CHANGING POTENTIAL TO REALITY
Transcript of CHANGING POTENTIAL TO REALITY
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Power Sector Report
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This report captures our analysis of post -privatisation challenges of Nigeria’s
power sector, government’s policy response and our outlook of the sector. See
report highlights below;
Investment Thesis - Reasons to be positive despite challenges
Nigeria’s power market is fundamentally attractive for investment, given the
country’s growing demand for electricity. Nigerians use far less electricity per
capita than citizens of comparable economies in Africa - only about 151
kilowatt hours (kWh) per capita, compared with 4,326 kWh per capita in South
Africa and 1,697 kWh in Egypt. The power sector offers significant long -term
opportunities for bold investors as the Nigerian economy strives to evolve
from its frontier status to an emerging economy. With urbanization
progressing at about 3.8% annually, which is higher than the country’s annual
population growth rate of 3%, more than 60% of Nigerians are projected to
live in cities by 2030 pushing up demand for electricity in the residential
areas. The country’s growing middle class estimated at c.23% of the
population and youthful population further add up to the robust energy
consumption story outlook.
Current State - Challenges and Threats
In spite of these opportunities, investors are wary about the viability of the
electricity market in Nigeria for several reasons. The biggest of these is the
financial viability of the distribution companies, which suffer large losses
across the distribution system. Electricity grids in developed markets expect
losses below 15%, but the losses by Nigeria’s utilities over the past fiv e years
has been as high as 30%. About one-third of that loss is technical, but the rest
is lost to pilferage. Also, the electricity pricing assumptions under the
amended Multi-Year Tariff Order (MYTO) have been largely unrealistic as FX
and inflation rates have breached the set levels without a complementary
adjustment to electricity tariffs. The impact has been lack of cost -reflective
tariffs and accumulation of deficits by power companies which has caused
liquidity strains and has reduced the attractiven ess of the sector to lenders
and investors.
Damilola Lawal - Energy Analyst
Tosin Ojo, CFA - Team Lead
14th August, 2017
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PSRIP - Government’s response to these challenges
To address the liquidity challenges, the Central Bank of Nigeria approved the
N701 billion Power Assurance Guarantee fund primarily targeted at reducing
the backlog owed to generating companies. The federal government also
released the policy document titled “Power Sector Recovery and
Implementation Program (PSRIP)” in March 2017, a series of carefully though-
out policy actions and interventions to be implemented by the Federal
Government to reset the Nigerian Electricity Supply Industry and address the
financial viability of the sector. The biggest component of the PSRIP in our
view is the practical approach to resolving the market viability of the sector
which will involve some form of government subsidy until the sector becomes
investment-friendly again. The plan will be carried out over a five -year period.
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Contents
The Power Value Chain .................................................................................................................... 5
Policy and Regulation ................................................................................................... 5
Generation ................................................................................................................... 6
Transmission .............................................................................................................. 10
Distribution ................................................................................................................ 10
Investment thesis – reasons to be positive despite challenges ..................................................... 12
Abundance of natural endowment ............................................................................ 12
Growing residential and industrial consumption, low per capita consumption present investment upside...................................................................................................... 12
Support from new government, elevated need for revenue diversification increasing the viability of recent reforms ................................................................................... 13
Substantial and rewarding opportunities across the value chain ............................. 13
Current State - Challenges and Threats .......................................................................................... 16
Consumers’ perspective ............................................................................................. 16
From stakeholders view-point ........................................................................... 18
PSRIP - Government’s response to these challenges ..................................................................... 23
Address the financial imbalances and start the transition to a competitive market 23
Address infrastructure gaps ....................................................................................... 29
Restore proper sector governance ............................................................................ 31
Policy Measures ......................................................................................................... 33
Challenges of the power value chain not covered by PSRIP .......................................................... 35
Longer term outlook – Beyond PSRIP ............................................................................................. 39
Appendix 1: Power Sector Development in Nigeria ....................................................................... 43
Appendix 2: Evolution of Nigeria’s Electrical Supply Industry ........................................................ 44
Appendix 3: Snapshot of reform progress ..................................................................................... 45
Appendix 4: Geregu Power Generation Plant ................................................................................ 46
Appendix 5: Transcorp Ughelli Power Generation Plant ................................................................ 47
Appendix 6: Eko Distribution Company Limited............................................................................. 48
Appendix 7: Ikeja Distribution Company Limited ........................................................................... 49
Disclosure .......................................................................................... Error! Bookmark not defined.
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The Power Value Chain
Policy and Regulation
The Ministry of Power, Works and Housing (MPWH) has the overall
responsibility for policy setting in the electricity sector whilst the Nigerian
Electricity Regulatory Commission (NERC) is an independent regulatory
agency created in 2005 by the Electric Power Sector Reform (EPSR) Act 2005.
NERC's function is to regulate and control the generation, transmission and
distribution of power in compliance with the existing legislation as well as
directives and policies dictated by the Federal Government of Nigeri a (FGN).
In 2014, the Nigerian Electricity Management Services Authority (NEMSA) Bill
2014 was passed by the National Assembly to take over the functions of the
Electricity Management Services Limited, one of the successor PHCN
companies created by the EPSR Act. The NEMSA bill established the Nigerian
Electricity Management Services Authority to regulate and enforce technical
standards in the power sector. The EPSR Act is the major instrument of
regulatory control adopted by NERC in carrying out its regulat ory functions.
Besides establishing NERC, the EPSR Act also establishes certain regulatory
instruments in the power sector such as the Market Rules and the tariff
regulation methodology. The Market Rules define the organisation of and
trading arrangements for the Nigerian electricity market and in addition, set
out the conditions, general procedures and methodologies for the
administration of the Electricity Market. The Market Rules is a key regulatory
instrument in the power sector. While NERC is not respo nsible for drafting the
Market Rules, any amendments to the Market Rules has to be approved by
NERC for such amendment to be effective. The Multi Year Tariff Order (MYTO)
Methodology is a tariff methodology adopted by NERC to regulate wholesale
and retail electricity prices in line with the provisions of section 76 of the
EPSR Act. MYTO sets generation, transmission and distribution tariffs based
on a number of tariff setting principles and assumptions developed and
agreed between NERC and the licensees. MYTO provides for certainty of tariffs
to licensees and investors in the power sector. The MYTO methodology was
first introduced in 2008 and has undergone several revisions over time.
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Generation
Currently, there are 25 grid-connected generating plants in operation in the Nigerian Electricity Supply Industry (NESI) with a total installed capacity of 12,522MW. Most generation is thermal based, with an installed capacity of 10,592MW (84% of the total). Hydropower from three major plants accounts for 1,930MW of total installed capacity.
The power plants are classified, based on ownership, as either:
Successor Companies After the unbundling of the Power Holding Company of Nigeria (PHCN), six successor generation companies emerged with controlling stakes in the hands of private investors following the subsequent privatisation exercise that followed the unbundling.
Independent Power Producer Independent Power Plants (IPP) are power plants owned and managed by the private sector. They include those set up by international oil companies (IOC) - Shell and Agip and state governments - Rivers State.
National Integrated Power Projects The National Integrated Power Project (‘NIPP’) is an integral part of the Federal Government’s efforts to combat power shortages in the country. It was conceived in 2004 as a fast -track public sector funded initiative to add significant new generation capacity to Nigeria’s electricity supply system.
16%28%
10%19%
37%
72%
1%
84%70%
90%79%
61%
28%
94%
0% 2% 0% 2% 2% 0% 5%
0%
20%
40%
60%
80%
100%
120%
Nigeria India Egypt China Pakistan Brazil South Africa
Renewable Thermal Nuclear
Figure 2: Power Composition in Nigeria vs. OPEC Peers
Source: EIA
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110
135
150
180
190
294
335
335
414
434
450
450
480
500
504
561
570
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685
720
720
724
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1320
0 200 400 600 800 1000 1200 1400
OMOKU
RIVERS IPP
TRANS AMADI
AES GAS
IBOM
ASCO
OLORUNSOGO GAS
OMOTOSHO GAS
GEREGU GAS
GEREGU NIPP
SAPELE NIPP
IHOVBOR NIPP
OKPAI
OMOTOSHO NIPP
SAPELE
ODUKPANI NIPP
JEBBA
SHIRORO
AFAM VI
ALAOJI NIPP
KAINJI
AFAM IV-V
OLORUNSOGO NIPP
UGHELLI
EGBIN
Source: Nigerian Power Baseline Report
Figure 3: Available Grid Generating Capacity in Nigeria
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Table 2: List of all Generating Licenses in Nigeria
S/N Power Station Classification Capacity
1 Ikorodu Industrial Power Embedded1 39MW 2 Island Power Limited Embedded 10MW 3 Kaduna Power Supply Company Embedded 84MW 4 African Oxygen & Industrial Gases Ltd Generation off-grid2 19MW 5 Akute Power Limited Generation off-grid 13MW 6 CET Power Projects (Ewekoro) Generation off-grid 6MW 7 CET Power Projects Ltd. Generation off-grid 20MW 8 CET Power Projects Ltd. Generation off-grid 5MW 9 CET Power Projects(Sagamu) Generation off-grid 7MW 10 Contour Global Solutions (Nig.) Generation off-grid 10MW 11 Contour Global Solutions (Nig.) Generation off-grid 4MW 12 Contour Global Solutions (Nig.) Generation off-grid 7MW 13 Coronation Power and Gas Generation off-grid 20MW 14 DIL Power Limited Generation off-grid 114MW 15 Energy Company of Nigeria Generation off-grid 3MW 16 Ewekoro Power Ltd Generation off-grid 12.5MW 17 Mabon Ltd Generation off-grid 39MW 18 Ilupeju Power Limited Generation off-grid 2MW 19 Income Electrix Limited Generation off-grid 6MW 20 PZ Power Company Limited Generation off-grid 4MW 21 Shoreline Power Company Generation off-grid 9MW 22 Tower Power Abeokuta Limited Generation off-grid 20MW 23 Tower Power Utility Limited Generation off-grid 20MW 24 Unipower Agbara Limited Generation off-grid 6MW 25 Wedotebary Nigeria Limited Generation off-grid 5MW 26 AES Nigeria Barge Limited Generation on-grid3 270 MW 27 Afam Power Plc Generation on-grid 987.2MW 28 Agbara Shoreline Power Limited Generation on-grid 100MW 29 Alaoji Generation Co. Ltd (NIPP) Generation on-grid 1074MW 30 Anita Energy Limited Generation on-grid 90MW 31 Azura Power West Africa Generation on-grid 450MW
1 Embedded generation involves the establishment of small-scale power generation not exceeding 20MW within a distribution network connected
directly to the distribution company for onward supply within the DISCO’s network. It could potentially be a new power plant or excess capacity from a captive power plant in use by a large manufacturing company. 2 Off-grid generation can be described as stand-alone power generation systems or mini-grids, which typically provide smaller communities (e.g. rural
areas; industrial clusters or residential estates) with electricity through independent electricity distribution network systems. 3 On-grid generation refers to a system of power generation evacuated through the national grid to off-takers which may be the Bulk Trader, who
through vesting contracts supplies power to distribution companies; or directly to eligible customers.
