Inadequate power supply: Whither GenCos, DisCos?

Six years after ceding control of the management of both power generating companies and distribution companies, Nigerians have continued to grapple with the age-long challenge of inadequate power supply. BENJAMIN UMUTEME in this analysis examines the roles of the generating companies and distribution companies.

After several decades of controlling the electricity industry in Nigeria, the federal government gave over the running of the 17 power plants to the private sector, who were expected to give the sector the much needed face lift especially with the massive outcry over the way they (power plants).

Before privatisation of the plants the government had unbundled the now defunct Power Holding Company of Nigeria (PHCN) breaking it into different components – GenCos, DisCos and the TCN to create efficiency in the electricity distribution chain. But alas, it seems not to have worked as envisaged by the government.

In privatising the DisCos and Gencos, the government did not just want to transfer ownership of the assets. The main purpose was to bring industry players with ‘deep pockets’ with the ability to finance and/or access financing for the rapid restoration of lost capacity and/or add significant new capacity to make up for decades of government neglect and mismanagement.

However, the Nigerian Electricity Regulatory Commission notes that the financial viability of the Nigerian electricity supply industry remains the most significant challenge militating against the sustainability of the power sector,

According to electricity sector regulator, liquidity challenge is partly attributed 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.

As at 6.00 am on March 20, 2019, total available electricity generation in the country stood at 4,708.3 megawatts.

The sector challenges

Although Nigeria has been generating electricity in commercial quantities for over a century, the pace of electricity infrastructure development in the county is very slow and power supply remains highly inadequate.

At the moment, seventy-six million Nigerians representing 40.7 per cent of the population are not connected to the national power grid. Even those that are connected, power supply is a serious problem as about 90 per cent of total power demanded is not supplied.

As a result, Nigerians self-generate a significant portion of their electricity with highly polluting off-grid alternatives and at a cost that is more than twice the cost of grid-based power. The implication is that Nigerian people and industries cannot be globally competitive without access to affordable and reliable power?

Infrastructure constraints across the entire value chain from fuel to power distribution chain, including undiversified energy sources for electricity (80% thermal and 20% hydro), insufficient gas pipelines, obsolete generation plants and equipment, as well as inadequate and poorly maintained transmission and distribution networks. All worsened by vandalism

Businesses crawling

It is a given that a vibrant manufacturing sector is the engine room of growth and development of any nation. It is also a given that Micro, Small and Medium Enterprises (MSMEs) play a crucial role in this regard.

However, that is not the case in Nigeria where power supply continues to be a major challenge SMEs who are suppose to be drivers of growth.

Despite having a far larger population, Nigeria generates less electricity relative to other major African economies and has failed to expand its power generation along with its growing population. For instance, South Africa with a population of 48 million generated 35,000MW out of an installed capacity of 52,000MW in 2015.

So, when the government handed over the power companies to private hands majority of Nigerians felt it would be a turning point in the lamentable power situation under the defunct PHCN, but six years down the line, they say nothing has changed.

According to them, the only thing that seems to have changed is the management structure. For operators of small businesses, inadequate power is seriously hampering their operations. According to barber shop operator Mohammed Dauda, what he should have used to expand is shop is spent to buy fuel.

“I am supposed to expand this place as it is no longer conducive for customers because of its size, but I can’t do it because I have to buy fuel everyday to run this place. You know I cannot afford to disappoint my customers.”

Mohammed’s case is a mirror of what millions of SMEs and big industries go through in their bit to remain in business. The implication is that they spend so much on generation their own power that they find it difficult to expand on employ new hands.

The blame game

The way the situation is going nobody seems to want to accept the blame for the rapidly deteriorating power situation in the country. While many blame the distribution companies for rot others say the generation companies have not been doing their jobs properly. Even the transmission company of Nigeria (TCN) has also received its fair share of knocks from Nigerians who says transmission has been abysmal.

According to the chairman of Transcorp Ughelli Power, Tony Elumelu, some of the DisCos have not shown seriousness since the privatisation of the sub-sector. “I believe the GenCos have demonstrated capabilities, in some of the DisCos, in my viewpoint, I do not see seriousness and so government should engage more with these DisCos and see how a marshal plan can be put in place.

