Let there be light: Nigeria’s dawns of dashed hopes on electricity

Oilfields across Nigeria’s resource-abundant Niger Delta spew high flames that blur the difference between day and night in the so-called host communities, like Ebedei in Delta State. The oil industry still burns off some 700 million standard cubic feet of associated gas that comes with oil during production daily at over 170 sites.

Including non-associated gas, the other natural gas that exists in reserves independent of oil, Nigeria’s proven reserves of natural gas are up to 202 trillion cubic feet, TCF, and about 600 trillion TCF unproven reserves, bringing Africa’s largest economy among the first ten largest gas producers in the world.

The vast gas resource – added to the limitless renewable resources, namely hydro, wind and solar – thrusts to spotlight the generous presence of inherent attributes necessary for optimal electricity delivery, which can unlock economic prosperity and development.

“The electricity platform is central to the rest of the economy since it overlaps with almost all other systems,” commented Emmanuel Ezekwere, a sector expert with decades-long experience gained from senior roles at NEPA, PHCN, and NERC.

“Basically shameful”

But in today’s reality, between the country’s energy potential and development, at least, of a sort accomplished in equally Global South countries like India and Brazil, there lies a barrier: electricity constraints resulting from policy and financial mismanagement, ever-present “tariffschizophrenia,” low investment, neglect, infrastructure deficit, and customers disloyalty.

After several billions of dollars “investment” and dawns of dashed hopes, including the Obasanjo administration’s 10 thousand megawatts, MW, capacity by 2007 and the Jonathan’s 24,961 MW by 2019, Nigeria, in now mostly privatised electricity industry, is only able to deliver less than four thousand MW to 202 million people, about one third of what Singapore supplies 5.6 million people.

Nigeria’s electricity operational scorecard

Consequently, while per capita electricity consumption in Nigeria is 145 kWh, it is 8,845 kWh in the tiny Asian city-state, acclaimed for accomplishing one of history’s greatest transformational tasks. Continental rival, South Africa, with about 57 million people, just little over a quarter of Nigeria’s population, has installed generation capacity of 48,479 MW (compared to Nigeria’s 12,910 MW) and per capita consumption of 4,198 kWh.

“After first generating electricity in 1898, we should now be talking about 40,000, 60,000, 100,000 megawatts available generation capacity,” said Sam Amadi, who headed the industry regulator, NERC, between 2010 and 2015. The first electricity generation mentioned by Mr. Amadi was 60 KW installation mainly for colonial officials in Marina, Lagos, in 1898, just 17 years after the world’s first public electricity supply in Goldaming, England.

Nigeria and Brazil have roughly similar population size but there is an alarming gap between the two Global South nations: 12,910 MW vs 161,526 MW in installed generation capacities, respectively. Further, while less than half of Nigeria’s population is connected to grid electricity, 100 per cent of Brazilians have access. The following table illustrates the differences in the capacities of Nigeria and three other countries selected from Asia, Africa, and America.

“I am not sure this is an embarrassment as that presupposes that you are surprised or have found the situation unexpected. It is our lived reality and it is basically shameful,” further stated Mr. Amadi, speaking in an interview with PREMIUM TIMES. He decried historical neglect and infrastructural deficit, which translated to “no capacity by the time we started reforms in 2000.”

Costs of electricity deficit

To date, only 40 per cent of the country’s population has access to grid electricity, the power ministry’s permanent secretary, Louis Edozien, told PREMIUM TIMES, disclosing “the estimate extrapolated from a detailed grid power supply and mapping of served and underserved communities and clusters in five states.”

This statistic indicates that as the population expands the rate of access decreases. Data obtained from the World Bank says 44 per cent of Nigeria’s then 119 million population had access to grid electricity in 1999, the year democracy returned. 20 years after, 2019, with about 200 million people, only 40 per cent are connected to the grid electricity, according to official disclosure by Mr Edozien.

But even for the populations served, blackouts are common with varying effects depending on the type of final consumers. Residential customers have to incur the cost of self-provided lightings such as candles, torches or gasoline for generators to watch TV or power water-pumping machine. For commercial customers, effects can include the inability to meet demands, the cost of fuel for back-up generators, and the challenge of scaling and expanding productivity.

