With over N7tn investments in the power sector after it was privatised, the industry has failed to deliver reliable electricity, triggering anger among consumers, OKECHUKWU NNODIM writes
The inability of the privatised power sector to meet the demands of electricity users nationwide is causing pain and anger among power consumers, as they express disgust over the privatisation exercise.
Many industries, small businesses, companies, among others, have collapsed as a result of the poor supply of electricity in Nigeria. This is despite the privatisation of the successor power generation and distribution companies in November 2013.
Nigeria’s power firms generate and supply between 3,500 megawatts and 5,500MW of electricity to over 200 million citizens across the country. On December 28, 2023, for instance, power generation on the national grid was 4,690.07MW.
This poor level of power supply is seen as worrisome by various electricity consumer groups, as they stress that the privatisation has not impacted positively on the sector.
“We cannot feel the impact of that privatisation because we still have darkness in many parts of Nigeria,” the President, Nigeria Consumer Protection Network, who served in the National Technical Investigative Panel on Power System Collapses/System Stability and Reliability (June 2013), Kunle Olubiyo, said.
Power sector privatisation
The power sector privatisation was an initiative of the Federal Government to transfer ownership and management of power assets to private entities. It aimed to improve efficiency, attract investments, and enhance overall electricity supply.
The process started in 2013, with the sale of distribution and generation companies. However, challenges like regulatory issues and infrastructure constraints have impacted negatively on the desired outcomes.
A total of 11 electricity distribution companies and six generation companies were formed after the sector was privatised in November 2013. The power distributors include Abuja, Benin, Eko, Enugu, Ibadan, Ikeja, Jos, Kaduna, Kano, Port Harcourt, and Yola Discos.
Some of the generation companies include Transcorp Power Limited, Shiroro Hydroelectric Power Station, Sapele Power Plc, Ughelli Power Plc, Geregu Power Plc, and Kainji Hydroelectric Power Station.
About $2.5bn was the total amount earned by the Federal Government from the entire first phase of privatisation in 2013, involving both the generation companies and distribution companies.
While earnings from the privatisation, through the sale of stakes and concessioning of six of the generation companies, garnered about $1.269bn (N460.7bn) for the government, data for individual Disco sales could not be readily accessed, but the total for all 11 Discos is included in the $2.5bn figure.
Consumers kick
The President, Electricity Consumers Association of Nigeria, James Chijioke, said the power sector has witnessed insignificant growth since it was privatised, when matched against the electricity needs of Nigerians.
“The government and some operators in the sector may say there is some form of growth, but in actual terms, how many people are really benefiting from the privatised power sector? Most SMEs, (Small and Medium Enterprises) in Nigeria are still running their businesses on generators, as well as large scale industries.
“The number of people who need power has increased tremendously when compared to the rise in electricity output from the industry. So overall, there is no significant growth in the sector since it was privatised and this is annoying when you consider the humongous funds that have gone into that industry,” he stated.
On his part, the National Secretary, Nigeria Electricity Consumer Advocacy Network, Uket Obonga, said there had been virtually no improvement in the power sector since it was privatised.
“Can you say there is an improvement? If you have the kind of abysmal growth that is being experienced in the power sector for about 10 years, which on the average is about 1.3 per cent annual growth, would you say it is good? It is abysmally low!,” he stated.
He added, “There is no serious growth there. It is about 1.3 per cent annual growth and this has been so for the past 10 years. In fact, since 2010 till about February or March this year, the annual growth in the power sector is about 1.1 per cent.
“So there is nothing to celebrate about that. It is not something remarkable. Our demand for electricity far outweighs that quantum of power generated during this 10-year period.”
Also speaking, the NCPN president, Olubiyo, pointed out that the challenge in the power sector was not primarily due to paucity of funds, rather the management of the industry by its managers.
“The challenge of the power sector has not entirely been the scarcity of funds. It is not that funds have not been provided, several trillions of naira have been pumped into that industry. The sector has been plagued by the shortcomings of its managers.
