[b]Power Progresses Steadily Amid Gas, Labour Challenges
Minister of Power, Prof. Barth Nnaji

With unprecedented investor confidence, buoyed by transparent reform process, Ejiofor Alike writes that the power sector progressed steadily in the first half of this year, amid challenges

Nigeria’s power sector has no doubt, progressed steadily since August 26, 2010, when President Goodluck Jonathan launched a roadmap for the sector and also resuscitated its reform, in line with the Electric Power Sector Reform Act of 2005.

During the first half of 2012, under review, there was a leap in the quantum of completed projects, as well as unprecedented show of confidence by local and foreign investors, jostling to buy the power assets slated for privatisation.

A transparent reform process packaged by the Bureau of Public Enterprises (BPE) and the huge potentials of Nigeria’s power sector accounted for the increasing appetite of the local and foreign investors for the assets, with over 330 reputable entities jostling for the assets.

Under the power roadmap, the complete winding up of PHCN was slated for December 2010, while the handover of the six generation companies of PHCN to the preferred bidders was scheduled for April 2011.

Successful investors also ought to have taken over the 11 distribution companies by June 2011, while April 2011 was the deadline for the handover of the Transmission Company of Nigeria (TCN) to a management contractor.

Though the 18 companies were successfully unbundled, the BPE had to reschedule the sale of the 17 successor companies from March 2012 to October 2012, being the third time the sale would be postponed.

The half year under review also witnessed the completion of some of the 10 power stations, under the National Integrated Power Project (NIPP).

Managing Director of Niger Delta Power Holding Company, operators of the NIPP, Mr. James Olotu told THISDAY that NIPP started in 2004 as a special intervention of the three tiers of government to tackle the power deficit “having realised that without power, there will be no potentials to be unleashed for the people of Nigeria to go out to develop.”

“Today, through that effort we have 10 medium-sized power plants at various stages of completion. We also have over 8,000 kilometres of transmission lines- 330/132kv and various substations to boost power supply.

“We have about 295 distribution sub-stations, with again, up to about 5,000kilometres of distribution lines to boost the power infrastructure of Nigeria and create enabling environment for business and social welfare of the people, so that very soon, Nigeria will take its rightful position in the comity of nations” he said.

Review of Tariff
A major development in the country’s electricity industry in the first half of 2012 was the review of tariff, which took effect from June 1.

Under the new tariff, lower categories of consumers are now paying between N4 and N22 per kilowatt hour, depending on the class, pending the introduction of cost-reflective tariff. (TO BOX AND SHADE).

The Nigerian Electricity Regulatory Commission (NERC) said the average cost of energy is N24 per kilowatt hour.
The new tariff was calculated based on the cost of maintenance of meters, replacement of transformers, expansion of facilities and the average cost of the total quantity of electricity to be consumed yearly for the next five years.

However, N50 billion subsidy will be provided yearly for the lowest-paying customers –Residential (R1); R2 and Commercial (C1) customers in 2012 and 2013.

The new tariff provides that R1 customers will be paying N4 per kilowatt, as against N7 and N10, while the R2 customers, which constitute about 80 per cent of the consumers, pay between N11.50 and N12.30, depending on their location.

Commercial 1 (C1) customers, who are artisans and small and medium scale entrepreneurs, are also enjoying subsidy and paying between N15.64 and N17 per kilowatt hour. It is believed that this group contributes most of the household income and a huge energy bill will be a major challenge to them.

However, R3 and R4 customers, who have maximum demand meter and also take electricity supply direct from transformers pay slightly above the average cost of energy to further subsidise the R1, R2 and C1 customers.

Electricity Supply
Electricity supply improved considerably at the beginning of the year before it nose-dived due to low water level at the hydro-power stations and inadequate gas supply to fire the power plants.

Minister of Power, Prof. Bart Nnaji told THISDAY that the maximum power delivered to the national grid during the period under review was 4,400megwatts.