Source: NERC
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Table 2: List of all Generating Licenses in Nigeria (Contd.)
S/N Power Station Classification Capacity
32 Benin Generation Company Generation on-grid 450MW 33 Calabar Generation Company Generation on-grid 561MW 34 Century Power Generation Generation on-grid 495MW 35 Delta Electric Power Limited Generation on-grid 116MW 36 DIL Power Plc Generation on-grid 135MW 37 Egbema Generation Company Generation on-grid 338MW 38 Egbin Power Plc Generation on-grid 1320MW 39 Benin Generation Company Generation on-grid 450MW 40 Eleme Petrochemical Company Generation on-grid 135MW 41 Energy Company of Nigeria Generation on-grid 140MW 42 Enersys Nigeria Limited Generation on-grid 10MW 43 Ethiope Energy Limited Generation on-grid 2800MW 44 Farm Electric Supply Ltd Generation on-grid 150MW 45 First Independent Power Generation on-grid 150MW 46 First Independent Power Generation on-grid 136MW 47 First Independent Power Generation on-grid 95MW 48 Fortune Electric Power Generation on-grid 500MW 49 Gbarain Generation Company Generation on-grid 225MW 50 Geometric Power Ltd Generation on-grid 140MW 51 Geregu Generation Company Generation on-grid 434MW 52 Geregu Power Plc (BPE) Generation on-grid 414MW 53 Hudson Power Limited Generation on-grid 150MW 54 Ibafo Power Station Limited Generation on-grid 200MW 55 Ibom Power Ltd Generation on-grid 190MW 56 ICS Power Ltd Generation on-grid 624MW 57 Isolo Power Generation Generation on-grid 20MW 58 JBS Wind Power Limited Generation on-grid 100MW 59 Kainji Hydro Electric Plc Generation on-grid 570MW 60 Kainji Hydro Electric Plc Generation on-grid 760MW 61 Knox J&L Energy Solutions Generation on-grid 1000MW 62 Lotus & Bresson Nigeria Generation on-grid 60MW 63 MBH Power Limited Generation on-grid 300MW 64 Minaj Holdings Ltd Generation on-grid 115MW 65 Nigerian Agip Oil Co. Ltd Generation on-grid 480MW 66 Nigerian Electricity Supply Generation on-grid 30MW 67 Notore Power Ltd Generation on-grid 50MW 68 Ogorode Generation Co. Ltd Generation on-grid 450MW 69 Olorunshogo Generation Co. Ltd Generation on-grid 750MW 70 Olorunsogo Power Plc (BPE) Generation on-grid 335MW
Source: NERC
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Table 2: List of all Generating Licenses in Nigeria (Contd.)
S/N Power Station Classification Capacity
71 Omoku Generation Company Generation on-grid 250MW 72 Omotosho Generation Company Generation on-grid 500MW 73 Omotosho Power Plc (BPE) Generation on-grid 335MW 74 Paras Energy & Natural Generation on-grid 96MW 75 Sapele Power Plc Generation on-grid 1020MW 76 Shell Petroleum Dev. Co. Ltd Generation on-grid 642MW 77 Shiroro Hydro Electricity Plc Generation on-grid 600MW 78 Supertek Electric Limited Generation on-grid 500MW 79 Supertek Nig. Ltd Generation on-grid 1,000MW 90 Ughelli Power Plc Generation on-grid 942MW 81 Westcom Technologies & Energy Generation on-grid 1000MW 82 Zuma Energy Nigeria Ltd (Gas Generation on-grid 400MW 83 Zuma Energy Nigeria Ltd(Coal Generation on-grid 1200MW
Transmission
The operation of the electricity transmission network is vested in the
Transmission Company of Nigeria (TCN), one of the successor companies
unbundled from the Power Holding Company Limited. The TCN is made up of
three major departments: Transmission Service Provider (TSP), System
Operator (SO) and Market Operator (MO). TSP is responsible for the
development and maintenance of transmission infrastructure. MO is charged
with administering the wholesale electricity market, promoting efficiency a nd
where possible, competition. The SO manages the flow of electricity
throughout the power system from generation to distribution companies. The
TCN is the only successor company in the electricity value chain still in
government control. Nigeria’s transmission network consists of 159
substations with a total (theoretical) transformation capacity of ~19,000MW
and 15,022km of transmission lines.
Distribution
Distribution companies represent the last link in the electricity value chain
and interface directly with the final end-users. NERC sets the tariffs that these
off-takers must pay the GENCOs just as it sets the remuneration the DISCOs
shall receive from consumers. There are 11 electricity distribution companies
(DISCOs) in Nigeria.
Source: NERC
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Table 3: Coverage network of distribution companies in Nigeria
S/N Distribution Companies Load Allocation
Regions Covered
1 Abuja Distribution Zone 11.5% FCT Abuja, Niger, Kogi and Nassarawa 2 Benin Distribution Zone 9% Edo, Delta, Ondo and part of Ekiti 3 Eko Distribution Zone 11% Lagos Island 4 Enugu Distribution Zone 9% Enugu, Abia, Imo, Anambra and Ebonyi 5 Ibadan Distribution Zone 13% Oyo, Ogun, Osun, Kwara and part of Ekiti 6 Ikeja Distribution Zone 15% Lagos Mainland 7 Jos Distribution Zone 5.5% Plateau, Bauchi, Benue and Gombe 8 Port Harcourt Distribution Zone 6.5% Rivers, Cross River, Bayelsa and Akwa Ibom 9 Kaduna Distribution Zone 8% Kaduna, Sokoto, Kebbi and Zamfara 10 Kano Distribution Zone 8% Kano, Jigawa and Katsina 11 Yola Distribution Zone 11.5% Adamawa, Borno, Taraba and Yobe
Source: NERC
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Investment thesis – reasons to be positive despite challenges
Abundance of natural endowment
Nigeria is richly blessed with primary energy resources. The country is
endowed with the world’s tenth largest reserves of crude oil currently
estimated to be about 37.5 billion barrels and has been described as a natural
gas island given an estimated natural gas reserves of 5,475.2 billion standard
cubic metre which includes associated and non-associated reserves. This
places Nigeria among the top ten countries with the largest gas reserves in
the world. Other significant primary energy resource endowment in Nigeria
include: Tar sands – c.31 billion barrels oil equivalent (4.216 billion toe) as
well as coal and lignite – estimated to be c.2.7 billion tonnes (1.882 billion
toe). Renewable energy sources such as water, win d and biomass are also
abundant. According to the International Renewable Energy Agency, small
hydro and biomass have a potential of about 3,500 MW and 10,000MW
respectively. Solar Photo Voltaic potential is estimated to be about 325 TwH
if 1% of the available land is utilized. Wind is estimated to have a potential of
14,369 MW and 363MW at capacity factors 20% and 30% respectively
assuming 0.25% of the land is available.
Growing residential and industrial consumption, low per capita
consumption present investment upside
More than 50% of the population - around 80-90 million people - do not have
regular access to electricity. Compared to world (3,014kWh) and Sub -Saharan
Africa (488kWh) averages, per capita power consumption is significantly low
in Nigeria. Per capita consumption of electricity in Nigeria averages just 151
kilowatt-hour (kWh) annually. By contrast, the annual average per capita
consumption in South Africa is 4,326kWh and 1,697kWh in Egypt. The power
sector offers significant long-term opportunities for bold investors as the
Nigerian economy strives to evolve from its frontier status to an emerging
economy. With urbanization progressing at about 3.8% annually, which is
higher than the country’s annual population growth rate of 3%, more than
60% of Nigerians are projected to live in cities by 2030 pushing up demand for
electricity in the residential areas. The country’s growing middle class
estimated at c.23% of the population and youthful population further add up
to the robust energy consumption story outlook. The rebasing of Nigeria's GDP
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in April 2014 indicates that the power intensive manufacturing sector
accounts for a much larger proportion of the economy than initially thought.
Industries such as auto assembling, construction, agro -processing and mining
consume large amounts of energy. As such, investment in the power sector to
support burgeoning manufacturing industries is a major area of opportunity.
Support from new government, elevated need for revenue
diversification increasing the viability of recent reforms
The Buhari-led administration has said it will continue with the power reforms
initiated by Presidents Olusegun Obasanjo and Goodluck Jonathan despite the
challenges in the sector. We view this as further sustaining the viability of the
past administration’s reform program given that the failures of some of the
past reforms in Nigeria were largely fueled by lack of continuity following the
cessation of the administration that introduced them. Also, whilst the need
for Nigeria’s econom ic diversification has always been a recurrent national
matter, we think that the sustained downturn in crude oil price, will force the
government to press harder on the reforms in the power sector- as there can
be no meaningful development without steady power supply. Recognizing
this, the federal government instructed all stakeholders in the sector to
convene for monthly meetings on matters arising in the industry. The
decisions reached in these meetings would be binding on all stakeholders. The
meeting would be rotated among the various GENCOs, DISCOs, TCN and other
stakeholders across the country. This move is already yielding dividends – the
committee recently resolved a right of way issue being experienced by the
Niger Delta Power Holding Company along the Itu -Calabar Axis that hindered
a transmission project. Construction work has commenced at the Azura plant
after the signing of the required approvals by the federal government. The
project had hitherto been awaiting government approvals for over a year .
