Power
2024 marked eleven years of the partial privatization of Nigeria’s power sector that was intended to usher in new investments, improve service delivery and end decades of electricity supply shortages enabled by government inefficiency.
Yet after over a decade of the privatisation policy, data from the World Bank shows that over 80 million Nigerians still lack access to electricity with the majority of these residing in rural communities across the country. With an average power generation of just above the 4,000 MegaWatt mark, the performance of the Nigerian Electricity Supply Industry (NESI) in 2024 has proven not to be significantly different from past years as the same challenges that have stunted the growth of the sector remain intractable.
Faced by low power generation, the Minister ofPower, Chief Adebayo Adelabu in March set a target of 6,000MW before the end of the year. The target has, however, not been met due to several reasons including grid collapses, poor financial state of the sector and lack of clear path to growth by the sector’s administrators.
Huge N2.7trn debts cripple GenCos
With an installed power generation capacity of 13,000MW, the performance of the sector continues to raise questions about the capacity and sincerity of the government and operators to improve electricity supply. Third quarter 2024 report on the sector by the Nigerian Electricity Regulatory Commission (NERC) showed that with 28 power plants on the grid, available capacity was just 5,100MW with average hourly generation of 4,280MW.
GenCos have blamed the huge debt owed them by the market as one of the reasons for the drastic drop in available capacity. According to the Executive Director, Association of Power Generation Companies, Dr. Joy Ogaji, outstanding debt to GENCOs over the years have reached N2.7 trillion. Specifically for 2024, payment documents seen by Vanguard showed that as at the end of August 2024, GenCos debt for the year had reached N1.495 trillion. The document showed that while the GENCOs had put in a combined invoice of N1.891 trillion, payment from the Nigeria Bulk Electricity Trading Plc (NBET) stood at just N396.53 billion (or 20.96% of invoice). The low payment data was not surprising as the Chairman of Transnational Corporation (Transcorp Plc), Mr. Tony Elumelu had, in May, urged the Federal Government to as a matter of urgency pay off the N1.3 trillion owed to the power generation companies in Nigeria to a v e r t collapse of the sector. Elumelu, who stated that the GENCOs could no longer afford to continue to subsidise the power sector, disclosed that Transcorp Power alone was owed about N250 billion for power supplied to the national grid. He also urged government to fully privatise the power sector by divesting its 40 per cent stake in the eleven electricity distribution companies and the 100 per cent stake in the Transmission Company of Nigeria, TCN. “We have liquidity challenges in the sector.
As we speak, Transcorp Power is owed around N250 billion. We need this liquidity as a sector and as a company to help us stabilize and improve access to electricity. As it stands today, we can say that the power generation companies are subsidizing the country on electricity. We need this debt settled so that we can make progress”, he stated. Speaking to Vanguard on the level of indebtedness to the GENCOs, the Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Professor Adeola Adenikinju noted that it is surprising, given the amount of money collected by the electricity distribution companies (DISCOs). He called for increased pressure on the DISCOs to reduce the high level of Aggregate Technical, Commercial and Collection losses to free up more revenue to pay the GenCos.
“What I don’t understand is that the DISCOs are making profit and yet are not able to pay for electricity supplied to them. The tariff collected is not used to pay the GENCOs and by extension the gas suppliers. We need to find a way to reduce the ATC&C. Also, most government agencies and parastatals are owing the sector”, he stated. Also speaking to Vanguard, Electricity Market Analyst and a Consultant with Paras Energy, Mr. Lanre Elatuyi, noted that the GENCOs are holding the short end of the stick as they are always the segment paid last. He pointed out that the Nigerian electricity market model does not incentivize the DISCOs to make payments. “Under central buyer model, the GENCOs signed a PPA (power purchase agreement) with NBET, then NBET had a vesting contract with the DisCos. Those vesting contracts are supposed to be backed by enforceable payment guarantees such that in case of default there will be something to be called on. But in our case, those bank guarantees are not enforceable and that gives incentives to the DISCOs to be inefficient in their operations”.
He also blamed the highlevel debts on failure of the Federal Government to pay subsidies it agreed to pay following the freezing of tariff increase for Band B to E which has led to tariff shortfall. He added that despite a projection of over N1.6 trillion tariff shortfall for the year, the government made a budgetary provision of just N450 billion in 2024. He added that he does not see the financial situation of the GENCOs improving anytime soon as long as the NERC continues to run the present model.
