bilateral trading of power over short or long periods is
not only allowed, but also encouraged.
Operation of transmission system in an open access
manner.
Open customer access at the retail level.
Postage-stamp pricing implemented on a zonal basis.
Congestion management through adjustment of zonal
28
prices.
Nuclear power do not bid and contracted ahead of time
as must run. Schedule and price are calculated and
disclosed.
Renewable must be bought as and when available.
The ISO will maintain interconnected system operation,
monitoring and controlling the system to assure it stays in
a secure and stable state all the time.
The ISO should provide equitable access for all potential
users to reserve the system transmission capability they
want.
The ISO should satisfy the power shipment needs of all
the participants.
The ISO provides settlement, billing the users and
passing revenues on to the transmission owners.
2.9 INDIAN SCENARIO OF DEREGULATION
In India, the power sector was mainly under the
government ownership (>95% distribution & ~98%
generation) under various states and central government
utilities, till 1991. The remarkable growth of physical
infrastructure was facilitated by four main policies: 1)
29
centralized supply and grid expansion 2) large support from
government budgets 3) development of sector based on
indigenous resources 4) cross subsidy.
In mid 1990s, Orissa began a process of fundamental
restructuring of the state power sector. Under the World Bank
(WB) loan, the state decided to adopt, what is known as WB-
Orissa model of reform. This consisted of a three pronged
strategy of: 1) Unbundling the integrated utility in three
separate sectors of generation, transmission and distribution,
2) Privatization of generation and distribution companies and,
3) Establishment of independent regulatory commissions to
regulate these utilities. Soon afterwards, several other states
such as Andhra Pradesh, Haryana, Uttar Pradesh and
Rajasthan also embarked on similar reforms and also availed
loans from multilateral development banks such as WB and
Asian Development bank, etc. Meanwhile, some moderate
steps were taken towards reforms until the Electricity Bill
2003 was approved by Parliament in May 2003. This unified
central legislation passed after 10 drafts. The Bill now replaces
pervious three acts on electricity of 1910, 1948 and 1998 (with
their amendments).
30
2.10THE ELECTRICITY ACT 2003:
The conceptual framework underlying this new legislation
is that the electricity sector must be opened for competition.
The Act moves towards creating a market based regime in the
power sector. The Act also seeks to consolidate, update and
rationalize laws related to generation, transmission,
distribution, trading and use of power. It focuses on:
Creating competition in the industry
Protecting consumer interest
Ensuring supply of electricity to all area
Rationalizing tariff
Lowering the cross-subsidization level
31
2.11 SUPPLY AND DEMAND IMBALANCES
The pre 1999-generation level of about 1,500MW was
much below the estimated demand of 4,500MW. There was
about 2,400MW of self-generation in the form of small diesel
and petrol generating sets. The Federal and State
governments have vigorous policies of connecting local
government headquarters and other towns and villages to the
National Grid. This coupled with the creation of new States
and Local governments transformed additional parts of the so-
called rural areas into load centers, thus adding pressure to
the already overloaded electricity supply system. The
estimated percentage of Nigerians having access to electricity
from NEPA is only 36%. The forecasted load for the year 2001
is 4,833.7MW. In order to meet this demand, a generating
capacity of about 6000MW is required. Furthermore, the
estimated demand for power in 2005 and 2010 are
respectively 9780MW and 20,000MW. These will require
generating capacities of 12,700MW and 25,000MW by the
respective years. Thus it is necessary to fully rehabilitate the
existing power stations (which will provide a maximum of
5400MW generating capacity) rehabilitate some critical
32
transmission and distribution lines and their associated
substations and add new generating, transmission and
distribution capacity to the grid, in the immediate and
foreseeable future. Overview of the Power Sector, Official
Website of Nigeria Bureau of Public Enterprise,
www.bpeng.org
33
CHAPTER THREE
3.0 RESTRUCTURING OF THE ESI: POLICY AND
STATUS
3.1 NEEDS AND REASONS FOR RESTRUCTURING
The business of power supply is a very capital-intensive
enterprise. The Obasanjo administration wanted to direct its
scarce resources to attack poverty through investment in
health, education and rural development that will benefit
millions of Nigerians, not just a few thousand urban elite that
are employed by, or capture the subsidies granted to the
public enterprises. From the preceding it is evident that the
government cannot fund the needed development of the ESI as
outlined above. Reformation of the ESI was a proposed as a
way out of the above quagmire. Reform of the ESI is expected
to achieve the following. Anurag K. Srivastava, Service to
Commodity: Which Way to Follow in the Context of Indian
Power Sector, Research Paper for ECE 650 at Illinois Institute
of technology, 2002.