Substantial and rewarding opportunities across the value chain
Many traditional opportunities, such as the development of generation
capacity, as well as non-traditional opportunities will emerge across the value
chain if the above mentioned suggestions are followed through . Some of the
more exciting opportunities that will unfold across each segment are
discussed below.
A. Generation. Besides traditional opportunities in thermal power projects
there will be many others such as:
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Investment in over-sized captive plants by players in process industries,
e.g. cement and petrochemicals manufacturing companies. Lafarge
Africa uses only 40MW to 50MW out of 90MW generated by its local
power plant and is looking to sell the excess. Flourmills of Nigeria has
excess capacity and could potentially supply c.5MW to the national
grid.
Setting up group captive plants to access relatively price insensitive and
creditworthy customer segments. An excellent case study is the Lekki
Peninsula Independent Power Plant which supplies 8.5MW of power
through a 22km dedicated distribution network to critical public
facilities in the Lekki, Victoria Island and Ikoyi areas of Lagos State.
Participating in trading activities by leveraging the various arbitrage
opportunities that will emerge. India has five regional electricity grids
namely Eastern, Western, Northern, Southern and Northeastern. The
electrical regions in India are in different geographical zones and thus
have very wide diversity in type of resources, climate and therefore
have different demand pattern over the year and even during the day.
The above diversity results in the formation of surplus and deficit
regions indicated by respective frequency of the region at any
particular time of day. The difference in frequencies resulting into
different unscheduled Interchange rates (price) of power creates a
favorable condition for arbitrage between regions.
B. Fuel and related infrastructure. Upstream companies with access to gas
reserves should consider integrating forward to get more value for their
assets. This could provide higher earnings if utilised to supply power plants
or related entities. The Shell -owned Afam plant is an excellent illustration.
In October 2008, the Afam VI power plant began generating electricity, fed
by natural gas from the Okoloma gas plant. This integrated project
contributes 14% to 20% of Nigeria’s current power supply.
C. Distribution. Distribution will become a very large and potentially
profitable opportunity. Large investments in metering could provide
opportunities for equipment makers . There will also be demand for
turnaround specialists—players with expertise in specific areas like
network management, billings and collections, and for smart technology
providers—players who can develop, commercialise and support
technologies such as prepaid cards, real -time meters, tamper-proof meters
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and smart grids. There are a number of mid-size companies providing
ancillary services to power distribution companies in the electricity value
chain. We highlight two of them below;
Name Description
Mojec International Offers services on meters repair, manufacture of
electric meters and accessories in Marina Lagos.
Momas Systems Nigeria Limited Offers services on meters repair, manufacture of
electric meters and accessories in Surulere Lagos.
D. Solar power . With one of the world‘s highest solar intensities, Nigeria has
the potential to become a global force in solar energy. An emerging
regulatory regime and high peak prices make this opportunity real and
attractive. In May 2015, the Nigerian Federal Executive Council approved
the National Renewable Energy and Energy Efficiency Policy (NREEEP). The
NREEEP outlines the national thrust of the policy and measures for the
promotion of renewable energy and energy efficiency. Feed in Tariffs
applicable for solar projects for 2016 as indicated in Schedule 5 of REFIT
Regulation consists of Capital Cost $/MWh176.85; Operations and
Maintenance $/MWh0.15, making a total of $/MWh177.00 per MWh.
E. Demand-side management . Growing focus on demand-side management
with resultant shifts to compact fluorescent lamps (CFLs), enforced
building and appliance codes, will create long term opportunities for
professional services firms with expertise in the design and construction
of green buildings and in the development and implementa tion of energy
management solutions and products.
F. Equipment and EPC services . With the creation of additional
generation capacity, Nigeria will be one of the largest markets in the
world for equipment and component suppliers. Some of the largest
suppliers in the world already have a presence in Nigeria (GE and
Siemens) with others set to follow as the market grows. Attractive
opportunities include the supply of key components, such as heavy
castings and forging, special steel pipes, balance of plant and
engineering, procurement and construction services.
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Current State - Challenges and Threats
Consumers ’ perspective
Unreliable Electricity Supply
Nigeria has been experiencing a power crisis induced by rapid growth
in electricity demand coupled with prolonged underinvestment in new
generation capacity. According to the NERC, electricity demand is
projected at 28,360MW based on a current growth rate, as well as an
urbanisation rate of 3.8%. However, only c.25% of Nigeria’s 12,522MW
of installed capacity reaches the end user. Due to widespread
inefficiency only 3,687M (Q1’17 average) is operational. Most of the
short fall which was around an average of 5,381MW for Q1’17 is due to
obsolete equipment and poor maintenance, or to ongoing maintenance
and repair activities at existing power plants. Also, about 3,454MW is
non-operational primarily due to gas, water, high frequency, and line
constraints. The weak transmission grid and distribution bottlenecks
further compound the losses and reduce the electricity available to end
users. The implication is that Nigeria experiences power shortages and
regular interruptions in service . According to the World Bank, Nigerians
experience electricity outages about 32.8 times in a typical month and
total power outage for about forty six days annually, leading many
consumers to rely on very costly generators as an emergency stopgap.
This estimate does not take into the account th e 60% of Nigerians not
connected to the grid. According to Sahara Energy, about N3.5 trillion
($21.9 billion) is spent yearly by businesses, families and others in
Nigeria to buy fuel for power generation. Also, according to a World
Bank Enterprise Survey for Nigeria, frequent power outages mean big
losses in forgone sales and damaged equipment - 6% of turnover on
average for formal enterprises, and as much as 16 % of turnover for
informal enterprises unable to provide their own backstop generation.
According to the World Bank, losses due to electricity outages can
amount to 16% of annual sales.
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Stagnant and Inequitable Access to Electricity
Nigeria has a low electrification rate. According to the International
Monetary Fund, less than 45% of Nigeria’s population has access to
electricity, compared with about 70% in Ghana and more than 85% in
South Africa. Nigeria’s own target is to make electricity available to 75%
of the population by 2020 and 100% by 2030. There is also an obvious
inequity in energy access based on levels of income and population.
Whilst population growth has been relatively split between urban and
rural areas, a greater proportion of those lacking access to electricity
are in the rural areas. For those that do have access to electricity in
Nigeria, average residential electricity consumption per capita is
149kWh per year, equivalent to around 20% of the average level in
China, 9% of Europe ’s average per capita electricity consumption and
3% of that of United States of America (USA). Consumption per capita
is significantly lower in rural areas, typically in the range of 50 to 100
kWh per year. For a five person household, annual consumption of 50
kWh per person could, for instance, allow the use of a mobile phone,
two compact fluorescent light bulbs and a fan for five hours a day. In
urban areas, households generally own more appliances, such as
television sets, refrigerators or an electric water heater. There are also
disparities in consumption levels across and within sub -regions. Access
rates also vary substantially amongst the states of Nigeria. For instance,
according to the projections of the Japanese International Cooperation
Agency (JICA), Taraba State had the lowest electrification rate 4 in 2010
with 21% and Lagos the highest with 96%. Out of the 13 states that
registered the lowest electrification rates, 10 were located in the
North-West and North-East. The 8 states with the highest
electrification rates were located in the South -West or South-South.
Prevalence of Backup Generators
To circumvent the effects of the loss and unreliability of electricity
supply, majority of users rely on back-up power generation – inverters
and generators (diesel and petrol fired generators for residential and
medium sized enterprises, gas or diesel fired generators for industrial
users). Electricity from back-up generators is more expensive than
electricity from the grid, thereby increasing the weighted average cost
4 Electrification rate is the percentage of the population that has access to electricity.
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of power to consumers and businesses. Apart from the direct costs
relating to acquisition, fuelling and maintenance of generators, there
are also indirect costs that are less straightforward to identify and
quantify. Indirect costs range from the inconvenience of having to
reschedule activities to accommodate maintenance works to the
injurious effect of generator fumes on health and quality of life and
noise pollution. There are also environmental costs as the prevalence
of poverty compels many households to subsist on natural resources
(like firewood), causing overexploitation of these resources and
resulting in social ills like deforestation, smoke and contamination of
drinking water sources.
From stakeholders view-point
Power tariffs are not cost reflective
In Nigeria, the tariffs paid by end-users are subject to two primary, and
typically competing, considerations: the importance of recovering the
costs of supply, as a step towards earning the necess ary return on
investment and fund future capital spending; and the social imperative
to keep prices at levels that allow consumers to benefit from affordable
energy services. In Nigeria and many other developing countries
particularly in Sub-Saharan Africa, utilities often appear trapped
between these two objectives: tariffs are either too high for consu mers,
or too low in relation to the costs of supplying them with power.
The risk is that this locks the power sector into a cycle of low revenues,
high debts, inadequate maintenance, under-investment and poor
quality of service. The average effective electricity tariff in Africa is
$0.14 per kilowatt-hour (kWh) against an average of $0.18 per kWh in
production costs. Therefore, electricity consumption is effectively
subsidized, but with significant disparities among African countries. For
example, while electricity tariffs in South Africa ($0.09) and Zambia
($0.07) are among the lowest in the world, prices in Djibouti ($0.31)
and Gabon ($0.22) are among the highest globally. The average tariffs
in Africa are also much higher than in other developing regions . The
average effective tariff in South Asia is $0.04/kWh, whilst that for East
Asia is $0.07/kWh.
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Electricity tariffs are higher in Nigeria relative to international
standards. The high power prices are due in part to high fuel costs.
Nigeria generates its electricity using a combination of coal, renewable
energy and natural gas. In comparison, electricity generation in Sweden
comes from nuclear and hydroelectric power (83%). Cogeneration from
combined heat and power (CHP) plants accounts for 10 % of the
electricity output in Sweden, and these are mainly powered by biofuels.
About 7% of the electricity in the country comes from wind power.
