THE IMPACT OF ELECTRICITY DEREGULATION ON THE

PERFORMANCE OF NIGERIA POWER INDUSTRY

BY

OLANIYAN STEPHEN OLATOYEMATRIC NO: 070853

A PROJECT REPORT SUBMITTED TO THE

DEPARTMENT OF ELECTRICAL AND ELECTRONIC

ENGINEERING

FACULTY OF ENGINEERING

EKITI STATE UNIVERSITY, ADO-EKITI

EKITI STATE, NIGERIA

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF THE DEGREE OF BACHELOR OF

ENGINEERING IN ELECTRICAL AND ELECTRONIC

ENGINEERING

APRIL, 2013

CERTIFICATION

This is to certify that this project was carried out by

Olaniyan Stephen Olatoye with matric number 070853 of the

Department of Electrical and Electronic Engineering, faculty

of Engineering, Ekiti State University, Ado-Ekiti, Ekiti State

Nigeria

________________ _____________

Engr. B. Adebanji Date

Supervisor

________________ _____________

Dr. V.S.A Adeloye Date

H.O.D (Elect/Elect)

________________ _____________

External Supervisor

ii

DEDICATION

This project is dedicated to Almighty God for giving me

the courage to do this work. Also dedicated to my beloved

family as a whole.

iii

ACKNOWLEDGEMENTS

I give glory and adoration to the most High God for

his grace upon my life and helping me so far.

My special gratitude goes to my supervisor Engr. B.

Adebanji who took time to train and impact knowledge in me.

My special thank goes to the head of department

Dr. V.S.A Adeloye and all entire staff in the department

of electrical and electronic engineering for given me

the opportunity to advance academically.

My special gratitude goes to my parents pastor

and mrs Olaniyan for their financial and moral support.

My sincere gratitude goes to my sisters and

brothers,Olaniyan tosin,Olaniyan yemi,Olaniyan nike,

Olaniyan ayo ,olaniyan tayo and every member of the

entire family of Olaniyan

My acknowledgement would not be complete if I

don’t express my profound gratitude to my beloved

friends Ogunleye foluso folahan(FLAKES), Ajayi dipo

timothy(DIPLOMACY), Okafor Christopher, Fasola

tosin, okonkwo ike, Oputteh Benson, Avidime jonah,

Okoh Raymond, Osi treasure, Bako for being there for

me through out my course of study in the citadel

learning, I have learnt a lot from you guys. I love you

all, Thanks.

iv

ABSTRACT

Many countries in the world today, are in the verge of

deregulating their power industry. Due to the increase in

demand of most goods and services, which electricity is not an

exemption, appropriate men as should be put in place at

meeting this demand.

Some of these countries have started improving their

electricity industry by introducing deregulation as a prelude to

ushering free market competition.

This project will presents the deregulation status of the

electric supply industry in Nigeria. The historical overview of

the Nigeria electric supply industry in Nigeria. The historical

overview of the Nigeria electric supply industry will be noted.

The motivation and rationale for restructuring the electric

supply industry will be presented. The short, medium and long

term goals of the deregulation process are presented. The

project gives suggestion that will be beneficial to the ongoing

privatization and restructuring exercise in Nigeria.

v

TABLE OF CONTENTS

TITLE PAGE

CERTIFICATION ii

Dedication iii

Acknowledgements iv

Abstract vi

Table Of Contents vii

CHAPTER ONE 1

1.0 Introduction 1

1.1 Statement Of Research Problem 6

1.2 Research Objectives 7

1.3 Significance Of The Project 7

1.4 Justification 7

1.5 Scope Of The Study 9

1.6 Research Methodology 9

1.7 Definition Of Operational Terms 9

CHAPTER TWO 12

2.0 Historical Overview Of Electric Supply Industry 12

2.1 General Overview 12

2.1.0 Transmission 13

2.1.1 Voltage Policy Control 13

vi

2.1.2 Frequency Control Policy 13

2.1.3 Distribution 13

2.1.4 Frequency Control 13

2.2 Deregulation And Current Scenario Around The World 18

2.3 Milestones Of Deregulation: 18

2.4 Latin America 18

2.5 The Uk 21

2.6 The Nordic Pool (Norway, Sweden) 24

2.7 Canada 27

2.8 California (Us) 29

2.9 Indian Scenario Of Deregulation 31

2.10The Electricity Act 2003: 32

2.11 Supply And Demand Imbalances 34

CHAPTER THREE 36

3.0 Restructuring Of The Esi: Policy And Status 36

3.1 Needs And Reasons For Restructuring 36

3.2 Power Sector Reform Program 37

3.3 National Electric Power Policy Objectives 37

3.4 Status Of The Restructuring Process 38

3.5  New Power Station 40

3.6 Ipp Initiatives 41

vii

3.7 Billing Collection 41

3.8 Structure Of Deregulated Industry 42

3.9 Different Entities In Deregulated Environment 45

3.10The Competition 48

CHAPTER FOUR 50

4.0 Impact Of Electricity Deregulation 50

4.1 Challenges And Opportunities 51

4.1.1 Economic And Social 51

4.1.2 Political 52

4.1.3 Technical 53

4.1.4 Environmental Factors 54

4.2 Opportunities 55

4.3 Efficiency And Reliability Of Service 55

4.4 Investment Opportunities 55

4.5 Employment Opportunities 56

4.6 Improvement Of Technical Manpower 57

4.7 Encouragement Of Research 57

4.8 Conclusion 58

CHAPTER FIVE 60

5.0 Conclusion 60

5.1 Recommendation 61

viii

5.1.1 Build, Operate And Transfer Schemes. 62

5.1.2 Build Operate And Own Scheme 63

5.1.3 Transmission 63

5.1.4 Tariff Regulation 65

5.1.5 Market 66

5.1.6 Vandalism 69

5.1.7 Nigeria Electric Power Training And Research Institute

(Neptri) 71

REFERENCES 74

ix

CHAPTER ONE

1.0 INTRODUCTION

Around the world, electric industries are undergoing

extensive restructuring. The trend, which started in the UK

and Chile in the 1980s, has rapidly spread too many countries

in Latin America, Asia, Europe and Africa. The main motivation

and driving forces for restructuring the electric industry in

different countries are not the same. In some countries, such

as the U.K. and the Latin America countries, privatization of

the electric has provided a means of attracting funds from the

private sector to relieve the burden of heavy burden of heavy

government subsidies. In the countries formerly under

centralized control (central and eastern Europe), the process

follows the general trend away from centralized government

control towards increased privatization and decentralization. It

also provides a vehicle to attract foreign capital needed in

these countries. In the United States and several other

countries where the electric industry has for the most part

been owned by the private sector, the trend is toward

increased competition and regulation J. Duncan Glover, and

1

Mulukutla S. Sarma, Power System Anaylsis and Design, 3rd

ed, California: Brooks/Cole 2002.

The crisis of public sector managed electricity sector hit

the economies of several countries hard and the countries

tried various measures of reform with varying degrees of

success. The privatization of the power sector is a recent, but

internationally widespread trend, which has placed greater

reliance on market forces and less dependence on government

in the allocation of resources. The privatization of the power

sector has been made possible after recognition that the sector

could be separated into generation, transmission and

distribution sectors and even these sectors could be broken

into several companies, without compromising the economic

advantages of a vertically integrated government monopoly,

which earlier existed in most countries N. Leeparechanon, S.

S. Moorthy, R. D Brooks, A. K. David, A review of major factors

in restructuring power markets in Developing Countries,

Proceedings of the 5th international conference on advances in

power system control, operation.

In the restructured environment power sector is no

longer based on vertically integrated model. Substantially

2

different economic characteristics are recognized in the

generation, dispatch, transmission, distribution and supply

stages. National, state owned, vertically integrated companies

have given birth to many companies in generation and supply,

which compete to provide electricity to the industrial

consumers and end consumers. Government role has been

changed from entrepreneurial role to regulatory one.

