Nigeria loses over $ 3 bn annually to perennial power supply

Mar 29, 2004 02:00 AM

Nigeria's economy loses over $ 3 bn (about N 408 bn) annually to perennial power supply, occasioned by cost of importation, purchases and maintenance of power generating plants, cost of fuelling and lost man-hours and products, investigations have revealed.
It was also gathered that the Power Sector Reform Bill designed to provide the right policy framework to guide operations in the power sector may hamper efforts to reform and modernise the sector.

Investigations revealed that Nigeria's economy loses over $ 1.2 bn (about N 163.2 bn) annually as a result of importation, local purchases and maintenance of power generators. It was also gathered that the economy loses over $ 1.8 bn (about N 244.8 bn) to cost of fuelling these power generators, man-hours lost to production down time and products deferred due to ineffective power supply.
Most of the power generators imported into Nigeria are either manufactured in Europe or the Far East, leaving the Nigeria's economy with an unfavourable balance of payment portfolio against the affected countries. These countries include the United Kingdom, Germany, Japan, China, Taiwan, India, Malaysia and Singapore.

Mallam Nasir el-Rufai had, while working as the Director General of the Bureau of Public Enterprises, pointed out that the economy might have lost $ 800 mm (about N 108.8 bn) to very unreliable power supply by NEPA, noting that this was a very conservative estimate.
However, since the erstwhile BPE boss made this revelation two years ago, investigations show that the use and cost of maintenance of alternative source of power (generators) have more than doubled owing to the power supply needs of telecommunication service providers like the global system for mobile (GSM) communication operators.
These operators require uninterrupted power supply for effective service delivery and since NEPA the state-owned utility power company cannot guarantee this, these operators resort to the use of power generators to power their booster stations.

It was gathered that in the Lagos area alone, operators own and maintain a minimum of a 250 kVA power generating set in each of the over 50 booster stations servicing the area. These generators are mostly powered by diesel, with heavy cost implication for the final consumers. Currently, state owned refineries are not producing up to 20 % of Nigeria's fuel requirement, indicating that over 80 % of the diesel consumed in the country is imported.
Although the cost of fuel consumed by big industrial concerns including the GSM service providers is conservatively put at $ 400 mm (about N 54.4 bn) annually, it proved difficult to quantify the total cost of fuel consumed by private generator set operators owing to poor power supply. NEPA currently owns and operates eight power stations in the country and these include three hydro and five thermal power plants.

The hydro power stations are, Shiroro which has an installed capacity of 600 MW, Kainji-760 MW and Jebba 578 MW while the thermal power stations are,Egbin-1320 MW,Afam-976 MW,Sapele-720 MW, Delta-600 MW and Ijora 20-MW.
It is expected that the total output should be 5,574 MW, but for one reason or the other, these power plants have never generated more than 3,500 MW and even when they do, investigations show that the abysmal state of the transmission grid has made it impossible to evacuate more than 2,800 MW.

Investigations show that owing to the intricate web of the utility company's transmission grid, compounded by the nefarious activities of power line vandals, about 20 % of power generated is lost in transit. Only recently, the Authority announced there will be a 50 % reduction in power supply owing to a sharp drop in gas supply to the thermal power stations from the Nigeria Gas Company (NGC).
While the NGC has continued to graciously supply gas at an abysmally low price of N 14 per 1,000 cf of gas, the authority remains indebted to the gas company to the tune of over N 2 bn. Other commercial enterprises buy gas from the NGC at the rate of N 395 per 1,000 cf of gas.

To augment the power service delivery efforts of NEPA, some state governments including Lagos, Rivers and Akwa Ibom states have made efforts to go into power generation but this has not impacted positively on the citizenry owing to some factors.
In Rivers State, the power generation efforts of the government has seen the production of about 20 MW in Eleme and another 100 MW at Trans Amadi, while in Lagos State, government had guaranteed payment of a fraction of the cost of electricity generated by AES Power Barge, to NEPA. The Power Purchase Agreement between AES Power Barge and NEPA stipulates that the company shall generate and supply 270 MW of electricity per day and supply same to NEPA for onward transmission and the Lagos area for a fee of $ 5 mm each month.

However, at the time of filing this report there were indications that AES Power Barge has not been able to generate up to 270 MW per day for quite some time now. In Akwa Ibom State, the government had concluded arrangements to build a 60 MW power plant at Ikot Abasi, but this arrangement has been constrained by funding and the company's inability to secure a Power Purchase Agreement with NEPA.
Investigations revealed that the power utility company's ability to generate transmit and distribute power has also been compounded by an outstanding customer debt profile of N 146,234 bn and a commitment profile of N 124.132 bn. Statistics from the Authority show that government agencies and parastatals top the list of NEPA debtors and the efforts to collect the outstanding debt has yielded little result so far.

