Power Sector Reforms in Nigeria
Electricity generation, transmission, and distribution is carried out by a public utility, National Electric Power Authority (NEPA) established in 1972.
Over the past decade, electricity supply in the country has been characterized by low installed capacity, inadequate, irregular and unreliable electricity supply.
Some of the problems encountered by NEPA included the huge supply-demand gap, aging infrastructures and workforce and lack of appropriate investment in network capacity development and expansion.
 In a bid to revive the ailing electricity sector, the government in 2002 adopted the Nigerian Electricity Power Policy which laid the framework for the drafting of a legal reform for the sector and recommended the development of a wholesale electricity market and establishment of an independent sector regulatory agency.
The implementation of the National Electricity Power Policy by the government culminated in the enactment of the Electricity Power Sector Reform Act in 2005. The legislation seeks to restructure the electricity sector by removing government control of the sector, privatization of NEPA and enabling private companies to participate in the generation, transmission, distribution and supply of electricity.
It also establishes a regulatory authority, National Electricity Regulatory Commission (NERC) whose main duties are the licensing of private companies to engage in electricity generation, transmission and distribution and the setting of rules, structures and standards in the sector.
The basic aim of the reforms is to attract foreign and private equity investment into the network capacity development of the sector.
Implementation of the reforms began with the unbundling of NEPA in May 2005 and transfer of its assets, liabilities and staff to a holding company, Power Holding Company of Nigeria (PHCN) incorporated in 2005.
A total of 18 successor companies are expected to emerge from PHCN assets at the end of the reform programme, broken down as follows:
- Six generation companies (GENCOS)
- Eleven Distribution companies (DISCOS), and
- One Transmission company
These companies will take over the assets, liabilities and staff of PHCN at the end of the unbundling process of the company and will be managed based on investment agreements signed with the government, with the government retaining some equity shares in these companies.
The GENCOS are to be managed on a 25 year concession agreement by private investors while the DISCOS and transmission company are to be managed based on a minimum 51 percent core investor agreement.
What is the growth percentage of the Nigeria power sector ?
The GENCOS comprise of four gas-fired thermal plants in Ughelli, Geregu, Afam and Sapele; and two hydro plants in Kainji and Shiroro which were all previously owned by the government but will now be privatized and managed by private investors.
The country is divided in eleven distribution zones with one DISCO managed by a private investor for each zone.
The government has lined up several incentives to lure private investors to invest in the sector. These include-
i. New Commercial Multi-year Tariff Order (MYTO)
ii. Five year tax holiday for the private investors
iii. Duty exemption for equipment for gas fired GENCOS
iv. Partial Risk Guarantees (PRGs) for all GENCOS
v. DISCO tariffs to be supported by PRGs
The timetable for the completion of the reform process indicates that all bidding and negotiations for privatization of the GENCOS and DISCOS would be completed in December 2011/January 2012.
While it is still early days to analyze or forecast the success or otherwise of the reform programme of the government, based on the implementation of the project so far, there is little doubt that the restructuring process will significantly transform the electricity sector and improve access to electricity in the country in view of the planned expansion of grid networks and distribution lines incorporated in the reform plans which will ensure quality supply of electricity at fair, just and cost-reflective tariffs in accordance with the sustainability objectives of access to electricity.
- S. Amadi, “NERC: Unbundling the Nigerian Electricity Sector: Update on Economic Regulation” paper presented at the African Energy Forum, Paris 2011
- National Electric Policy Plan, 2002 www.nercng.org accessed on 13th January 2012 at 16:25 GMT
- Electricity Power Reform Act, 2005, Laws of the Federation of Nigeria 2005
- NERC 2010, www.nigeriaelectricityprivatization.com last accessed on 13th January 2012 at 18:45 GMT
© 2014 Abba Elijah aka elijagod