Competitions among private actors are established as the

mechanism to assign resources in generation and supply, with

the state regulating dispatch, transmission and distribution

activities. Most of the prevailing electricity market follows the

model as shown in Figure 1.0.

Currently electric power supply in Nigeria is the

responsibility of the federal government owned National

Electric Power Authority (NEPA), which has been recently

restructured into a holding company named Power Holding

Company of Nigeria, (PHCN) in preparation for deregulation.

NEPA was established in April 1972, with the amalgamation of

the former Electricity Corporation of Nigeria (ECN) and Niger

Dams Authority (NDA). NEPA supplies electricity power to an

estimated four million customers in Nigeria and the Niger

3

Republic, from a combination of hydroelectric dams, coal and

gas powered operating source.

Like most state-owned enterprises, NEPA has suffered

from severe under funding and under-capitalization,

inappropriate capital structure, excessive executive

interference, and sub-optimality and decision-making.  The

consequence of this trend is a structural unbalance between

electricity power demand (estimated at 10000MW in 2005,

forecasted to rise to 20,000MW in 2010), and supply. Although

the installed capacity is about 6000MW, the maximum load,

ever recorded, was 3083MW. With a 40% generation and

distribution losses, the resultant power outages cost the nation

an estimated $1 billion per year (2.5% of GDP). Anurag K.

Srivastava, Service to Commodity: Which Way to Follow in the

Context of Indian Power Sector, Research Paper for ECE 650

at Illinois Institute of technology, 2002. Lack of adequate

electric power has caused the collapse of many industries that

rely heavily on adequate power supply. Small businesses and

heavily machined manufacturers are severely affected by the

abysmal performance of NEPA. The people in general are also

affected socially, psychologically and physically due to

4

inadequate and unstable power supply. Overall NEPA has

contributed in no small way to the stagnation of Nigeria

economy.

In 1999, a new democratic government was elected into

power Nigeria. This regime under the leadership of President

Olusegun Obasanjo initiated sweeping reforms across the

various sectors of the Nigerian economy. The new

administration recognized the fact that National Public

Enterprises (NEPA inclusive) have failed to meet public

expectation; they consume a large proportion of national

resources without discharging the responsibilities thrust upon

them. The administration also established the following facts

about its NPEs: they fail to allocate these resources efficiently;

they create economic inefficiencies; they incur huge financial

losses; absorbed disproportionate share of credit especially in

the form of Paris and London club loans, as well as domestic

loans and advances; and contributed to consistent fiscal

deficits. As a result the administration has slated most of the

NPEs for privatization or/and deregulation. NEPA is one of the

key NPEs slated for privatization and deregulation. Sesan A

5

Ayodele, Improving and Sustaining Power (Supply) for Socio-

Economic Development in Nigeria, 2003.

FIGURE 1.0: Restructured power system

1.1 STATEMENT OF RESEARCH PROBLEM

Under regulated power system, problems of improper

allocation of system usage cost if the participants as well as

high tariff on part of the consumers are eminent, this work is

thus to provide means of overcoming this problems.

1.2 RESEARCH OBJECTIVES

The objectives of this research are:

Firstly, it presents the deregulation status of the

electric supply industry in Nigeria.

Secondly, it will present the needs and reasons for

restructuring of the electric supply industry in Nigeria.

6

Thirdly, to recommend an efficient status of the

deregulation process of electric supply industry in

Nigeria.

1.3 SIGNIFICANCE OF THE PROJECT

The significance of this project is to : Encourage the entry

and full participation of private investors into the power

industry in Nigeria. Achieve the stability of price in the

electricity market. It gives the suggestion that might be

beneficial to the ongoing privatization process in Nigeria

power industry.

1.4 JUSTIFICATION

This wok will justify proper allocation of system usage

cost thereby providing proper means of compensating the

wheeling utilities and the customers.

7

1.5 SCOPE OF THE STUDY

This study is fundamental at discussing the various

methods used in restructuring of the electric supply industry

in Nigeria and does not include issues concerning congestion

management of such power system.

1.6 RESEARCH METHODOLOGY

Power system is an interconnection of different

equipment from the generating station to the end users. This

equipment normally form a complex network, hence analyzing

such network tends to be cumbersome.

For the purpose of this project, reviewing of journals

and articles, interviews and collection of data from the

National Control Centre Oshogbo are also some of the

methodologies used in the project.

1.7 DEFINITION OF OPERATIONAL TERMS

The definitions of some of the terms frequently used in

this project are given below:

i) Customer: end user which purchases the power from

the distribution utilities.

8

ii) Deregulation: a system whereby new laws and

regulations are introduced to increase competition in a

previously monopolized industry.

iii) Firm transmission: transmission service that cannot be

interrupted for any reason except during an emergency

where continuous power delivery is not possible.

iv) Monopoly: a market structure in which a single entity

controls the production of goods and services which has

no close substitute e.g. electricity.

v) Network: an interconnected power system consisting of

transmission lines and equipments for the transmission

of electricity.

vi) Producer: owner of the generating station that

generates electrical energy.

vii) Transmission: process of transporting electrical energy

at high voltage from the supply source to the utilities.

viii) Transmission provider: the entity responsible for

providing transmission services subject to reliability,

regulatory and commercial requirement. A transmission

provider may or may not be the transmission owner.

9

ix) Vertical integrated utility: a traditional electric utility

that has direct control on the generation, transmission

and distribution facilities.

10

CHAPTER TWO

2.0 HISTORICAL OVERVIEW OF ELECTRIC SUPPLY

INDUSTRY IN NIGERIA 

2.1 GENERAL OVERVIEW

From 1972 to 2005, NEPA, the state owned, vertically

integrated monopoly, controlled about 94% of the generation

capacity and 100% of the transmission, system operation,

distribution and marketing sector of the industry. The

transmission lines and generators are interconnected in a

common grid, with a single control center. Sesan A Ayodele,

Improving and Sustaining Power (Supply) for Socio-Economic

Development in Nigeria, 2003.

The national electric grid comprises of three hydro and

six thermal generating stations with a total installed capacity

of 5906MW. Sesan A Ayodele, Improving and Sustaining

Power (Supply) for Socio-Economic Development in Nigeria,

2003.

The generators types and capacities are presented in

table 1. The transmission and distribution networks include:

11

2.1.0 TRANSMISSION

5000 kilometres of 330KV lines

6000 kilometres of 132KV lines

23 of 330/132KV sub-stations

91 of 132/33KV sub-stations

2.1.1 VOLTAGE POLICY CONTROL

330KV + 5% & -15%, 132KV + 10% & -15%

2.1.2 FREQUENCY CONTROL POLICY

50Hz + 0.4% & - 0.4%

2.1.3 DISTRIBUTION

23,753 kilometres of 33KV lines

19,226 kilometers of 11KV lines

679 of 33/11KV sub-stations

543 of 33/0.415KV or 11/0.415KV sub-stations

2.1.4 FREQUENCY CONTROL

20, 50Hz: 33KV +/- 10%

In addition, there are 1790 distribution transformers and

680 injection sub- stations. 

Table 2.1: Generation mix of PHCN

12

Generators Total Installed Capacity

Types Fuel Location MW

Hydro -- Kanji 760

Hydro -- Jebba 570

Hydro -- Shiroro 600

Thermal Natural Gas Afam 709.6

Thermal Natural Gas Delta 912

Thermal Steam Egbin 1320

Thermal Steam and Gas Sapele 1020

Thermal AGO fuel Ijora 60

Total: 5951.6

While table 2.1 shows an installed capacity of 5951.6 MW

it is sad to note the current available capacity from generators

is only about 2536.6MW, less than 50% of the install capacity.

The transmission grids are heavily overloaded, because

transmission capability was not expanded with increasing MW

13

added to the transmission grid. According to a study done by

O.A Komolafe et al the transmission grid is limited to a load

supply of 4000MW. This limit includes the effect of Var

Injections and Voltage control equipments. If all the available

capacity of 5951.6MW is injected into the transmission, total

system collapse will occur. Transmission losses are estimated

to be 20-30% annually.