(i) Attract and encourage private sector participation
(ii) Attract capital to fund the sector and
34
(iii) Ensure a level playing ground for all investors.
3.2 POWER SECTOR REFORM PROGRAM
There was a regime change from oppressive and
dictatorial military regime to a democratic government in
1999. The new government made it a source of priority to
overhaul the ailing power sector. The administration chose
privatization as a cardinal economic program to address the
problems of the power sector. The National Council on
Privatization (NCP) empowered a 23 member Electric Power
Sector Reform Implementation Committee (EPIC) to develop
recommendations to promote the policy goals of total
liberalization, competition and private sector led growth of the
electricity sector. EPIC came up with a 64-page document
titled National Electric Power Policy Statement, to serve as a
guideline for the restructuring and deregulation of NEPA.
NATIONAL ELECTRIC POWER POLICY OBJECTIVES
Salient parts of the National Electric Power Policy are
available in this document. Overview of the Power Sector,
Official Website of Nigeria Bureau of Public Enterprise,
www.bpeng.org
35
STATUS OF THE RESTRUCTURING PROCESS
To provide the legal framework for the restructuring of
ESI, the Electric Power Sector Reform bill was signed into law
on the 11th of March 11 2005. The bill seeks to provide for the
formation of successor companies to take over the functions,
assets, liabilities and staff of the National Electric Power
Authority, develop competitive electricity markets; establish
the Nigerian Electricity Regulatory Commission; provide for
the licensing and regulation of the generation, transmission,
distribution and supply of electricity; enforce such matters as
performance standards, consumer rights and obligation;
provide for the determination of tariffs; and to provide for
matters connected with or incidental to the foregoing. O.A
Komolafe, M.O Omoigui, A. Momoh, Reliability Investigation of
the Nigerian Electric Power Authority Transmission Network
in a Deregulated Environment, 2003 IEEE.
An Initial Holding Company (IHC) has been incorporated
as provided for in the act. The name of the IHC is Power
Holding Company of Nigeria (PHCN) Plc and it was
incorporated on 31 May 2005. The Power Holding Company of
36
Nigeria (PHCN) PLC has taken over all NEPA assets and
liabilities.
PHCN has 18 successors companies from the old NEPA.
NEPA was divided into its generation plants, transmission
operations and distribution centers. The successors companies
consist of 6-generation companies (GENCO), 1 transmission
company (TRANSYCO) and 11 distribution companies
(DISCO). The GENCO companies are:
Egbin Electric Power Business Unit (EEPBU) - located in
Egbin, Lagos
Niger Hydro Power Business Unit (NHPBU)- This comprises
of Kainji hydro Power station and Jebba Hydro Power
Station.
Shiroro Hydro Power Business Unit (SHPBU) - Located in
Shiroro
Delta Electric Power Business Unit (DEPBU) - Located at
Ughelli.
Sapele Electric Power Business Unit (SEPBU) - Located at
Sapele
37
AFAM Electric Power Business Unit (AEPBU) - Located at
Afam, Rivers State.
The DISCO companies are:
Abuja Distribution Business Unit (ADBU)
Benin Distribution Business Unit (BDBU)
Eko Distribution Business Unit (EkDBU)
Enugu Distribution Business Unit (EnDBU)
Ibadan Distribution Business Unit (IbDBU)
Ikeja Distribution Business Unit (IkDBU)
Jos Distribution Business Unit (JDBU)
Kaduna Distribution Business Unit (KdDBU)
Kano Distribution Business Unit (KnDBU)
Port Harcourt Distribution Business Unit (PDBU)
Yola Distribution Business Unit (YDBU)
The single TRANSYSCO, Tran Sysco New Business Unit,
TNBU will be responsible for the erstwhile Transmission
Sector and System Operations Sector of National Electric
Power Authority.
