this ranticle is sorta as a result of the replies observed by yours truly on the sanusi-tariff increase matter, some people state that there's no reason to increase tariffs despite the fact that information available shows that power is generated at 10ngn/kwh and is sold to retailers at 6.40ngn/kwh(a loss of 3.40ngn/kwh) and who shoulders this loss?Govt and PHCN, PHCN in that, they are losing revenue that could have accrued to them, govt in that they fund PHCN and yet are still expected to cough up money they dont have to build power stations. Hopefully, after reading this, some of y'all will have a better picture of the mess that is the nigerian power sector, and will come to realise that the problems run deeper than press releases and promises by politicians.

A 1997 world bank implementation completion report on [url=http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/NIGERIAEXTN/0,,menuPK:368923~pagePK:64026187~piPK:141126~sortDesc:DOCDT~theSitePK:368896,00.html]power system maintenance and rehabilitation in nigeria[/url]  a world bank/NEPA/FGN collabo that lasted from 1989 - 1995 states among others that

'The National Electric Power Authority (NEPA), the state enterprise in charge of operating the public electricity system, was in financial difficulty because of limited power to sell, inadequate billing and collection systems, substantial debt and low tariffs.'

meaning that as far back as 22years ago, we(NEPA) were already operating at a loss(would the business folks please explain to us why any business would want to operate at a loss for 22 years) this punctures the claim of those folks that say that govt should produce constant electricity before increasing tariffs. and for those that claim estimated billing, why is it that when people switch from the electromechanical meters[(which by the way haven't been calibrated in close to 20years )<---if you dont know the implications of that. tough luck] they mysteriously become conscious of how long the ACs, boilers etc stay on?

also from the same report

4.  The key factors affecting project performance were devaluation of the Naira and NEPA's lack of actual autonomy from the Federal Government of Nigeria (FGN).  The devaluation affected NEPA's operations.  There were two rates of exchange, one for the Government entities, and one for the public. NEPA was unable to obtain sufficient foreign exchange at the Government rate to support its

operations; it was unable to buy foreign exchange at the public rate because tariffs were not increased. The devaluation reduced the amount of rehabilitation work the project could accomplish because of increase costs per unit and subsequently adversely affected NEPA's finances

so we can establish that, in addition to setting loss-making tariffs for electricity, the government was meddling in NEPAs affairs in ways that affected their efficiency. seeing that since we entered civilian rule we've never had an engineer as minister for power, i'm wondering what training the ministers back then had.

once more. . .

with hindsight, given more than a decade of  experience With FGN reluctance to approach tariff-setting on an economic basis, the Bank should have kept the clause to provide a safety net to help NEPA meet the project's financial objectives.

^what happened here is that the world bank wanted to insert a clause in the agreements that tied the tariffs to fuel costs but the FGN prevailed on them to remove it, and the said financial objectives were to allow NEPA to earn 6-8 percent minimum rate of return on fixed assets in operation,while contributing at least 30 percent of  its annual investment program from internal sources;

men i'm loving this report. . .big time, see how the nigerian government screwed y'all up bigtime(and now y'all will come and be blaming PHCN)

In  1987 the Bank had appraised the Power System Improvement Project, which was to finance an ambitious power system recovery and development program at a total cost in the order of US$900 million. However, the  Bank did not proceed with the project because  Ministry of Mines Power and Steel (MPS) was not taking sufficient measures to grant NEPA sufficient autonomy for it

to operate efficiently. Realizing that it could take a long time for NEPA to obtain this autonomy in practice, the Bank instead decided to take a cautious approach, financing a series of modest size projects (US$75-100 million) and assisting  in NEPA's commercialization. As a first step in this process,  the Bank approved  the Power System Maintenance and Rehabilitation Project (Power VII) in 198 to assist Nigeria in a selective emergency maintenance and rehabilitation program for restoring system reliability.  The project also was to support the commercialization of NEPA

later in the report

Although the Power VIII project was never finalized, it serves as a basis for continued dialogue with FGN on the future of Nigeria's power system.  Proceeding with the project will be contingent on macroeconomic stabilization and the restructuring of the power sector.

in simple english it means nigeria lost $700million-plus because government messed up, and now we're still expecting investors(with plans to profit) to bring their money and invest in the power sector in nigeria abi? we're better off hoping that the catholic church decides to come and invest.

