When Will We Stop Shouting “Up NEPA”?
Two decades ago, I had a chore of buying kerosene in Itutaba-Oje, Ibadan. Then, I walked the 5km journey back home on Aromolaran Street, Old Ife Road. I would take this pain as I had spent 5naira transport fare on sweet oily “buns” that I cherished so much. More importantly, I mostly kept my eyes on the incandescent light along the way. I really wanted power to be at home. Our family had no luxury of generators as “I-better-pass-my-neighbour” had not been retailed as it is today. So, I kept looking around for the lit incandescent bulb that someone carelessly left on. Once I neared home and found none on a bunch of houses, I knew the verdict: there was no power. Sometimes, I prayed so hard that NEPA restored power by miracle. Sometimes, I relished in joy once the bulb flickered. It was a loud bang of "Up NEPA", a din of joy from children and peers. Sometimes, such joy is pricked in two minutes. There was no pattern, because it could be right before a football match or even five minutes to a Sunday afternoon soap opera and it was a tale of disgust. A sad tale that my young mind could not unbox, on why exactly this was our fate as a country. Sadly, it remains our fate, twenty years after.
In the last six months, Nigeria’s electricity grid has collapsed at least 9 times. That means the entire country, plugged to the grid, was thrown into darkness. In 1999, in those innocent years of asking why power was never available, Nigeria generated only 1,750MW for the entire nation.
Arresting the problem from a generation standpoint, the Obasanjo government would proceed to deduct $8bn from the Excess Crude Account to fund power plants. Analysts rose the decibel level to believe that the absence of the policy framework that liberalizes the entire process as evidenced by the incredible gains in the telecoms sector, was the problem. The Obasanjo government successfully created a policy framework backed the 2015 Act, unbundling PHCN, but putting the sector mainly in the hands of private sector, the stories changed. Despite the 20-year journey and billions of dollars poured in, Nigeria still does less than 4,200W on an average with few spikes along the 5,000MW corridor. The difference between by experience twenty years ago is that we now have cheaper alternatives in small-sized generators, but the grid gives too little in the end. So, when will this really end?
I will classify Nigeria’s power problem mainly into three things: weak economics, industry-wide opacity/capacity and weak regulation. It is unfortunate that the 2014 power privatization did not put power assets in the hands of those with capacity to fix them. DISCOs (distribution companies) later claimed that they did not get adequate information on the assets that they were buying. So, we have issues of DISCOs rejecting power load given to them to be distributed. This is because the tariff across the entire space makes little economic sense and the distribution infrastructure is the weakest in the value chain. DISCOs partly wallow in debt due to inadequate pricing and the N700bn relief provided by the CBN was not enough. The feedback from government was there is a need to end the industry-wide opacity in the estimated billing system by providing automated meters. The poor economics of the power sector has made it impossible to secure large private investments, putting the only source of funding back to government. Government investments will never be enough to scale the impact needed in the sector. Nigeria has been going around in circles on this with NERC adamant that tariff will not rise till electric meters are well circulated. The entire value chain - gas producers, GENCOs,
DISCOs - needs price correction. This is the fundamental of any functional market except Nigeria is waiting for Dangote, as it did for the petroleum refining sector.
The other side of the crisis is the lack of transparency in the entire sector. DISCOs have been fingered to have not be truthful in AT&T losses and their escalating operating costs has been a constant question. The Ministry of Power has also questioned them for poor investment in the distribution network that could only barely withstand 5,000MW. There will be a radical level of transparency across board for Nigeria to rapidly improve its power situation. There have been comments from DISCOs that even generation companies (GENCOs) inflate their capacity charges just to claim more resources from the bulk trader. The radical transparency will involve all the partners along the value chain--DISCOs, GENCOs, NBET, Transmission Company of Nigeria, NERC & the Ministry of Power. The industry currently operates on low trust.
The third challenge has been regulatory structure pandering to partisan interests. NERC raised the tariff in January 2015, citing the need to move towards cost-reflective opportunities. However, weeks before the 2015 election, the tariff was reduced just to assuage Nigerians. This recently was revealed more in the public altercation between Sam Amadi, the former NERC Chairman and the Eyo Ekpo, a former commissioner in the regulatory body. Why will a regulatory body pander to partisan interests? Why was the administration of President Buhari not able to walk back on this citing the anomaly close to the elections? As I explained in a tweet, it is not uncommon to hear the Minister blame NERC, NERC putting the blame on DISCOs, DISCOs also singing their song on the weak assets and the lack of transparency. The blame cycle has been going on and on while Nigeria wallows in darkness. The type of regulation that would fix the Nigerian power challenge requires all hands-on deck to see their faults in the sub-optimal levels in the power sector. The regulatory structure must also be able to separate the wheat from chaff and take out those without the requisite capacity to run DISCOs.
Since the FG is also a shareholder in the DISCOs, it won’t be out of place to come to a place of mutual interest with DISCOs where shares are reduced in order to improve investment in DISCOs. Recapitalization of DISCOs, finding a cost-reflective tariff across the value chain, radical transparency on all fronts, a regulatory structure that seeks answers and not finger-pointing as well as quality service delivery mechanism is the way out of this mess.
So, when will we no longer shout “UP NEPA”? Stats say that Nigeria’s needed current consumption is around 19,000MW and if we are going to achieve scale with the grid, it might take another 15 years to get Nigeria to have a generating capacity that’s able to constantly wheel that out. Also don’t forget that the capacity of the transmission line is less than 7,000MW and it needs a spinning reserve to prevent the constant breakdowns. More bizarre is the fact that our distribution capacity is around 5,200MW.
Unfortunately, the poor tariff pricing and poor governance has created uncertainty for potential investors. The government must combine mechanisms of debt and equity to invest rapidly in distribution and transmission systems. Investments up to $40bn might be needed. Nigeria’s gas infrastructure is still inadequate to deliver power to new stations (over 2,500MW of stranded capacity due to weak gas pipeline & poor distribution capacity), transmission network would need to be tripled and distribution capacity, quadrupled. The massive technical know-how that makes Nigeria reliant on China in developing hydro plants such as Mambilla also calls for the need to deepen capacity. How many years will it take for all these to happen?
Will the country’s industrial capacity rise with its ever-increasing population? Today, we need 19,000 MW; in another decade, it might rise to 30,000MW. South Africa with nearly a quarter of Nigeria’s population currently distributes over 40,000MW (and still recently has power outages), so this is a moving crisis. In a country that has not added more than 3,000MW of stable distributed power in 20 years, how long will it take Nigeria to reach the threshold of even 20,000MW in two decades? If we rely on the current circus, the scape-goating, lack of mutual honesty and leadership to end this crisis, it won’t take a cynic to know that in another two decades (except a technology breakthrough that makes the grid irrelevant), we will still be shouting “Up NEPA” or a loud hoot that pervades our streets when the bulb flickers.