Reliable power supply crippled by obsolete transmi ssion network
Apart from the problems of fuel availability and operational capacity,
Nigeria’s troubled power sector is also hamstrung by a constricted
transmission system. Underinvestment in maintenance and
infrastructure has constrained our transmission grid, limiting the
wheeling capacity to 5,300MW. The transmission network is highly
stressed and weak, thus making it prone to frequent system collapse
and exceedingly high transmission losses. Such energy losses reduce
the reliability of power supply, which is already insufficient to meet
demand. In Nigeria, transmission and distribution (T&D) losses reduce
the supply ultimately available to end users by more than 20%. T&D
0.08
0.09
0.09
0.10
0.10
0.14
0.15
0.19
0.20
0.21
0.27
- 0.05 0.10 0.15 0.20 0.25 0.30
Sweden
Finland
South Africa
US
South Korea
China
UK
Germany
Japan
Italy
Nigeria
Figure 4: Global electricity prices ($)
Source: EIA
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losses are noticeably lower in South Africa and North Africa, at 10% and
14% respectively. The loss rate in Nigeria is also more than double the
world average and that of many developing countries in Asia. The
economic impact of these losses is two-fold; potential revenue losses
to the generation and distribution companies and an increase in energy
costs since consumers have to rely on alternatives. Power from backup
generators is much more expensive than grid power, which increases
the weighted average cost of power to consumers. On average
Nigerians spend about N3,374 ($11) on their monthly electricity bills,
according to data from NOIPolls. On average the monthly cost for the
fuel to run these generators adds an additional N9,529 ($31) to a
household’s bill. That is three times the cost of direct supply.
Sabotage of key assets Apart from the current low level of power
generation caused by vandalism of gas pipelines, which results in low
gas supply to power generating companies , transformer theft and
vandalism of power line cables are also problems at the
transmission/distribution end of the value chain. Sabotage is rampant
and has been on the rise due to poor socio-economic conditions. The
impact of these acts of sabotage include the following: 1) rise in the
cost of maintenance to restore service, 2) loss of revenue to the utility
companies, gas producers and businesses, 3) rise in customer costs as
they are forced to rely more on more expensive alternative channels
and 4) resultant socio-economic losses due to noise pollution and
increased carbon footprint.
Beyond the metering muddle
The latest data (FY’16) on the level of metering released by the NERC,
showed that c.55% of electricity consumers are unmetered. In
contrast, the percentage of unmetered consumers in South Africa is
negligibly small (less than 10%). A concept study by the NERC, suggests
that distribution companies loose N12.53 billion ($39.78 million)
annually by their inability to bridge the metering gap. Metering all
users offers a promising solution to the commercial losses the sector is
currently experiencing and the attendant disputes that go with
estimated billing. In developing an estimated bill for an end -user,
distribution companies measure the number of units in terms of KWH
of power that goes into a particular district, deduct the amount for
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metered customers on pre-paid and metered credit meters and then
divide the remainder amongst unmetered customers in that district. In
most cases, these bills are disputed leading to a lengthy arbitration
which consumes time and financial resources. According to the NERC,
47,127 complaints were lodged by consumers against the eleven
distribution companies during the last quarter of 2016. This is an
indication of high customer dissatisfaction in the Nigerian Electricity
Supply Industry (NESI). Metering and billing for electricity actually
consumed by users is integral to commercial management of an
electricity utility company. Effective performance in both functions is
critical to ensure the financial viability of the company.
Human Capital Challenge in the Power Sector
The power sector requires expansion of capacity across the value chain
including equipment manufacturing, fuel resources, construction,
project management as well as operations and maintenance. While
there’s continuous investment by stakeholders to address the various
challenges, availability of skilled manpower is a major constraint. With
foreigners accounting for most of the skilled manpower in the power
sector, the lack of high quality domestic human resources is becoming
a key constraint to planned large scale investments and projects in the
sector. The prevalence of expatriates increases overall personnel cost
given necessary considerations for security, accommodations and
payment of salaries in foreign currency . Apart from the dearth of skilled
domestic manpower, many power companies are still dealing with
unresolved pre – privatization labour issues. There have been several
media reports of service disruptions by striking workers.
Input constraints – Pipeline Vandalism
Thermal plants (gas-fired plants) in Nigeria have a total installed
capacity of 8,457.6MW and account for 81% of the total capacities of
power generating plants. Natural gas has many advantages - it is
abundantly available in Nigeria, relatively cheaper than diesel and
other fuel oils, and burns cleaner also – 117lbs of CO2 emitted per
million British thermal units (Btu) of energy vs. 161lbs and 229lbs for
diesel and coal (anthracite) respectively . All of Nigeria’s natural gas
comes from the Niger Delta, and must be transported via pipelines to
power plants around the country. Pipelines are essentially the veins of
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gas-powered generation; they provide the route for the transportation
of natural gas from where they are mined to the power plants where
they are needed, which are often hundreds of kilometres away. In the
wake of the return of hostilities in the Niger Del ta region, the supply of
electricity across the country has worsened due to the loss of about
1,995MW of power as a result of the disruptions in gas supply to
operators of electricity generation facilities . This has resulted in drastic
reduction in power generation. With current national power generation
at an average of 3,687MW5, the impact of this incident is very
significant.
Macroeconomic problems
Nigeria’s economy which contracted in 2016 (-1.8%), performed much
better in Q1’17 (-0.5%) on the back of improved oil production and
manufacturing output. Nonetheless challenges persist in the domestic
economy and like other sectors in the economy, the power sector is not
immune to the ongoing travails of Nigeria’s macro-economic landscape.
In addition to the cash-flow strains faced by many power companies
(distribution and generation), high cost environment and a steeply
depreciating currency are worsening the situation given higher import
costs of inputs such as gas and strained ability to service foreign
currency denominated debts. Also, high inflation has an impact on
power consumption even though power is a primary necessity. With
better purchasing power, people can move to larger homes and use
more electric appliances leading to increased electricity consumption.
However, in a high inflation environment, consumers are actively
rationing to manage higher price levels and will therefore find ways to
cut down on power consumption to reduce their electricity bills and for
those without prepaid meters, find ways to avoid paying bills
altogether.
5 Q1’17 Average
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PSRIP - Government’s response to these challenges
The Power Sector Recovery and Implementation Program (PSRIP) is a series of
carefully thought out policy actions, as well as operational and financial
interventions to be implemented by the Federal Government to reset the
Nigerian Electricity Supply Industry and address the financial viability of the
sector. In summary the PSRIP focuses on reducing market shortfalls as a result
of a lack of cost reflective tariffs. Under the PSRIP, the federal government
will bear the funding shortfall in the power sector until such a time that the
tariffs are fully cost reflective which according to the PSRIP proposal will be
2021. The PSRIP was developed testing different scenarios of tariff increases
and the receptiveness of stakeholders’. The scenario with the likely most
favourable outcome will result in a cumulative subsidy of N2.4 trillion ($7.6
billion) from 2017 to 2021, the period covered by the plan. In summary, the
PSRIP aims to reduce market shortfall by assuring the performance of GENCOs
(through a payment guarantee) while ensuring that there’s improvement to
remittances by DISCOs. Overall, the PSRIP comprises of 17 components /
reform actions in four groups of interventions – financial,
operational/technical, governance, and, policy interventions. We elaborate
on the key components of the PSRIP below;
Address the financial imbalances and start the transition to a competitive
market
1. Dimension and commit to fund future sector deficits from 2017 to 2021
The PSRIP recognizes that until tariffs reach cost recovery, the government
must make up the difference between the costs that the tariff allows
market participants to recover and the full cost of supply. The PSR IP
envisages that the future shortfall will be funded from the sale of
government owned power plants, borrowing from the World Bank and
other multilateral financial institutions and from the national budget.
Work is ongoing to elaborate on the detailed mechanism for funding the
shortfall by taking into account fiscal considerations, how the funding will
be provided to market participants, interactions with regulator, as well as
governance and institutional reforms needed to enforce market discipline.
The difference between cost recovery tariff and allowed effective average
tariff – will be covered by the government through the Electricity Market
Support mechanism, subject to annual amount allocated in the budget. The
actual government contribution will be calculated m onthly, based on the
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information provided by licensees (energy billed and amount billed, to
calculate actual average tariff of each DisCo) and reviewed by NERC. NERC
will report the amount due to each Disco (as a result capped tariff) to the
federal ministry of finance as well as the debt to NBET and to the Market
Operator as informed by those licensees. With this information, the
federal ministry of finance will allocate the market support for each DisCo
as (i) a payment to NBET on behalf of the DisCo for outstanding (monthly)
payment; (ii) a payment to the Market Operator on behalf of the DisCo for
outstanding (monthly) payment; and (iii) the remaining amount (if any)
sent to the DisCo as support for its distribution expens es.
Action Steps Analysis of fiscal sustainability and contingent liabilities of the sector
and analysis of the multiplier effect of the proposed government
support; and
Incorporation of government contribution in the Medium Term
Expenditure Framework and in annual budget proposals that are
submitted to the legislature.
2. Eliminate historical sector revenue deficits (2015 and 2016)
The power sector liabilities/deficit before privatization in 2013 was
absorbed into NELMCO. Separately, MYTO 2, as adopted in June 2012,
underestimated ATC&C losses and overestimated energy delivered to
customers. The end user tariff charged by DisCos at p rivatization in
3.50
5.6
6.6
7.6 7.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
FGN Budget Allocation NIPP Sales World Bank AfDB Total
Figure 5: Funding Sources ($)
Source: EIA
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November 2013 was lower than the cost reflective levels then. Each MYTO
review since June 2012 has understated the end user tariff. This has
created a cash flow deficit – which is a debt owed by Nigeria’s electricity
consumers to its power sector.
Table 5: Tariff and Market Shortfalls 6
Tariff Deficit (N) Market Shortfall (N)
ABUJA 44,863,980,800 64,102,401,003
BENIN 53,117,905,427 41,879,416,897
EKO 27,395,923,488 24,017,307,731
ENUGU 44,160,795,180 56,936,561,525
IBADAN 58,810,736,003 50,642,075,274
IKEJA 37,156,754,007 57,246,818,445
JOS 36,682,954,768 30,697,763,433
KADUNA 47,654,564,826 51,297,518,900
KANO 39,952,399,439 34,842,039,388
PH 47,624,527,132 47,327,268,004
YOLA 20,624,417,296 14,024,911,678
TOTAL 458,044,958,367 473,014,082,279
Action Steps A process for settlement of deficits due from DisCos in net payable
positions to be agreed between the DisCos, NBET and the Ministry of
Finance (MoF), and communicated to the MoF, Ministry of Budget &
Planning and the Ministry of Power, Works and Housing.
