There will be a deliberate effort to increase access to electricity for Nigerians including those living in rural areas

The Nigerian Electricity Supply Industry (NESI) has over the years suffered from inadequate investments, failure of generation, transmission and distribution infrastructure. This led to the emergence of self-generation by businesses and individuals, which has constrained national productivity and stifled economic growth.

Previous Situation: Pre-Privatisation of 2013

For decades, no new generation plants, whether thermal or hydro, were built in Nigeria. The monopoly that operated the power sector in Nigeria: National Electric Power Authority (NEPA) and later Power Holding Company of Nigeria (PHCN) failed to develop a sustainable growth in power infrastructure. It was then believed that a well-structured privatisation of the power infrastructure in Nigeria would stem the decline and establish a launching pad for growth and development in the power sector.

Current Situation: Post-Privatisation to 2018

Sadly, privatization of the power sector has not delivered the promises of development envisaged by the reform program. The situation now is such that the sector is in a near crisis state with imminent collapse unless something is done urgently. Electricity supply has not improved, yet average wholesale cost of electricity generation has gone up by over 120% since 2015 and retail electricity tariffs by 20% over the same period. Given lack of improvement in electricity supply, it is understandable that electricity customers will resist any tariff increases at this point.

As currently structured, the sector is not sustainable as reflected in industry liabilities and market debts spiralling out of control. Monthly debts are accumulated from distribution companies that pay less than 40% of their electricity invoices, and from generation companies unable to pay their invoices further down the value chain -- especially to gas suppliers to the thermal generation companies. Majority of the sector players are in financial distress with the implication that the Power Sector Reforms is at risk of being derailed.

Our administration will declare a state of emergency in the Power Sector so as to ensure that electricity supply situation improves across the country and investor confidence restored in the sector. We will commission a study to review the current industry framework in the light of current realities leading to a complete overhaul of the legal and regulatory framework of the industry.

There have been challenges with the distribution segment of the NESI, which is sometimes seen as the weakest link in the value chain, even though it is the most critical segment for achieving a viable sector. The investors who bought into the distribution companies have faced many challenges namely: dilapidated network of facilities, low customer base, widespread electricity theft with impunity, and substantially unmetered customers.   Above all, there is the failure of regulation to ensure a cost reflective tariff regime capable of funding the much-needed improvements required for efficient electricity distribution.

Consequently, little or no investment has gone in this direction since privatization. Also, the Nigerian Electricity Regulatory Commission (NERC) has been discordant in discharging its primary role of price determination in the industry, and governments at all levels have refused to come to terms with today's industry reality which is that every unit of power generated in Nigeria-whether consumed or lost--must be paid for, otherwise the industry collapses. Also, Transmission capability is severely constrained thus creating a bottleneck in the supply of electricity. As of June 2017, transmission capacity stood at 7,000MW, out of which Network Operational Capability was 5,500MW. This is untested as average actual generation is less than 4,000MW while the highest generation ever recorded in Nigeria was briefly 5,074MW in February 2016. Nonetheless, the stated capabilities are still below the current available generation capacity of 7,139.60MW and far below the installed capacity of 11,165.4MW. For grid stability, transmission capacity must be greater than that of generation, which is currently not the case. Besides, there is the quoted National Demand Forecast of 19,100MW as well as the fact that the grid is mainly radial in nature, which is not the ideal design for a resilient transmission infrastructure.

Lack of Coordinated Investments in the Value Chain

From the foregoing, it is clear that there has been lack of coordination of investments in the sector. Investments in additional generation capacity are futile without consideration for the complementary transmission and distribution infrastructure to wheel the additional energy. It is, therefore, apparent that additional generation is not necessarily the immediate problem. The commercial framework in the industry must work ahead of contemplating additional generation capacities. Firstly, it is imperative that all generation is unlocked from the currently installed generation capacity of 11,165.4MW. If effectively transmitted and distributed it would more than double current distributed capacity, which is less than 4,000MW. Achieving this would immediately translate to noticeable improvement in electricity supply across the country.

Ahead of procuring additional generation, both transmission and distribution capacities would be enhanced with government and private sector support for investments. The needed additional generation capacity would then be competitively procured considering a viable mix of renewable (hydro, solar, wind and bio-fuels) and non-renewable (coal, gas) options for energy security.

Policy Objectives

The Nigerian power sector has struggled to keep up with the development potentials of the country. To this end, the major thrust of our power policy will revolve around the following objectives:

a. Review of entire industry legal and regulatory framework to ensure market viability.

b. Ensure coordination of investments in the power sector in generation, transmission and distribution.

c. Ensure effective regulatory environment to deliver contract-based electricity market compliant with market rules.

d. Intensify rural electrification projects to ensure electricity access to over 80 million Nigerians currently without access to grid electricity.

e. Implement reforms and policies that would restore investor confidence in the NESI.
 
Ultimately our Power Sector policy must ensure a commercially viable power sector that can attract the right private sector investments ultimately leading to substantial addition to the nation's electricity generation capacity.