38
3.5 NEW POWER STATION
As part of the requirement to meet the increase in future
demand of electricity power, three new power plants are being
added to three of the GENCO companies: a 335 MW power
plant is being built at Egbin (EEPBU); a 414MW power plant is
being built at Shiroro (SHPBU); and a 335 MW power is being
built at Sapele (SEPBU). The total added generation would be
1084MW.
3.6 IPP INITIATIVES
PHCN in particular, the Generation Sector is undertaking
some reform measures in line with the global trend of
independent power producers (IPP) participation in electricity
industry. The reforms include Disinvestments, Unbundling and
Power Purchase Agreements (PPA). A number of power
purchase agreements are have been implemented by IPPs. The
first of such to be executed is the 270MW power purchase
agreement with ENRON/AES at Egbin in Lagos state. It sells
the 270MW power to PHCN grid for onward use to end
consumers. Such other schemes are being implemented in
some part of the country.
39
3.7 BILLING COLLECTION
The amount of money paid for electric consumption has
improved tremendously from the pre 1999 era. Money
remitted for electricity has been increasing since 2002. In
2003 57,010,038,577.76Naira was collected from customers
and in 2004 71, 056,937, 231.60Naira was remitted by
consumers. This is an increase of 24.64% in one year.
Background Information, Official website of Power Holding
Company of Nigeria, http://www.nepanigeria.org
/background.html
The increase is a result of involving private sector in
the bill collection scheme.
3.8 STRUCTURE OF DEREGULATED INDUSTRY
Figure 3.0 shows the typical structure of a deregulated
electricity system with links of information and money flow
between various players.
40
FIGURE 3.0
The configuration shown in the figure is not a universal
one. There exist variations across countries and systems.
A system operator is appointed for the whole system
and it is entrusted with the responsibility of keeping the
system in balance, i.e. to ensure that the production and
imports continuously match consumption and exports.
Naturally, it was not required to be an independent authority
without involvement in the market competition nor could it
own generation facilities for business. This system operator is
known as Independent System Operator (ISO).
Referring to figure 3.0, there is no change as compared to
41
figure 1.0 so long as energy flow is concerned. Customer does
its transactions through a retailer or transacts directly with a
generating company, depending on the type of a model.
Different power sellers will deliver their product to their
customers (via retailers), over a common set of T & D wires,
operated by the independent system operator (ISO). The
generators, T & D utility and retailers communicate ISO.
Mostly, customer communicates with the retailer, demanding
energy. The retailer contacts the generating company and
purchases the power from it and makes it transferred to its
customer’s place via regulated T & D lines. The ISO is the one
responsible for keeping track of various transactions taking
place between various entities.
In the regulated environment, the electricity bill
consisted of a single amount to be paid towards the
generation, transmission and all other costs. But, in the
restructured environment, the electricity price gets
segregated into the following:
1. Price of electrical energy
2. Price of energy delivery (wheeling charges)
3. Price of other services such as frequency regulation
42
and voltage
control, which are priced separately and charged
independently
but may or may not be visible in the electricity bills.
3.9 DIFFERENT ENTITIES IN DEREGULATED
ENVIRONMENT
The introduction of deregulation has brought several new
entities in the electricity market place, while on the other hand
redefining the scope of activities of many of the existing
players. Variations exist across market structures over how
each entity is particularly defined and over what role it plays
in the system. However, on a broad level, the following entities
can be identified as shown in the figure 3.1.
FIGURE 3.1
43
1. Genco (Generating Company): Genco is an owner-operator
of one or more generators that runs them and bids the power
into the competitive marketplace. Genco sells energy at its
sites in the same manner that a coal mining company might
sell coal in bulk at its mine.
2. Transco (Transmission Company): Transco moves power in
bulk quantities from where it is produced to where it is
delivered. The Transco owns and maintains the transmission
facilities, and may perform many of the management and
engineering functions required to ensure the system can
continue to do its job. In most deregulated industry structures,
the Transco owns and maintains the transmission lines under
monopoly franchise, but does not operate them. That is done
by Independent System Operator (ISO). The Transco is paid
for the use of its lines.
3. Disco (Distribution Company): It is the monopoly
franchise owner-operator of the local power delivery
system, which delivers power to individual businesses and
homeowners. In some places, the local distribution function
is combined with retail function, i.e. to buy wholesale
electricity either through the spot market or through direct
44
contracts with gencos and supply electricity to the end use
customers. In many other cases, however, the disco does not
sell the power. It only owns and operates the local distribution
system, and obtains its revenues by ‘renting’ space on it, or by
billing for delivery of electric power.