During the inglorious days of military dictatorship in

Nigeria (1983-1999), generation, transmission and distribution

apparatus (rotating machines, transformer and others) were

operated for several years without the necessary turn around

maintenance required to keep them operating efficiently and

prevent them from collapse. As a result a lot apparatus cannot

be operated efficiently or outright inoperable. Also substantial

amount of the machineries have outlived their useful life,

deteriorated beyond repair or rendered obsolete due to better

technology.

PHCN equipments are subjected to vandalism and theft

by group of cabals in different part of the country. The hydro

power stations suffer from low water level during dry season

and the generation output capabilities of thermal stations are

14

often hampered by shortage of fuel. Equipments are expensive

to repair, mostly due to their obsolete status.

NEPA has always struggled to meet its end of the bargain

to supply electricity to its end consumer. NEPA supply

electricity through a hostile regime of load shedding and

rationing. Power outages occur at high rates and power quality

delivered in most area is very low. The frustration caused by

inefficacy of NEPA fueled by the lackadaisical attitude of NEPA

personnel has lead to a high rate of illegal electricity

consumption practices among consumers.   Currently, all

major newly established privately or even publicly owned

commercial/industrial enterprises under take substantial

investment in private supply of electricity relying on privately

owned generating plants at high costs which tend to aggravate

the high cost of production and subsequently the country’s

high rate of inflation.

NEPA is a government ran entity that enjoys a lot of the

financial transfers, subsidies, grants and tax and import duty

waivers from the government. These social incentives from the

government were counter productive for NEPA’s efficiency. It

resulted in an under trained and unmotivated manpower and

15

lack of will to operate as a profitable entity. The billing system

of NEPA is fraught in two main ways: 1) The tariff does not

cover the cost of supplying power to consumers 2) NEPA does

not have an effective billing system, which results in

widespread under billing.

16

2.2 DEREGULATION AND CURRENT SCENARIO

AROUND THE WORLD

2.3 MILESTONES Of DEREGULATION:

- 1982 Chile

- 1990 UK

- 1992 Argentina, Sweden & Norway

- 1993 Bolivia & Colombia

- 1994 Australia

- 1996 New Zeeland

- 1997 Panama, El Salvador, Guatemala, Nicaragua,

Costa Rica and Hondura

- 1998 California, USA and several others

2.4 LATIN AMERICA

From 1980 onwards, a major transformation took place

throughout the electric power industry in South America. The

first to begin was Chile, which made modest reorganization

efforts in 1980, and privatizedNacional de Electricidad S.A. in

1988, purchased by Endesa (Spain). Endesa along with other

utilities purchased stakes in the Chilean electric industry. Over

17

time, government owned power gave way to five generating

companies competing in the main grid.

In Argentina, the government separated generation,

transmission and distribution in 1991. The two state owned

companies were split into almost 40 competing private

generator companies, many with only a single power plant.

This fragmentation was designed to assure that no one

generator had anything approaching dominant position in the

marketplace. Transmission assets were sold to private

Transcos, and 18 electric distribution companies were created.

MAIN FEATURES:

Disaggregation of generation, transmission and

distribution into separate business sectors.

Creation of intense competition in power production

through fragmentation of national generating resources

into many companies, none of which dominates the

market.

All generating companies bid into ‘Poolco’ like structure,

essentially centrally dispatched by an independent Poolco

operator.

There are almost no barriers to the construction of

18

thermal, wind and solar plants. Licenses and government

cooperation are required for construction of hydroelectric

plants.

Licensed, open access operation of power delivery assets,

usually having local monopoly franchises limited to power

movement, not sales.

Local distribution concessionaires are assigned an

obligation of supplying electricity to consumers with long-

term franchises.

RESULTS:

Increasing investment in new facilities, especially new

generating plants

Substantial increase in thermal plant availability

Reduction in specific power consumption of thermal

plants and consequent decreases in both spot and

contract market prices

Service quality improvements, reduction in non-served

energy and decrease of system failure probability

Reduction in total service losses

Considerable consumption growth (40% increases in last

five years)

19

Transmission investments in the period have been

moderate, because of the strict economic criteria

required for their implementation by interested party.

Reduction in non-supplied energy because better

transport service quality

Reduction of prices since beginning of the process around

50 %

Average monthly electricity prices in wholesale market

dropped from $60/MWhr to $30/MWhr

2.5 THE UK

The most widely quoted example of deregulation is the

United Kingdom. The process of privatization in the UK began

in February 1988, and in some ways the UK led the world in

electric industry deregulation. Great Britain was privatized in

three stages, with England and Wales first, followed by

Scotland, then Northern Ireland.

MAIN FEATURES:

Central Electricity Board was split into four entities,

which consisted of two private generating companies,

National Power and Power Gen, a government owned

generator, Nuclear Electric, and the National Grid

20

Company (NGC), which is the independent transmission

system operator.

12 local electricity boards privatized as Regional electric

Company (REC), each having monopoly franchise on local

power distribution

National Grid became National Grid Company (NGC),

initially owned by 12 RECs. But now a public traded

corporation.

Scottish non-nuclear companies, Electricity de France

(EdF) and IPPs became the member of pool.

Non-franchise customers (earlier > 1 MW, later > 100

KW and now free) have option of choosing their supplier

from any RECs, National Power or PowerGen.

Pool maintained by NGC

REC submit grid forecast to Pool co operator

Generator bids are entered into NGC’s GOAL program

The GOAL program derives half hourly marginal costs

The “System Marginal Price” (SMP) is the price quoted

by the most expensive generator which is accepted for

dispatch during each half-hourly time slot when

transmission constraints are ignored simple

21

unconstrained dispatch New Electricity Trading

Arrangements (NETA):

In July 1998 the Director General of Electricity Supply

(DGES) published a proposals document describing new

market based trading arrangements for electricity (NETA). In

October 1998 the Government accepted these proposals.

The proposals envisaged market-based trading

arrangements more like those in commodity markets

elsewhere. Forwards and futures markets would operate up to

several years ahead, evolving in response to demand. A

voluntary Short-term Bilateral Market would operate from at

least 24 hours to about 4 hours before real time, allowing

participants to fine tune their positions. When the Short-term

Bilateral Market closes, a voluntary Balancing Market would

open with the National Grid Company, in its role as System

Operator, accepting bids for increments or decrements of

generation or demand to enable it to balance the system.

There would be a settlement process to reflect differences

between contract positions and metered volumes of output and

to recover other costs to be borne by market participants.

A Balancing and Settlement Code would contain a set of

22

rules covering the balancing market, the imbalance price and

the settlement system.

RESULTS:

Staffing at generation plants fell by 60%, while

productivity increased almost 75%

Improved operating efficiency.

Prices have fallen for majority of customers with

increased reliability

2.6 THE NORDIC POOL (NORWAY, SWEDEN)

The Swedish electricity sector was never completely

centralized or nationalized. Till 1991, the sector was

dominated by Vatenfall, which in addition to owning about

50% of the total generation also managed the 400 kV and 220

kV transmission lines and some large networks at lower

voltage levels, down to the customers. There were about a

dozen other large generating companies and 270 distribution

companies, which operated the networks at lower voltage

levels and often owned their own generation.

The Norwegian electricity sector was dominated by small/

medium sized municipality owned power companies, each

23

vertically integrated, i.e., they generated power and

transmitted that to their own dedicated customers. Most of the

transactions were on a bilateral basis, between the utility and

bulk consumers.

MAIN FEATURES OF NORWEGIAN DEREGULATED

MARKET:

Deregulation was created in by the Energy Act of June

1990 and market operation started in May 1992

Restructuring removed the transmission ownership from

Stat Kraft, a national utility, and the creation of a new

national owned company Stat Nett to be transmission

owner, market operator and ISO.