“It is unfortunate, may be the wrong people bought some of these DisCos. People who have capacity should own the DisCos.The generating companies are reeling and suffering, there is a limit to how far we can subsidise the system because that to me is what is happening today,” he said.

For the Managing Director of Mainstream Energy Solutions Limited, owners of Kainji and Jebba GenCos, Mr Lamu Audu, it is ironical that power generation companies like Mainstream were suffering losses due to unutilised power, while Nigeria had no power to run their businesses and for domestic uses.

He said, “I think TCN should answer because they are the ones taking the energy from us and giving to the DisCo’s but if the DisCos are not utilising it they will know better than anybody else. The DisCos can deny, but TCN should have the records to tell us what is happening to the energy that we are generating, simple question.  Why has the frequency been high?”

However, the DisCos continue to deflect the blames saying it is trying it best under such difficult operating environment.

For Brand and Communication Manager of Ibadan Electricity Distribution Company (BEDC), Kikelomo Owoeye, opined that TCN cannot meet the expectations of Nigerians even if generation doubles. According to Owoeye, notwithstanding the challenges of energy theft and vandalism, most of the equipment to produce and distribute the required energy are obsolete.

“On our transmission, even if the GenCos generate enough megawatts or gigawatts as the case may be, the equipment at the Transmission Company of Nigeria (TCN) cannot wheel out all the required supply. There are challenges on the equipment; most of them are obsolete,” she said.

Former Minister for Power, Works and Housing, Babatunde Fashola, while evaluating the power sector performance since he took over improved from approximately 4,000 megawatts (MW) in 2015 to 7,000MW in 2018 while distribution increased from 2,690MW in 2015 to 5,222 MW in 2018.

The DisCos immediate countered the claim of 2,000MW being stranded. Speaking through its umbrella body Association of Nigerian Electricity Distributors (ANED), they said that “While there is an available capacity of 7,000 MW, the best that can be generated, at this time, is 5,000 MW.  This is because there is insufficient gas to power the thermal plants due to gas line limitations and the absence of a commercial framework that would encourage gas exploration,” the  said in a document.

Amadi, in an interview, the reforms and privatisation of the power sector were fundamentally flawed.

The former NERC boss, who is now a lecturer at Baze University, Abuja, said if the sector is to work and deliver value to the people, the privatisation processes should be reviewed and the underlining mistake corrected.

“If we do not re-jig the context and the process, it will not work.”

However, BPE in its response said the alleged failure of the sector must be a shared responsibility with NERC, as the “Bureau worked closely with NERC in delivering the power sector transaction.”

“The design of the reform framework was never the exclusive work of the Bureau given that the power sector policy the Act that replaced the old NEPA Act and the eventual sector structure were subjected to stakeholder reviews through intensive workshops,” the bureau said.

According to the BPE, all the transaction documents, such as request for proposal (RFP), draft contracts, evaluation criteria, etc. were all endorsed by NERC before they were issued to bidders.

Besides, it said the evaluation of the technical bids received from bidders was carried out by a panel, which included representatives from NERC, Federal Ministry of Power, NEXANT (funded by USAID), NIAF (funded by DFID), Presidential Task Force on Power (PTFP), CPCS (Transaction Advisers) and the Bureau.

The Transmission Company of Nigeria and the electricity distribution companies continue to be at daggers drawn over electricity load management.

Reports from the Nigeria System Operations (NSO) department of the TCN, however, indicated that while Nigeria has an installed generation capacity of 12,910.40 megawatts (MW), the GenCos can at the moment generate 7,652.6MW, but cannot do that much because the Discos and TCN are allegedly unable to take all of that if generated.

Similarly, the SO records claimed that the TCN has a wheeling capacity of 8,100MW, yet it has only been able to transmit a one-time 5,375MW capacity which happened in February 2019.

A case in point is the recent system collapse when the national grid tripped off.