3. Eliminate historical MDA debts and automate future payments
The payment of historical MDA electricity debts and for power used by
MDA’s going forward would significantly reduce the sector’s deficits going
forward. Total unpaid electricity bills by MDA’s claimed by DisCos is N64
billion (US$203 million). FGN is currently conducting an exercise to verify
MDA power invoices with DisCos. FGN has resolved to settle all
outstanding arrears from MDAs after a reconciliation and verification
process aimed at confirming the size and allocation of the dues for each
6 Market Shortfall of N473 billion (US$ 1.5 billion): This is the total amount underpaid by all the DisCos to NBET (and MO) for invoices submitted to each DisCo for electricity delivered to their distribution networks. Tariff Deficit of N458 billion (US$1.4 billion): This is the aggregate amount of shortfall in the allowed revenue for each DisCo due to the lack of a cost reflective end user tariff. The N15 billion (US$47.5 million) excess of the Market Shortfall (A) over the Tariff Deficit (B) is, by definition, the net amount due from DisCos as a group to the “market. In aggregate, these deficits reflect payments due to all sector stakeholders – gas suppliers, GENCOs, and payments due to service providers like the SO, MO, NBET and NERC.
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MDA. CBN will develop an MDA debt payment system, and FMoF will
implement a centralized mechanism for regular payment of MDA
electricity bills in future. N45 billion (US$143 million) was included in the
2017 federal budget to pay MDA electricity debts.
Action Steps Ensure that MDA debts are paid upon completion of the verification
exercise; and Implementation of FGN’s prepaid metering for MDAs to ensure
regular payment for power consumed and encourage energy efficiency at all MDA’s.
4. Move towards cost reflective tariffs over the next 5 years and review the
tariff setting methodology
To incentivize private sector investment in the power sector, the end user
tariff must be set at a level that reflects the full cost of producing
electricity. FGN recognizes that a cost reflective tariff must be achieved
over the next 5 years in order to allow market participants to recover and
the full cost of supply. The private sector (both international and local)
will only invest in Nigeria’s power sector if there is clarity on how the earn
a decent return of and on their invested capital. Approximately 70% of the
cost of electricity in Nigeria is linked to the USD/Naira exchange rate (cost
of turbines for power plants, natural gas to power the turbines, and other
operating and maintenance costs). Due to the depreciation of the Naira,
and, decrease in gas supply from the Niger Delta, the average electricity
tariff is now much lower that what it needs to be to adequately cover the
cost of producing, and delivering electricity to consu mers. Current tariffs
are N28.8 per kWh (US$ 9.1 cents/kWh), compared with current cost
reflective levels of N50.3 per kWh (US$ 16 cents/kWh).
Action Steps
FGN issues Electricity Tariff Recovery Policy covering the transition
path to achieve full retail tariff cost recovery within five (5) years and
government support to cover the gap during the transition; and
NERC to conduct tariff review reflecting provisions of the Tariff Policy.
5. CBN Payment Assurance Facility
The Payment Assurance Facility is a N701.9 billion CBN loan to NBET,
guaranteed by the Ministry of Finance, to support NBET payments to
GenCos and in turn, to gas suppliers. For the payment assurance program
to be effective at this point of our market development, it is important
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that it is not viewed as a bailout facility that supports the existing market
behaviour but one that supports a credible plan towards achieving an
efficient and self-sustainable market. It is expected that the market will
improve on its bill payment performance with decl ining drawdowns from
the facility, to address payment gaps, over the next 2 years .
Action Steps CBN and NERC to finalize terms of the Facility ; NERC to incorporate relevant terms of the Facility into the MYTO
model; NBET/ CBN should assure payment to the GenCos in a timely manner;
and NERC should ensure clear penalty regime for DisCos underperforming.
6. World Bank Group Funding
The World Bank Group has expressed its willingness to assist the F ederal
Government in preparing and supporting a credible power sector recovery
program. The World Bank Group has indicated potential support for the
Program totalling up to US$2.6 billion and support of IFC and MIGA to
mobilize up to US$2.7 billion in potential private sect or investment.
Table 6: World Bank support for the Nigerian Electricity Supply Market
Item WBG Potential Funding ($’Bn)
Performance based loan for financial support to eliminate cash flow deficits
1.0
Loss Reduction in Distribution including Metering 0.5
Support to TCN 0.4
Rural electrification initiatives 0.4
Guarantees 0.3
Action Steps FGN to fulfil the Conditions Precedent set by the WBG in order qualify
for the funding.
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1. CONDITIONS PRECEDENT A. FEC approval of the Power Sector Recovery Implementation Program (PSRIP) B. Sources of funding identified for the PSRP C. Appointment of Boards (NBET, TCN, NELMCO, NDPHC, REA, BPE) D. Appoint BPE professional Directors on DISCO Boards E. Policy statement issued by FMoPWH on cost-reflective tariff / subsidy path endorsed by FMoF F. Update MYTO methodology consistent with policy G. Carry out tariff review (per MYTO review schedule) H. Budget containing provision for MDA debt approved I. Announce the operational mechanism for subsidy J. Institutional arrangements in place for oversight, implementation and monitoring of the PSRIP K. Issue the gas pipeline vandalism prevention strategy L. Implement [approved actions] to reduce gas pipeline vandalism M. Review and confirmation of gas and transmission infrastructure investment required for PSRIP N. Conduct legal review of sector contracts including Performance Agreements, Vesting Contracts
and PPAs to facilitate hitch-free contract activation O. Review by BPE/NERC of Disco investment/performance improvement plans P. Market Operator submits generation adequacy report to NERC Q. Review of timing of projects in preparation and issue policy for competitive procurement R. Issue communications strategy for PSRIP and begin implementation
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Address infrastructure gaps
1. Ensure a minimum of 4,000 MW generation capacity is available daily from 2017 to ensure grid stability. Power outages have created dissatisfaction among electricity customers
who have become frustrated with the poor quality of service. Furthermore,
to reduce cash deficit in the sector, generation needs to be stabilized at a
level that ensures sufficient cash is generated for DisCos to meet their
fixed costs. FGN sees customer satisfaction as a prerequisite for any tariff
increase, especially in the most economically vulnerable (R1) residential
customer class. The PSRIP sets out power generation targets starting with
a baseline generation level of 4,000MW in 2017 (the “Baseline Power
Generation Level”) and increasing to 5,500MW by 2021. Key to achieving
the Baseline Power Generation Level is the resolution of constraints
affecting thermal power plants, especially gas as the transmission grid as
of today can wheel more than 4,000 MW. Whereas gas supply needs to
guarantee at all times a floor generation level of 4,000MW is estimated to
1,348 MMscf/d, gas supply to power plants (excluding own -use supply to
Afam VI and Okpai) averaged only 553MMscf/d and 450MMScf/d in 2015
and 2016 respectively. These gas molecules were supplied on a reasonable
endeavour basis as no gas supply contract is effective. Nevertheless, the
government is confident it can increase gas delivery to power plants to
required levels as Nigerian gas production is sufficient to meet demand
(daily production is circa 9 MMscf/d). The Government will address major
issues constraining gas availability to the power sector, notably pipeline
vandalism, arrears due to gas suppliers and lack of payment security for
gas deliveries.
Action Steps
Identification and prioritization of power plants to be supported to
achieve the minimum 4,000 MW baseline;
Full disbursement of NEMSF to ensure historical debts are paid to gas
suppliers (also captured under the historical arrears work stream);
Ministry of Petroleum Resources to develop clear plan on gas
vandalism prevention strategy;
Implementation of the N701 billion guarantee as a means of sending
a strong positive signal to power generators and gas suppliers that
they would be fully paid going forward; and
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Project manage the delivery of key gas pipeline infrastructure in order
to ensure that gas is readily available where it is needed.
2. Capacity of Transmission Grid to rise to 7000MW from 5000MW currently
The TCN has transmission capabilities of about 5GW. Nigeria’s
transmission infrastructure is made of approximately 6,680 km of 330 kV
lines, 7,780km of 132kV lines, 330/132kV substations with installed
transformation capacity of 10,166 MVA and 132/32/11kV substations with
installed transformation capacity of 11,660MVA. Average transmission loss
(line losses) is less than 9%. In the last three years, TCN has been able to
achieve significant improvements in its operations, system reliability and
efficiency. For example, incidences of system collapse have drastically
reduced from 42 system collapses in 2010 to about six system collapses
recorded in 2016. Nonetheless, the system is operating well below
international reliability and security standards. Frequency and voltage
recordings often exceed established norms. System collapses (when not
caused by generation outages due to gas pipeline vandalism) are primarily
as a result of inadequate maintenance of outdated equipment and the lack
of a comprehensive and modern SCADA system to have real time data and
manage real time operation and control to keep in balance the power
system
Action Steps A total of 2,650 km of 330 kV and 7,101 km of 132 kV transmission
lines and 2,850 MVA of 330/132 kV and also 2,900 MVA of 132/33 kV
transformation capacity will be added to the network in the next two
years going by project schedules of TCN.
In addition, there are on-going reinforcements of existing 330 kV and
132 kV lines and substations to raise transmission wheeling capacity
to 7GW.
3. Addressing gas pipeline vandalism
Gas is the predominant fuel for power generation in the Nigerian power
sector. Most of the gas supplied to the power plants are on a reasonable
best endeavour basis. This has been compounded by power producers’
large payment arrears that it is unable to settle (total gas supply
indebtedness of power plants from January 2015 to December 2016 is
NGN155 billion (US$500 million)). As such supply has been erratic and low
resulting in 1,400MW of constrained generation. Vand alism on oil and gas
delivery infrastructure has also shut down gas production which resulting
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in another 2,900MW of constrained generation. A more conciliatory
approach taken by the federal government to militants in the Niger Delta
has reduced the threat of damage to oil and gas infrastructure.