“The maximum of delivered capacity is about 4, 400 megawatts, which we attained in January. That is a record, all time. Unfortunately, we went down because of water and gas. Transmission network has been expanded significantly over this period. Privatisation process is scheduled and will complete this October. The bids will come this July, and Mr. President has given instruction that there should be no shaking in terms of the timeline. It must complete,” he said.

Chairman of NERC, Dr. Sam Amadi, told THISDAY that the worst time for a minister of power or a regulator of the power sector in Nigeria is the period around April and May when there is usually low water level at the hydro-stations, coupled with inadequate gas supply to run the gas-fired plants.

He said these twin challenges would make it difficult for a minister or a regulator to explain and defend the epileptic power situation during this period.

Nnaji also described the water level during this period as a cycle and natural phenomenon. “Every year; by March and April and part of May, you have low deep. Unfortunately for us this year, in ten years we have the lowest water level because of drought, especially since we have not been able yet to produce gas to support the thermal power plants so that we will be able to take up that slack when power goes down because of hydro.

“One thing I can promise you: next year you will never see this. We are making sure that by next year; you have enough gas to support additional capacity at the plants so that we have what we call spinning reserve, or reserve, so that they will be able to take over when the water level drops. So this is in the plan. So, Mr. President’s objectives are very clear in this,” he said.

Challenges
Apart from the problem of low water level and inadequate gas supply, the power sector also faced the challenges arising from the resistance of the labour unions to the reform.

An energy and investment adviser to some of the core investors, as well as Lagos-based lawyer, Mr. Iseoluwa Abiodun-Johnson, told THISDAY that conducting due diligence was a tough exercise for the core investors because of the hostility of the workers.

He noted that the BPE tried its best to make relevant documents available to the core investors but that the workers made it difficult for investors to gain access to PHCN facilities, adding that even the Federal Government’s due diligence advisers faced similar challenges.

“Going on site visit, the BPE had to take armed security agents. That hostility on the side of the workers, to me, is ill-advised because the workers are going to be the greatest beneficiaries of the reform. The core investors will pump in money; pay huge salaries and improve the ways of doing business because they want results,” he said.

There is also the issue of PHCN’s heavy indebtedness, as its failure to settle its N88.7 billion debts to gas and power suppliers apparently derailed the process.

However, electricity consumers across the country are also indebted to PHCN to the tune of N110billion, with government agencies accounting for substantial chunk of this debt.

There is also concern that the successor companies are not being run as separate entities, contrary to the provisions of the Electric Power Sector Reform Act.

“Even though the 18 companies have been unbundled from PHCN, they are still being operated as units of PHCN and not as independent companies as EPSR Act 2005 stipulated. In the course of conducting due diligence, many of the documents required by the investors were obtained at the head office, instead of at the individual companies,” said one of the prospective investors.

Nnaji, however, said the government was moving very well with the labour unions, adding that the milestones would all be met.

“Agencies are fully operational and funded. There is total value alignment as I have talked about. Power now is moving towards willing buyer willing seller, a business, rather than just a pure social service, which cannot deliver power to everybody. The target of ownership structure is very well defined, and we are moving very well with the labour unions,” he said.

To address the labour issues, which is one of the requirements of the EPSR Act of 2005, President Jonathan’s administration paid electricity workers all arrears of monetisation, which was denied them for seven years, even after their counterparts in the civil service were paid.

Government had earlier appointed a Chief Negotiator in the person of former President of the Nigeria Labour Congress (NLC), Alhaji Hassan Sunmonu, to dialogue with the workers.

The workers also enjoyed 50 per cent increase in their salary with effect from June 2011, while the process of regularisation of the appointment of nearly 10,000 casual workers had commenced.

The National Power Training Institute of Nigeria (NAPTIN) in Abuja was also resuscitated, with the ministry of power seeking N4billion from the 2012 budget to be injected into the institution for training manpower for the industry.

But despite repeated assurances by the government that the reform would open enormous employment and business opportunities like in telecommunications following its liberalisation, trade unionists in the sector have insisted that it would lead to job losses.