ELECTRICITY UNDER BUHARI: OVER $7.5B SPENT ON TRANSMISSION,YET DARKNESS PERSISTS.(PHOTO).

Electricity under Buhari: Over $7.5b spent on transmission, yet darkness persists

21 May 2023

• Sector Must Transit From Govt-operated To Market-oriented System

The projected gains expected from the over $7.5 billion loans taken by the President Muhammadu Buhari administartion to overhaul the transmission segment of the electricity sector and deliver stable supply have remained a mirage days to the end of the administration.

The World Bank, African Development Bank (AfDB), Japan, France Development Agency and other financiers borrowed Nigeria over $7.5 billion to improve the weak wheeling capacity of the transmission network and the grid.

But alleged widespread corruption, political considerations, non-alignment of the infrastructure, and the inability of the distribution companies to increase their off-taking capacity, among other factors, have made the kind-heartedness of the lenders meaningless and government efforts futile.

Aside from the $2.3 billion Siemen’s deal, which was targeted at improving transmission infrastructure, Nigeria had taken a $486 million loan from the World Bank under the Nigeria Electricity Transmission Project (NETAP).

Japan extended a $242.4 million loan to the federal government for the implementation of the Lagos and Ogun Power Transmission System Improvement Project, just as the House of Representatives in 2017 disclosed that foreign loan to the Transmission Company of Nigeria totalled $1.5bn, with a separate $500m loan being negotiated with the Islamic Development Bank.

Recall that the Islamic Development Bank (IsDB) last year approved a total financing of $1.8 billion for Nigeria with the electricity loan expected to be a part of it.

Minister of Finance, Zainab Ahmed had, in 2020, said the Federal Government requested a $3 billion World Bank loan to finance the transmission network. The fund was provided in four tranches of $750 million each.

The African Development Bank (AfDB), in 2019, approved a $210 million loan for the upgrade of the electricity transmission and distribution network.

In the North, particularly in Adamawa, Bauchi, Borno, Gombe, Plateau, Taraba, and Yobe as well as Kafanchan area in Kaduna State, the Transmission Company of Nigeria (TCN) listed 38 projects funded by facilities from the World Bank, Federal Government budget, TCN-generated revenue and Presidential Power Initiative (PPI). The PPI is being funded through the Siemen deal. Nine of the projects are reportedly completed.

In the Kaduna region of TCN, which interfaces with Kaduna Electricity Distribution Company (KAEDCO) and Kano Electricity Distribution Company (KEDCO) through the 132/33kV Funtua Substation, the company listed 36 projects across Kaduna, Zamfara, and Kebbi states, and a part of Niamey in Niger Republic. Five of the projects are reportedly completed. The projects are being funded with loans from France Development Agency, World Bank, AfDB and revenue from the agency. 

Amidst others across every part of the country, the Abuja Region of TCN, which covers Abuja, Nasarawa, Kogi, parts of Edo, Niger and Kaduna states has eleven projects, five of which have reportedly been completed.

Inspite of these investments, rather than the supply stabilising, the distribution companies have dropped load off-take from about 4,000 megawatts in the last few years to about 2,900 megawatts as at yesterday. And players in the sector have submitted that the investments are not yielding results not only because of political considerations but because the Nigerian Power Sector has refused to complete its transition from a government-owned and operated sector to a market-oriented system.

A consultant at Nextier Group, Femi Omisanjo said the sector seems to have jettisoned all the frameworks, rules, codes and regulations (developed for the sector at the pre-privatisation stage), adding that the move left the market in sub-optimal pricing and uncertainty in pricing, misallocation of transmission capacity and chronic indebtedness of some participants without any retribution. 

According to him, while wholesale markets are supposed to act as signal source for new investment and increase efficiency, the case in the Nigeria Power Sector is different as investments are mostly haphazard without recourse to any efficiency and financial viability.

While the results for the investment has remained a mirage, the economy bleeds in losses as manufacturers alone have spent nothing less than N698.3 billion in the last seven years on alternative energy provision due to the unreliability of the grid.

For most manufacturers, the grid remains unpredictable and as such serves as a highly risky energy source for sensitive equipment and machines.

According to statistics from the Manufacturers Association of Nigeria (MAN), spending on alternative energy sources by MAN members amounted to N129 billion in 2016, N117.38 billion in 2017; N93.11 billion in 2018; N61.38 billion in 2019; N81.91 billion in 2020, N71.22 billion in 2021 and N144.3 billion in 2022. 

