The Nigerian power sector reform journey and the Jonathan legacy

By BEKS DAGOGO-JACK

In 2010 former President Goodluck Jonathan, instead of making himself the Minister of the most juicy Ministry of Petroleum, just as all others before and after him  did, rather chose to be the Minister of Power, knowing all the challenges waiting for him there. He chose to take full ownership. This is what leaders do. 

President Jonathan didn’t start the National Power Reform. President Olusagun Obasanjo did by passing the EPSRA( Electric  Power Sector  Reform Act) 2005 as well as the NIPP (National Integrated Power Programme) by Executive Order. President Obasanjo, relying on the EPSRA 2005, started the process of unbundling the vertically integrated monopoly called NEPA into 11 successor companies across the value chain and was preparing to transit the industry to the private sector before his tenure ended. Also relying on the NIPP executive order, Obasanjo set up the NDPHC(Niger Delta Power Holding Company), a Special Purpose Vehicle, SPV, formed using funds from the Excess Crude Account with equity shares alloted to the States and Local Government Areas, LGAs. 

The broad KPIs for this SPV were:

a) Add a fresh generation capacity of 4,775MW; 

b) Boost the transmission wheeling capacity by not less than 5,000MW, covering additional substations, kilometres of 330/132Kv HT projects, equally expansive distribution uptake capacity expansion projects and even several gas pipelines renewal/extension as well as gas processing/metering upgrade projects. 

3) Unfortunately, President Obasanjo left in 2007, less than two years into his Power Reform journey. President Umaru Yar’Adua came on board, and not only did he immediately suspend the reform programme, he instituted a probe panel to investigate allegations of fraud in the reform. A probe which eventually found no one guilty! …Yet had a disastrous impact on the reform:  All the ongoing NIPP projects got suspended. Vendors and contractors who had collected millions as mobilisation, abandoned their sites and commitments. Meanwhile, Nigeria was at this period struggling to deliver just over 1,500MW of grid power, whilst generator importers held our economy by the jugular. From “I pass my neighbour” units to industrial grade gen-sets all over the country, a situation only bearable, then, partly because of the very low diesel cost at the time. 

Enter President Jonathan in 2010: 

Having taken up the job of Power Minister, as I had said, a rare step amongst Nigerian politicians, who typically would prefer to take charge of the juicy Petroleum Ministry than the Ministry of Power, with all its problems.  

President Jonathan met the power sector at probably its most daunting stage with the following as key highlights: 

a) The major thermal generating plants had lost over 65 per cent of installed capacity/productive capability due to years of poor maintenance. This included Egbin, Ughelli, Afam and Geregu 1 Power Plants

 b) The same was true for the hydro power stations like Shiroro, Jebba and Kainji. 

c) Grid power was at a very unreliable yet abysmally low level, hovering between zero and 1,500MW. 

d) The power utility and its statutory institutions and agencies were draining billions annually from the Federal budget to service payroll, repair frequent grid collapses,  award and abandon several poorly budget-funded infrastructure projects every year, etc. 

e) Bearing in mind the miserably low energy received against the huge bureaucratic costs as well as the capital/operational cost of the generators, Nigeria’s average unit cost of energy when President Jonathan came on board was  probably the most expensive and wasteful in the whole world. 

d) President Obasanjo’s reform was already scuttled by his successor: all ongoing NIPP projects derailed and even the newly appointed Chairman of NERC, the industry regulator, got sacked before Jonathan arrived. Reform for all intents and purposes had been grounded. 

This was the setting President Jonathan met and chose to tackle as the Minister of Power, in addition to his already loaded presidential duties. 

President Jonathan proceeded to tackle this challenge as follows: 

He made necessary amendments to the enabling act. 

He appointed a new regulator. 

He reactivated the suspended NIPP projects and released funding. He inaugurated the Presidential Task Force on Power, PTFP, first headed by Professor Bart Nnaji and later by my humble self and charged the Task Force with the responsibility to conclude the reform and privatisation of the sector. The PTFP was the engine room driving the reform. It worked round the clock. 