Whether small enterprises of “hustling” young Nigerians trying to scrape together some money through fashion designing or digital marketing and creativity to stave off poverty or even bigger businesses involved in manufacturing, the country’s electricity problem affects the productivity of these important segments of the national economy, thereby causing GDP losses and driving the soaring nature of the country’s poverty and joblessness.

“It is woeful and not helping the system,” replied Emmanuel Adebayo, the manager at a Karshi-Abuja electric pole-making company, Sunny Kunns, when asked to comment on the impact of electricity supply on his company’s productivity. “…Just about four hours a day and we have to depend on diesel, which increases the cost of production.”

As the company incurs an extra cost to get diesel to power its generator, Mr. Adebayo said this raises the price of products. “High tension pole is 37 thousand Naira but it can be between 27 thousand and 30 thousand Naira if we use grid electricity mostly. So, as the price is higher and that affects sales, the electricity situation affects our productivity. If electricity improves, we will produce more as the price will go down and sales will equally go up, and we will employ more people.”

Meanwhile, big manufacturers may avoid Nigeria’s grid electricity to smoothen their operations by obtaining independent power generation licence from NERC. Nestle (Energy Company of Nigeria), Unilever (Unipower Agbara) and PZ (PZ Power Company) are among the companies that have adopted this option since 2011.

But for SMEs or other companies with lower margins, independent power generation is commercially prohibitive, and this is the reality for most of Nigeria’s businesses across scales.

“There are some of our soap making machines that our diesel generator can’t handle,” Zuwaira Shuaib, who runs Amal Botanicals Natural Baby Skin Solutions in Lagos. “When we do not have (grid) power, it can really affect us badly as we have to make the liquid soaps in small batches making it a long process for production.”

Adeleye Adeyemi of DLX Fashion in Lagos enjoys “a good supply of about 16 hours daily” at AIT Estate, Alagbado, Lagos. “This has really helped our growth,” Mr Adeyemi said. “Imagine if it is more regular than we currently have.”

A European Union-supported May 2019 report by the Capacity Building and Technical Assistance Programme, CaBTAP, says 52 percent of households and 91 per cent of SMEs use generators for at least four hours a day. Apart from the financial costs, this has environmental implication such as climate change as a result of carbon emissions. There are also health impacts: injurious effect of fumes and families having to spend on powering generators some money that should be freed up for healthcare or more food.

In 2014, a study by London-based CSL Stockbrokers put at $252 billion per year the cost of Nigeria’s electricity deficit to the GDP, up from $130 billion estimated by the Presidential Taskforce on Power in 2010.

However, considering the possibilities the current global economic dynamics present and Nigeria’s barely changing electricity deficit, the loss to the economy may now in the current year be in excess of $252 billion.

In 2014, the available generation capacity, according to the System Operator, was 7,139 MW, whereas the peak demand was 14,630 MW. In the current year 2019, while the peak demand has risen to 25,790 MW as the population continues to grow astronomically, the available capacity is still not more than seven thousand MW, the 2014 level. Also, for both periods 2014 and 2019, the actual generation capacities ever attained were 4,517.60 MW and 5,375 MW, respectively.

Journey to “terrible” new century

Between 1968 and 1990, Nigeria had completed several power generation projects, including Kainji, Jebba, and Shiroro hydropower plants, and Afam, Ughelli, Egbin, and Sapele thermal plants. By the turn of the 21st century, the combined nameplate or installed generation capacity of all these infrastructures – now either privately owned or concessioned to private operators such as Mainstream Energy in the instances of Kainji and Jebba – was in excess of 5,500 MW, according to information obtained from NERC.

However, in the year 2000, the actual capacity was down to “a terrible” 1,600 MW, from 1,700 MW in 1993. “Only 19 out of the 79 generation units were in operation, and of those 19, none was operating near to their design capacity,” stated Liyel Imoke, who headed the technical board of the defunct state monopoly NEPA and later power ministry. “As a result of an underdeveloped grid, the transmission infrastructure was badly constrained, while the distribution network was weak and fragile.”

Nigeria’s state of electricity at the beginning of the century followed the mismanagement at NEPA, society’s “growth-stifling” actions, and non-provision of finances for expansion and maintenance in the pre-1999 years under dictator Ibrahim Babangida and late kleptocrat Sani Abacha, according to persons with an informed understanding of the development.