Nord pool is not a mandatory pool. Generators and

consumers voluntarily decide whether or not they

wish to sell or purchase electricity through this market.

As a consequence, the majority of electricity is still traded

via bilateral contracts between generators and

consumers, with the pool serving primarily as a wholesale

market for marginal electric supply.

There is a future market where weekly financial futures

contracts ranging from a week ahead to 3 years ahead

24

are traded.

Norwegian Water Resources and Energy Administration

(NVE) are responsible for monitoring grid operation in

Norway and for setting the tariffs for the local

distributions companies throughout Norway.

MAIN FEATURES OF SWEDISH DEREGULATED

MARKET:

Passed deregulation legislation in October 1995 and

joined existing Norwegian market structure in January

1996 inspired by the Norwegian initiative.

Transmission operation was removed from national utility

Vattenfall that continues to operate generation, and

Svenksa Kraftnat, the national grid owner and ISO, was

formed.

Nord Pool, a market operator was formed, owned equally

by Statnett & Kraftnat, to look over spot and future

market for the both countries.

Some large retail distributors also generate all or a large

fraction of the electricity they distribute.

Sydkraft and Stockholm Energi, the two largest

distribution ompanies, are the next largest generators

25

after Vattenfall.

RESULTS:

Prices have declined about 2% for residential & 7% for

commercial consumers

Service reliability has remained at or near traditionally

high levels

Management of hydro energy has resulted in no

shortages or apparent waste of water resources.

2.7 CANADA

January 1, 1996 was a turning point for Alberta’s electric

industry since it meant vertically integrated utilities became a

thing of the past. Since then, restructuring is moving

cautiously, trying to retain the benefits of the existing low cost

generators for customers while making the transition to fully

competitive market.

MAIN FEATURES:

New power pool, through which all energy in the province

will be traded. The hourly pool price will be the same for

buyers and sellers.

Competitive bidding for future generation. Utilities will

continue to own and operate their existing power plants.

26

However, as these are retired, IPP will be brought on to

replace them and meet load growth. This will lead to the

generation sector becoming fully competitive.

A province-wide transmission grid, which will be

administered by the Grid Company of Alberta Inc.

(Gridco). It is owned by the four utilities that own

transmission facilities in the province and will contract

with those individual owners to supply transmission

services.

An advisory group, the Electric Transmission Council, will

represent the interests of consumers and transmission

users.

2.8 CALIFORNIA (US)

In the United States, the Federal Energy regulatory

Commission (FERC) deregulated the wholesale generation and

bulk transmission parts of the electric power industry with its

order 888, in April 1996. The wholesale generation market

throughout the United States will be competitive, with low

barriers to entry and dominance by no one. The transmission

grid will be open to access by all qualified parties.

Individual states are free to pursue different approaches

27

to how they implement and operate the electric industry in

their state, within the FERC guidelines. Naturally, the fifty

states are pursuing deregulation in different directions.

Electricity costs in California were claimed to be about

50% higher than the national average. So, this state has been

most aggressive in pursuing restructuring. On March 31, 1998

California became the first sate to offer all customers a choice

of electric service providers

MAIN FEATURES:

A ‘power exchange’ (PX) - a spot market, runs much like a

stock market for power, into which both buyers and

sellers bid.

Unlike some systems, this PX allows only short term (real

time, hour and day-ahead) trading.

Bilateral trading of power over short or long periods is

not only allowed, but also encouraged.

Operation of transmission system in an open access

manner.

Open customer access at the retail level.

Postage-stamp pricing implemented on a zonal basis.

Congestion management through adjustment of zonal

28

prices.

Nuclear power do not bid and contracted ahead of time

as must run. Schedule and price are calculated and

disclosed.

Renewable must be bought as and when available.

The ISO will maintain interconnected system operation,

monitoring and controlling the system to assure it stays in

a secure and stable state all the time.

The ISO should provide equitable access for all potential

users to reserve the system transmission capability they

want.

The ISO should satisfy the power shipment needs of all

the participants.

The ISO provides settlement, billing the users and

passing revenues on to the transmission owners.

2.9 INDIAN SCENARIO OF DEREGULATION

In India, the power sector was mainly under the

government ownership (>95% distribution & ~98%

generation) under various states and central government

utilities, till 1991. The remarkable growth of physical

infrastructure was facilitated by four main policies: 1)

29

centralized supply and grid expansion 2) large support from

government budgets 3) development of sector based on

indigenous resources 4) cross subsidy.

In mid 1990s, Orissa began a process of fundamental

restructuring of the state power sector. Under the World Bank

(WB) loan, the state decided to adopt, what is known as WB-

Orissa model of reform. This consisted of a three pronged

strategy of: 1) Unbundling the integrated utility in three

separate sectors of generation, transmission and distribution,

2) Privatization of generation and distribution companies and,

3) Establishment of independent regulatory commissions to

regulate these utilities. Soon afterwards, several other states

such as Andhra Pradesh, Haryana, Uttar Pradesh and

Rajasthan also embarked on similar reforms and also availed

loans from multilateral development banks such as WB and

Asian Development bank, etc. Meanwhile, some moderate

steps were taken towards reforms until the Electricity Bill

2003 was approved by Parliament in May 2003. This unified

central legislation passed after 10 drafts. The Bill now replaces

pervious three acts on electricity of 1910, 1948 and 1998 (with

their amendments).

30

2.10THE ELECTRICITY ACT 2003:

The conceptual framework underlying this new legislation

is that the electricity sector must be opened for competition.

The Act moves towards creating a market based regime in the

power sector. The Act also seeks to consolidate, update and

rationalize laws related to generation, transmission,

distribution, trading and use of power. It focuses on:

Creating competition in the industry

Protecting consumer interest

Ensuring supply of electricity to all area

Rationalizing tariff

Lowering the cross-subsidization level

31

2.11 SUPPLY AND DEMAND IMBALANCES

The pre 1999-generation level of about 1,500MW was

much below the estimated demand of 4,500MW. There was

about 2,400MW of self-generation in the form of small diesel

and petrol generating sets. The Federal and State

governments have vigorous policies of connecting local

government headquarters and other towns and villages to the

National Grid. This coupled with the creation of new States

and Local governments transformed additional parts of the so-

called rural areas into load centers, thus adding pressure to

the already overloaded electricity supply system. The

estimated percentage of Nigerians having access to electricity

from NEPA is only 36%. The forecasted load for the year 2001

is 4,833.7MW. In order to meet this demand, a generating

capacity of about 6000MW is required. Furthermore, the

estimated demand for power in 2005 and 2010 are

respectively 9780MW and 20,000MW. These will require

generating capacities of 12,700MW and 25,000MW by the

respective years. Thus it is necessary to fully rehabilitate the

existing power stations (which will provide a maximum of

5400MW generating capacity) rehabilitate some critical

32

transmission and distribution lines and their associated

substations and add new generating, transmission and

distribution capacity to the grid, in the immediate and

foreseeable future. Overview of the Power Sector, Official

Website of Nigeria Bureau of Public Enterprise,

www.bpeng.org

33

CHAPTER THREE

3.0 RESTRUCTURING OF THE ESI: POLICY AND

STATUS 

3.1 NEEDS AND REASONS FOR RESTRUCTURING

The business of power supply is a very capital-intensive

enterprise. The Obasanjo administration wanted to direct its

scarce resources to attack poverty through investment in

health, education and rural development that will benefit

millions of Nigerians, not just a few thousand urban elite that

are employed by, or capture the subsidies granted to the

public enterprises. From the preceding it is evident that the

government cannot fund the needed development of the ESI as

outlined above. Reformation of the ESI was a proposed as a

way out of the above quagmire. Reform of the ESI is expected

to achieve the following. Anurag K. Srivastava, Service to

Commodity: Which Way to Follow in the Context of Indian

Power Sector, Research Paper for ECE 650 at Illinois Institute

of technology, 2002.

