RESOLVING THE POWER SECTOR IS ENIGMA

   RESOLVING THE POWER SECTOR
                       IS ENIGMA

Electricity supply is considered the most critical impediment to the achievement of the Vision 20:2020 target of double digit growth and reduction of poverty to the barest minimum. The wide gap in electricity supply vis-a vis demand is one of the leading issues in the on-going effort to move the economy towards the desired state of development. There was a rapid decline in electricity power supply from an average of about 5000MW (megawatts) in the mid 1970s to less than 4000MW by 2014 or even down to barely 3000MW (April2017) compared with the current estimated demand  of 15000MW.

The situation of increasing gap in electricity demand and supply was exacerbated by the demand on account of the rapidly increasing population (growth rate of about 3per cent per annum) and the rising incidence of urbanization from the estimated twenty to twenty-five per cent in the early 1970s to the 2002 World Bank estimate of about forty-five per cent. One clear manifestation of the growing disequilibrium in the demand/supply scenario was the persistent increase in the demand for private power generating plants by households, private sector establishments and governments at all levels. Total self-generated electricity was estimated at about 8000MW or about three times the amount of electricity being fed into the national grid system.

Appropriate pricing has been identified as the most critical issue of the electricity supply industry (ESI). Energy Commission of Nigeria estimated the average cost of electricity supply at about N12 per kilowatt  hour compared to the prevailing tariff regime that ranged fom N6.0  for the lowest category of residential consumers with single phase metre to an average of N15.8 for the commercial user. The Manufacturers Association of Nigeria (MAN) currently pays N26/kwh  vis-a-vis the cost – reflective tariff  of N104.35/kwh under the prevailing exchange rate regime. There is an on-going programme for deregulation and privatization of Nigeria’s electricity since the previous regime of government control could not deliver adequate and uninterrupted power supply.

The issue of cost-related electricity pricing had been a subject of debate in Nigeria over the years. In the vicious circle scenario: the high incidence of dependence on government subsidy by PHCN was a major cause of its poor service delivery and the latter gave rise to social and political resistance to measures to close the wide gap between electricity tariff and the cost of production.

In the spirit of a deregulated market, a power generating company would be free to determine the amount of electricity to be delivered to the wholesale market which currently operates within the Multi- Year Tariff Order (MYTO) under the supervision of National Electricity Regulatory Commission (NERC) and the amount to be sold to large corporate entities and high profile consumers at bilaterally negotiated prices similar to what currently obtains in Europe and the USA. The same would apply to each distribution company. The TCN will also be free to make its services available to both the generating and distribution companies based on the wholesale pricing arrangement under the MYTO framework and the negotiated transmission charges with independent energy producers. The scenario is a modified version of the dualized pricing system in India which allows privately owned electricity generators to make stipulated level of return on their investments in designated urban centres. Nigeria under the MYTO arrangement was still a far cry from this scenario as operators with good prospects were made to subsidize markets with poorer prospects under the guidelines provided by NERC.