“Also, there is a lack of adequate monitoring and evaluation. Where resources are deployed, are they adequately monitored to ensure that the funds are used to deliver on their mandates? This is annoying, particularly when you consider the importance of this sector to our national economy,” he stated.
‘$50bn investments’
Olubiyo, a renowned industry expert, who served in the National Technical Investigative Panel on Power System Collapses/System Stability and Reliability (June 2013), stated that findings showed that about $50bn had been invested in the sector without making significant impact.
“The Federal Government has injected about N2.8tn into the sector as subsidies and it has also injected not less than $10bn in the industry in the last 10 years, just to ensure that the power grid delivers.
“These funds include monies from foreign and local institutions, but this has not given the desired result. The government has equally invested through Special Purpose Vehicles in the National Integrated Power Projects.
“Private organisations, development agencies and others have also invested in Nigeria’s power sector. So when you want to put all that together, not less than $50bn has been injected into the power sector in the last 10 to 15 years,” he stated.
The NCPN president explains that all these investments are some of the reasons why power users are angry with the state of the industry, stressing that the amount is enough to get the sector adequately functional.
“Now, having said that, as we speak today, the maximum capacity of the national power grid is about 5,800 megawatts. That is the maximum capacity that the grid can deliver to over 200 million people in Nigeria.
“So why won’t an average power user in Nigeria be angry about this? How can you spend this much on the sector and up till now over 80 million people in Nigeria still don’t have power? What was really the essence of the privatisation then?,” he asked.
Government interventions:
The government has responded to the challenges in the power sector with various monetary interventions, estimated to exceed N7tn. These include bailouts and subsidies, whereby the government provides financial assistance to Gencos and Discos to cover operational costs and debt obligations.
It has also supported through tariff setting by influencing the Multi-Year Tariff Order that determines electricity prices, though not directly controlling it.
There is also the payment guarantees, where the government provides guarantees to creditors of power sector players to incentivise lending and investment.
But industry experts believe that while the government should intervene in the power sector, its continuous intervention by way of subsidies should be reduced, since the industry has been privatised.
Electricity subsidy
The PUNCH was able to ascertain that the Federal Government spent N375.8bn on electricity subsidy between January and September this year, as power consumers paid a total of N782.6bn for the commodity during the same period.
Latest power subsidy figures obtained in Abuja from the Nigerian Electricity Regulatory Commission, an agency of the Federal Government, showed that the government subsidised electricity in the first, second and third quarters of 2023.
It was also gathered that power distribution companies billed electricity users a total of N1.06tn nationwide during the nine-month period, but collected N782.6bn despite the blackouts in many parts of Nigeria.
On subsidy payments, it was observed that in the first quarter of this year, the Federal Government subsidised power by N36bn, this increased to N135.2bn in the second quarter, and jumped to N204.6bn in the third quarter. Figures for the fourth quarter are not not because we are still in the fourth quarter of 2023.
Providing reasons for the subsidy in its just released third quarter 2023 report, the NERC stated that it was due to the absence of cost-reflective tariffs.
It said, “In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff shortfall funding. This funding is applied to the NBET (Nigerian Bulk Electricity Trading company) invoices that are to be paid by Discos.
“The amount to be covered by the Disco is based on the tariff that they are allowed to charge and set out as their Minimum Remittance Obligation in the periodic Tariff Orders issued by the Commission.
“It is important to note that due to the absence of cost-reflective tariffs across all Discos, the government incurred a subsidy obligation of N204.59bn in 2023/Q3 (average of N68.20bn per month), which is an increase of N69.37bn (+51.3 per cent) compared to the N135.23bn (average of N45.08bn per month) incurred in 2023/Q2; this increase is largely attributable to the government’s policy to harmonise exchange rates.