He inaugurated the Presidential Action Committee on Power, PACP, which he chaired to provide instant de-bottlenecking of any cross-sector, inter-ministerial hurdles confronting the reform. 

The PACP was the troubleshooting/”war” room of the reform where the President and his team got accurate progress brief and cleared all hurdles to progress. It met every two weeks unfailingly with Mr President as Chair. 

The PTFP set and achieved the following critical reform milestones:

i) Recover as much of the lost generation capabilities it met, from the thermal and hydro plants and bring up grid power to between 4,000-5,000MW by 2012 (less than two years into its inauguration). 

By Dec 2012, this was achieved: 4,800MW and 300MW in spinning reserve. 

ii) Complete the construction of all the NIPP power plants by 2014 (under four years from its inauguration). 

By Q4 2013, NIPP completed and commissioned over 70 per cent of the 4,775MW of new generation projects. This brought the total generation capacity available to the grid to over 9,000MW and heading past the 10,000MW threshold as some ongoing projects got completed in Q2 2014/ Q1-2015. 

iii) Negotiate with the NLC (The Nigeria Labour Congress) to accept the eventual privatisation of the Generation and Distribution assets, agree on the comprehensive severance packages for all employees in order to give the new investors a clean slate, with no labour baggage after taking over the assets. 

This most tortuous, frustrating and painstaking operation was successfully delivered just in time for the sale and handing over of the GenCos and DisCos in December of 2013. 

iv) In close collaboration with the National Council on Privatisation and the Office of the Vice President, which engaged a world class transaction advisory firm, conduct a transparent international bid process for the sale of the GenCos and DisCos as well as engage Manitoba Hydro of Canada as Management consultants for the TCN (Transmission Company of Nigeria). 

This milestone was also successfully delivered to the acclaim of several international observers and opened the gateway for new Foreign Direct Investment inflow into the sector to turn around our supply deficit situation for the better. Sadly we missed the opportunity. 

v) Establish, capitalise and operationalise the Nigerian Bulk Electricity Trading Co. NBET as the credit guarantor between the new DisCo owners and the GenCos to cover any Disco market settlement shortfall and control market debt from spiralling out of control, which eventually happened mainly because the Buhari administration, much like Yar’Adua’s, for reasons best known to them,  also decided to abandon the reform at its most vulnerable and tender stage. 

vi) Fully operationalise NERC, the regulator,  to set and monitor the market rules, exert discipline across market operators, set the MYTO ( Multi Year Tariff Order) regime, call out and punish defaulters, review the performance of licensees and the efficiency of existing licence jurisdictions, etc.  

By the end of the Jonathan administration, Nigeria had succeeded in putting in place a globally credible foundation for attracting sustained and accelerated inflow of foreign direct investments that could have guaranteed a minimum increase of 1,000Mw onto our grid per year.* 

Unfortunately, during the Buhari administration, NERC was derobed, its powers thoroughly compromised and treated as an appendage of the Ministry of Power. 

This singular action was enough to scare away any new private sector investment interest in the sector such that the Buhari administration failed to attract even one new cent of FDI to the sector. 

In fact, it can be argued that the administration, rather than closely monitor and guide the reform as was expected of it on assumption of office, seemed to prefer squandering trillions settling market debts accumulated as result of its failure to do the right thing at the right time. 

In Summary: 

Our industries have the capacity to pay cost reflective tariff which is the basic requirement for sustained private sector interest. Credible and independent regulatory regime is the next.

A good percentage of the population have the capacity to pay competitive tariff as has been proved in the current Band tariff dispensation. 

Nigeria is a very large, hugely untapped electricity market waiting to be fully exploited profitably by the private sector, but government must be ready to offer the same environment, incentives, creativity and commitment that we saw in the telecom sector. When we as a nation, as a government and also as citizens, stop deceiving ourselves and start telling ourselves the truth, the scales will fall off our eyes and the truth shall set us free.

• Alabo Beks Dagogo-Jack was Chairman, Presidential Task Force on Power, during the Goodluck Jonathan Presidency

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