(i) Attract and encourage private sector participation

(ii) Attract capital to fund the sector and

34

(iii) Ensure a level playing ground for all investors. 

3.2 POWER SECTOR REFORM PROGRAM

There was a regime change from oppressive and

dictatorial military regime to a democratic government in

1999. The new government made it a source of priority to

overhaul the ailing power sector.  The administration chose

privatization as a cardinal economic program to address the

problems of the power sector. The National Council on

Privatization (NCP) empowered a 23 member Electric Power

Sector Reform Implementation Committee (EPIC) to develop

recommendations to promote the policy goals of total

liberalization, competition and private sector led growth of the

electricity sector. EPIC came up with a 64-page document

titled National Electric Power Policy Statement, to serve as a

guideline for the restructuring and deregulation of NEPA. 

NATIONAL ELECTRIC POWER POLICY OBJECTIVES

Salient parts of the National Electric Power Policy are

available in this document. Overview of the Power Sector,

Official Website of Nigeria Bureau of Public Enterprise,

www.bpeng.org

35

STATUS OF THE RESTRUCTURING PROCESS

  To provide the legal framework for the restructuring of

ESI, the Electric Power Sector Reform bill was signed into law

on the 11th of March 11 2005. The bill seeks to provide for the

formation of successor companies to take over the functions,

assets, liabilities and staff of the National Electric Power

Authority, develop competitive electricity markets; establish

the Nigerian Electricity Regulatory Commission; provide for

the licensing and regulation of the generation, transmission,

distribution and supply of electricity; enforce such matters as

performance standards, consumer rights and obligation;

provide for the determination of tariffs; and to provide for

matters connected with or incidental to the foregoing. O.A

Komolafe, M.O Omoigui, A. Momoh, Reliability Investigation of

the Nigerian Electric Power Authority Transmission Network

in a Deregulated Environment, 2003 IEEE.

An Initial Holding Company (IHC) has been incorporated

as provided for in the act. The name of the IHC is Power

Holding Company of Nigeria (PHCN) Plc and it was

incorporated on 31 May 2005. The Power Holding Company of

36

Nigeria (PHCN) PLC has taken over all NEPA assets and

liabilities.

PHCN has 18 successors companies from the old NEPA.

NEPA was divided into its generation plants, transmission

operations and distribution centers. The successors companies

consist of 6-generation companies (GENCO), 1 transmission

company (TRANSYCO) and 11 distribution companies

(DISCO).  The GENCO companies are:

Egbin Electric Power Business Unit (EEPBU) - located in

Egbin, Lagos

Niger Hydro Power Business Unit (NHPBU)- This comprises

of Kainji hydro Power station and Jebba Hydro Power

Station.

Shiroro Hydro Power Business Unit (SHPBU) - Located in

Shiroro

Delta Electric Power Business Unit (DEPBU) - Located at

Ughelli.

Sapele Electric Power Business Unit (SEPBU) - Located at

Sapele

37

AFAM Electric Power Business Unit (AEPBU) - Located at

Afam, Rivers State.

The DISCO companies are:

Abuja Distribution Business Unit (ADBU)

Benin Distribution Business Unit (BDBU)

Eko Distribution Business Unit (EkDBU)

Enugu Distribution Business Unit (EnDBU)

Ibadan Distribution Business Unit (IbDBU)

Ikeja Distribution Business Unit (IkDBU)

Jos Distribution Business Unit (JDBU)

Kaduna Distribution Business Unit (KdDBU)

Kano Distribution Business Unit (KnDBU)

Port Harcourt Distribution Business Unit (PDBU)

Yola Distribution Business Unit (YDBU)

The single TRANSYSCO, Tran Sysco New Business Unit,

TNBU will be responsible for the erstwhile Transmission

Sector and System Operations Sector of National Electric

Power Authority.

38

3.5 NEW POWER STATION

As part of the requirement to meet the increase in future

demand of electricity power, three new power plants are being

added to three of the GENCO companies: a 335 MW power

plant is being built at Egbin (EEPBU); a 414MW power plant is

being built at Shiroro (SHPBU); and a 335 MW power is being

built at Sapele (SEPBU). The total added generation would be

1084MW. 

3.6 IPP INITIATIVES

PHCN in particular, the Generation Sector is undertaking

some reform measures in line with the global trend of

independent power producers (IPP) participation in electricity

industry. The reforms include Disinvestments, Unbundling and

Power Purchase Agreements (PPA). A number of power

purchase agreements are have been implemented by IPPs. The

first of such to be executed is the 270MW power purchase

agreement with ENRON/AES at Egbin in Lagos state. It sells

the 270MW power to PHCN grid for onward use to end

consumers. Such other schemes are being implemented in

some part of the country.

39

3.7 BILLING COLLECTION

The amount of money paid for electric consumption has

improved tremendously from the pre 1999 era. Money

remitted for electricity has been increasing since 2002. In

2003 57,010,038,577.76Naira was collected from customers

and in 2004 71, 056,937, 231.60Naira was remitted by

consumers. This is an increase of 24.64% in one year.

Background Information, Official website of Power Holding

Company of Nigeria, http://www.nepanigeria.org

/background.html

The increase is a result of involving private sector in

the bill collection scheme.

3.8 STRUCTURE OF DEREGULATED INDUSTRY

Figure 3.0 shows the typical structure of a deregulated

electricity system with links of information and money flow

between various players.

40

FIGURE 3.0

The configuration shown in the figure is not a universal

one. There exist variations across countries and systems.

A system operator is appointed for the whole system

and it is entrusted with the responsibility of keeping the

system in balance, i.e. to ensure that the production and

imports continuously match consumption and exports.

Naturally, it was not required to be an independent authority

without involvement in the market competition nor could it

own generation facilities for business. This system operator is

known as Independent System Operator (ISO).

Referring to figure 3.0, there is no change as compared to

41

figure 1.0 so long as energy flow is concerned. Customer does

its transactions through a retailer or transacts directly with a

generating company, depending on the type of a model.

Different power sellers will deliver their product to their

customers (via retailers), over a common set of T & D wires,

operated by the independent system operator (ISO). The

generators, T & D utility and retailers communicate ISO.

Mostly, customer communicates with the retailer, demanding

energy. The retailer contacts the generating company and

purchases the power from it and makes it transferred to its

customer’s place via regulated T & D lines. The ISO is the one

responsible for keeping track of various transactions taking

place between various entities.

In the regulated environment, the electricity bill

consisted of a single amount to be paid towards the

generation, transmission and all other costs. But, in the

restructured environment, the electricity price gets

segregated into the following:

1. Price of electrical energy

2. Price of energy delivery (wheeling charges)

3. Price of other services such as frequency regulation

42

and voltage

control, which are priced separately and charged

independently

but may or may not be visible in the electricity bills.

3.9 DIFFERENT ENTITIES IN DEREGULATED

ENVIRONMENT

The introduction of deregulation has brought several new

entities in the electricity market place, while on the other hand

redefining the scope of activities of many of the existing

players. Variations exist across market structures over how

each entity is particularly defined and over what role it plays

in the system. However, on a broad level, the following entities

can be identified as shown in the figure 3.1.

FIGURE 3.1

43

1. Genco (Generating Company): Genco is an owner-operator

of one or more generators that runs them and bids the power

into the competitive marketplace. Genco sells energy at its

sites in the same manner that a coal mining company might

sell coal in bulk at its mine.

2. Transco (Transmission Company): Transco moves power in

bulk quantities from where it is produced to where it is

delivered. The Transco owns and maintains the transmission

facilities, and may perform many of the management and

engineering functions required to ensure the system can

continue to do its job. In most deregulated industry structures,

the Transco owns and maintains the transmission lines under

monopoly franchise, but does not operate them. That is done

by Independent System Operator (ISO). The Transco is paid

for the use of its lines.