4. Resco (Retail Energy Service Company): It is the retailer of
electric power. Many of these will be the retail departments of
the former vertically integrated utilities. Others will be
companies new to the electric industry that believes they are
good at selling services. Either way, a resco buys power from
gencos and sells it directly to the consumers.
5. Independent System Operator (ISO): The ISO is an entity
entrusted with the responsibility of ensuring the reliability and
security of the entire system. It is an independent authority
and does not participate in the electricity market trades. It
usually does not own generating resources, except for some
reserve capacity in certain cases. In order to maintain the
system security and reliability, the ISO procures various
services such as supply of emergency reserves, or reactive
power from other entities in the system.
6 Customers: A customer is entity, consuming electricity. In
45
deregulated markets, the customer has several options for
buying electricity. It may choose to buy electricity from the
spot market by bidding for purchase, or may buy directly from
a genco or even from the local distribution company.
3.10THE COMPETITION
In a deregulated environment, two levels of competition
exist, rather, encouraged. At what can be termed as wholesale
level, gencos produce and sell bulk quantities of electric
power. Power is typically sold in bulk quantities to other
companies or very large industrial customers, through some
deregulated power market mechanism. The gencos bid their
power at the marketplace so as to maximize their profits.
Locally, retail delivery is accomplished by retailers, who
compete for the business of the consumers in the area by
offering low price, good service and additional service
features. These are the companies buying power at the
wholesale level and arranging for transport to each community
where they do business, so that they have power to divide up
and sell to individuals locally.
Thus, a restructured, completely competitive electric
industry is a sandwich of competition above and below a
46
power delivery system. This structure can be conveniently
divided into wholesale and retails levels. The important thing
to note is that the power delivery i.e. transmission and
distribution remains the monopoly franchise. This is shown in
figure 3.2.
FIGURE 3
47
CHAPTER FOUR
4.0 IMPACT OF ELECTRICITY DEREGULATION
The driving force of the reform program is to improve the
quality and reliability of the electricity supply through special
customer service arrangement, the introduction of new
prepayment methods which will allow people to choose and
monitor how much they wish to spend on electricity each
month.
Power industries and small businesses will also be positively
impacted through the creation of reliable and affordable
electricity which will consequently lead to economic
development in the country. Although, the power reform may
lead to removal of many cross subsidies and hence increase
the price of electricity for small businesses and domestic
consumers. Stable and reliable electricity will help in the
increase of establishment of new businesses as the operational
costs would be reduced and there would be no need for
individuals or organizations to invest on costly backup
systems.
Also, reforms in the power sector have the potential to affect
the lives in different ways which consequently improves the
48
efficiency and financial soundness of the power sector. The
reforms can attract new investors of fill up government
resources to be used in expanding access provided there is an
effective demand.
Power sector reforms will however introduce market
driven private sector participation that may encourage utilities
to focus in providing electricity to communities that are not
viable and profitable.
4.1 CHALLENGES AND OPPORTUNITIES
In a developing economy such as Nigeria, power sector
reforms pose great challenges not only to the government that
initiated the program but also to the entire populace who are
the consumers of energy and to the newborn Power Holding
Company of Nigeria which parades itself as a better
alternative to the obsolete National Electric Power Authority.
These challenges can be broadly classified into four; Economic
and Social, Technical, Political and Environmental.
4.1.1 ECONOMIC AND SOCIAL
As said earlier, the primary aim of the power sector
reforms by the Federal Government is to enhance the
49
efficiency of the nation’s power sector and also to make it
affordable and available to consumers. In other words, this
means generating more power to the national grid and
renewing power plants and transmission lines all in a bid to
ensure the achievement of these goals.
4.1.2 POLITICAL
The political atmosphere of the country has to be conducive
to help the power sector open itself to key players within and
outside the country. This means that there is a need to create
and ensure a level playing field for all stakeholders in the
emerging power sector reforms if the desired objectives of the
reform program are to be achieved. The IPP’s therefore expect
a serene political environment before they can agree to invest
their money. Majority of the IPPs would like to construct their
plants within the Niger Delta Area where the sources of
energy needed to run their plants are guaranteed. However,
the present hostile environment in the Niger Delta predicated
by armed ethnic military and youth restiveness will definitely
scare away intending power investors. This brings to fore the
need to sustain the nation’s democratic structures with the
view of ensuring government policy stability. By so doing, they
50
envisaged comprehensive National Energy Policy that will take
care of conservation, storage, consumption, construction and
distribution and will be sustained when it becomes
operational.
