Ekpo explained that the government’s decision to keep electricity tariffs low condemns Nigerians to perpetual dependence on “extremely expensive” backup generators as it starves the power sector of critical investment. Nigerians will not have reliable supply of cheaper electricity from the national grid until investors see a tariff that can cover the cost of the investment required to provide it.
Mr. Eyo Ekpo, former Commissioner, National Electricity Regulatory Company (NERC) has explained that there is no shortage of electricity in Nigeria. The lawyer and energy policy specialist explained that Nigerian homes and businesses provide themselves 10 times more electricity through petrol and diesel generators than the country’s electric power companies supply them through the national grid. Mr. Ekpo pointed out that the real problem with the power sector is that Nigeria is stuck with a power delivery model that is “extremely costly and inefficient”.
Ekpo made this assertion during the European Business Chamber (EuroCham Nigeria) Stakeholder Conference on “Gaining Traction in Power Sector Reforms”. The conference was organised to galvanize policy reforms that will unlock investment in Nigeria’s power sector and deliver stable electricity supply to Nigeria.
Nigerian homes and businesses produce 40,000 megawatts of electricity with diesel and petrol generators daily while they are supplied only about 4,000 megawatts through the national grid. Ekpo likened this to “burning money” because of the N40 per kilowatt per hour difference between the cost of self-generated power (about N130 per kilowatt hour) and grid power (N90 per kilowatt hour). He calculated that Nigerians“waste” N12 trillion every year, considerably higher than the national budget, by self-provision of power with backup generators rather than being supplied from the national grid.
Ekpo criticised the “patronising” decision of the government to hold down energy tariffs, saying that “Nigerians want reliable supply of electricity through the national grid, Nigerians do not want low tariffs for grid-supplied power.”
He explained that government’s decision to keep power tariffs low condemns Nigerians to perpetual dependence on “extremely expensive” backup generators as it starves the power sector of critical investment. Nigerians will not have a reliable supply of cheaper electricity from the national grid until investors see a tariff that can cover the cost of the investment required to provide it.
Eyo Ekpo stated that the problems of the Nigerian power sector are rooted in governance challenges rather than technical or financing difficulties. He noted that on the part of the government, “policy-making and regulation have not been focused or comprehensive”, hence have not attracted the appropriate levels of (private sector) investment. He also noted that private firms in the sector also have governance challenges.
Ekpo, former Commissioner of Market Competition and Rates at the National Electricity Regulatory Commission, said that the privitisation of the power sector in 2013 has not achieved its aims because Nigerians still overwhelmingly depend on back up generators.
Ekpo commented, “As at the time of privatization, average capacity delivered to the country via the national grid was about 3,400 megawatts. There has been a 20 percent growth to about 4,200 megawatts. But our population in the same period has grown by 24 per cent, from about 175 million to 212 million. The number electricity customers has more than doubled. Back up power supply has doubled, growing exponentially to about 40,000 megawatts.”
He adduced the failure to increase power generation and supply to homes and businesses through the national grid partly to the fact that the privitisation exercise did not attract quality power sector investors. According to him, “we had a group of people who had to depend on borrowing and expected that inflow from the market would be able to help them pay back but that hasn’t worked out”.
Ekpo said the government failed to invest the $3.5 billion it got from selling 60% of shares in the power sector companies to private investors in expanding the capacity of the sector. The government handed over the proceeds of the partial privatisation to the workers in the sector as severance payment. He added, “Secondly, the government still held on to 40 per cent of equity in the Discos, but could then not put up the cash to support the capital and expansion requirements of those Discos”.
Privatise the Transmission Bottleneck
Eyo Ekpo also urged the Federal Government to deepen power sector reforms by privatising the nation’s transmission network.
Nigeria’s current electricity generation stands at about 4,000 megawatts but the generating companies have an installed capacity of 13,000 megawatts. The transmission system has the capacity to move only between 5,000-7,000 megawatts (there are various estimates of the “wheeling capacity”) of electricity from the generating companies to the Distribution Companies (DISCOs).
Another speaker at the event, Seun Suleiman, the Managing Director of Siemens Nigeria noted that one of the “low-hanging fruits” in the sector is to increase the capacity of the transmission system to deliver more of the about 7,000 in “fallow capacity” in generation companies to distribution companies.
The Minister of Power, Mr. Abubakar Aliyu, represented by Mr. Emmanuel Nosike, the Director of Transmission in the Ministry of Power, had stated that his priority is increasing the capacity of the transmission system. Nosike however noted that the Discos are incapable of taking additional power from the transmission system. According to Mr. Nosike, this is because the Discos cannot invest in the required equipment as “their balance sheet is red”.
Without improvement in the capacity of the transmission system, there will be no new investment in increasing Nigeria’s generation capacity. Nosike revealed that Nigeria requires 42,000 megawatts of electricity; the country has 13,000 installed capacity of which the national grid has the capacity to wheel and deliver only about 4,000 megawatts to homes and businesses.
Without the development of a flexible tariff system that allows investors to cover their cost, there will not be new investment in increasing the generating, transmission and distribution capacities of the national grid. Hence, without reforms of the power sector “gaining traction”, Nigerians will continue to rely on very expensive and highly polluting power from generators which currently accounts for 80% of power supply in the country. Experts at the conference all bemoaned the huge constraint that Nigeria’s reliance on expensive backup generators imposes on investment, employment creation and economic growth
The European Business Chamber (EuroCham) Nigeria, hitherto known as European Business Organisation (EBO) Nigeria, was founded by 18 European companies in October 2018 at the 7th EU-Nigeria Business. Membership has grown to 35 companies with some of the companies being Nigerian firms that conduct business with European partners. EuroCham is a member of the EBO Worldwide Network representing European business interests in markets outside the European Union that seeks to further promote trade, investments and exchanges with European business, as well as advocating European quality standards, best practices and corporate social responsibility and opening access to an active network channel in over 45 key markets that serves European multinationals.