Action Steps
Strategic level engagement led by His Excellency, The Vice President
with Minister of State for Petroleum and 9 state governors to identify
critical development priorities for each state in the regi on;
Operational and programmatic engagement by representatives of
various MDAs, including the Office of the Vice President to convert
the region’s development priorities into specific projects;
Ownership stakes by host communities in oil and gas assets will make
them guard their assets; and
Engaging host communities to secure assets in their townships.
Restore proper sector governance
1. Restore proper sector governance to improve investor confide nce
A prerequisite towards restoring confidence of the private sector, and the
participation of DFIs like the World Bank in funding the PSRP would be
empowering / equipping regulators for their role of sector guidance and
policing. A key step would be the appointment of boards to sector related
parastatals and development of a capacity development plan for
regulators and of a training program for FGN’s board representatives. In
addition, current BPE directors will be replaced with qualified independent
(be without conflict of interest) board members through a transparent
process.
Action Steps
Identification and appointment of credible Boards of sector agencies
including NBET, TCN, NELMCO, NDPHC, REA and BPE
FGN Board positions in DisCos to be filled by co mpetent and
professional individuals from the private sector
Provide for extensive on-going training for FGN Board representatives
FGN to put in place a special police department or provide Discos with
required police staff to help them enforce their right s
2. Establish data driven processes for decision making across the sector
Transparency ensures that information is available on which the
performance of the power sector participants can be monitored and
assessed. A transparent power sector also promotes tru st between market
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sector participants, and, deters corruption. PSRP’s success would be
underpinned by process transparency and buy-in by sector stakeholders,
various arms of the Nigerian government, and the Nigerian public.
Currently absent in the Nigerian power sector is operational data
transparency as well as commercial data transparency.
(a) Operational data transparency: This applies to all market participants
(NERC, NBET, GENCOs, TCN and DisCos). The ultimate users of these
services are the consumers as the sector should be fully transparent and
accountable to its consumers. All licenced market participants and the
regulator are expected to use their websites to promote openness and
facilitate public knowledge about their core activities by making
information and documentation available on their websites. The
willingness to disclose information, including documenting and making
public processes and rationale for decision making, results of monitoring
and enforcement, and conditions in the power sector demonstrates that
each and all functions are being carried out as required.
(b) Commercial data transparency: Promoting transparency of power
companies’ revenues, costs and profits is an important aspect to rebuild
consumer confidence in NESI. Allegations of power companies, especially
DisCos, benefitting from non-transparent billing, settlement and payment
systems reduce consumers’ confidence, and, are contributors to the
persistently high collection losses. To rebuild trust and confidence in the
sector, a system needs to be put in place that is robust, useful, and
accessible.
Action Steps
Improved transparency and access to information on the sector by the
public.
Implementation of an integrated ERP system to support real time
issuance, review and settlement of energy and services invoices
industry wide.
3. Make electricity market contracts effective
FGN’s ultimate goal with the sector reforms is to create an efficient
electricity sector that delivers electricity to Nigeria’s homes, businesses
and industries at affordable prices. Without contracts being effective, it
will be difficult to hold sector participants accountable for their
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operational and management failures. For the privatized GENCOs and
DisCos, it will also be difficult to enforce the improvements in their various
companies that the Sponsors of each company signed up to at
privatization. The trading arrangements – Vesting Contracts between
DisCos and NBET, and, PPAs between NBET and IPPs/GENCOs – have not
been formalized. This has been a work in progress since privatization in
November 2013, primarily due to the cash deficits in the sector. Having a
contract-based electricity market, where penalties are imposed on sector
participants that fail to fulfil their contractual obligations is a necessary
step towards returning confidence to the sector participants and potential
investors.
Action Steps
Activate electricity industry contracts including Vesting Contracts,
PPAs, and Gas Supply Agreements – at least, as many as are required
to meet and maintain the minimum 4.000MW available generation
capacity that is required to maintain grid stability .
Policy Measures
1. Develop and implement an FX policy for the power sector
Approximately 70% of the cost of electricity in Nigeria is linked to the
USD/Naira exchange rate (cost of turbines for power plants, natural gas to
power the turbines, and other operating and maintenance costs). Due to
the almost 55% depreciation of the Naira, and, decrease in gas supply from
the Niger Delta, the electricity tariff is inadequate to cover the cost of
producing and delivering electricity to consumers. Similar to refin ed
petroleum products like PMS, the power sector would require a mechanism
that will ensure the USD/Naira exchange rate is relatively stable for the
sector. Furthermore, sector participants, especially the GENCOs, have
complained about the lack of access to FX to meet OPEX, CAPEX, and debt
servicing obligations and structuring the financing for Greenfield projects
in a manner that is in line with international project finance.
Action Steps
CBN establish and implement clear forex rate and access policy for
the power sector in collaboration with key power sector MDA’s.
2. Increase electricity access by implementing off grid renewable solutions
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Beyond restoring the Nigerian power sector’s immediate viability, the
PSRIP is also focused on the sector’s long term robustness. As a result of
challenges with connecting every Nigerian to the grid, off grid solutions
present viable alternatives to ensuring every Nigerian has dependable
power supply. A complementary program of the PSRIP aims to accelerate
electricity access mainly in rural areas focused on off -grid solutions. The
Government program for off-grid will consist of the following:
(a) Rural mini grids: This component would fund the electrification of
unserved and underserved areas that have high economic pote ntial. The
focus would be on solar-based mini grids, which can be rolled out quickly,
and later be integrated with Discos. The tentative target is 200,000
households, subject to scaling up or down during project preparation.
(b) Stand-Alone Home Solutions: this component would provide Solar
Home Systems (SHS) and solar lanterns, among other products, for areas
where mini-grids are not viable. The standalone solutions may include
individual photovoltaic (PV) systems that can provide sufficient electricity
to satisfy the needs of households and small commercial enterprises (e.g.,
for lighting, radio, TV, fan). These systems will provide critical services to
the hardest-to-reach customers.
(c) Reliable power for federal universities and teaching hospitals
(Energizing Education): the focus will be on Nigeria’s Energizing Education
program, which has been under development by the government for some
time. The objective is to provide new or improved electricity service to 37
federal universities and 7 university teaching hospitals across the country
(including street lighting for illumination of campuses). The Federal
Ministry of Power will implement this component. The power will come
from off-grid systems ranging from 1MW to 10MW.
Action Steps
Increase electricity access by implementing off grid renewable energy
solutions: Rural Mini Grids, Standalone Home Solutions (SHS), IPPs for
federal universities and teaching hospitals
Finalise negotiation with credible on-grid solar project developers
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Challenges of the power value chain not covered by PSRIP
Securing fuel supply
Though Nigeria has one of the world’s largest reserves of natural gas,
inadequate fuel supply is constraining the growth of its power sector. Gas is
the primary feedstock for the Nigerian power industry and any interruption
to supply has a large downstream impact on all players from generation to
distribution. Current and future power plants will not meet power demand
unless gas supply improves significantly. To deal with this problem, the
government needs to:
Upgrade gas processing and pipeline infrastructure: This will entail
building additional gas processing facilities. According to the
ministry of petroleum resources, gas processing capacity in Nigeria
is six billion cubic feet (bcf/d) per day. In contrast, capacity is
12bcf/d in Saudi Arabia. Numerous projects are planned/ongoing for
the improvement of gas infrastructure in Nigeria. Distribution
pipelines and processing facilities currently being developed by the
private sector and government will guarantee the availability and
reliability of gas supply across diverse geographical regions in
Nigeria. The CINDA consortium – made up of many leading Chinese
state-owned companies – would invest in setting up one new gas
central processing facility at a cost between $3 billion and $3.54
billion. The consortium will also build a new pipeline that would run
from Port Harcourt to Kano at the cost of between $4.3 billion and
$5.4 billion. These investments are part of the MOU worth over $80
billion that was signed with China as part of efforts to bridge the
infrastructure funding gaps in the Nigerian oil and gas sector. The
Trans-Saharan Gas Pipeline (TSGP) which is currently being
developed at different phases is a pipeline system that will move
gas from Nigeria’s Niger Delta through Niger and Algeria into
Europe, terminating at Hassi R’Mel in Algeria at 4,400km. Investors
are already positioning strategic projects along its r oute to take
advantage of gas-based opportunities around this network and its
expected spur lines. The main domestic gas distribution artery the
Escravos-Lagos Pipeline System (ELPS) is currently being upgraded
to double its capacity (presently 1.1 tscf pe r day). The new ELPS II is
a 36”diameter, 342km pipeline that will transverse the Nigerian
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states of Delta, Edo, Ogun and Lagos and will be completed in 2017.
Upon completion, it will ensure reliable gas supply to many power
plants on its route and also spur new power plants. It will induce
the growth of other gas-based opportunities. Additionally, the
Ogidigben Gas Revolution Industrial Park (OGRIP) is a gas park being
developed to support gas-based projects with numerous
government incentives. By mid-2017, Dangote Groups’ twin 550km
subsea gas pipelines will be completed. The system will increase
domestic gas supply from 1 bscf today to 4 bscf according to the
group’s chairman, Aliko Dangote.
Improve the economics of pricing : Low domestic gas prices do not
justify investment in gas development by upstream oil and gas
companies. Recent tariff increases have improved the situation but
according to stakeholders further increases are needed to fund
projects requiring new infrastructure. Policy-makers have an
important role to play by moving upstream industries towards the
free market and attracting more participation from the private
sector. One of the major deterrents of gas investment &
monetization by International Oil Companies (IOCs), indigenous
producers and other downstream gas companies has been the price
of gas in Nigeria. This has originally been below $1.00 per mscf. It
was reviewed from $1.50 per mscf before 2015 to $2.50 per mscf.
The 2016 MYTO tariff sets gas prices at US3.20 per mscf. This upward
review has increased gas investment appetite and spurred many gas
infrastructure development. However, the complete deregulation of
the sector is necessary to increase investments in the sector and
realize its potential. This will also help reduce gas flaring. It is
estimated that nearly 70% of the associated gas is burned off at the
wellhead because of insufficient gas-collecting mechanisms. With
improved economics, companies will invest in pipelines and
processing plants to capture and sell the gas.