4.1.3 TECHNICAL
Power cannot be generated in isolation so it is important
that it is generated with recourse to the strength of the
existing transmission line capabilities as well as how the
power could be used for the overall interest of both the PHCN
and the consumers. The former emphasizes the need for
transmission line and substantial re-enforcement and
construction of additional transmission lines in order to ease
evacuation of energy especially in areas where the IPPs cluster
as a result of proximity to energy sources. The latter calls for
establishment of the Demand Side Management program by
the PHCN. Demand-side management programs usually
consist of the planning, implementing, and monitoring
activities of electric utilities that are designed to encourage
consumers to modify their leveland pattern of electricity
usage. Instead of building new power plants to respond to
increasing customer demand, electricity producers can also
51
endeavor to minimize their customer’s demand for power by
offering special programs for homeowners, businesses,
institutions and industry. To determine the success of such
programs, the costs and benefits of DSM opportunities should
be directly compared with the costs and benefits of building
new power plants and transmission lines.
4.1.4 ENVIRONMENTAL FACTORS
The nature of the environment determines the nature of
power plant to be built in a given locality. For instance, a city
which already has cement industry and chemical industry may
frown at hosting thermal power plant because of high level of
Carbon monoxide (CO) emission. In order to guard against this
scenario, the government has established an Environmental
Inspection Agency - the National Environmental Standards and
Regulations Enforcement Agency - to monitor and regulate the
extent of damage caused by pollution to the environment and
the inhabitants. Again, the IPPs may be confronted by high
compensation fees for economic trees, properties and right of
ways in their quest to erect a power plant in any given city.
These high compensation fees may run in millions and can
invariably pose as a deterrent to potential IPPs.
52
4.2 OPPORTUNITIES
The previous section has enumerated the enormous
challenges involved in the government power sector reforms.
Here, the opportunities derivable from such laudable steps in
terms of efficiency and reliability of services, investment
opportunities, employment opportunities, Transfer of technical
manpower and encouragement of research will be discussed.
4.3 EFFICIENCY AND RELIABILITY OF SERVICE
Proper implementation of the reform program will
promote efficiency and growth in the power sector. The reform
will lead to improved electricity services as it will encourage
private sector participation and investment in the electricity
industry. The evidence can be seen in the form of better
telecommunication services in the country brought about by
the private sector participation in the provision of Global
System for Mobile Communications services.
4.4 INVESTMENT OPPORTUNITIES
The power sector reform has the ability to massively
expand the personal share ownership in Nigeria. It is believed
that over 800,000 shareholders can be created after
53
privatization of NEPA. This is a welcome development which
enables capital formation and economic growth. It reduces the
reliance of public enterprises on the government for finance.
Unbundling of NEPA makes the successive companies to easily
raise funds through the capital market once the necessary
investor confidence has been developed; thus changing their
growth and expansion of their business outfit.
4.5 EMPLOYMENT OPPORTUNITIES
The power sector reform will in the long run create a
reasonable employment opportunities to Nigerians. This is
because; the companies that are expected to participate will
look for both skilled and unskilled labour in the task of
executing their businesses. It is expected that when the reform
is fully implemented, many graduate engineers and
technologists roaming the streets in search of unavailable jobs
will finally heave a sigh of relief as most of them will be
absorbed by the emerging independent power producers.
4.6 IMPROVEMENT OF TECHNICAL MANPOWER
Subsidiary companies that will compete in the power
sector, which some of them must be foreign companies have to
54
come with their expatriate. These companies in a bid to set up
their operational structure will impact knowledge and skill in
areas of demand side management, power system protection
and planning, voltage collapse and stability, co-generation, etc
to Nigerians through their foreign expatriate. This area of
technology transfer if well tapped by Nigerians will go a long
way in bridging the gap between the developed and
developing nation in terms of technology advancement.