In a statement by TCN’s general manager, public affairs, Mrs. Ndidi Mbah, the grid experienced a system collapse on account of high voltage from a massive drop of load by the Discos.

However, in a reaction akin to what has defined their relationship for a long time, the DisCos alleged that the frequent collapses of the country’s national grid has remained because the TCN lacked standard power protection equipment at its transmission substations.

The DisCos in a statement sent by ANED, blamed the TCN for the poor showings of the grid, stating that, “poor transmission network protection” were responsible for the nine system collapses they said have been recorded so far in 2019. They further explained that they, “remain available to offer their technical assistance to TCN, to ensure that our valued customers do not remain in darkness,” adding that the failure of the TCN Benin substation was the second of such occurrence in the same city within a year.

They also expressed displeasure over TCN’s practice of arbitrary load dumping on them whenever it had challenges managing energy on the grid.

This, they added causes lots of commercial and technical problems to them. These alleged deficiencies of the TCN, they noted were captured in a July 2017 System Adequacy Report published by the SO of the TCN.

“Unfortunately, the resultant effect is that we have experienced the ninth total black out in Nigeria this year (five times in January, once in April, twice in May and once in June), a rate of transmission failure that is in excess of one blackout per month – far beyond any international standard.”

It also noted that over 100 partial and total transmission system collapses have been recorded since the sector was privatised in 2013, adding that, “This magnitude of system collapses should not be a regular reality of our country.”

The Nigeria – Siemens agreement

In a bid to further find a lasting solution to Nigeria’s unending power challenge, President Muhammadu Buhari signed a new agreement on an Electrification Roadmap with German company Siemens.

According to the terms of the pact, Nigeria is to achieve 7,000 MW by 2021, 11,000 MW by 2023 and overall grid capacity to 25,000 MW

Speaking at the signing ceremony in Abuja, President Buhari said the agreement will help tackle the challenge of electricity supply in Nigeria. The president said the first focus of the partnership will be to fix the transmission and distribution infrastructure especially around economic centers where jobs are created.

“We all know how critical electricity is to the development of any community or indeed any nation. And in Nigeria, whilst we are blessed to have significant natural gas, hydro and solar resources for power generation, we are still on the journey to achieving reliable, affordable and quality electricity supply necessary for economic growth, industrialization, and poverty alleviation.

 “These various interventions to solving the electricity problem have yielded an imbalance between the amount of power generated and the amount available for consumers. Despite over 13,000 megawatts of power generation capacity, only an average of 4,000 megawatts reliably reaches consumers.

“Now, we have an excellent opportunity to address this challenge. This government’s priority was to stabilise the power generation and gas supply sector through the Payment Assurance Facility, which led to a peak power supply of 5,222 MW. Nonetheless, the constraints remained at the transmission and distribution systems.

“This is why I directed my team to ask Siemens and our Nigerian stakeholders to first focus on fixing the transmission and distribution infrastructure – especially around economic centers where jobs are created. Whilst it was evident that more needed to be done to upgrade the sub-transmission and distribution system, our government was initially reluctant to intervene as the distribution sector is already privatised.

“I am, therefore, very pleased with the positive feedback from private-sector owners of the distribution companies, who have all endorsed Government’s intervention to engage Siemens on this end-to-end plan to modernise the electricity grid.”

The way forward

The way out, according to analysts, is for all stakeholders in the sector to get their acts together and address the seeming intractable challenge they have found themselves with.

Among what has hampered the sector include, lack of cost reflective tariff, gas supply constraints, poor transmission network, non credit worthiness of Discos, over leveraged power assets, value chain misalignment and lack of will to enforce agreements.

Analysing the issues, the former minister of power, Bath Nnaji, said many projects have been stalled due to finance constraints and tariff issues. According to him, tariff must reflect currency movement, “so there must be attachment of tariff to currency movements and adjustments must be done, and tariff review will help Discos to recover costs and pay for Gas”.

He also said that lack of industry deregulation and absence of proper legislation has discouraged investment because it is only deregulation that will allow investors to consider investment in gas production and transportation.

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