Blackouts till 2017 mean privatisation promise elude Nigerians

Residents of 401 Road in Festac Town, a Lagos community of about 1,000,000 people have been without electric power for three weeks as a result of a cabling fault that the Eko Electricity Distribution Company (DISCO), which serves the area, has apparently been unable to fix.

“We heard that some underground cables were damaged due to some road construction,” said Favour Omoregie a shop owner who has to depend on petrol generators which are five times more expensive to run than utility power, to keep her drinks cold.

“I just don’t know what is happening. We heard they have sold NEPA but it seems that the light situation is worse now, than before,” said Omoregie.

In Nigeria, sporadic power cuts have hobbled Africa’s second – largest economy for years as a lack of investment and inept management of the government owned power monopoly meant blackouts became the norm rather than an exception.

The government’s solution was to begin a privatisation process through the sale of 18 companies unbundled from the former PHCN (or NEPA) comprising of six Generation Companies (GENCO’s), 11 Distribution Companies (DISCOs), and a Transmission Company (TCN), which were expected to provide a steady flow of electricity to homes and businesses.

While the first phase of the process was concluded last November, the upside from the privatisation, have failed to materialize.

“It seems to me that the expected gains from power privatisation were sold to Nigerians as an immediate one, which is far from the case,” Doyin Salami, an economist, and member of faculty at the Lagos Business School (LBS), said at the Rand Merchant Bank Executive breakfast discussion, on Wednesday.

“It may take 3 – 5 years to get sustainable power supply.”

It is estimated that Nigeria needs an annual investment of $3.5bn to achieve its generation capacity target of 40,000 megawatts (MW) by 2020.

Nigeria’s, current peak grid power generation stands at about 3,849 MW with a per capita electricity usage of 136 kilowatt hour (KWH).

This compares with an average per capita electricity usage of 4,803 KWH in South Africa, which generates about 41,000 MW.

To work around the inadequate power supply, Nigerians have resorted to generating electricity themselves using diesel and petrol‐powered generating sets.

The Ministry of Power estimates that total electricity generated through these methods accounts for up to about 6,000 MW, more than the total commercial power generated and supplied to the grid.

Global Business Intelligence (GBI) - a research firm - estimates that Nigerians spent about $455m (N70.5 billion) on generators in 2011.

The Discos – which are closest to consumers like Omoregie – are at the end of a complex chain of players in the power sector which include the gas suppliers, IPPs/ Gencos, the bulk trader (NBET), and TCN.

The new private owners of power assets are struggling to meet capital expenditure pledges made as issues ranging from gas unavailability for power turbines, need for market reflective tariffs and power cheats from bypassed meters and unpaid bills crimp revenues.

West Power & Gas Limited (WPG), which paid $135 million to acquire the assets of Eko Disco, said last year that it had allocated $250 million for the rehabilitation of the Disco.

However ongoing blackouts in most parts of Lagos shows that such capex spend promises have yet to materialize.

“Traction from power will come in 2 years time,” said Bismarck Rewane, an economist and CEO of research firm Financial Derivatives Company (FDC).

“There is the need for capex and knowhow,” Rewane said.

In the meantime Discos and Gencos struggle under huge debt taken on to finance the power assets acquisition even as some of the assumptions underlying the acquisitions fail to add up.

The private power owners, including Discos and Gencos owe at least $2.45 billion (Debt – Equity percentage mix of 70: 30) to Nigerian banks, for financing of power assets acquired at a total cost of $3.5 billion.

The Multi Year Tariff Order (MYTO) that governs the financials of the Nigerian electricity market benchmarked the tariff on the assumption that the grid will generate at least 7,000 MW by December 2014.Today, the grid only produces on the average about 3,500 MW daily.

“We had hoped on extra power coming from the NIPPs. But many of these plants do not have enough gas to produce to capacity,” said Sam Amadi, Chairman/CEO of the Nigerian Electricity Regulatory Commission (NERC).