“The expansion rate declined mainly as a result of funding problems,” said Mr. Ezekwere, then a senior NEPA official. “After Egbin was commissioned in 1986, no more investment for seventeen years in a situation where consumption was already growing by 19%. Good maintenance culture suffered as this was not given priority attention as a policy.”

Blaming NEPA, Mr. Ezekwere said, “It allowed itself to stray away from its operational standards, rules and procedures, therefore, permitting a culture of anything goes.” But Mr. Amadi, former NERC boss, was categorical about decrying the corruption at NEPA. “NEPA did not have audited accounts.”

At this period, Mr. Ezekwere said, the rate of payment for electricity was as low as 30 per cent and “there was a high level of energy theft.”

Mr. Imoke, in a submission to the House of Representatives, said the six-day nationwide blackout at the beginning of 2000 caused the urgency for reforms under former President Olusegun Obasanjo and the constitution of the NEPA technical board.

NIPP … billions for what?

The most significant yet controversial power intervention under Mr. Obasanjo was the National Integrated Power Project, which was a government-funded plan decided in 2004. The administration wanted to raise generation capacity to ten thousand MW by 2007 by building new plants (including Gbarain, Ihovbor, Odukpami, and Sapele, now under the Niger Delta Power Holding Company).

Earlier in 2002, the government had planned to build new plants at Geregu, Omotosho, Papalanto (Olorunshogo) and Alaoji. But according to Mr. Imoke, due to policy uncertainties as the government was expecting the passage of sector reform bill and the privatisation of NEPA, the four did not start as planned and were later added to the NIPP.

The NIPP also included four gas supply projects, over 100 transmission projects and 300 distribution projects. Although critics claim the Obasanjo administration’s spending on the NIPP was in excess of $12 billion, Mr. Imoke said the total projected cost was $4.5 billion and only $3 billion was “committed in the form payment to contractors, and the establishment of Letters of Credit, etc.”

But findings by this newspaper from interviews and several documents relating to the workings of the Obasanjo administration show that the NIPP was fraught with procurement irregularities and poor planning, which ultimately resulted in the failure to meet the 10 thousand MW target in 2007.

In one case, 10 contracts for transmission projects were awarded without feasibility studies, project costing by consultants and environmental impact assessments, according to a 2005 Budget Monitoring and Price Intelligence Unit, BMPIU, correspondence.

The contracts together cost N90.4 billion and were cleared by the BMPIU, the precursor to the public procurement bureau, then headed by Kunle Wahab, a professor. “There is a need to build transmission infrastructure as quickly as possible,” Mr. Wahab said in justifying the approval despite the inadequacies he noted

In an apparent desperate effort to deliver the NIPP before the end of his administration in 2007, Mr. Obasanjo in February 2006 granted Mr. Imoke’s request to waive due process certificates for payments to contractors, the same way the former president had earlier granted anticipatory approvals for contract awards, according to a correspondence we saw.

A former minister, who served under Mr. Obasanjo and asked not to be named, said Mr. Imoke was giving the former president false impressions and “when we went touring the sites before the end of our administration in 2007, we discovered some were not even cleared yet.”

Mr. Imoke could not be reached for comment on his former colleague’s claim. But in a 2009 submission to the House of Representatives, he said most of the engineering and procurement phases of each of the projects had completed by 2007, remaining only construction, which is the phase physically seen and “less than 20% of the contract sum.”

Between 1999 and 2007, the Obasanjo administration’s spending on the NIPP and running of PHCN was $5.25 billion, according to Mr. Imoke. But in 2010, Nigeria’s actual generation capacity was still an average of 2,500 MW, meaning less than 1000 MW added to the 1999 capacity, according to former power minister Bart Nnaji. The Obasanjo administration had raised the capacity at Afam in 2002 and completed Geregu, Omotosho, and Olorunshogo (all now privatised) in 2007.

The Yar’Adua administration (2007-2010) that followed Mr. Obasanjo defocused the NIPP, abandoning imported equipment at ports. “Yar’Adua’s policy knocked out the sector hugely but the misdirection and corruption started under Obasanjo,” said Mr. Amadi. It was Mr Jonathan that restarted the NIPP and completed Geregu, Alaoji, Ihovbor, and Odukpami, and Gbarain NIPPs leaving Nigeria with over 11 thousand installed capacity.