This is coming despite an existing contract announced last year by Nigeria Electricity Regulatory Commission (NERC), which compelled market participants, including GenCos, Discos, TCN, gas suppliers and Nigerian Bulk Electricity Trading Company (NBET) to sign a contract that would ensure that at least 5000MW of power was generated, paid for 100 per cent and successfully delivered. 

While this is based on the justification for electricity tariff increases, the grid supply has been around maximum of 4,000MW since then while load off-taking wobbled to 2,900MW with the sector remaining on the verge of bankruptcy.

Omisanjo said the DisCos do not have firm contract for capacity with any generator nor do they have firm capacity delivery agreement with the TCN. 

“Almost everything is run based on best endeavours. GenCos on the other hand do not have firm gas contracts to guarantee availability and reliability. This has resulted in a lack of accountability and a failure to ensure the performance of the different players in the sector. 

“In the absence of contracts, there is no clear mechanism for holding any party to a performance level or resolving disputes, and this has led to haphazard behaviours in the market. The result of this is low gas and generation level; which are symptoms the government has attempted to tackle,” he said. 

Energy expert at the University of Ibadan, Prof. Adeola Adenikinju said the huge investments in the electricity sector, including transmission, have not delivered significant improvements and reliable electricity supply, stressing that there is a need for a planned, balanced investment in the sector. 

Adenikinju said: “It is surprising that the World Bank and other development partners are part of these investments that have delivered, at best, marginal improvements in delivered electricity to consumers. I still believe that a wholesome review of the sector, including the privatisation contracts, is necessary to revive the sector.”

Energy expert at PWC, Habeeb Jaiyeola said calls for alignment of all investments in the power sector is required to ensure value for money and effective output of the initiatives.

According to him, the investment must fit into the business plans of the GenCos, TCN and DisCos who are the eventual beneficiaries and have the responsibility to use these interventions effectively in order to yield positive results for the power sector. 

“Diverse solutions in the sector will continue to encourage competition and performance improvement from the sector players. A combination of ongrid and offgrid solutions will encourage this competition and continuous improvement. This will be further boosted by a fully deregulated sector where the forces of demand and supply is allowed to thrive and encourage future investments, while reducing government interv entions,” he noted.

Founder of Spark Nigeria, a clean energy start-up, Chinedu Amah, said the projects would have yielded results if they were duly designed with offtaker requirements put into consideration.

According to him, project developers might have completed their projects for photo ops but those projects and the funds expended are useless if service improvements aren’t evident.

“For projects of that scale to be viable then, all stakeholders must agree on its need, its use case and its viability. Clearly there is very little or no stakeholder engagement along the value chain to define project offtakers and to justify return on investment on these projects.

Commercial and industrial customers who these projects should serve will continue to seek alternatives because clearly, there is a disconnect between transmission and distribution somewhere,” he said.

Convener of PowerUp, Adetayo Adegbemle stated that while the investments and installations by the TCN are important to the National Grid Expansion and stability, it would remain a mirage without equivalent investment on the offtaker end. 

Adegbemle said: “TCN has been the fall guy in the value chain, and now that we have had serious investments in the last few years, there also arises the need to see similar investments from the DisCo end. There should, of course, be alignments in how these investments are undertaken. DisCos do need to invest a lot in stepping down power from the national grid for these investments to be felt at the customer level and in homes of Nigerians.”

Lawyer and Executive Coordinator of NEPA Wahala NG, a power sector consumer awareness and protection initiative, Emeka Ojoko said poor supply would persist if the improvement remained within transmission and is not extended to the distribution companies.

“Since the DisCos came into existence, very little has been done to improve the distribution networks. This has affected the DisCos’ ability to distribute power, compounded by poor collections due to insufficient metering and customer apathy towards estimated bill payment. In the absence of positive revenue flows from the DisCos into the value chain, little would be done in respect of distribution infrastructure improvement,” he said.

While expressing optimism about some glimpse of light at the end of the tunnel, Ojoko said the sector must move from being politically-driven to being economic or commercial-oriented, otherwise the optimism would remain elusive.

He blamed the lack of competitiveness in the sector as one of the problems bedeviling the growth of the industry. “Ultimately, for the sector to improve, multiple distribution companies must be licensed to operate within the same franchise area. The quest for market share or dominance will force improvement on such DisCos,” he stated.

A professor of energy law at the University of Lagos, Yemi Oke noted that the country needed to consider off-grid solutions instead of spending to overhaul dilapidated transmission infrastructure.

“The world is going off-grid, so we should not be spending on dilapidated grid that won’t supply electricity to end-users. To expand the grid to new customers is very expensive,” he stated.