BUILDING BLOCKS FOR NIGERIA’S ELECTRICAL FUTURE

Despite a population of over 170 million and the largest economy in Africa, chronic lack of electricity prevents Nigeria from achieving its potential economic and social status.  The wide gap between electricity demand and supply adds greatly to the cost of operations by forced reliance on diesel generators at four times the cost of normal grid power as well as major lost work-time.  From a personal standpoint, there is a universal reduction in quality of life due to the lack of dependable electricity to homes and places of work.

Past governments have generally responded to this electricity debacle by announcing new targets for electricity capacity, along the lines of “10,000 MW by the end of the year”.  In the last 15 years, public money spent in the electrical sector has accumulated to nearly $30 billion and two years have passed since the privatization of the Generation Companies (GENCOs) and Distribution Companies (DISCOs).   Yet despite these major efforts, the daily electricity distributed remains almost unchanged between 2500 – 4000MW and Nigerians see little or no improvement.   Electrical capacity has physically increased, only for the owners to discover there is not enough gas to run them.  Even if there was enough fuel, as the Vice President Professor Osinbajo noted recently, the transmission capacity is only about 5000 MW.   

Both before and after privatization, Nigerian electrical supply has been underpinned by two sources:  

• the hydro-power facilities that despite problems with water level, partly due to global warming,  remain a dependable core supplier;
• the dependable operation of the two combined-cycle power plants in the Niger-Delta that belong to two Joint Ventures (JVs) of the International Oil Companies (IOC) and NNPC.   

These two IOC/NNPC power plants have been the workhorses of the existing gas-fired capacity.  With the right policy support, the number and capacity of IOC/NNPC power plants could expand significantly and continue to play a core role in the nation’s electricity. Importantly, several IOC/NNPC JVs already have plans and designs in place to increase the capacity of existing facilities and to build new ones.  The merits of the IOC/NNPC JV power plants derive from several key factors – gas supply certainty, advanced technology, available financing, and extensive expertise.  

First reliable domestic gas supply continue to be major challenge due to the lack of gas infrastructure, often poor maintenance, and deliberate vandalism.   These IOC/NNPC plants avoid these supply problems by being located on the oil block that produces the gas, and the operators provide both the gas supply and the infrastructure to treat and connect the gas to the power plant, thus allowing uninterrupted supply.   Being located within the oil block, on-going maintenance and security are provided by the operators.

Second, the IOC/NNPC operators are technologically advanced companies, expert in the design and implementation of major capital investments.  These companies have chosen to use combined cycle gas technology that use one third less gas to produce a kWh of electricity – thus reducing both gas needs as well as carbon and local emissions.  While combined-cycle gas power plants are the international norm, only one other power plant in the country uses this level of technology.  A priority for the country should be to build the electrical infrastructure to be in line with best international standards, which allows for major benefits to economic well-being and long-term competitiveness.

Third, while many of the new GENCOs have financing constraints, IOC/NNPC JVs have a much stronger financial balance sheet that allows them to fund new, high-quality investment in the electrical generation sector.  Indeed to ensure that the electrical capacity can be utilized, some of these JVs are willing to undertake substantial investments on transmission facilities to secure that power from these lines reach the grid.

Finally, these companies have the experience as well as the procedures and capacity in-place to implement such projects on a timely and reliable basis.   They routinely manage multiple large-scale projects of this magnitude.   Given that such projects require negotiations and contributions from a wide range of international companies both technical and financial, a large global presence is a distinct advantage.

There is no easy fix to Nigeria’s power dilemma and a proper response needs to be wide-ranging and multi-faceted.  The country has moved in the right direction with the Electric Power Sector Reform (EPSR) Act of 2005 and the creation of the Nigerian Electricity Regulatory Commission (NERC), have been a major steps.  The privatization process, which saw the emergence of the GENCOs and the DISCOS, is clearly positive.   These policies have encouraged other meaningful, privately-owned systems, for example one company in the Delta which has integrated gas supply with transmission infrastructure and entered into firm contracts with power producers.   The on-going initiative on embedded power in Lagos State is another useful example.  The new owner of one of the GENCOs in Delta State has almost tripled  generating capacity within the first six months of operations, showing that some new entrants can act decisively.  Renewables such as solar could have an important space, if given the right policies and incentives.

Meeting the electricity demand in the country has to be built on the foundation of a conductive investment environment that supports and builds a modern, efficient electrical system.  The IOC/NNPC JVs are one group of private actors that has contributed substantially to the electrical sector and could contribute substantially more.  The Government needs to be pro-active toward these companies, indeed all companies, in the policies and incentives put in place to ensure a positive investment framework and ensure that implementation occurs in the timeliest manner.