4.7 ENCOURAGEMENT OF RESEARCH
Privatization brings about competition and allows
management of privatized companies’ full freedom to realize
their optimum potentials. In order for any company to take a
lead over the other, her product must be second to none. Such
excellence in quality of product could only be achieved
through research. With the emerging power sector reform,
other sources of renewable energy such as wind, solar and
biomass are expected to be explored. For instance in UK, prior
to privatization of electric sector, coal and gas turbines were
widely used. With privatization, research was conducted in
combined heat and power plants. With the eventual success in
the research, generation companies rose from 10 to 32 while
55
supply companies rose from 16 to 34 in 1990 because of new
innovations in the field. Definitely, the new owners of the
privatized NEPA will embark on research, motivated by a
different set of imperatives as new rules, more professional
standards, new performance criteria and better training will
emerge.
4.8 CONCLUSION
This chapter has highlighted the on-going Federal
Government of Nigeria Power Sector Reform Program. The
challenges as well as the opportunities inherent in such reform
program have been discussed. It is envisaged that the Power
sector reform program will improve the stability of electricity
supply, improve cost recovery, increase the availability of
investment capital, usher in competitive energy market, break
the monopoly enjoyed by NEPA and also provide jobs for both
technical and non-technical graduates. To improve cost
recovery and the financial health of utility systems in
developing countries, there is increasing pressure to price
electricity at its marginal cost and allow Independent Power
Producers to sell power to the grid. Several models of
regulation have also emerged through the reforms, ranging
56
from independent commissions that conduct a broad range of
planning and regulatory functions to bodies within government
that primarily manage generation dispatch and fix tariffs.
Reforms have also affected the quality of power in Africa
through special customer service arrangements. New
prepayment methods have allowed poor people to choose and
monitor how much they wish to spend on electricity each
month. The point to therefore note in this reform is that it will
boost the confidence of intending investors which will yield the
expected enhanced efficiency, quality and availability of power
supply and usher in the expected technological revolution of
the country.
57
CHAPTER FIVE
5.0 CONCLUSION
This paper has presented the status of the deregulation
process of the Electric Sector Industry (ESI) in Nigeria is
presented in Nigeria. It started by presenting the global
overview of the deregulation exercise in pioneering countries.
The general reasons why countries opt for deregulation were
presented.
The state of the ESI, pre 1999, under the control of the
state owned National Electric Power Authority (NEPA) was
presented. It was noted that like most state-owned enterprises,
NEPA suffered from severe under funding and under-
capitalization, inappropriate capital structure, excessive
executive interference, and sub-optimality and decision-
making.
The motivation and rationale for restructuring the ESI
were discussed and the short, medium and long-term goals of
the deregulation process were presented. Also presented are
the law and act enacted by the Nigerian Government to aid in
the deregulation cum privatization exercise.
58
Suggestions that might be beneficial to the ongoing
privatization process were given in the paper. The paper
suggested that proper due diligence should be taken in the
adoption of a market structure for the ESI. BOT, BOO,
BOT_ITP are recommended as ways to get private funding for
building of generators and transmission. Review of electric
tariff was suggested as being paramount to the privatization
exercise and a proactive step was advocated for the prevention
of power equipment vandalism and theft.
An institute named Nigeria Electric Power Training and
Research Institute (NEPTRI) is proposes to serve as meeting
point for Power engineers, technicians, scientists and students
to work together on coming up with solutions pertaining to
Nigeria ESI problems.
5.1 RECOMMENDATION
From the preceding it can be concluded that the Electric
Power Sector Reform Bill as addressed most of the issues
pertaining to privatization of state owned power companies.
However some recommendations are provided in this
subsection that might benefit and aid the privatization
exercise.
59
5.1.1 Build, Operate and Transfer Schemes.
In the reform bill, the existing generators are to be
contracted through a Rehabilitate, Operate and Transfer (ROT)
schemes. This is a very good idea, because it puts the
generators in private hands that have experience and the
technical know how to operate the generator. The same
principle should be applied for generators being built under
Build Operate and Transfer scheme (BOT). BOT is a form of
project financing, wherein a private entity receives a franchise
from the public sector to finance, design, construct, and
operate a facility for a specified period, after which ownership
is transferred back to the public sector. During the time that
the project proponent operates the facility, it is allowed to
charge facility users appropriate tolls, fees, rentals, and
charges stated in their contract to enable the project
proponent to recover its investment, and operating and
maintenance expenses in the project.