12 grid collapses expose TCN as weakest link
The Transmission Company of Nigeria, TCN, the only wholly government owned and operated segment of the electricity supply chain, manages the National Power Grid system that proved again to be the weakest link with 12 collapses in 2024, so far. The transmission sector remains very problematic despite the Federal Government spending over $7.5 billion of its own and borrowed funds to improve the segment. The incessant collapses led to an order by NERC directing the unbundling of TCN into Transmission Services Provider (TSP) and Nigerian Independent System Operator which would effectively manage the grid. In its defence, TCN management blamed some of the collapses on sabotage and vandalism of its infrastructures across the country.
TCN said that as at the end of November, 115 transmission towers have been destroyed by vandals across the country. Prof. Adenikinju noted that such level of vandalism poses a huge challenge to the sector, adding that something urgently needs to be done to ensure that power infrastructure is protected across the country. On his part, Mr. Elatuyi said: “Whenever there is a grid collapse there is supposed to be a report on the incident but what we get most of the time are just generic answers as to what really transpired. The grid operation is the sole responsibility of the System Operator but I have not seen a detailed report from the SO that showed what happened at each instance.”
On his part the President, Nigeria Consumer Protection Network, Mr. Kunle Olubiyo, blamed the huge debt owed by TCN to its local contractors for the performance of the transmission segment of the supply chain. According to him, TCN owes local contractors between N300 to N500 billion for jobs done in the past. He therefore urged the Federal Government to intervene and ensure that TCN meets its obligations to local contractors.
Distribution: Band-A tariff hike, lack of metering dominate
On April 4th, 2024, NERC announced a major revamp of its electricity tariff methodology by removing government subsidies for electricity consumers in Band-A in exchange for a guaranteed minimum daily supply of 20 hours. The policy affected about two million customers (or 15% of registered electricity customers in the country). Despite stringent pushbacks from the affected customers and the Manufacturers Association of Nigeria (MAN), the commission stood its ground, saying that the policy was the only way to improve liquidity in the sector. Subsequent data from the commission seemed to have justified this decision with DISCOs’ revenue collection increasing from N100 billion collected in March (before Band A introduction) to N142.9 billion in April (after the Band A introduction).
The success of the promised minimum of 20 hours of p o w e r supply has, however, been mixed as most consumers complained that while paying the premium rate, supply has not been as prescribed by NERC. Mr. Olubiyo condemned the policy, noting that it introduced supply discrimination into the Nigerian electricity market. “Price gouging and discriminatory supply of electricity is unacceptable all over the world. Band-A is discriminatory because it says that the richer you are the more energy you will get.
That is not the way we are structured. Also, the way the feeders a r e structured makes it difficult to create a clear line delineation. We have a mixed population with areas where we have the poor living in the midst of a Band-A population. We also have 33KVA feeders passing through rural communities which have become automatically in Band-A when they are not supposed to be included”, he added. On the provision of electricity metres, the sector also continued to underperform with about 55 percent of the registered 12 million customers in the sector still without metres.
This is despite the promise by the Minister of Power, Chief Adebayo Adelabu that the phase two of the National Mass Metering Programme will be implemented during the year. Speaking to Vanguard, the Chairman, Electricity Consumers Protection Centre, Chief Princewill Okorie, said estimated billing has led to the exploitation of customers “with millions of customers paying for energy they did not consume. We have always asked the government to end this practice by compelling the DISCOs to provide metres for customers. Government must also be ready to impose heavy sanctions on DISCOs that bill customers arbitrarily without commensurate supply of electricity”, he added.
On how the sector has performed this year, Prof Adenikinju said it has been disappointing given the critical role played by electricity in boosting economic growth and productivity. He noted that the sector has failed to attract the needed private sector i n v e s t m e n t required to revamp the infrastructure and improve supply. “We have a sector where the infrastructure is quite old and coupled with several cases of vandalism, the performance has been poor.
So many promises are yet to be delivered and yet cost and tariff have increased. The 20 hours supply for Band-A never materialized. Using the traffic light model, my grade will be red”, he added. On his part, Olubiyo said the year has not been good for customers, adding that challenges have remained intractable with many failed promises by the government and operators. “In past years we had potentials and in 2024 we seemed to have been again trapped in the vicious circle of those potentials. Nothing has changed. We have not been able to hit the 6,000MW. On the issue of metering, presently, the entire public funded metering scheme has collapsed”, he stated. For Elatuyi, the sector has not performed up to expectation “going by the Minister’s pronouncement at the beginning of the year that Nigeria will generate, transmit and distribute 6,000MW by the end of the year. That has not been the case”, he declared. – vanguard.
A.I
Dec. 27, 2024
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