Although federal government has admitted it can not continue to fund the power sector without input from the private sector, investigations show that over the last four years NEPA has been underfunded by over N 272,452,538,102 bn. Between 1999 and year 2003, a grand total of N 377,826,072,472 bn was requested by NEPA for its operations and while the sum of N 180,964,003,961 bn was approved, only N 105,373,534,370 bn was released.
The breakdown shows that in 1999, the power utility company requested the sum of N 2,206 bn for its operation and the amount was approved and released by the Federal Government. In year 2000, NEPA requested N 36,571,083,939 bn which the Federal Government approved. However, only N 23,014,644,793 bn was released, indicating a shortfall in grant from the government.

Year 2001 also witnessed a rehearse of the preceding year as the power utility company requested and got approval for the sum of N 75,151 bn for its operations. However, Federal Government released the sum of N 47,905,300 bn, indicating yet another shortfall in grants. By year 2002, the Federal Government grant to the power utility company plunged even further as there was a very wide disparity in what was requested, what was approved and what was eventually released.
NEPA requested the sum of N 102 bn for its operations in 2002. However, while N 36 bn was approved, only N 27 bn was released for its operations. Last year the situation degenerated even further, with the power utility getting barely a fraction of the amount it requested for effective power generation transmission and distribution to Nigerians.
During the period, the power utility requested the sum of N 161,897,988,533 bn for its operations and while the sum of N 31 bn was approved, only N 5,207 bn was approved by the government. Industry operators contend that investors are ready and willing to explore investment opportunities in the power sector, but their enthusiasm has been dampened by the lack of a clear cut policy framework to guide such participation.

It was expected that the passage of the Power Sector Reform Bill would have created the desired policy framework for private sector participation in the industry but was caught up in controversy after Mallam El Rufai accused federal legislators of demanding a $ 5 mm bribe before they could pass the bill into law. However, after the bill was passed into law by the national Assembly under the leadership of Senator Pius Anyim, President Obasanjo refused to sign it into law, leaving it to lapse.
Further investigations revealed that the President refused to sign the bill into law because he insisted on being responsible for the appointment of members of the Electricity Commission of Nigeria, the body expected to serve as a regulatory agency for the sector after the unbundling and privatisation of NEPA. While independent sources say that the National Assembly took exception to this, Alhaji Abdullahi, chairman of the House committee on power declined to confirm or debunk this saying that the president raised some observations about the bill as passed by the National assembly.
The House chairman gave indication that the bill which was re-presented by the President about three weeks ago has passed through second reading and would soon be ready for open hearing.

Despite gulping about N 135 bn ($ 1 bn in four years) between 1999 and 2003, the ailing power sector is yet to sufficiently pick up to the satisfaction of the Nigerian people. Investigations indicate that the octopus National Electric Power Authority (NEPA) which had the monopoly of implementing the Electricity Policy which was approved by the Federal Executive Council on March 28, 2001, has fallen behind schedule.
Going by the Transition Plan, a transmission company is expected to roll off by the fourth quarter of this year. But three months into the year nothing is on ground to suggest that the company will take off on target.
The company, if and when it takes off, is expected to work to rapidly expand transmission capacity and maintain an autonomous status within the system. This appears a tall dream now that paucity of funds has hit the octopus and thus slowed down the pace of work.

While, in the heat of the determination by the Obasanjo administration to turn things around in the sector in 2001, $ 450 mm was invested by the government in refurbishing and rehabilitating the installations, government interest seems to have waned as last year, government only committed about $ 40 mm to investment in NEPA.
This year nothing seems to have been budgeted for NEPA indicating that government has lapsed to the position of previous government on NEPA. The current pitiable condition of NEPA is traceable to criminal neglect by past administrations.

The level of neglect suffered by NEPA under the Shagari and successive military governments is unimaginable. Just before the hand over to civilian government in 1979, the Obasanjo military government committed an average of $ 350 mm to maintenance and building of power installation in 1978 and 1979. Immediately the civilians took over, attention was shifted to other things. In 1980, funding dropped sharply to $ 200 mm, $ 140 mm in 1981 and $ 75 in 1982.
In the final year of that administration, only about $ 10 mm was spent to maintain the Authority's equipment and installations. Even at that the worst had not come.