“The rise in the government’s subsidy obligation meant that in 2023/Q3, Discos were only expected to cover 45 per cent of the total invoice received from NBET. For ease of administration of the subsidy, the MRO is limited to NBET only with the MO (Market Operator) being allowed to recover 100 per cent of its revenue requirement from the Discos.”
On the payment of electricity bills, it was observed from the three quarterly reports of the power regulator, that consumers paid N247.09bn, N267.86bn and N267.61bn in the first, second and third quarters of 2023 respectively. This represents a total of N782.56bn.
It was also observed that during the three quarters: first, second and third, the electricity bills from Discos to consumers were N349.55bn, 354.61bn and N359.38bn respectively. The total bill for the nine-month period was N1.06tn.
In its latest third quarter 2023 report, the NERC stated that “the total revenue collected by all Discos in 2023/Q3 was N267.61bn out of N349.55bn billed to customers.
“This translates to a collection efficiency of 76.56 per cent, which represents an increase of +1.02 basic points when compared to 2023/Q2 (75.54 per cent). The increase in collection efficiency can be attributed to the implementation of various collection campaigns for improved remittance by post-paid customers.”
Power subsidy unsustainable
But the Convener and Executive Director, PowerUpNigeria, Adetayo Adegbemle, a power consumer advocacy group, pointed out that the electricity subsidy was not sustainable.
“Historically, the Nigerian government has been paying electricity subsidies to the Nigeria Electricity Supply Industry. This means that there is the cost reflective tariff of supplying 1kWh (kilowatt hour), and the allowed tariff that consumers are ‘allowed’ to pay.
“This variance, otherwise called ‘subsidy’ has now turned into an elephant in the chinaware shop,” he stated.
He said the subsidy was as a result of the government’s policy consideration on welfarism, aimed to support social welfare of consumers who might not be able to pay the high true cost of the service.
Another reason, according to him, was as a result of economic stability, aimed at ensuring a stable and affordable energy supply essential for economic development, while the last reason was political, with the aim to mitigate possible social unrest and create political instability
“The Federal Government, in 2020, with the introduction of Service Based Tariff, decided to phase out subsidies on electricity tariff, because of the strain it is putting on government finances, and the inefficiencies it promotes in the energy sector.
“Recall that the Minister of Finance, Budget and National Planning under former President Muhammadu Buhari, Mrs Zainab Ahmed, had said that the Federal Government had quietly removed all subsidies in the power sector with a plan to gradually end subsidies on petrol.
“This was necessitated by the fact that the payment of subsidies, both on petrol and electricity, has become an albatross on government finances. Between 2015 and 2020, the shortfall in allowed tariff reportedly stood at about N2.4tn, averaging N200bn yearly.
“And in 2022 alone, over N600bn had been paid in subsidies, and it has been estimated to skyrocket to at least N1tn alone in 2024,” Adegbemle stated.
He noted that the question now is, “with the present state of government finances, is the payment of subsidies on electricity tariff sustainable?”
Adegbemle stated that in 2022, the Nigeria Electricity Regulatory Commission rolled out the Multi Year Tariff Order that gradually phased out subsidies so that Nigerians could start paying cost reflective tariffs.
“For instance, in the MYTO 2022, the cost reflective tariff, on the average, should be N68.42 per kilowatt hour, while the allowed tariff the Discos were to charge was N59.89/kWh.
“With this, the Federal Government provided N8.53/kWh as subsidy. Between January and March 2023 alone (Q1, 2023), the total subsidy of N52.7bn was paid to the 11 Discos.
“The rationale behind the MYTO 2022, as approved by the regulators was premised on the fact that Discos that are in highly urban centres are allowed to charge tariffs that are near cost reflective due to evidence of high purchasing power and high consumption level in those areas, indicating that they are high-income consumers, while Discos that are in areas with low income consumers are allowed to charge lower allowed tariff, therefore paying higher subsidy,” he stated.
This, he said, made the subsidy regime to impact more on the low income bracket of consumers.