The BOT scheme will provide the funds needed to build
new generation plants and will save the government from
investing in the project. The private entities that build also
benefit because they are allowed to recover their investment
60
cost and make some profit before transferring the business
back to government. However after restructuring to a
competitive market, the ownership of some generation plants
may be transformed to private ownership and become new
IPPs or new GENCOs.
5.1.2 BUILD OPERATE AND OWN SCHEME
A Build Operate and Own (BOO) schemes can also be
implemented. BOO schemes are similar to BOT but the private
entity owns the power plant forever. The BOO generation can
be converted to GENCOs or IPPs after restructing depending
on the capacity. BOO options will attract private developers
faster than the BOT scheme, because they will not be required
to transfer their investments to some else in the near future.
5.1.3 TRANSMISSION
A crucial element in ESI restructuring is the
configuration of the transmission entity. Since the Transysco
New Business Unit TNBU is going to have a natural monopoly,
it needs to be regulated to ensure impartial and efficient use of
the assets by providing non-discriminatory access to promote
fair competition among GENCOs and DISCOs. A regulatory
61
body should be formed to monitor the activites of the TNBU.
GENCOs and DISCOs should be involved in the activities of the
regulatory body. They should representatives to represent and
monitor their interests in this regulatory body.
The transmission facilities should be expanded along with
load growth. The amount of expansion needed can be
determined by adequate planning, via load growth forecast.
Also Flexible AC Transmission devices can also be used to
increase the available power flow on transmission lines. If
TNBU is short of funds for expansion, it can enter into an
agreement with an Independent Transmission Project IPP
facilitator. This will be in form of Build Operate and Transfer
BOT. The investor will be the owner of the lines until the
agreed time for transfer to TNBU. The IPP-BOT will provide a
way of attracting private investors who will be guaranteed
return on their investment, while TNBU gets the control and
ownership of the line after the scheduled time.
62
5.1.4 TARIFF REGULATION
A long-term electricity market structure needs to be
established in which multiple operators provide services on a
competitive basis to the broadest range of customers. Under
such a regime, competitive market forces would be the best
determinant of the appropriate and sustainable levels of prices
charged by various carriers for their services.
Currently, Nigerian power prices to retail consumers are
very low on the average; and seriously unbalanced. In
addition, much electricity is unbilled and collection rates are
low so that only 40-45% of revenues corresponding to these
artificially low prices is actually received. For the
restructuring process to work in the short and long term,
changes must be made to tariff to reflect the cost of operation.
NERC should establish tariff regulation rules for dominant
operators providing basic and essential services to the public
and to other, non-dominant operators. In this regard, the
Commission should determine appropriate definitions and
criteria for identifying an operator’s dominance in a service
market, and the essential nature of the services provided.
63
NERC should establish a price limit during the transition
period, so that dominant operators in the ESI during the
period will not practice price discrimination. After
deregulation, market forces should be allowed to determine
the price of electricity. Electricity service tariffs should in all
cases be cost-oriented, reflecting the actual cost required by
operators to provide the services in question, including a
reasonable rate of return on capital; Tariff setting rules must
be transparent to both operators and their customers, with
stable, predictable, and understandable standards for current
prices and for changes to those prices over time; Electricity
service tariffs should generate sufficient revenues for
regulated operators to compensate for their investments, while
also seeking to be as affordable as possible to the broadest
rang of potential service customers; distribution zones that
cannot be expected to be viable under sound business
practices.
5.1.5 MARKET
It should be noted that number of developing countries
are on a fast-paced plan to implement restructuring, despite
the fact that the benefits from restructuring are yet to prove
64
themselves in the more developed countries such as the
United States, Western Europe, and Australia. National
Electric Power Policy, Adopted by the Electric Power Sector
Reform Implementation Committee and Approved by the
National Council on Privatization, Nigerian government
document, 2001.
There is a also tendency for developing countries to adopt
the structures implemented in the pioneering western
countries were without a critical appraisal of their suitability
in the local context. H. Rudnick, J. Zolezzi, ‘ Electric sector
deregulation and restructuring in Latin America: Lessons to be
Learnt and possible ways forward ’, IEE proceedings on
generation, transmission and distribution, Vol. 148, No. 2,
March 2001, pp. 180-183.