Under the Babangida government, the neglectbordered on the criminal. Between 1989 and 1993 when politicking took the centre stage, the government virtually ignored NEPA in the scheme of things and consequently, its performance deteriorated. There were minor changes in 1998 and 1999.
By 2000 however, the first full year of the civilian administration and the new emphasis on reforming the sector, funding jumped from the $ 25 mm in 1999 to $ 225 mm. The following year, government demonstrated its resolve by further increasing its investment in NEPA to $ 450 mm.

However, there has been a decline in funding in the past two years. For 2002, there was a sharp drop of more than 100 %. Government was only able to provide $ 200 mm to back up the reforms. In 2003, funding unbelievably stood at about $ 40 mm.
By the fund provided, NEPA says it was able to improve generation capacity by 100 %. By the time the Obasanjo government took over in 1999, capacity stood at 1,700 MWA but, now, capacity has increased to 3,500 MWA. Transmission capacity has also improved by 40 % and distribution by 25 %.
This has elicited sharp criticism from the workers of the Authority. The General secretary of the National Union of Electricity Employees (NUEE), Mr Precious Kirikalio told that the present efforts have yielded so little because government has paid attention to only the generation aspect.

Seeking to illustrate his point, he said that when Abuja was under-supplied and needed more inputs, it turned to Shiroro, but the problem became that of transmission.
His words: "Electricity is still a problem. Look at what they have in Abuja, for instance.. Abuja needed some supplies but they looked here and there, there's supply in Shiroro. But that Shiroro supply cannot move down to Abuja. So they have to look for a system, that is what they are doing now. They are looking for a system that will convey electricity to Abuja. We call that transmitting. And when they come to Abuja they have to distribute supply to localities, all the houses. We call that distribution. That was also ignored. So why Obasanjo has not succeeded is that out of the three aspects, he only looks at one side. That is why we do not have the totality of Nigerians being supplied with electricity."
Engineer Joseph Modigie, a retired Assistant General Manager of NEPA who until his retirement in 2000 was in charge of Marketing in the Lagos Area also supported this view.

There are genuine fears that the whole reform process may crash with the private sector reluctant to invest the heavy capital required in an uncertain environment. By the reform agenda, the power sector was expected to have been largely freed from government control within five years during which the sector would have been unbundled with separate companies involved in the generation, transmission and distribution of power in the country.
To achieve the medium term goals, it was expected that the short term goal of making adequate impact in reducing power outages before the end of 2000 would have been achieved. This was not so, leading to the movement of the late Chief Bola Ige from the Ministry of Power and Steel to Justice Ministry. Ige had promised on assumption of duty mid 1999 that power outages would be a thing of the past by the end of that year. The pledge later proved unrealistic as the government lacked both the wherewithal and the will to achieve the target.

By the reform programme, the provision of an enabling environment that would be sufficiently attractive to both local and foreign private capital ought to have been put in place. This is provided for in the Electric Power Sector reform Bill which has been before the National assembly for two years. The proposed law seeks to put in place a regulatory authority to supervise the sector like the National Communication Commission in the telecommunication sector.
By that, it is believed that the investors would be sure of a level playing field for all. The proposed National Electric Power Commission is expected to guarantee that all players in the industry are guaranteed adequate returns on their investment. Inability of the government to put this in place is seen as a great setback of the reform process.

At a forum organised by the Nigerian Economic Summit Group in Lagos recently for stakeholders to brainstorm on the problems besetting the sector, the Director general of the Lagos Chamber of Commerce and Industry (LCCI) was taken aback by the submission by the Minister of Power and Steel, senator Lyel Imoke that lack of a legal framework was hampering the projection of the ministry.
Mr Olumide said: "It is embarrassing and irritating when government keeps repeating what it wants to do but little is being done." He explained that there is no other way to putting the sector in order than getting foreign private capital. He therefore canvassed support for passage of the Reform Bill 'so that we can attract the necessary capital since we lack both the expertise and the needed capital."

Also at the meeting, a prominent chartered accountant and investor, Chief David Dafinone described the quest for foreign investors at the moment as unattainable for as long as four failure factors are not attended to. He identified the factors as the cost of power which he said costs thrice the acceptable rate because of the heavy reliance on generators, inadequate provision of basic infrastructure, unavailability of reliable potable water and pervasive insecurity of lives and property.
According to him: "Law and order has now become a much more critical factor which makes it impossible for a foreign investor to come in with the required capital. He has choices and decides within the limit of the choices available to him."

Source: Vanguard
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