“It means people living in places under Abuja, Ikeja and Eko Discos were paying tariffs that are nearly cost reflective, while people living in places under Benin, Yola and Ibadan Discos are paying much less,” Adegbemle explained.
He also stated that another issue facing the electricity market was the delay and bottlenecks associated with paying the electricity subsidy as well as the slow cycle of the electricity market.
He said the subsidy was funded from various pools such as the budget appropriation, Federal Government of Nigeria commitments domiciled at the Federal Ministry of Finance, World Bank guarantees and loans, as well as Central Bank of Nigeria facilities.
Beneficiaries of subsidy
The rate design provided that the subsidy paid by the government should have more benefit to the masses who are mostly low-income earners across the Discos.
But now, present data shows that areas identified as high income areas are now benefiting more from the subsidy than other areas identified as low income consumers, according to findings by industry experts.
They noted that for instance, the government now has to pay N46.66/kWh in subsidy to Abuja Disco from the first quarter of 2023 figures of N2.43/kWh, raising the subsidy figures to Abuja Disco to N43.26bn in the third quarter.
“This is a jump of 1,912 per cent from N2.15bn in Q1 to N43,26bn in Q3, 2023. Similarly, Eko Disco that was N2.55/kWh in Q1 has seen a rise of 1, 676 per cent in subsidy payment as at Q3, 2023,” Adegbemle explained.
He added, “Similar data for Yola Disco shows only a 98 per cent rise in subsidy payment in Q3, 2023. For Yola Disco, cost reflective tariff was N214.57/kWh, but the allowed tariff remained at N65.99/kWh, with the government paying N148.58/kWh, amounting to N15.52bn in Q3 2023.
“Data clearly shows that the high income consumers, or the rich, are benefiting more from the subsidy than the low income consumers that the subsidy was designed for.”
Also, data from the National Bureau of Statistics established that the rich/high income households have a higher electricity consumption pattern than their poor neighbours.
Further report from the NERC also showed that the subsidy payment for the poorest 20 per cent in the non-maximum demand consumers, mainly residentials, stands at measely N0.43bn, while the richest 20 per cent gulps N17.24bn in subsidy payment by the government in the Q1 2023. The middle income group also accounts for N3.36bn in subsidy.
By Q3, 2023, the richest 20 per cent accounted for N117.8bn, while the poorest 20 per cent benefitted only N2.97bn. These figures show clearly that the electricity tariff subsidy has been disproportionately benefiting the rich Nigerian consumers, while excluding the poor ones the subsidy itself was designed for.
“And it is also detrimental to the government finances. The Federal Government is urged to take a quick decision before the situation spirals out of control like the petrol subsidy.
“About N2tn subsidy has been paid since 2015 and there has been negligible investment in the NESI by the private sector (except Azura), which is a clear signal that the commercial viability of the sector has left a lot to be desired.
“Electricity subsidy is not sustainable and we need to start thinking of where else the subsidy we are paying in electricity tariff can be better applied,” Adegbemle stated.
Power minister speaks
In proffering solutions, the Minister of Power, Adebayo Adelabu, in a presentation he made at the recent power retreat, which was made available to The PUNCH by his ministry, said state governments must be allowed to participate in the business of power supply in Nigeria.
He said, “The Electricity Act 2023 now allows, in line with the 1999 Constitution as amended, that states may establish the legal, regulatory and commercial frameworks for their domestic electricity markets. This must happen if we are to increase the geographical footprint of electricity supply and consumption for residents and businesses across Nigeria.
“This evolution from the single national electricity market to a dual structure comprising a wholesale market and potentially, several state retail markets, requires careful consideration of how the transition will take place.
“States, Local Government Areas and the current Discos must work together to invest in reinforcing and extending local distribution infrastructure in a way that enhances competition wherever possible, while also recognising the equitable vested interest that that states have historically had in the shareholding of the Discos.
“State governments, in turn, must recognise that state-level policymaking and regulation is of value only if they attract investment into their domestic electricity markets.”