Selecting an appropriate market structure for the
Nigeria ESI is of crucial importance to realize the benefits of
deregulation. A wrong market structure might produce an
adverse effect on the ESI sector. The following
recommendations are suggested based on the situation of the
Nigeria ESI.
65
1.Since Nigeria is expected to have double-digit growth rates,
the ESI requires a market, which will provide an attractive
investment environment and encourages new investments
in the generation sector.
2.The market should be designed to reflect the electric power
situation in Nigeria and the market should not be adopted
from another countries market.
3. A complex market structure should be avoided and simple
market structure should be implemented.
4.The day ahead and hour ahead real time market structures
should be avoided in Nigeria for now. The current control
center at Oshogbo cannot handle the frequent changes in
generation supply required by these market models. Weekly
or Monthly markets should be adopted initial. When the
generation level increases enough to supply the total
demand and the transmission capacity is sufficient to
transmit power to every distribution nodes, then the control
center and generators should be upgraded for Automatic
Generator Control (AGC) functionality. With AGC
functionality the hour and day ahead forward market can
then be adopted.
66
5.The transmission capacity must be sufficient enough.
Congestion in the transmission must be minimized. A
market mechanism for managing transmission congestion is
not recommended because of its complexity.
6.The adopted market structure should not rely on
unsupervised negotiated procurements, closed biddings and
other opaque activities in order to avoid corruption and
favouritism.
Vandalism
Vandalism and theft of power apparatus causes
unnecessary disturbances in the system. The effort to curb the
activities of power equipments should be strengthened. This
will save the Business units from unnecessary costs of
replacing stolen equipments and apparatus. A committee
should be formed to study the modus operandi of the vandals
and give necessary recommendations to counter their
illegitimate action. Vandals and thief caught should be dealt
with severely. Pictures of caught criminals should be displayed
on billboards across the nation to serve as deterrent to other
potential power vandals.
67
It is a well-known fact that some of the stolen power
equipments are resold back in power equipment market. The
government should pass a law that will require all power
equipments to be marked with a unique identity and ensure
the movements of power apparatus are monitored. For
instance if a power equipment is imported it should be a given
a unique identity and entered into a government registry of
power apparatus. The manufacturer, country of manufacture
and other relevant data should be stored in this registry. If the
same equipment is sold, the sale process should also be
recorded. This will ensure that equipment in service and
market can be accounted for. Entities who cannot account for
the source of their equipments should be punished adequately
under the law.
Another way is to put radio frequency identification (RFID)
tags on power equipments. If the power equipments are
disturbed the RFIDs send signals to a local monitoring station
and preventive action can be taken immediately against the
power vandals immediately.
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Research should be sponsored at Nigeria Universities to
look at ways of combating sabotage acts of the vandals and
thieves.
Nigeria Electric Power Training and Research Institute
(NEPTRI)
Research and Development is a very important component
needed for a viable power industry. The government should
induce the formation of a research and training institute. The
institute should serve a meeting point for power engineers,
technicians, scientists and students to work together on
coming up with solutions pertaining to Nigeria ESI problems.
This institute can be called Nigeria Electric Power Training
and Research Institute (NEPTRI). NEPTRI should be
implemented as follows:
1. It should be multi-located at all tertiary institutions with
department of electrical engineering.
2.The government and key ESI companies should fund power
research at this institutions
3.Each of the institutions should focus on research in
particular area that will be beneficial to the Nigeria ESI.
69
4.Research should be carried with active involvement and
participation of ESI companies’ engineers and technician.
5.ESI companies should send some of their staffs to assist in
research work at the institutions on regular basis
6.ESI companies should also serve as NEPTRI facilities
themselves
NEPRTI should perform the following functions:
1.Carry out research and development in power systems
improvement:
a. Power Quality Research
b. Power Management Research
c. Power System Stability Research
d. Power System Control Research
e. Testing of equipments for ESI companies
f. Development of industrial standards for NERC.
2.Continuous training and updating the knowledge of
personnel in the ESI.
3.Educating and training future Nigeria power engineers by
introducing relevant power courses into school curriculum.
4.Production of software for the ESI sectors
5.Development of hardware for ESI companies use.
70
6.International collaboration with other research
institutions.
71
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restructuring in Latin America: Lessons to be Learnt and
possible ways forward ’, IEE proceedings on generation,
transmission and distribution, Vol. 148, No. 2, March 2001,
pp. 180-183
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72
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73
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