from the same report
However, despite system improvements losses remained high during the project's implementation, about 30 percent of generation

nowadays it's 40% of generation we're throwing away as losses(aren't we large?), oh and by the way while we're talking percentage, reports state that PHCN collects about 51% of revenue due it. . .pretty silly/generous of them right?

and yet again

Many of the system's operational problems had resulted from external constraints on management, the lack of an adequate reward system to motivate staff, and insufficient foreign exchange for spare parts. Other factors which adversely affected performance were: the lack of an adequate preventive maintenance program;

the above means that as at the time the report was written, NEPA staff were not motivated, well things have sure changed now, they're even less motivated and to think back then, nigeria is supposed to have been in a better position.

more on your governments actions

The achievement of the project's institutional objectives was important given  the deteriorating physical state of the system, which stemmed directly from institutional deficiencies and the lack of a solid program for change. Essentially NEPA operated more like a government department than a corporate entity. Often politically expedient measures  overshadowed staff decision making

on how the project went

The main factor that constrained NEPA's performance was the lack of sufficient autonomy from FGN to ensure the timely completion of project components and the utility's ability to meet the project's financial covenants.  FGN did not allow NEPA to increase tariffs to offset increased costs and meet financial objectives.  Also,  FGN did set a much lower level of procurement subject to government approval than agreed under theperformance contract and subjected NEPA to a cumbersome, bureaucratic approval procedure.  According to a performance contract with the Ministry of Mines, Power and Steel (MPS), NEPA was to have authority to award contracts of up to N50 million without MPS approval.  However, in practice NEPA had to seek MPS approval for contracts over N 15 million meaning that the company could not even proceed with relatively small spare parts orders on its own.  In addition FGN required a special form for imports and the waiting period for approval was up to six months. As a result, average time between the order and delivery of parts was about two years.

can anyone tell me how much 15mil back then is now?. . .you've got to love the nigerian government.

on how NEPA performed

The main factors that affected project implementation, which were subject to the control of the Borrower, were the timely, effective implementation of the project's components  and reporting on implementation progress. NEPA established the  Project Implementation Coordination Team (PICT),  as required and kept the PICT in operation throughout the project. NEPA did a good job preparing documents and evaluating bids for the project's goods and services, but unfortunately its attempts at timely implementation were constrained by the bureaucracy of the FGN approval

process. Nevertheless, NEPA's diligence in executing its tasks in the procurement process helped to mitigate project delays. Timely reporting on implementation progress contributed to the quality of project monitoring and to the decision-making process, especially concerning project modifications. The compliance with financial covenants  was originally supposed  to be within NEPA's capability, assuming FGN

provided NEPA with the authority to have an impact in its finances.  However, the lack of sufficient autonomy put compliance with many of the project's covenants outside NEPA's control.

NEPA's perfornance  was satisfactory in project preparation.  NEPA also did a very good job in the implementation of tasks directly under its control such as the preparation and evaluation of bidding documents, and reporting on the projects implementation progress. Despite this satisfactory performance, project implementation was delayed due to FGN's slow procurement process.  NEPA's

compliance with covenants was deficient mainly which the covenants specified. did not meet the financial objectives because the authority from FGN.  However, the lack of compliance was mainly due to inadequate autonomy 

so NEPA hasn't always been the main problem has it?(that is not to say it does not contribute a healthy portion these days)

on the success of the project. . .

The project was satisfactory in preventing total power system collapse and helped initiate the  process of commercializing NEPA.  However, the scale of the rehabilitation effort was lower than anticipated at appraisal; the project did not meet some important financial objectives; and the sustainability of the project's achievements is uncertain. Therefore this ICR rates the outcome as only marginally satisfactory

on the future. . .

According to sound utility practice, supervision reports have indicated that NEPA will need to spend about US$ 100 million annually on maintaining it's generation facilities.  This is a small amount compared to annual losses due to system outages which prior to the project cost Nigeria's economy upwards of US$1 billion annually. However, NEPA's budget allocates virtually no funds for maintenance. Project

experience has indicated that NEPA will not be able to maintain the power system without increased autonomy, restructuring, and privatization of some of the authority's functions.

mennn they painted a very bleak picture o. . .sadly, they were right as one of my favourite pictures will show. . .enjoy