3. Disco (Distribution Company): It is the monopoly

franchise owner-operator of the local power delivery

system, which delivers power to individual businesses and

homeowners. In some places, the local distribution function

is combined with retail function, i.e. to buy wholesale

electricity either through the spot market or through direct

44

contracts with gencos and supply electricity to the end use

customers. In many other cases, however, the disco does not

sell the power. It only owns and operates the local distribution

system, and obtains its revenues by ‘renting’ space on it, or by

billing for delivery of electric power.

4. Resco (Retail Energy Service Company): It is the retailer of

electric power. Many of these will be the retail departments of

the former vertically integrated utilities. Others will be

companies new to the electric industry that believes they are

good at selling services. Either way, a resco buys power from

gencos and sells it directly to the consumers.

5. Independent System Operator (ISO): The ISO is an entity

entrusted with the responsibility of ensuring the reliability and

security of the entire system. It is an independent authority

and does not participate in the electricity market trades. It

usually does not own generating resources, except for some

reserve capacity in certain cases. In order to maintain the

system security and reliability, the ISO procures various

services such as supply of emergency reserves, or reactive

power from other entities in the system.

6 Customers: A customer is entity, consuming electricity. In

45

deregulated markets, the customer has several options for

buying electricity. It may choose to buy electricity from the

spot market by bidding for purchase, or may buy directly from

a genco or even from the local distribution company.

3.10THE COMPETITION

In a deregulated environment, two levels of competition

exist, rather, encouraged. At what can be termed as wholesale

level, gencos produce and sell bulk quantities of electric

power. Power is typically sold in bulk quantities to other

companies or very large industrial customers, through some

deregulated power market mechanism. The gencos bid their

power at the marketplace so as to maximize their profits.

Locally, retail delivery is accomplished by retailers, who

compete for the business of the consumers in the area by

offering low price, good service and additional service

features. These are the companies buying power at the

wholesale level and arranging for transport to each community

where they do business, so that they have power to divide up

and sell to individuals locally.

Thus, a restructured, completely competitive electric

industry is a sandwich of competition above and below a

46

power delivery system. This structure can be conveniently

divided into wholesale and retails levels. The important thing

to note is that the power delivery i.e. transmission and

distribution remains the monopoly franchise. This is shown in

figure 3.2.

FIGURE 3

47

CHAPTER FOUR

4.0 IMPACT OF ELECTRICITY DEREGULATION

The driving force of the reform program is to improve the

quality and reliability of the electricity supply through special

customer service arrangement, the introduction of new

prepayment methods which will allow people to choose and

monitor how much they wish to spend on electricity each

month.

Power industries and small businesses will also be positively

impacted through the creation of reliable and affordable

electricity which will consequently lead to economic

development in the country. Although, the power reform may

lead to removal of many cross subsidies and hence increase

the price of electricity for small businesses and domestic

consumers. Stable and reliable electricity will help in the

increase of establishment of new businesses as the operational

costs would be reduced and there would be no need for

individuals or organizations to invest on costly backup

systems.

Also, reforms in the power sector have the potential to affect

the lives in different ways which consequently improves the

48

efficiency and financial soundness of the power sector. The

reforms can attract new investors of fill up government

resources to be used in expanding access provided there is an

effective demand.

Power sector reforms will however introduce market

driven private sector participation that may encourage utilities

to focus in providing electricity to communities that are not

viable and profitable.

4.1 CHALLENGES AND OPPORTUNITIES

In a developing economy such as Nigeria, power sector

reforms pose great challenges not only to the government that

initiated the program but also to the entire populace who are

the consumers of energy and to the newborn Power Holding

Company of Nigeria which parades itself as a better

alternative to the obsolete National Electric Power Authority.

These challenges can be broadly classified into four; Economic

and Social, Technical, Political and Environmental.

4.1.1 ECONOMIC AND SOCIAL

As said earlier, the primary aim of the power sector

reforms by the Federal Government is to enhance the

49

efficiency of the nation’s power sector and also to make it

affordable and available to consumers. In other words, this

means generating more power to the national grid and

renewing power plants and transmission lines all in a bid to

ensure the achievement of these goals.

4.1.2 POLITICAL

The political atmosphere of the country has to be conducive

to help the power sector open itself to key players within and

outside the country. This means that there is a need to create

and ensure a level playing field for all stakeholders in the

emerging power sector reforms if the desired objectives of the

reform program are to be achieved. The IPP’s therefore expect

a serene political environment before they can agree to invest

their money. Majority of the IPPs would like to construct their

plants within the Niger Delta Area where the sources of

energy needed to run their plants are guaranteed. However,

the present hostile environment in the Niger Delta predicated

by armed ethnic military and youth restiveness will definitely

scare away intending power investors. This brings to fore the

need to sustain the nation’s democratic structures with the

view of ensuring government policy stability. By so doing, they

50

envisaged comprehensive National Energy Policy that will take

care of conservation, storage, consumption, construction and

distribution and will be sustained when it becomes

operational.

4.1.3 TECHNICAL

Power cannot be generated in isolation so it is important

that it is generated with recourse to the strength of the

existing transmission line capabilities as well as how the

power could be used for the overall interest of both the PHCN

and the consumers. The former emphasizes the need for

transmission line and substantial re-enforcement and

construction of additional transmission lines in order to ease

evacuation of energy especially in areas where the IPPs cluster

as a result of proximity to energy sources. The latter calls for

establishment of the Demand Side Management program by

the PHCN. Demand-side management programs usually

consist of the planning, implementing, and monitoring

activities of electric utilities that are designed to encourage

consumers to modify their leveland pattern of electricity

usage. Instead of building new power plants to respond to

increasing customer demand, electricity producers can also

51

endeavor to minimize their customer’s demand for power by

offering special programs for homeowners, businesses,

institutions and industry. To determine the success of such

programs, the costs and benefits of DSM opportunities should

be directly compared with the costs and benefits of building

new power plants and transmission lines.

4.1.4 ENVIRONMENTAL FACTORS

The nature of the environment determines the nature of

power plant to be built in a given locality. For instance, a city

which already has cement industry and chemical industry may

frown at hosting thermal power plant because of high level of

Carbon monoxide (CO) emission. In order to guard against this

scenario, the government has established an Environmental

Inspection Agency - the National Environmental Standards and

Regulations Enforcement Agency - to monitor and regulate the

extent of damage caused by pollution to the environment and

the inhabitants. Again, the IPPs may be confronted by high

compensation fees for economic trees, properties and right of

ways in their quest to erect a power plant in any given city.

These high compensation fees may run in millions and can

invariably pose as a deterrent to potential IPPs.

52

4.2 OPPORTUNITIES

The previous section has enumerated the enormous

challenges involved in the government power sector reforms.

Here, the opportunities derivable from such laudable steps in

terms of efficiency and reliability of services, investment

opportunities, employment opportunities, Transfer of technical

manpower and encouragement of research will be discussed.

4.3 EFFICIENCY AND RELIABILITY OF SERVICE

Proper implementation of the reform program will

promote efficiency and growth in the power sector. The reform

will lead to improved electricity services as it will encourage

private sector participation and investment in the electricity

industry. The evidence can be seen in the form of better

telecommunication services in the country brought about by

the private sector participation in the provision of Global

System for Mobile Communications services.

4.4 INVESTMENT OPPORTUNITIES

The power sector reform has the ability to massively

expand the personal share ownership in Nigeria. It is believed

that over 800,000 shareholders can be created after

53

privatization of NEPA. This is a welcome development which

enables capital formation and economic growth. It reduces the

reliance of public enterprises on the government for finance.

Unbundling of NEPA makes the successive companies to easily

raise funds through the capital market once the necessary

investor confidence has been developed; thus changing their

growth and expansion of their business outfit.

4.5 EMPLOYMENT OPPORTUNITIES

The power sector reform will in the long run create a

reasonable employment opportunities to Nigerians. This is

because; the companies that are expected to participate will

look for both skilled and unskilled labour in the task of

executing their businesses. It is expected that when the reform

is fully implemented, many graduate engineers and

technologists roaming the streets in search of unavailable jobs

will finally heave a sigh of relief as most of them will be

absorbed by the emerging independent power producers.

