Challenges Following the Privatization of the Nigerian Electricity Sector

Privatization can simply be defined as the transfer of a business, industry, or service from public ownership to a private ownership. The concept of privatization revolves around the government withdrawing from economic activities, in order to confine itself to its traditional functions of maintenance of law and order thus, creating and enabling an environment for private businesses to flourish. Privatization is an important economic strategy as it empowers and encourages private persons to take active roles in the rejuvenation of their economy.

Privatization is an advantageous process for an economy as its main advantage is to generate financial resources for the re-investment of public sector enterprises. As a result of various government’s focus on various parts of a nation, there would most likely be deficiencies and therefore, the private sector would aid by making optimum use of the resources they possess, and efficiently implement them in areas that are lacking.

Since the advent of electric power in Nigeria in 1898, there has been many evolutions and transformation of what it once was to what it is now. In 1962, after the establishment of the Niger Dam Authority (NDA), which was responsible for the construction and maintenance of dams in the River Niger and elsewhere, the power generated was being sold to ECN (Electricity Corporation of Nigeria). This was until a decree in April, 1972 that fused the two authorities into one- National Electric Power Authority (NEPA), which became operational in 1973, and was responsible for generating and distributing power throughout the entire federation. Its operations were relatively smooth until the increase in Nigeria’s population in the 1980’s which led to the power plant facilities being overstretched, and consequently this led to a reform of the power sector with the return of civil rule in 1999, thus, an act was formed towards this goal.

Consequently, the Electric Power Sector Reform (EPSR) Act, 2005, was promulgated. It contained the reforms in the electricity power sector and how they would be implemented with its main goal, aimed towards the full deregulation of the Electricity Supply Industry (ESI) in two (2) years after its implementation. The Act repealed the earlier law establishing NEPA and eventually led to the establishment of the Power Holding Company of Nigeria (PHCN), which was then charged with the responsibility of power supply throughout the country.[1] Despite all the changes and efforts of the Nigerian government, the power sector in Nigeria still persisted until November, 2013, when PHCN was handed over to private investors.

It is important to note that Nigeria is the largest economy in the Sub-Saharan Africa and is endowed with large oil, gas, hydro and solar resources, and has the potential to generate 13,090MW (Megawatts) of electric power, but despite that potential, it is only able to produce a sum of around 4,000MW to 5,000MW which is of course insufficient for a country of about 195 Million people.[2] Nigeria plans to generate 30,000MW of power by 2030, with at least 27,000MW from its power plants, but the power generation still hovers above 5,000MW despite its 13,090MW capacity, before the sector was privatised.

CHALLENGES FACING THE ELECTRICITY SUPPLY INDUSTRY IN NIGERIA.

In 2020, following the wake of the COVID-19 pandemic and the deliberation of a motion concerning Nigeria’s power sector recovery plan, Senate President, Ahmed Lawan remarked that the power sector had failed and called for its review.[3]

Lawan’s views were made as a result of the constant negative public opinion on the inefficiency of the power sector, and its inability to provide long term power to Nigerians since its privatization in November 2013. On the grounds that the project was a failure, Lawan made his remarks during plenary said:

“I think it’s time for Nigeria to consider reversing the privatisation of the power sector, or they should just cancel the entire privatisation process completely.

“The privatisation has so far not been successful. We expected efficiency, effectiveness in power supplies but probably on both sides, maybe the purchase agreements were not adhered to on both sides…. It is not good that we give them money- these are businesses. If the areas we must intervene as a government, it must be seriously justified.”

There has been a number of identifiable problems in the privatised power sector. One of which is Nigeria’s macro-economic environment. Nigeria’s constantly fluctuating and depreciating currency against the US dollar makes it expensive to buy inputs, most of which have to be imported. The state at which the private investors found the prior power infrastructure was old and poorly maintained, and this inhibited progress and power transmission. Properly maintaining such infrastructure and facilities requires huge amounts of capital.

A large number of these investors proceeded to borrow funds as loans from banks, with intent to pay back after the increase in revenue from the power sector but lacking proper financing, they are left trying to pay back their loans rather than trying to reinvigorate the power infrastructure. Even criminal activities in Nigeria have also attributed to the failure of the power sector in Nigeria with criminals vandalising gas pipelines which supply power generating plants.

According to Stears Business, Nigeria’s power sector is affected by constraints in all key areas of the power chain: generation, transmission and distribution. These constraints are broken down into gas, water and grid line shortage.[4]

The problem with these constraints is the low availability of raw materials necessary for their production in these cases gas molecules and water in hydro-dams. These constraints are also a result of inadequate transmission networks, which are the power lines responsible for the transportation of all the energy being created. Insufficient amount of the wires will often lead to system collapses and power outages. Furthermore, most of Nigeria’s power plants need natural gas as fuel to produce electricity, but as a result of the gas constraints, there is a limited amount of power these plants can generate.

There are also various challenges like power theft, inadequate custom metering and estimated billing.[5] Looking at all of our electricity problems, change cannot happen instantly.

CONCLUSION

These challenges call for both the private sector and the government to collaborate and find solutions for them. The government with the position it possesses, could utilise an array of tools that will ensure consolidation and success of privatization. Privatization does not absolve the government from all responsibilities and liabilities. Utilising tools such as loan guarantees, tax expenditure, vouchers can be the much needed crutch needed by the private sector to allow them to be able to properly implement their influence in the energy sector. This in turn can cover up a large number of the nation’s political and economic shortcomings.

The Federal Governments deal with the German engineering firm, Siemens, to rehabilitate and expand the country’s energy transmission network, is also a promising development that could promote a thriving power sector.

REFERENCE

  1. Isa Aminu and Zainab Brown Peterside, ‘The Impact of Privatization of Power Sector in Nigeria: A Political Economy Approach’ (2014) 5 Mediterranean Journal of Social Sciences.
  2. Obsa Esiedesa, ‘Post Privatisation: Nigeria’s Stranded Power Rises 263% to 3,742MW’ (Vanguard News12 January 2021) <https://www.vanguardngr.com/2021/01/post-privatisation-nigerias-stranded-power-rises-263-to-3742mw/> accessed July 2022.
  3. Kingsley Jeremiah, ‘Privatisation of Power Sector and Calls for Reversal’ (The Guardian Nigeria News – Nigeria and World News7 June 2020) <https://guardian.ng/saturday-magazine/cover/privatisation-of-power-sector-and-calls-for-reversal/> accessed July 2022.
  4. Solampie Onifade, ‘Free to Read | Nigeria’s Shaky Power Problem’ (www.stears.co16 September 2020) <https://www.stears.co/premium/article/nigerias-shaky-power-problem/> accessed July 2022.
  5. Okechukwu Marcellus Ikeanyibe, ‘Nigeria’s Post-Privatisation Energy Sector Is a Mess: Here Are Some Solutions’ (The Conversation21 February 2021) <https://theconversation.com/nigerias-post-privatisation-energy-sector-is-a-mess-here-are-some-solutions-155067> accessed July 2022.

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