STILL IN THE DARK
Bribes, blackouts still a daily struggle after part privatisation of the power sector,
Privatisation has not improved Nigeria’s struggle with bribes and daily blackouts.
Five minutes into Frank Edozie’s presentation on the challenges facing Nigeria’s power industry, the electricity cut out in the Jasmine Hall at the upmarket Eko Hotel in Lagos. “Very timely,” Mr Edozie, a former power ministry adviser and a senior consultant to the UK-funded Nigerian Infrastructure Advisory Facility, said over the low muttering and laughter of an audience of more than 100 people. “We probably ran out of gas.”
There’s no end in sight to the daily blackouts the government says are costing Africa’s largest economy about US$100 billion a year in missed potential and that President Muhammadu Buhari calls a “national shame”. Gas shortages, pipeline vandalism, inadequate funding, unprofitable prices and corruption mean fixing the electricity cuts two years after a partial sale of state power companies to private investors will not be easy.
Generated output has never risen above 5,000 megawatts, which is about a third of peak demand, and if it did the state-owned transmission system cannot deliver any more than that before it starts breaking down. South Africa, with a less than a third of Nigeria’s population of about 180 million, has nine times more installed capacity and it too is grappling with blackouts.
Nigeria, Africa’s biggest oil producer, ranked the worst of 189 countries after Bangladesh and Madagascar on the ease of getting electricity connected to businesses, costing almost 7% of lost sales each month, according to a 2015 World Bank Doing Business report.
Economic growth slowed to 2.4% on an annual basis in the second quarter from 6.5% a year earlier, threatening Nigeria’s hopes of being an investment destination.
About two-thirds of Nigeria’s people have no access to electricity, and at the current plant commissioning rate, supply will barely meet 9,500 MW by 2020, according to a 2014 World Bank project document. Demand is expected to increase 10% each year. Mr Buhari’s party promised before he won power in March’s election to generate 40,000 MW within four to eight years.
For years the industry’s poor performance has spawned jokes about the former state electricity company’s name. Nigerians called the National Electric Power Authority “Never Expect Power Always”, and when its name was changed to the Power Holding Company of Nigeria a decade ago, they mocked it as the “Problem Has Changed Name”.
Hopes that the power situation would improve after former President Goodluck Jonathan partially sold off 15 state generation and distribution companies for more than $3 billion to private investors two years ago have been dashed.
The buyers included locally owned companies such as Forte Oil Plc, Sahara Group and Transnational Corp of Nigeria Plc, along with foreign technical partners such as Korea Electric Power Corp.
They found the companies they bought were not financially viable, and the distribution firms mounted with debt started haemorrhaging cash. Last year, “the financial flows in the sector came close to collapse’’, the UK’s Department for International Development said in a December 2014 report.
“There wasn’t much due diligence done” because strikes during the sale period blocked access to the utilities, said Dolapo Kukoyi, a partner at Lagos-based Detail Commercial Solicitors, which advised investors looking to buy the distribution companies. “People basically bought blind — this was across the board.”
Nigeria’s central bank designed a 213-billion-naira ($1.1 billion) bailout package to cover revenue shortfalls and help the companies meet debt-service obligations on bank loans of almost 500 billion naira.
The power industry still requires as much as $20 billion of investment in the next six years, said Benjamin Dikki, the director-general of the Bureau of Public Enterprises, which led the sales.
Even after the sales, bribery of power officials by some diesel generator and fuel suppliers to organise household and business blackouts in order to boost sales is continuing. Diesel generation costs 30 cents to 50 cents per kilowatt-hour, compared with the average grid tariff of 13 cents, according to the World Bank.
“Criminality is still there,” said Bokar Toure, a senior energy economist in Abuja for the African Development Bank, which has lent and provided guarantees to Nigeria’s power industry. “Just because it has been handed to a private company doesn’t mean it’s going to end.”
The generation companies have battled with chronic gas shortages used by 70% of the plants, despite Nigeria holding Africa’s biggest reserves of more than 180 trillion cubic feet. From December to June, rampant pipeline attacks reached levels last recorded at the peak of a 2006 to 2009 militant insurgency in the oil-producing Niger River. They have slowed since then.
Government tariffs have also hampered the distribution companies. Just before the elections, the regulator banned them from charging consumers for losses caused by billing mistakes, effectively cutting the tariff by more than half in some areas. This caused most of the distribution utilities to declare force majeure, claiming they could not pay for their power supply. Up the chain, generating companies say they have not received payments from the stateowned Nigerian Bulk Electricity Trading Plc, which acts as a middleman between them and the distribution companies.
And because the distribution utilities have not paid about 20 billion naira owed since February, payments to the power plants have slowed, said Rumundaka Wonodi, chief executive of NBET.
While NBET has enough cash to make the market payments for five months, the money is there to cover breakdowns and the company does not want to deplete the funds without the agreement of the power minister, Mr Wonodi said. Problem is, Mr Buhari has not filled that position more than three months after taking office.
The generation companies are also feeling the pinch. The 30-year-old Egbin plant in Lagos, which is owned by Sahara and Korea Electricity, is owed almost 44 billion naira for December to June, along with 22 billion naira of past debt costs.
“We’ve never broken even in two-and-ahalf years,” said Egbin chief executive Dallas Peavey Jr. “If it wasn’t for Sahara we would have shut down about three months ago.’’
The national grid is another bottleneck. It needs about $40 million a year just for maintenance, compared with the $1 million now allocated by the government, Mr Peavey said.
Nigeria’s aggregate technical, commercial and collection losses are 35% of total generation, notes the World Bank.
“We’re at the end of our rope,” Peavey said. “We keep urging them to make concrete permanent steps because without that, quite honestly, we’re going to shut down.”