4.6 IMPROVEMENT OF TECHNICAL MANPOWER

Subsidiary companies that will compete in the power

sector, which some of them must be foreign companies have to

54

come with their expatriate. These companies in a bid to set up

their operational structure will impact knowledge and skill in

areas of demand side management, power system protection

and planning, voltage collapse and stability, co-generation, etc

to Nigerians through their foreign expatriate. This area of

technology transfer if well tapped by Nigerians will go a long

way in bridging the gap between the developed and

developing nation in terms of technology advancement.

4.7 ENCOURAGEMENT OF RESEARCH

Privatization brings about competition and allows

management of privatized companies’ full freedom to realize

their optimum potentials. In order for any company to take a

lead over the other, her product must be second to none. Such

excellence in quality of product could only be achieved

through research. With the emerging power sector reform,

other sources of renewable energy such as wind, solar and

biomass are expected to be explored. For instance in UK, prior

to privatization of electric sector, coal and gas turbines were

widely used. With privatization, research was conducted in

combined heat and power plants. With the eventual success in

the research, generation companies rose from 10 to 32 while

55

supply companies rose from 16 to 34 in 1990 because of new

innovations in the field. Definitely, the new owners of the

privatized NEPA will embark on research, motivated by a

different set of imperatives as new rules, more professional

standards, new performance criteria and better training will

emerge.

4.8 CONCLUSION

This chapter has highlighted the on-going Federal

Government of Nigeria Power Sector Reform Program. The

challenges as well as the opportunities inherent in such reform

program have been discussed. It is envisaged that the Power

sector reform program will improve the stability of electricity

supply, improve cost recovery, increase the availability of

investment capital, usher in competitive energy market, break

the monopoly enjoyed by NEPA and also provide jobs for both

technical and non-technical graduates. To improve cost

recovery and the financial health of utility systems in

developing countries, there is increasing pressure to price

electricity at its marginal cost and allow Independent Power

Producers to sell power to the grid. Several models of

regulation have also emerged through the reforms, ranging

56

from independent commissions that conduct a broad range of

planning and regulatory functions to bodies within government

that primarily manage generation dispatch and fix tariffs.

Reforms have also affected the quality of power in Africa

through special customer service arrangements. New

prepayment methods have allowed poor people to choose and

monitor how much they wish to spend on electricity each

month. The point to therefore note in this reform is that it will

boost the confidence of intending investors which will yield the

expected enhanced efficiency, quality and availability of power

supply and usher in the expected technological revolution of

the country.

57

CHAPTER FIVE

5.0 CONCLUSION

This paper has presented the status of the deregulation

process of the Electric Sector Industry (ESI) in Nigeria is

presented in Nigeria. It started by presenting the global

overview of the deregulation exercise in pioneering countries.

The general reasons why countries opt for deregulation were

presented.

The state of the ESI, pre 1999, under the control of the

state owned National Electric Power Authority (NEPA) was

presented. It was noted that like most state-owned enterprises,

NEPA suffered from severe under funding and under-

capitalization, inappropriate capital structure, excessive

executive interference, and sub-optimality and decision-

making. 

The motivation and rationale for restructuring the ESI

were discussed and the short, medium and long-term goals of

the deregulation process were presented. Also presented are

the law and act enacted by the Nigerian Government to aid in

the deregulation cum privatization exercise.

58

Suggestions that might be beneficial to the ongoing

privatization process were given in the paper. The paper

suggested that proper due diligence should be taken in the

adoption of a market structure for the ESI. BOT, BOO,

BOT_ITP are recommended as ways to get private funding for

building of generators and transmission. Review of electric

tariff was suggested as being paramount to the privatization

exercise and a proactive step was advocated for the prevention

of power equipment vandalism and theft.

An institute named Nigeria Electric Power Training and

Research Institute (NEPTRI) is proposes to serve as meeting

point for Power engineers, technicians, scientists and students

to work together on coming up with solutions pertaining to

Nigeria ESI problems.

5.1 RECOMMENDATION

From the preceding it can be concluded that the Electric

Power Sector Reform Bill as addressed most of the issues

pertaining to privatization of state owned power companies. 

However some recommendations are provided in this

subsection that might benefit and aid the privatization

exercise. 

59

5.1.1 Build, Operate and Transfer Schemes.

In the reform bill, the existing generators are to be

contracted through a Rehabilitate, Operate and Transfer (ROT)

schemes. This is a very good idea, because it puts the

generators in private hands that have experience and the

technical know how to operate the generator. The same

principle should be applied for generators being built under

Build Operate and Transfer scheme (BOT). BOT is a form of

project financing, wherein a private entity receives a franchise

from the public sector to finance, design, construct, and

operate a facility for a specified period, after which ownership

is transferred back to the public sector. During the time that

the project proponent operates the facility, it is allowed to

charge facility users appropriate tolls, fees, rentals, and

charges stated in their contract to enable the project

proponent to recover its investment, and operating and

maintenance expenses in the project.

The BOT scheme will provide the funds needed to build

new generation plants and will save the government from

investing in the project. The private entities that build also

benefit because they are allowed to recover their investment

60

cost and make some profit before transferring the business

back to government. However after restructuring to a

competitive market, the ownership of some generation plants

may be transformed to private ownership and become new

IPPs or new GENCOs. 

5.1.2 BUILD OPERATE AND OWN SCHEME

A Build Operate and Own (BOO) schemes can also be

implemented.  BOO schemes are similar to BOT but the private

entity owns the power plant forever. The BOO generation can

be converted to GENCOs or IPPs after restructing depending

on the capacity. BOO options will attract private developers

faster than the BOT scheme, because they will not be required

to transfer their investments to some else in the near future. 

5.1.3 TRANSMISSION

A crucial element in ESI restructuring is the

configuration of the transmission entity. Since the Transysco

New Business Unit TNBU is going to have a natural monopoly,

it needs to be regulated to ensure impartial and efficient use of

the assets by providing non-discriminatory access to promote

fair competition among GENCOs and DISCOs. A regulatory

61

body should be formed to monitor the activites of the TNBU.

GENCOs and DISCOs should be involved in the activities of the

regulatory body. They should representatives to represent and

monitor their interests in this regulatory body.

The transmission facilities should be expanded along with

load growth. The amount of expansion needed can be

determined by adequate planning, via load growth forecast.

Also Flexible AC Transmission devices can also be used to

increase the available power flow on transmission lines. If

TNBU is short of funds for expansion, it can enter into an

agreement with an Independent Transmission Project IPP

facilitator. This will be in form of Build Operate and Transfer

BOT. The investor will be the owner of the lines until the

agreed time for transfer to TNBU. The IPP-BOT will provide a

way of attracting private investors who will be guaranteed

return on their investment, while TNBU gets the control and

ownership of the line after the scheduled time.

62

5.1.4 TARIFF REGULATION

A long-term electricity market structure needs to be

established in which multiple operators provide services on a

competitive basis to the broadest range of customers.  Under

such a regime, competitive market forces would be the best

determinant of the appropriate and sustainable levels of prices

charged by various carriers for their services.

Currently, Nigerian power prices to retail consumers are

very low on the average; and seriously unbalanced.  In

addition, much electricity is unbilled and collection rates are

low so that only 40-45% of revenues corresponding to these

artificially low prices is actually received. For the

restructuring process to work in the short and long term,

changes must be made to tariff to reflect the cost of operation.

NERC should establish tariff regulation rules for dominant

operators providing basic and essential services to the public

and to other, non-dominant operators. In this regard, the

Commission should determine appropriate definitions and

criteria for identifying an operator’s dominance in a service

market, and the essential nature of the services provided.