What We Will Do

Take immediate steps to restore regulatory and market viability

a. Government would allow NERC to perform its regulatory functions without interference and guarantee its independence.

b. We would review the Aggregated Technical, Commercial and Collection (ATC&C) losses existing in the power networks and extract firm commitments for a revised ATC&C loss reduction target from the distribution companies with credible consequence for failing to achieve these targets within the revised time frame.

c. Government shall create an environment that will enable distribution companies recover full costs for power supplied to their consumers with firm commitment to a metering program for all customers. The scourge of electricity theft will be dealt with through a viable partnership between investors in the distribution companies and the government with legislative support for prompt action against electricity theft.

d. Our administration will consider creative solutions towards addressing the huge debt overhang and liquidity challenge in the power industry. Part of the solution would be for NERC to recognize debts arising from lack of cost reflective tariff, high ATC&C loss regime, regulatory failure etc. in the short to medium term as industry burden. Government will take responsibility for this burden provided that the operators meet their contractual obligations to reduce the losses by the agreed margin over the period. In settlement of this liability, Government would issue a Regulatory Asset Instrument (RAI) to the Distribution Companies. The RAI being issued by the government implicitly comes with sovereign guarantee making it a tradable financial instrument which could be used for market settlement or discounted with financial institutions to release the much-needed liquidity to the sector and clean up the financials of the distribution companies enabling them to raise investment to meet up with the commitments in their performance contracts.

Ensure enforceability of industry contracts

All stakeholders in the power sector including regulators and the Nigerian Bulk Electricity Trading (NBET), must respect the terms of their respective contracts and not shirk away from the difficult decisions acknowledged as part of the reforms.  

At the point of sale, all parties, including government, acknowledged that for an initial period of 5 to 10 years after privatisation, losses in the sector due to legacy neglects would only reduce marginally and during this period, existing losses would either be borne by consumers or by government as a social cost for the utility status of the industry.

Consequently, given the importance of loss reduction to the viability of the sector, a key component of the performance agreement with distribution companies included stiff penalties for failing to meet their loss reduction targets in violation of their contracts. This provision in the contract must be respected and parties held accountable by the Bureau of Public Enterprise and NERC for failures to meet the revised loss reduction commitments within the revised time frame.

The role of Nigerian Bulk Electricity Trader (NBET) needs a comprehensive review with respect to whether the power market should move to bilateral contract or retain the existing arrangement. In the meantime, Government would explore ways to effectively capitalise NBET to boost investor confidence in the sector.

Upgrading the Power Transmission Grid

Creative options will be considered for the required upgrade needed for to the Transmission network considering the following options:

a. Encourage private investors to invest in the development of multiple green-field mini-grid transmission systems to be looped into the supergrip in the medium to long term;

b. Segments of the national grid could be concessioned to private sector under some form of PPP over a period; and

c. New power generation company's licenses tied to provision of powergrid infrastructure to target industrial clusters close to their locations.

Prioritize the following:

a. A complete review of the legal and regulatory framework of power sector will be undertaken to ensure its viability. This is necessary as the current commercial framework of the power sector does not seem to be working. 83

b. It is not acceptable that of the over 11,000MW of available generation capacity, Transmission Company of Nigerian can only wheel about 7000MW and worse still highest national generation of only 5,000MW has ever been recorded. To this end, to strengthen the sector on critical transmission and distribution infrastructure alone, our investment commitment shall exceed US$5 bn annually to ensure that all generation plants operate at capacity and their output effectively transmitted and distributed ahead of adding additional generation capacity. Some areas of focus would include:

• Reducing technical and non-technical losses in the transmission network.
• Enabling effective development and efficient operation of a mesh grid system.
• Achieving adequate redundancies and spinning reserves to ensure grid security for national consumption.

c. Work with an empowered and independent Nigeria Electricity Regulatory Commission (NERC), to incentivize the private sector to increase greenfield investments in the development of off-grid solutions to intensify electrification particularly of rural communities not yet serviced by the grid.

d. Create energy security, by diversifying the pool of electricity generation with mix of renewable energy (hydro, solar, etc.) and other nonrenewable energy sources (coal, bio-fuel) in addition to natural gas.  Nuclear power for the long term will be an option for consideration.

e. Ensure effective regulatory environment to deliver contract-based electricity market compliant with market rules.

f. Address the huge debt overhang and liquidity challenge in the power industry. Government will take responsibility for its share of the industry burden and will settle this liability with creative instruments such as Regulatory Asset Instrument (RAI).
 
g. Intensify rural electrification projects to ensure electricity access to over 80 million Nigerians currently without access to grid electricity.

h. Ensure NBET is fully capitalized to enable it to perform its statutory functions.

Adopt Short Term Emergency Measures

Given the enormity of the current power challenges facing the economy, a National Priority Programme will be required in the short term as the holistic reform measures mature and deliver additional capacity over the medium and long-term. The Programme will also ensure the completion of the power plants, distribution and transmission infrastructure currently under construction, and a National Power Programme (NPP) to be pursued over the medium-term.

We shall initiate and implement an emergency power programme (EPPs) that can deliver additional capacity in certain key areas (as was done with AES in Lagos and Geometric & Aggrecko in Abuja).  As a short-term measure to ensure enhanced supply within the first year of the new administration, we shall: Ÿ Provide EPPs for key urban areas (Lagos, Port Harcourt, Abuja, Kaduna, Onitsha; Kano) but taking into account the need to provide investors with a reasonable return in the pricing decisions.

• Ensure an accelerated procurement cycle to achieve timely delivery of the EPPs.
• Consider acquiring excess capacity from Eastern Europe/other such areas, although care will be taken to ensure a transparent procurement process.
• Undertake tariff adjustments to make it viable for operators/ government to make the new investment in the industry.
• Commercial rates to be charged in commercial areas (this may also be used as a mechanism to allow cities to reclaim their commercial areas).