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FG Releases New Roadmap For Power Sector

The federal government, yesterday, began another round of consultation aimed at revamping Nigeria’s ailing power sector, with a hint that industry players might need to dump dollar-denominated transactions to surmount the gas supply problem. Minister of Power, Chief Adebayo Adelabu, stated this at the opening of a three-day retreat he convened in Abuja.

The summit saw a huge turnout of players in the power sector.

Adelabu argued that a good way to tackle the volatility of gas prices by the Generation Companies (Gencos) was to remove the dollar factor.

Even by African standards, Nigeria remains one of the least ‘’electrified’’ countries on the continent, with over 40 per cent of citizens not having any access to electricity at all and the majority depending on the national grid struggling for their share of the meagre and unreliable 3,000mw to 4,000mw daily supply.

The federal government said the retreat was a first step towards the establishment of the Integrated National Electricity Policy and Strategic Implementation Plan, as required by the Electricity Act, 2023.

According to Adelabu, “As at 2022, 70.5 per cent of our grid electricity was generated by thermal plants, 27.3 per cent from hydro, whilst solar and other power plants made up 2.2 per cent.

“The good news here is that over 98 per cent of the feedstock powering electricity generation in the country are transition or clean fuels, as Nigeria ramps up capacity to generate more electricity through renewable means such as solar, hydro, wind, bioenergy and others.”

The minister revealed, “A major issue in the sector is the pricing of gas utilised by Gencos in US dollars, a hugely volatile variable that significantly affects the pricing of electricity to end-users.

“A more preferable option is to ensure that the gas utilised by the Gencos is traded in naira so as to better manage the foreign currency-related inflationary trends that challenge the faithful application of the Multi-Year Tariff Order (MYTO) methodology.”

While acknowledging the interplay of contractual obligations, economics and the application of the Petroleum Industry Act (PIA), Adelabu maintained that as a matter of urgent national interest and economic survival, Nigeria must find ways to pursue domestic gas policies.

The minister said this would incentivise stakeholders to supply gas for inland use in electricity supply, other industrial activities, and conversion to Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) for transportation and domestic uses, respectively.

He said that would also attract and unlock investments into the production of naira-denominated gas from inland gas basins, and in non-associated gas fields from Nigeria’s various prolific hydrocarbon basins.

With Nigeria’s low electricity consumption per capita, which was at 140 KWh in 2021, lower than that of neighbouring countries and almost three times lower than the average for sub-Saharan Africa, the minister described Nigeria as a case study in a “deep electricity paradox”.

He stated, “Nigeria has grown to become the host of probably the world’s largest fleet of diesel and petrol-powered generation capacity that is utilised for base-load supply.

“Various figures have been mentioned but it is safe to say that this fleet measures no less than 40,000mw of total capacity. At an average operating cost of no less than N=250/kWh as opposed to an average economic tariff today of approximately N=120/kWh, the daily cost of this extreme inefficiency in electricity supply in Nigeria is measurable in tens of billions of naira daily.

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“This is hard-earned money that would better be deployed to savings, discretionary consumer spending and tax revenue for governments, instead of being literally burnt and going up in diesel and petrol emissions that harm our environment and contribute to incessant noise pollution in many of Nigeria’s cities.”

Adelabu stated that the government aimed to rectify the “disconcerting situation”. He announced that the immediate goal was to significantly transform the current ratio between backup electricity generation and on-grid supply in the near to mid-term.

He also listed poor track record in contracting, contract management, and adherence to contractual obligations as some of the problems besetting the sector.

The minister explained that the transmission sub-sector remained a weak point in the value chain. He affirmed that it was time to restructure the Transmission Company of Nigeria (TCN) into two entities: Independent System Operator (ISO) and Transmission Service Provider (TSP).

He said states, local government authorities and the current Discos must work together to invest in reinforcing and extending local distribution infrastructure.

He also advised Pension Fund Administrators, who collectively manage over N17 trillion, to strive for better understanding of Nigeria’s power sector and foster bankable strategies for capital infusion.

In his presentation, Chairman of the Nigerian Electricity Regulatory Commission (NERC), Mr Sanusi Garba, who gave a brief on regulatory challenges, argued that lack of political will and legal constraints had impacted reform implementation.