63

NERC should establish a price limit during the transition

period, so that dominant operators in the ESI during the

period will not practice price discrimination. After

deregulation, market forces should be allowed to determine

the price of electricity. Electricity service tariffs should in all

cases be cost-oriented, reflecting the actual cost required by

operators to provide the services in question, including a

reasonable rate of return on capital; Tariff setting rules must

be transparent to both operators and their customers, with

stable, predictable, and understandable standards for current

prices and for changes to those prices over time; Electricity

service tariffs should generate sufficient revenues for

regulated operators to compensate for their investments, while

also seeking to be as affordable as possible to the broadest

rang of potential service customers; distribution zones that

cannot be expected to be viable under sound business

practices. 

5.1.5 MARKET

   It should be noted that number of developing countries

are on a fast-paced plan to implement restructuring, despite

the fact that the benefits from restructuring are yet to prove

64

themselves in the more developed countries such as the

United States, Western Europe, and Australia. National

Electric Power Policy, Adopted by the Electric Power Sector

Reform Implementation Committee and Approved by the

National Council on Privatization, Nigerian government

document, 2001.

There is a also tendency for developing countries to adopt

the structures implemented in the pioneering western

countries were without a critical appraisal of their suitability

in the local context. H. Rudnick, J. Zolezzi, ‘ Electric sector

deregulation and restructuring in Latin America: Lessons to be

Learnt and possible ways forward ’, IEE proceedings on

generation, transmission and distribution, Vol. 148, No. 2,

March 2001, pp. 180-183.  

Selecting an appropriate market structure for the

Nigeria ESI is of crucial importance to realize the benefits of

deregulation. A wrong market structure might produce an

adverse effect on the ESI sector. The following

recommendations are suggested based on the situation of the

Nigeria ESI. 

65

1.Since Nigeria is expected to have double-digit growth rates,

the ESI requires a market, which will provide an attractive

investment environment and encourages new investments

in the generation sector.

2.The market should be designed to reflect the electric power

situation in Nigeria and the market should not be adopted

from another countries market.

3. A complex market structure should be avoided and simple

market structure should be implemented.

4.The day ahead and hour ahead real time market structures

should be avoided in Nigeria for now. The current control

center at Oshogbo cannot handle the frequent changes in

generation supply required by these market models. Weekly

or Monthly markets should be adopted initial. When the

generation level increases enough to supply the total

demand and the transmission capacity is sufficient to

transmit power to every distribution nodes, then the control

center and generators should be upgraded for Automatic

Generator Control (AGC) functionality.  With AGC

functionality the hour and day ahead forward market can

then be adopted.

66

5.The transmission capacity must be sufficient enough.

Congestion in the transmission must be minimized. A

market mechanism for managing transmission congestion is

not recommended because of its complexity.

6.The adopted market structure should not rely on

unsupervised negotiated procurements, closed biddings and

other opaque activities in order to avoid corruption and

favouritism.

Vandalism

Vandalism and theft of power apparatus causes

unnecessary disturbances in the system. The effort to curb the

activities of power equipments should be strengthened. This

will save the Business units from unnecessary costs of

replacing stolen equipments and apparatus. A committee

should be formed to study the modus operandi of the vandals

and give necessary recommendations to counter their

illegitimate action. Vandals and thief caught should be dealt

with severely. Pictures of caught criminals should be displayed

on billboards across the nation to serve as deterrent to other

potential power vandals.

67

It is a well-known fact that some of the stolen power

equipments are resold back in power equipment market. The

government should pass a law that will require all power

equipments to be marked with a unique identity and ensure

the movements of power apparatus are monitored. For

instance if a power equipment is imported it should be a given

a unique identity and entered into a government registry of

power apparatus. The manufacturer, country of manufacture

and other relevant data should be stored in this registry. If the

same equipment is sold, the sale process should also be

recorded. This will ensure that equipment in service and

market can be accounted for. Entities who cannot account for

the source of their equipments should be punished adequately

under the law.

Another way is to put radio frequency identification (RFID)

tags on power equipments. If the power equipments are

disturbed the RFIDs send signals to a local monitoring station

and preventive action can be taken immediately against the

power vandals immediately.

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Research should be sponsored at Nigeria Universities to

look at ways of combating sabotage acts of the vandals and

thieves. 

Nigeria Electric Power Training and Research Institute

(NEPTRI)

Research and Development is a very important component

needed for a viable power industry. The government should

induce the formation of a research and training institute. The

institute should serve a meeting point for power engineers,

technicians, scientists and students to work together on

coming up with solutions pertaining to Nigeria ESI problems.

This institute can be called Nigeria Electric Power Training

and Research Institute (NEPTRI). NEPTRI should be

implemented as follows:

1. It should be multi-located at all tertiary institutions with

department of electrical engineering.

2.The government and key ESI companies should fund power

research at this institutions

3.Each of the institutions should focus on research in

particular area that will be beneficial to the Nigeria ESI.

69

4.Research should be carried with active involvement and

participation of ESI companies’ engineers and technician.

5.ESI companies should send some of their staffs to assist in

research work at the institutions on regular basis

6.ESI companies should also serve as NEPTRI facilities

themselves

NEPRTI should perform the following functions: 

1.Carry out research and development in power systems

improvement:

a. Power Quality Research

b. Power Management Research

c. Power System Stability Research

d. Power System Control Research

e. Testing of equipments for ESI companies

f. Development of industrial standards for NERC.

2.Continuous training and updating the knowledge of

personnel in the ESI.

3.Educating and training future Nigeria power engineers by

introducing relevant power courses into school curriculum.

4.Production of software for the ESI sectors

5.Development of hardware for ESI companies use.

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6.International collaboration with other research

institutions.  

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REFERENCES

1. J. Duncan Glover, and Mulukutla S. Sarma, Power System

Anaylsis and Design, 3rd ed, California: Brooks/Cole 2002.

2. M. Shahdiehpour, and M. Alomoush, Restructured

Electrical Power Systems, Operation Trading and Volatility,

New York: Marcel Dekker,  2001

3. H. Rudnick, J. Zolezzi, ‘ Electric sector deregulation and

restructuring in Latin America: Lessons to be Learnt and

possible ways forward ’, IEE proceedings on generation,

transmission and distribution, Vol. 148, No. 2, March 2001,

pp. 180-183

4. S. K. Mukherjee, ‘ Electricity industry restructuring in

California: Policy issues for deregulation and lessons for the

developing countries ’, TENCON '98, 1998 IEEE

International Conference on Global Connectivity in Energy,

Computer, Communication and Control, Vol.2, 1998, pp.

497-501

5. N. Leeparechanon, S. S. Moorthy, R. D Brooks, A. K.

David, A review of major factors in restructuring power

markets in Developing Countries, Proceedings of the 5th

72

international conference on advances in power system

control, operation and

6. Anurag K. Srivastava, Service to Commodity: Which Way

to Follow in the Context of Indian Power Sector, Research

Paper for ECE 650 at Illinois Institute of technology, 2002

7. Sesan A Ayodele, Improving and Sustaining Power

(Supply) for Socio-Economic Development in Nigeria, 2003.

8. Rationale for Privatization, Official Website of Nigeria

Bureau of Public Enterprise,

www.bpeng.org/10/0317731656532b .asp?

DocID=230&MenuID=5 

9. Overview of the Power Sector, Official Website of Nigeria

Bureau of Public Enterprise, www.bpeng.org 

10. O.A Komolafe, M.O Omoigui, A. Momoh, Reliability

Investigation of the Nigerian Electric Power Authority

Transmission Network in a Deregulated Environment, 2003

IEEE

11. National Electric Power Policy, Adopted by the Electric

Power Sector Reform Implementation Committee and

Approved by the National Council on Privatization, Nigerian

government document, 2001.

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12. Background Information, Official website of Power

Holding Company of Nigeria, http://www.nepanigeria.org

/background.html 

13. Eddie S. Dehdasti ‘Developing Countries, restructuring

with benefits from competition (or not)’, IEEE power &

energy magazine, September/October 2004.

14. National Electric Power Authority, Annual Report and

Accounts for the Year 2004.

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