Explore the use of Liquefied Natural Gas
In 2016, the Minister of Works, Power and Housing – Babatunde
Fashola - provided a clear picture of the costs of pipeline
vandalization to the power sector value chain using the Escravos
Lagos Pipeline System as an example. The pipeline which supplies
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160 mscf per day of natural gas to power generating plants used for
generating about 660MW of power was vandalized by Niger Delta
militants. According to the Minister, daily revenue loss to power
stakeholders due to the pipeline vandalism was N470 million ($1.5
million). These losses are comprised of about N80 million ($254.0
thousand) per day in lost gas sales, and N390 million ($1.2 million)
per day in lost revenues to the generation and dist ribution
companies. Liquefied natural gas (LNG) is a liquid fuel and typically
does not require pipelines for its transportation. They are mainly
transported via trailers on trucks, or rail cars. They are not
vulnerable to pipeline vandalism and are theref ore important
alternatives that should be considered when developing strategies
for mitigating the impact of vandalism on power generation. Whilst
LNG is more expensive compared to natural gas (N15KwH vs.
N6.6KwH) due to the need for liquefaction, storage, transportation
and its regasification capacity, it is more expedient for power plants
fed by the most vulnerable pipelines to develop a fuel diversification
strategy that will require that they source about 30% of their fuel
from LNG. Since only 30% of the effective fuel mix will be from LNG,
the effective cost increment will be only about N3/kWh.
Resolving the grid problem -
Adding capacity alone will not suffice as a response to Nigeria ’s soaring
demand for power. There is a need to upgrade the transmission network to
expand its network coverage (currently covers only 40% of the nation) and
limit transmission losses. This is can be achieved through the following;
Attracting investments via public private partnership : Currently,
limited funding is a core barrier faced by the government owned
Transmission Company of Nigeria. One of the possible solutions is
public-private partnerships (PPPs). Not only would PPPs make the
procurement and installation of power transmission infrastructure
and technology more affordable, it would also help deploy global
best practices and capabilities within the country. However, Nigeria
may face challenges in fulfilling PPP projects if attributes such as
regulatory uncertainty, political interference, graft and
unsophisticated risk allocation are not thoroughly addressed in
time. An efficient solution used by many developing countries with
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a challenging business environment is to customise PPP contracts
that anticipate major risks and provide guarantees against them.
Rapidly scaling up transmission infrastructure: The government
and other agencies need to play a central role in conceptualising and
prioritizing projects aimed at increasing transmission lines in
Nigeria, especially in the areas/regions not well covered. This will
help increase the geographic coverage of power transmission and
substantially improve reach within the country. However, given the
implementation-related challenges, special oversight should be
provided throughout the project lifecycle to ensure timely
completion. Also, provision of added security and protection may be
required in certain areas, to safeguard against potential attacks.
Furthermore, options such as implementation of off -grid solutions
in select regions may be considered (based on a cost -benefit
analysis), especially in strategic distant rural areas. For example,
China launched the China Township Electrification Program in 2001
to provide renewable electricity to 1,000 townships, one of the
largest of such programs in the world. This was foll owed by the
China Village Electrification Program, also using renewable energy,
aimed at the electrification of a further 3.5 million households in
10,000 villages by 2010, to be followed by full rural electrification
by 2015. The Chinese government paid the total costs involved in
connecting these areas to the grid and subsidizes the amount paid
by consumers in these areas.
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Longer term outlook – Beyond PSRIP
From our analysis of similar emerging markets, we believe a longer term
target of 1,000kwh per capita power consumption is a reasonable target that
Nigeria can aim towards over the next 15 years. In our view, the successful
implementation of the PSRIP over the next five years is imperative to set stage
for the investments needed to attain the 1000kwh per capita consumption 15
years from now.
Table 3: Per capita power consumption (annual) for comparable emerging market economies (non-exhaustive)
Country Power consumption per capita in kWh Population in millions
Malaysia 3,724 30 Ukraine 3,324 44.8 Brazil 2,249 208 Turkey 2,088 79 Egypt 1,877 91.5 Uzbekistan 1,621 29.2 Vietnam 1,465 93.4 Indonesia 910 258.0 Morocco 873 34.0 Phillippines 682 101.0 Sri Lanka 588 21.0
Pakistan 357 189 Bangladesh 234 161 Nigeria 151 160.0
To raise per capita consumption to 1,000kWh, Nigeria will need to increase
installed capacity to 55GW. Amongst growth markets, sizeable increases have
been observed in Brazil and Vietnam, where installed capacity has increased
by 31.1GW and 28.3GW respectively between 2005 and 2015. This was driven
by comprehensive power development plans, which were supplemented with
aggressive public and private investment. For Nigeria, especially given that
32.8 GW of power generation projects have been announced, we consider the
stretch target of a 50 to 55 GW increase in capacity (over fifteen years) to be
realistic. Assuming that all power generation projects currently in the pipeline
will be completed on schedule, Nigeria will need to add a further 9.7GW of
capacity. Nigeria’s power sector will need investments of about $10.4 billion,
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assuming an average construction cost of $1,073 7 per kWh and that the
additional capacity is provided by natural gas power plants .
To raise this amount of capital, projects must be financially viable, which in
turn, will entail addressing distribution risks. The PSRIP focuses primarily on
addressing pricing and distribution risks over the next five years as well as
ensuring the stability of power generation at a minimum of 4000MW., to
achieve our hypothetical per capita power consumption of 1000MW in a
decade and half from now, the challenges around the security of fuel supply
for power generation and dilapidated distribution/transmission infrastructure
must be resolved. Also, the full metering of all electricity consumer types (in
addition to the explicit target of metering “all maximum demand users” sp elt
out in the PSRIP) must be priority. We examine these areas and proffer
recommendations that can help resolve these challenges thereby ensuring an
efficient functioning of the power value chain, such that is needed to raise
consumption to our hypothetical target of 1000MW in 15 years.
Aligning upgrade in distribution infrastructure with transmission
expansion: Currently the distribution capacity (8,873MW) in Nigeria is
higher than operational transmission capacity (5,300MW). Assuming
we achieve a total generation capacity of 55GW and based on a
capacity utilisation of 55% and transmission loss of 7% 8, the grid should
have at the minimum a wheeling capacity of about 28GW.
Consequently, distribution infrastructure needs to be upgraded to
accommodate the expanded capacity. There is a need for proper
communication and coordination between the Transmission Company
of Nigeria and the distribution companies, to ensure alignment in
planning and execution.
Reducing losses by improving distribution infrastructure: According
to the NERC, average distribution losses have been officially indicated
as 46% of the electricity generated. These losses are often caused by
overloading aging infrastructure that have seen little maintenance or
have been poorly repaired. To combat this, DISCOs need to have a
sustained focus on managing physical assets with pre -planned
strategies (and budgets) for maintenance and upgrade of critical
7 World Bank estimate for constructing a gas fired power plant 8 Average capacity utilisation and loss rates in countries that have undergone power reforms
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infrastructure in a timely manner. The NERC set an annual CAPEX
benchmark of N550 billion ($1.75 billion) for DISCOS (N50 billion -
$158.7 million per DISCO). This covers CAPEX for maintenance as well
as upgrades. Capex projections are based on existing and projected
demand and the need to reduce AT & C losses to improve coverage and
quality of supply. This is grossly inadequate, because DISCOs will need
about N78 billion ($247.6 million) to meter about two million
customers alone, not considering other areas of investment.
Discussions are ongoing to enable Discos front -load part of their capital
expenditure, however the NERC has mandated that any frontloading is
strictly dedicated to metering consumers
Reducing ATCC losses and revenue leakage - Smart metering: Large-
scale application of advanced metering infrastructure can significantly
reduce the incidences of revenue leakage. Smart meters will be linked
to a central server that will enable DISCOs have accurate meter
readings for every consumer at all times. Integrating this system with
a commercial management system (CMS), makes pre -paid consumption
of electricity possible. Credit bought by consumer is loaded onto theirs
account in the CMS; many options are available for purchase and
loading, including use of mobile phones. The company can easily
implement operational procedures allowing the custom er to have
access to the remaining credit, receive alert messages from the
company when the credit is about to expire, buy new credit, receive
disconnection message, etc. The effectiveness of this tool to detect and
discourage theft and other ways of unmetered consumption is
enormous, as shown by the recent experience in developing countries
such as Poland, India, Malaysia, Dominican Republic, Honduras, and
Brazil. We examine the smart metering system in Poland in the section
below.
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Impact of Advanced Metering System on revenue collection and loss reduction. A Polish Case Study
Background
Energa Operator was the first utility in Poland that implemented a massive rollout (Stage One)
of Smart Meters, thus confirming its position as a leading investor in Polish Distribution System.
This deployment took place in 2012, when Energa Operator installed 109,000 Smart Meters
delivered by ADD GRUP as a first stage of rolling out Advanced Metering Infrastructure.
Approach
Following a series of AMI pilot projects conducted during 2007-2011, involving about 23,000
smart meters from 12 vendors, Energa Operator made a decision for AMI rollout. The first stage
of rollout would involve implementation of 109 ,000 smart meters based on S-FSK IEC 61334-5-1
communication technology. The implementation of AMI project begun with physical installation
of various components of the system followed by their logical integration. The physical activities
of the project included the installation of the following network components:
Residential Meters
Data Concentrators
Balance Meters
3GPP/CDMA modems
Impact
Energa Operator has one of the most successful AMI projects in Europe. The smart meters
seamlessly transmits 15 minutes interval data to the operator for billing and monitoring.
Energy theft cases dropped from 62 cases to only 12 cases after the implementation of
AMR and overall losses dropped to 6% from 13% before the rollout
Consumers now pay for actual consumption, not for estimated one. This is the most
important benefit as perceived by Polish consumers. According to a research realized by
GfK Poloniaiv, 82% of Poles pointed out that paying for the actual electricity consumption
is important, as it allows a better planning of family budget and gives a feeling of control .
Web Interface allows each to check their own consumption. Information flow enables
households to rationalize consumption and lower electricity bills.
Remote reading is important to 36% of consumers, who prefer not to be visited by data
collector.
65% of consumers are willing to change their habits to reduce their electricity bill.