Garba disclosed that in the seven years between 2015 and 2022, subsidy in the power sector was in excess N2.8 trillion, with Distribution Companies (Discos’) balance sheet impaired by unfunded subsidies.

He listed poor corporate governance in several Discos, litigation against NERC, which had stalled tariff reviews, unrealistic tariff assumptions, and limited enforcement powers by the commission as some of the challenges bedevilling the sector.

While mentioning political influence on investment decisions as another issue that needed to be dealt with, the NERC chairman said there was a reduction of federal government subsidy obligation from N528 billion in 2019 to N155 billion in 2022.

He said insufficient end-user tariffs, poor Disco collections, and revenue shortfalls were major threats to investments and sector viability. He listed others as infrastructure constraints associated with gas, generation, transmission and distribution of electricity.

Garba stated that between January 2020 and January 2023, tariff increased from 55 per cent of cost recovery to 94 per cent, explaining that without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1 trillion per annum by 2023.

He argued that current inflationary pressures in 2023 had pushed cost-reflective tariffs to N124/kWh, with subsidy from January to April 2023 standing at N57 billion.

In his intervention, Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, who highlighted the importance of steady power supply to economic growth, noted that it remained one of the eight priority areas of President Bola Tinubu’s agenda.

Edun said, “Power is clearly at the heart of that attempt. You cannot have industrialisation and you cannot have growth of manufacturing without electricity. But apart from the economic imperative, there’s also the social imperative. Forty per cent of the population does not have access to electricity.

“And, clearly, to Mr. President and all well-meaning stakeholders, that is not acceptable. And that’s why what is being done here today is critical.

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“Ten years ago, there was the privatisation exercise. To say the least, it has underwhelmed and we can even go as far as to say that the results have been disappointing.”

Equally speaking at the summit, Minister of Budget and Economic Planning, Atiku Bagudu, stated that the private sector had a key role to play in the power sector. Bagudu stressed that the public sector’s spending was highly limited.

Permanent Secretary, Federal Ministry of Power, Mr. Temitope Fashedemi, in his remarks, said the retreat would serve as a forum to engage stakeholders to further reposition the power sector and consequently grow the country’s economy.

Meanwhile, the Bureau of Public Enterprises (BPE) is to sell government stakes in Eleme Petrochemical Company Limited (EPCL), Electricity Distribution Companies, Nigeria-Reinsurance, Nicon Insurance, and Nigeria Machine Tools, among others, in 2024 through Initial Public Offering (IPO).

BPE Director General, Mr. Alex Okoh, made the disclosure during an interview session with journalists in Abuja yesterday.

Giving an insight into the direction headed by the privatisation agency vis-a-vis some of the enterprises where the government still had diluted stakes, Okoh said once the 40 per cent ownership challenges with some Discos was resolved, the federal government will move forward with the plan.

He stated, “We also plan to take Eleme Petrochemicals to the market. We have also planned to take Nigerian Reinsurance to the market, Nicon Insurance to the capital market.

“So, there are lots of issues involved in taking some of these entities to the market. Nigerian Machine Tools, Oshogbo, is also slated for the capital market. Yes, on all fronts, we expect a more active year in 2024 for the BPE, and every step of the way, both in terms of educating the public and also helping us to navigate various stakeholder concerns.”

Further buttressing the reason why IPO was the best approach in offloading the government stakes in the entities, Okoh argued that giving the public a sense of ownership was best through IPO. He stated that the federal and state governments owned 40 per cent stake in the Discos.

He said it was better to allow members of the public to have a stake as the government divested.

Okoh, who was upbeat about the agency making greater strides in 2024 with the constitution of the National Council on Privatisation (NCP), said so much had been achieved, in spite of the obvious challenges.

He said with the private sector mind-set of the present administration under Tinubu, the reception of the ideology of privatisation was making more sense and gaining more grounds under the current administration than the previous one.

Okoh said, “In the past six months, you can count the number of trips and visits the president has made to seek Foreign Direct Investment (FDI) for the economy; and create an enabling environment for these investments and to locate the opportunities locally.

“That itself is huge because you are placing yourself in the competitive international capital market or investment market that they should listen and look at us as well. There are huge opportunities for investment now, so that is what is different.”

Source: Thisday

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