Privatisation: “We are stalled”

The reforms that started with the adoption of the National Electric Power Policy in 2001 and then the enactment of the sector reform law culminated in the privatisation of the power sector – the six successor GenCos and the 11 DisCos – in 2013 under Mr Jonathan, leaving only the transmission service for the government. However, though still wholly government-owned, the Transmission Company of Nigeria is now managed by Manitoba.

The Presidential Task Force on Power, PTFP, had in August 2013 projected 24,961 MW in installed generation capacity by 2019 and 28,264 by 2020 with expectations the industry would attract private financing for expansion. Six years after the privatisation, Nigeria is only able to achieve nearly 13 thousand MW with about 25 grid-connected GenCos, from 8,664 MW in 2013. Yet less than four thousand MW reaches the final consumers through the DisCos.

The low operational performance has happened amid falling expectations of private investment for expansion, and this, which is the consensus of operators, experts and the regulator consulted for this report, has a circularly causal relationship with the sector’s commercial performance.

“Financial viability is still the most significant challenge threatening the sustainability of the electricity industry,” said NERC in its Q1 2019 report. “The liquidity challenge is partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft, and consumers’ apathy to payments under the widely prevailing practice of estimated billing.”

Bulk electricity trader, NBET, has been covering the market shortfall using public funds to shore up the revenue of the GenCos to prevent the collapse of the system. In 2018, N701 billion was released for this purpose from the CBN for 2017-2019 period.

“At the start of the privatisation, investors thought the sector was going to be self-sustaining,” said the Managing Director of Nigeria’s independent power producer, Azura, Edu Okeke, making a case for a cost-reflective tariff. “Investors cannot rely on government subsidy. It is not a reliable incentive.”

Azura currently owns the 461MW independent power plant commissioned in 2018 in Ihovbor, near Benin City. But that is just the first phase of a 1,500MW facility planned. Mr Okeke told PREMIUM TIMES that the company’s plan was to continue with the second phase immediately after the delivery of the first, which was built in two years between 2016 and 2018.

“We thought the EPC (Engineering, Procurement, and Construction) contractor would just move to the next phase without demobilising,” he said. “But because of the Nigerian environment, rather than looking at phase II (in Edo, Nigeria), Azura is now investing in another country (Senegal).”

Last Thursday, Azura confirmed the acquisition of the 115 MW Tobene power plant in Senegal, investing funds Mr. Okeke said would have been deployed in Nigeria.

Clearly, the capacity projected at the beginning of the privatisation by Mr Jonathan’s taskforce is now realistically impossible amid fears about return on private investment, underscoring another dashed hope.

For Nigeria’s electricity sector to perform well, there must be technical and commercial alignment, said Sunday Oduntan, an executive director of the Association of Nigerian Electricity Distributors, ANED. “If you want DisCos to distribute 10 thousand MW, you must install generation infrastructure that produces 10 thousand MW and transmission infrastructure for 10 thousand MW, and to make the investment that brings this level of capacity, you must have confidence you will recoup your investment.”

“We are now stalled,” said Mr Amadi, commenting on the state of the industry. “We were carried away by privatisation drive in 2010. We were privatising what did not exist. We should have first concentrated on building our capacity. The other countries like Brazil first built their capacity to have sufficient product (power) before reforms towards privatisation. You can’t expect the private sector to develop the capacity within a short period.”

Agboola Akinola, a social development activist, was asked to comment for this report as he sat with his twin nephews in Oyo Town to guide them on their school assignments. It was a night in September 2019 and the bulb for lighting needed for the assignments was powered by a gasoline generator. “In the year 2000 when I was a schoolboy like these kids, this was my experience; no electricity for my assignment and I had to use a kerosene lantern,” said Mr Akinola. “No change.”

This report was produced by a collaborative effort of Daily Trust, International Centre for Investigative Reporting (ICIR), Premium Times and TheCable, facilitated by the Wole Soyinka Centre for Investigative Journalism (WSCIJ) under its Regulators Monitoring Programme (REMOP) for the Electricity Sector, with support from the John D. and Catherine T. MacArthur Foundation.