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Appendix 1: Power Sector Development in Nigeria
The passage of the Electricity (Amendment) Decree and the National Electric Power
Authority (NEPA) (Amendment) Act in 1998 laid down the first steps for the
implementation of the power sector reform. The objective of the reform was to build a
more competitive power sector with the creation of a level playing field fo r private
sector participation. However, the main restructuring steps were taken with the
enactment of the Electric Power Sector Reform Act in 2005. This reform led to the
unbundling of the state owned power entity into eighteen (18) new successor companies
comprising of six (6) generation companies (GENCOs), one (1) transmission company and
eleven (11) distribution companies (DISCOs). The end of government monopoly made
the emergence of Independent Power Plants operated by Shell, Agip and AES possible.
The reforms also introduced a new set of players such as the Ni gerian Electricity
Regulatory Commission (NERC), a quasi -independent regulatory body in charge of
overseeing the electricity sector and the Nigeria Bulk Electricity Trading (NBET) were
established. The NBET, also known as the “bulk trader” is responsible f or purchasing
bulk power from generating companies and Independent Power Providers for onward
sale to distribution companies under a vesting contract. A Rural Electrification Fund
(REF) was also established to enhance electricity affordability by low incom e consumer.
By November 2013, under the administration of former President Goodluck Jonathan,
the privatization of these state-owned utilities and assets was completed whilst the
transmission company was placed under the management of Manitoba Hydro
International. Even though the reforms of the power sector, attracted new
investments, the main objective of the reform which is the establishment of a long -term
electricity market structure wherein multiple operators provide efficient services on a
competitive basis for the broadest range of customers is yet to be realised.
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Appendix 2: Evolution of Nigeria’s Electrical Supply Industry
Source: Nigerian Power Baseline Report, CSP Research
Electricity Corporation of Nigeria is created.
ECN and NDA are merged to create the National Electric
Power Authority
Unbundling of assets (transmission, distribution and generation)
Implementation of ten National
Integrated Power Projects (NIPP)
Nigerian Bulk Electricity Trading Plc was
incorporated
Transitional power market was established
NDA (Nigeria Dams Authority) was established to develop the
hydropower potentials in Nigeria.
Electric Power Sector Reform Act
Regulator (NERC) established
Formation of Power Holding Company of
Nigeria
Appointment of a body to oversee progress of unbundled generation and distribution companies • Multi-year tariff order was
approved
Handover of privatized GENCOs and DISCOs to
private investors
1950
1962
1972
2005
2006
2008
2010
2013
2015
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Appendix 3: Snapshot of reform progress
Supply Side Issues
Pre Reform Post Reform
Power supply affected due to fuel shortage – gas Power supply improves on the back of sharp improvement in domestic gas supply
Tariff related issues between the utility company and consumers
Tariff related issues continue with no resolution in sight
Congestion in transmission due to inadequate capacity
Marginal improvement in inter-regional transmission capacity
Low power supply from renewable sources due to unreliability and high cost of generation
Power supply from renewable sources see a new era with falling generation costs. (specifically solar power)
Minimal additions to generation capacity Increase in capacity additions from the private and public sector. This has however slowed in recent times.
Capital from private sector was virtually zero Increasing non-performing assets make capital scarce, especially from private sector.
Demand Side Issues
Pre Reform Post Reform
Power purchasing ability of distribution utilities worsens due to heavy financial losses Scenario still remains
Attempts to improve distribution infrastructure and efficiency fail
Orders under new schemes (CAPMI) are underway – Yet to see the real implementation
Consumer demand for power grows at a tepid pace due to low economic growth
Scenario remains same
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Appendix 4: Geregu Power Generation Plant Corporate Profile
The Geregu Power Plant was commissioned in 2007 with three Siemens open cycle gas
turbine power generation units totaling 414MW of installed capacity. The three
operational units have a rated capacity of 138MW each, and are fueled with gas from
two pipelines from a natural gas treatment plant. These are able to satisfy the fuel
requirements of 3 units running on a full load of 414MW. To help address generation
concerns and encourage private investment, in 2013 the federal government began a
partial privatisation process that led to the sale of fifteen (15) state generation and
distribution companies, previously included under the umbrella of the Power Holding
Company of Nigeria. Forte Oil via its subsidiary, Amperion Power Distribution Company
Limited, acquired a controlling stake (51%) under the privatisation programme. Amperion
Power paid the minimum bid price of $132 million for its stake in the asset. The plant
has seen improvements following the overhauling process which saw installed capacity
rise to 435MW.
STRENGHTS WEAKNESSES
The newest of the plants that were either
sold or concessioned under the reform
program
Recently underwent a refitting program that
increased installed capacity to 435MW
Power purchase agreement
Strong technical partnership with Siemens
and State Grid Corporation of China’s, the
world's largest utility company
Single fuel mix. Disruptions to gas supply
bode negatively for operations.
Huge debt profile threatens cashflow
OPPORTUNITIES THREATS
Support from the federal government via
funding interventions and technical support
Full implementation of the transitional
electricity market
Growing demand for power
Impact of federal government intervention
on industry operations – tariffs, regulations
Exchange rate and interest rate volatility
which could lead to increased costs
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Appendix 5: Transcorp Ughelli Power Generation Plant Corporate Profile
The Ughelli Power Plant was built in 1964 with an installed capacity of 72MW from two
Stal-Laval gas turbines. Then the station was called Delta I under Electricity Corporation
of Nigeria (ECN). Over the years the plant has undergone several capacity addition
programmes and today, installed capacity stands at 900MW. Ughelli Power has four (4)
power plants, Delta I, Delta II, Delta III and Delta IV with the Delta I retired. Custom fitted
Engine starters in Delta II and Delta III turbines enables the station to black start 9 the
National Grid in case of emergency or cases of total or partial system collapses. On
September 25, 2012, Transcorp Ughelli Power Limited (TUPL) (which comprises Wood
Rock Energy Resources Limited, Symbion Power LLC, Thomassen Holding Limited, Medea
Development S.A., Tenoil Petroleum and Energy Services Limited and PSL Engineering
and Control Limited) won the $300m bid for the acquisition of the Ug helli Power Plant,
one of the six power generation companies of the Power Holding Company of Nigeria
(PHCN) being privatized by the Federal Government of Nigeria. Symbion Power divested
in September 2015. Transcorp Ughelli Power gets supply of natural gas from Shell
Petroleum Development Company (SPDC) for Delta II & III and Nigeria Gas Company
(NGC) for Delta IV, but both SPDC and NGC can complement each other in times of
emergency through a tripartite gas line valve.
STRENGHTS WEAKNESSES
Power purchase agreement
Strong technical partnership with General
Electric
Single fuel mix. Disruptions to gas supply
bode negatively for operations.
Gas and high frequency constraints restrict
capacity utilization to 38%
Huge debt profile threatens cashflow
OPPORTUNITIES THREATS
Support from the federal government via
funding interventions and technical support
Full implementation of the transitional
electricity market
Impact of federal government intervention
on industry operations – tariffs, regulations
Exchange rate and interest rate volatility
which could lead to increased costs
9 Black Start is the procedure to recover from a total or partial shutdown of the transmission system which has caused an extensive loss of supplies. This entails isolated power stations being started individually and gradually being reconnected to each other in order to form an interconnected system again.
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Appendix 6: Eko Distribution Company Limited Eko Electricity Distribution Plc is one of the successor companies created following the
unbundling of PHCN. EKEDP covers the lice nse area of southern part of Lagos state and
Agbara in Ogun state. For the ease of operations and division of work, the license area
of EKEDP is segmented into 3 Circles and 8 Districts, namely:
West Circle: It has 3 Districts – Agbara, Ojo, Festac
Central Circle: It has 3 Districts – Ijora, Mushin (also covers Orile areas), Apapa
East Circle: It has 2 Districts – Lekki (also covers Ibeju areas) and Island (also covers
Ajele areas)
EKEDP receives its bulk power supply from the following two transmission sources:
Akangba (330/132 KV) and Ajah (330/132 KV); and thereafter, through 10 nos. of 132/33
KV transmission stations. There are 40 injection substations with a total installed
capacity of 1137.5MVA. This capacity and system reliability will further increas e with
induction of various NIPP projects in EKEDP’s high tension network (HT – 33 KV & 11 KV),
expected to be completed by 2017. There are 6000+ distribution Substations with total
installed capacity of around 2500 MVA, good enough to serve a present base of around
0.4 million customers and existing load demand on the network.
STRENGHTS WEAKNESSES
Eko Disco is responsible for distributing
electricity in the commercial and financial
hub of Lagos State.
Legacy challenges - The switchgears,
transformers, relays, underground (U/G) &
overhead (O/H) network, etc. inherited by
the company in November 2013, are in a
dilapidated & unsafe state.
42% of customers are unmetered leading to
significant collection losses
OPPORTUNITIES THREATS
Support from the federal government via
funding interventions and technical
support
Increased developmental activities
particularly in Agbara and Lekki provide
scope for additional revenues
Impact of federal government intervention
on industry operations – tariffs, regulations
Exchange rate and interest rate volatility
which could lead to increased costs
Full implementation of the transitional
electricity market which could lead to
sanctions and fines
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Appendix 7: Ikeja Distribution Company Limited Corporate Profile
Ikeja Electricity Distribution Company (IKEDC) manages electricity distribution in the
mainland segment or northern part of Lagos State. The investors in the company are
NEDC/ KEPCO Consortium. It is the largest power distribution network and is divided in to
six (6) business units which are Abule Egba, Akonwonjo, Ikeja, Ikorodu, Oshodi and
Shomolu. It boasts of a customer population of 667,931 .
STRENGHTS WEAKNESSES
Technical partnership with KEPCO, the
largest electricity utility company in Asia in
terms of Transmission and Distribution
Good financial backing from parent
company.
2nd largest customer base
Legacy challenges - The switchgears,
transformers, relays, underground (U/G) &
overhead (O/H) network, etc. inherited by
the company in November 2013, are in a
dilapidated & unsafe state.
32% of customers are unmetered leading to
collection losses
OPPORTUNITIES THREATS
Support from the federal government via
funding interventions and technical support
Impact of federal government intervention
on industry operations – tariffs, regulations
Exchange rate and interest rate volatility
which could lead to increased costs
Full implementation of the transitional
electricity market which could lead to
sanctions and fines
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